Unitil Corporation 10-Q Summary
Business Context and Reporting Period
Unitil Corporation is a regulated utility holding company distributing electricity and natural gas in New Hampshire, Massachusetts, and Maine, with an interstate gas transmission subsidiary. Its distribution utilities serve approximately 107,700 electric customers and 86,600 gas customers. This unaudited Form 10-Q covers the three and nine months ended September 30, 2022, compared with the corresponding 2021 periods.
Key Financial Metrics
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Total operating revenue | $110.2 million | $98.1 million | $401.7 million | $333.5 million |
| Operating income | $7.2 million | $7.2 million | $54.9 million | $51.4 million |
| Net income | $0.5 million | Less than $0.1 million | $26.9 million | $21.6 million |
| Basic and diluted EPS | $0.03 | Less than $0.01 | $1.68 | $1.42 |
| Cash provided by operating activities | Not separately provided | Not separately provided | $82.7 million | $95.9 million |
| Capital expenditures | Not separately provided | Not separately provided | $82.5 million | $81.5 million |
- Electric operating revenue increased 15.6% in the quarter and 20.3% year to date, while gas operating revenue increased 5.8% and 20.6%, respectively. Much of the revenue increase reflected higher pass-through energy costs and rates.
- Electric adjusted gross margin, a non-GAAP measure, increased to $28.4 million in the quarter and $76.6 million year to date, up 11.8% and 4.4%, respectively.
- Gas adjusted gross margin increased to $20.4 million in the quarter and $100.6 million year to date, up 5.2% and 9.1%, respectively.
- Combined GAAP gross margin was $32.2 million in the quarter and $130.3 million year to date, compared with $30.0 million and $121.1 million in the prior-year periods.
- O&M expense increased 11.4% in the quarter and 8.4% year to date, primarily due to higher utility operating, labor, and professional costs. Depreciation and amortization increased 12.2% in the quarter and 5.4% year to date.
- Net interest expense was $6.6 million in the quarter and $19.1 million year to date, compared with $6.5 million and $19.5 million, respectively.
- At September 30, 2022, cash and cash equivalents were $7.9 million, net utility plant was $1.304 billion, total assets were $1.579 billion, and total stockholders’ equity was $458.8 million.
- Long-term debt, net of issuance costs, was $501.3 million, including a current portion of $8.2 million. Short-term debt was $72.0 million.
- The company paid $18.9 million of common dividends during the first nine months and declared a quarterly dividend of $0.39 per share, equivalent to a $1.56 annualized rate.
Material Changes Versus the Prior Comparable Period
- Nine-month net income rose $5.3 million, or approximately 24.5%, and EPS increased from $1.42 to $1.68 despite a higher average share count.
- Operating revenue increased $68.2 million year to date, primarily because of higher electric and gas rates, higher commodity costs passed through to customers, and increased gas sales during colder winter weather.
- Nine-month operating income increased $3.5 million, as stronger adjusted gross margins and lower net interest and retirement benefit costs more than offset higher O&M, depreciation, and tax expenses.
- Electric kWh sales increased 1.0% in the quarter and 0.4% year to date. Gas therm sales declined 1.8% in the quarter but increased 2.5% year to date.
- Revenue decoupling expanded materially: substantially all electric sales became decoupled effective June 1, 2022, and approximately 43% of annual gas sales volumes were decoupled as of August 1, 2022.
- Unitil entered into a new $200 million revolving Credit Facility on September 29, 2022, replacing the prior $120 million facility. At September 30, $72.0 million was outstanding and $128.0 million was available.
Guidance, Outlook, Risks, and Unusual Items
The filing does not provide explicit earnings or financial guidance. Management stated that operating cash flow, available borrowing capacity, and access to debt and equity markets should be sufficient to fund working capital and capital investment needs.
- The new Credit Facility matures in September 2027, subject to potential one-year extensions, and includes a covenant limiting funded debt to capitalization to 65%. The company was in compliance at September 30, 2022.
- Short-term borrowing costs increased materially as average short-term borrowing rates rose to 3.6% in the quarter and 2.4% year to date, compared with 1.2% in the corresponding 2021 periods.
- Primary risks include regulatory decisions affecting rate recovery and authorized returns, interest-rate increases, weather variability, energy commodity prices, severe storms, cyberattacks, supply or service disruptions, environmental obligations, pension funding needs, climate-related regulation, and access to capital.
- Pending regulatory matters include Fitchburg requests to recover property-tax-related exogenous costs, Massachusetts offshore-wind contract approvals, grid-modernization proceedings, and ongoing decarbonization policy discussions.
- The company recorded $1.5 million of deferred property-tax-related costs for which recovery is considered probable. It also accrued $0.8 million for estimated remediation costs at the Rochester, New Hampshire manufactured-gas-plant site.
- Outstanding guarantees related to energy and gas storage management contracts were approximately $1.6 million and had durations of less than one year. Gas obligations under asset-management agreements were $23.4 million at September 30, 2022.
- The company reported no material changes to the risk factors in its 2021 Form 10-K, no material legal proceedings expected to affect financial position, and no material subsequent events through the filing date.
- COVID-19-related utility service continued without disruption, and approved recovery of certain pandemic-related costs was incorporated into customer rates.
Important Facts for Investors to Verify
- Confirm the effect of recently approved New Hampshire electric and gas rate increases, step adjustments, and expanded revenue decoupling on recurring margins and cash flow.
- Monitor the $200 million revolving facility, variable-rate borrowings, refinancing requirements, and compliance with the 65% funded-debt-to-capitalization covenant.
- Assess whether higher labor, professional, property-tax, depreciation, pension, and environmental costs are fully recoverable through future rates.
- Review the timing and outcome of pending Massachusetts regulatory proceedings, including offshore-wind contracts, grid modernization, decarbonization policy, and Fitchburg exogenous-cost filings.
- Reconcile operating cash flow of $82.7 million against $82.5 million of capital expenditures and $18.9 million of dividends to evaluate funding needs.
- Distinguish pass-through revenue growth from sustainable rate-base and customer-growth-driven earnings growth.
- Track weather-normalized gas demand, customer additions, commodity prices, and the impact of decoupling on future volume sensitivity.