Unitil Corporation 2020 Form 10-K Summary
Business context and reporting period
Unitil Corporation is a regulated utility holding company serving approximately 192,651 electric and natural-gas customers in New Hampshire, Massachusetts and Maine. The filing covers the fiscal year ended December 31, 2020; the source also provides fourth-quarter information but is not a standalone quarterly filing. Operations are primarily regulated electric and natural-gas distribution, supplemented by an interstate natural-gas pipeline business. The company had $1,193.2 million of net utility plant and 512 employees at year-end.
Financial performance, cash flow and capitalization
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Operating revenue | $418.6 million | $438.2 million | Down $19.6 million |
| Operating income | $71.4 million | $73.1 million | Down $1.7 million |
| Net income | $32.2 million | $44.2 million | Down $12.0 million |
| Diluted EPS | $2.15 | $2.97 | Down $0.82 |
| Operating cash flow | $75.7 million | $104.9 million | Down $29.2 million |
| Capital expenditures | $122.6 million | $119.2 million | Up $3.4 million |
| Long-term debt, net of current portion | $523.1 million | $437.5 million | Up $85.6 million |
| Short-term debt | $54.7 million | $58.6 million | Down $3.9 million |
Operating margin was approximately 17.1% and net margin approximately 7.7% in 2020. Adjusted gross margin, a non-GAAP measure excluding depreciation and amortization from gross margin, was $215.5 million, or approximately 51.5% of revenue, compared with $215.0 million in 2019. Gas adjusted gross margin was $122.6 million and electric adjusted gross margin was $92.9 million.
Cash used in investing activities was $122.6 million, primarily for utility plant additions. Financing activities provided $47.7 million, including $99.7 million of long-term debt issuance, partly offset by debt repayments and $22.6 million of dividends. Cash and cash equivalents were $6.0 million at year-end.
The $120.0 million revolving credit facility had $54.7 million of borrowings, $0.1 million of letters of credit and $65.2 million of availability at December 31, 2020. Unitil was in compliance with its debt covenants, including the credit-facility funded-debt-to-capitalization limit of 65%. Credit ratings were BBB+ from S&P; Moody’s ratings were Baa2 for Unitil and Granite State and Baa1 for the principal distribution utilities.
Material changes versus the prior comparable period
- Net income and diluted EPS declined primarily because 2019 included a $9.8 million after-tax gain from the divestiture of Usource. Excluding that gain, 2019 net income was $34.4 million, making the underlying year-over-year decline smaller.
- Gas adjusted gross margin increased $0.4 million despite a 7.5% decline in gas therm sales. Higher rates and customer growth offset the effects of warmer weather and lower commercial and industrial demand related to COVID-19.
- Electric adjusted gross margin increased $1.0 million. Residential usage rose 6.5%, while commercial and industrial usage fell 4.5%; total electric sales were essentially unchanged.
- Management estimated that warmer-than-normal weather reduced 2020 net income by approximately $3.1 million and the COVID-19 pandemic reduced it by approximately $1.4 million.
- Operating cash flow fell because working capital was a $15.3 million use of cash in 2020 versus a $13.9 million source in 2019, particularly reflecting accounts receivable and accrued revenue changes.
- Long-term debt increased following $99.7 million of issuances, including new 2040 debt at Northern Utilities, Fitchburg and Unitil Energy. The company also repaid $24.8 million of long-term debt.
- The annual dividend increased from $1.48 per share in 2019 to $1.50 per share in 2020. In January 2021, the board declared a quarterly dividend of $0.38 per share, implying an annualized rate of $1.52.
Guidance, outlook, commentary, risks and unusual items
Management projected 2021 capital spending of approximately $135 million to $140 million. It stated that operating cash flow, borrowing availability and access to long-term debt markets should be sufficient to fund working capital, operations and planned capital investments. No specific earnings or revenue guidance was provided.
- COVID-19 caused lower commercial and industrial demand, higher bad-debt expense and additional operating precautions. Management reported no pandemic-related service disruption through the filing date. Regulatory proceedings concerning recovery of pandemic-related costs remained pending.
- The company relies on rate-regulated accounting, including $164.7 million of total regulatory assets and $49.8 million of regulatory liabilities at year-end. Recovery depends on future regulatory decisions.
- Major contractual obligations totaled $1,501.1 million, including $535.4 million of long-term debt, $387.8 million of associated interest, $556.2 million of gas supply commitments and $15.6 million of electric supply commitments.
- Retirement benefit obligations were $162.3 million, up from $141.9 million. The company contributed $4.7 million to its pension plan and $4.2 million to voluntary employee benefit trusts in 2020.
- Key regulatory matters include approved rate increases in Maine, Massachusetts and for Granite State; pending recovery of certain customer-information-system costs; Massachusetts proceedings related to decarbonization and offshore-wind contracts; and COVID-19 cost-recovery proceedings.
- Principal risks include adverse rate decisions, inability to recover supply, storm, environmental, pension or pandemic costs, weather volatility, interest-rate and refinancing risk, cyberattacks, operational accidents, labor disruptions and long-term changes in energy demand or climate policy.
- The company reported no material unresolved legal proceedings or material subsequent events. Deloitte & Touche issued an unqualified audit opinion and concluded that internal control over financial reporting was effective.
Important facts for investors to verify
- Reconcile 2020 earnings with and without the 2019 Usource divestiture gain to assess underlying earnings growth.
- Review regulatory-asset recovery assumptions, especially pandemic-related bad debt, retirement benefits, environmental costs and energy-supply balances.
- Assess leverage and refinancing needs, including $8.8 million of scheduled long-term debt repayments in 2021 and $482.3 million due from 2026 onward.
- Evaluate whether planned 2021 capital expenditures of $135 million to $140 million can be funded while maintaining dividends and covenant compliance.
- Monitor commercial and industrial demand, weather-normalized gas volumes, customer bad debts and the sustainability of rate increases.
- Review pending Massachusetts renewable-energy, decarbonization and COVID-19 proceedings for potential effects on costs, rates and contractual obligations.