Unitil Corporation FY2021 Form 10-K Summary
Business context and reporting period
Unitil Corporation is a regulated utility holding company serving New Hampshire, Massachusetts and Maine. Its subsidiaries distribute electricity and natural gas to 194,275 customers and operate an 86-mile interstate natural gas transmission pipeline. The filing covers the fiscal year ended December 31, 2021; the provided “2021 Q4” metadata refers to the fourth quarter within the annual filing, but the principal financial results are reported for the full year.
- Electric customers: 107,680; natural gas customers: 86,595.
- Net utility plant: $1,257.2 million.
- Operations are substantially regulated and recover approved energy supply costs through pass-through and reconciling rate mechanisms.
Financial performance and key metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Operating revenue | $473.3 million | $418.6 million | 13.1% |
| Operating income | $77.8 million | $71.4 million | 9.0% |
| Net income | $36.1 million | $32.2 million | 12.1% |
| Basic and diluted EPS | $2.35 | $2.15 | 9.3% |
| Cash flow from operations | $107.8 million | $75.7 million | 42.4% |
| Capital expenditures | $115.0 million | $122.6 million | (6.2%) |
| Adjusted gross margin | $230.5 million | $215.5 million | 7.0% |
- Electric revenue was $248.5 million, with GAAP gross margin of $71.5 million and adjusted gross margin of $97.4 million.
- Gas revenue was $224.8 million, with GAAP gross margin of approximately $100.5 million and adjusted gross margin of $133.1 million.
- Operating margin was approximately 16.4%; net margin was approximately 7.6%.
- Electric kWh sales increased 2.2%; gas therm sales increased 3.3%. Customer growth, higher rates, improving commercial and industrial demand, and colder peak-season weather supported results.
- Operation and maintenance expense increased $3.0 million, depreciation and amortization increased $5.0 million, and net interest expense increased $1.8 million.
Liquidity, debt and capitalization
- Cash and cash equivalents were $6.5 million at December 31, 2021.
- Short-term debt was $64.1 million, compared with $54.7 million in 2020.
- Long-term debt, net of issuance costs, was $506.0 million, including $8.2 million current maturities. Total debt, including short-term borrowings, was approximately $570.1 million.
- The $120.0 million revolving credit facility had $55.9 million available at year-end and expires July 25, 2023, subject to extension options. Unitil was in compliance with its covenants, including the 65% funded-debt-to-capitalization limit.
- Stockholders’ equity increased to $448.5 million from $389.2 million, principally reflecting the 2021 equity offering.
- Unitil issued 920,000 common shares in 2021 for net proceeds of approximately $44.5 million, used for utility capital contributions, debt repayment and general corporate purposes.
- The company paid $1.52 per share in 2021 and subsequently increased its effective annualized dividend to $1.56 per share.
Material changes versus prior comparable period
- Revenue increased $54.7 million, primarily from higher gas and electric supply costs recovered through rates, higher rates, customer growth and increased usage.
- Net income increased $3.9 million, despite higher operating, depreciation, tax and interest costs.
- Operating cash flow improved by $32.1 million, driven by higher earnings, noncash charges and favorable working-capital changes.
- Net utility plant increased from $1,193.2 million to $1,257.2 million.
- Regulatory assets declined to $156.3 million in total, including $108.9 million noncurrent, from $164.7 million in 2020.
- Retirement benefit obligations declined to $133.9 million from $162.3 million, while pension and post-retirement funding remained material.
- The 2020 comparison does not include the one-time $9.8 million after-tax gain from the 2019 divestiture of Usource; Usource had no material operating revenue in 2021 or 2020.
Outlook, management commentary, risks and unusual items
- Management projected 2022 capital spending of $135 million to $145 million, above 2021 spending of $115 million.
- Management expects operating cash flow, available borrowing capacity and access to debt and equity markets to fund working capital and capital investment needs.
- Pending or recently initiated rate proceedings include permanent rate cases for Unitil Energy and Northern Utilities in New Hampshire. Temporary annualized increases of $4.5 million and $2.6 million, respectively, were approved effective in 2021; final rates remained subject to regulatory approval.
- Northern Utilities’ Maine customer information system cost recovery stipulation provided for recovery beginning November 1, 2022, subject to Maine commission approval.
- Massachusetts offshore wind and clean-energy procurement commitments, including a selected 1,600 MW offshore wind portfolio, may create material contractual obligations for Fitchburg once conditions and contingencies are satisfied. The company’s pro rata share is approximately 1% for certain clean-energy contracts.
- Key risks include adverse regulatory decisions or delayed cost recovery, interest-rate and refinancing risk, severe weather, commodity supply and pipeline capacity constraints, cyberattacks, operational accidents, environmental liabilities, pension funding requirements, climate-related regulation, customer demand changes and COVID-19 effects.
- Known contractual obligations included $509.6 million of long-term debt principal, $360.5 million of associated interest, and $538.1 million of gas and electric supply commitments. The filing also disclosed approximately $0.7 million of short-duration guarantees.
- The company reported no material adverse legal proceedings, no material subsequent events through the filing date, and effective disclosure controls and internal control over financial reporting.
Important facts for investors to verify
- Verify final outcomes and timing of the Unitil Energy and Northern Utilities New Hampshire rate cases, including recovery of pandemic-related bad debts and customer information system costs.
- Assess the funding requirements and regulatory recoverability of the planned $135 million to $145 million of 2022 capital expenditures.
- Review debt maturities, refinancing needs and the expiration or extension of the $120 million revolving credit facility.
- Evaluate the economic exposure from Massachusetts offshore wind and other long-term energy supply commitments after regulatory approvals and contingencies are resolved.
- Monitor regulatory treatment of the $156.3 million of regulatory assets and the company’s ability to continue applying regulated-operations accounting.
- Assess pension and post-retirement underfunding, future required contributions and sensitivity to discount rates and investment returns.
- Confirm dividend sustainability against subsidiary cash flows, debt covenants, regulatory restrictions and the company’s substantial capital program.