Unitil Corporation 2016 Q1 Form 10-Q Summary
Business Context and Reporting Period
Unitil Corporation is a regulated utility holding company providing electric and natural gas distribution in New Hampshire, Massachusetts, and Maine, plus interstate natural gas transmission and non-regulated energy brokering services. The filing covers the unaudited three months ended March 31, 2016, compared with the three months ended March 31, 2015.
- Distribution customers: approximately 103,300 electric and 78,700 natural gas.
- Net utility plant at March 31, 2016: $813.1 million.
- Results are seasonal, with natural gas earnings generally strongest in the first and fourth quarters.
Key Financial Metrics
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Total operating revenue | $125.8 million | $172.2 million | Down $46.4 million |
| Operating income | $23.4 million | $28.4 million | Down $5.0 million |
| Net income | $10.9 million | $13.6 million | Down $2.7 million |
| Basic and diluted EPS | $0.78 | $0.98 | Down $0.20 |
| Operating margin | 18.6% | 16.5% | Improved due largely to pass-through cost structure |
| Net margin | 8.7% | 7.9% | Improved modestly |
| Gas sales margin | $35.9 million | $38.8 million | Down $2.9 million, or 7.5% |
| Electric sales margin | $20.1 million | $21.2 million | Down $1.1 million, or 5.2% |
| Cash flow from operations | $14.2 million | $27.7 million | Down $13.5 million |
| Capital expenditures | $11.3 million | $13.0 million | Down $1.7 million |
Gas and electric commodity costs are generally recovered through reconciling rate mechanisms and therefore changes in those pass-through costs do not directly affect earnings. Gas sales margin plus electric sales margin totaled $56.0 million, compared with $60.0 million in the prior-year quarter.
Liquidity, Debt, and Capitalization
- Cash and cash equivalents were $8.1 million at March 31, 2016, versus $8.7 million at December 31, 2015.
- Short-term debt was $47.9 million; long-term debt, net of issuance costs, was $322.5 million, including a $17.1 million current portion.
- Total capitalization was $595.5 million, including $290.1 million of stockholders’ equity.
- The revolving credit facility has a $120.0 million limit, with $47.9 million outstanding and $72.1 million available at March 31, 2016. The facility matures October 4, 2020.
- Unitil and its principal utility subsidiaries were rated BBB+ by Standard & Poor’s and were in compliance with credit covenants, including the 65% funded-debt-to-capitalization limit.
- Outstanding guarantees on certain energy and gas storage contracts totaled approximately $18.6 million, with the longest term extending through August 2016.
Material Changes Versus the Prior Comparable Period
- Net income declined 19.9% and EPS declined from $0.98 to $0.78.
- Weather was the primary adverse factor: heating degree days were 23% lower than in Q1 2015.
- Natural gas therm sales declined 16.7%, while electric kWh sales declined 6.9%.
- Management estimated that warmer weather reduced gas sales margin by approximately $4.9 million, or $0.22 per share, partly offset by higher gas rates and customer growth.
- O&M expense increased $0.5 million, depreciation and amortization increased $0.4 million, and taxes other than income taxes increased $0.1 million.
- Net interest expense decreased $0.3 million to $5.5 million, primarily because of lower long-term debt levels.
- Operating cash flow fell primarily because of lower earnings and changes in regulatory and working-capital balances.
- The company adopted new presentation requirements for deferred tax balances and debt issuance costs; the filing states these changes affected balance-sheet presentation rather than underlying economics.
Guidance, Outlook, Risks, and Unusual Items
- No specific earnings or financial forecast is provided in the filing. Management cautions that first-quarter results are not necessarily indicative of full-year results.
- Unitil Energy filed notice of intent to seek an approximately $6.0 million, or 4%, base-rate increase, including a proposed temporary increase and a long-term rate plan for certain plant additions.
- Fitchburg rate proceedings sought increases of $3.8 million for electric operations and $3.0 million for gas operations; decisions were expected by the end of April 2016.
- Northern Utilities’ Maine division requested a $1.5 million annual TIRA increase effective May 1, 2016, pending approval.
- Unitil recorded $10.1 million of current and $3.3 million of noncurrent regulatory liabilities related to the $22.0 million pipeline refund that must be credited to customers and marketers.
- Key risks include regulatory decisions and cost recovery, weather variability, energy commodity prices, storms, environmental obligations, pension funding, interest rates, financing availability, credit covenants, competition, and operating hazards.
- Environmental and legal matters are described as not expected to have a material adverse effect, although future remediation and regulatory costs remain uncertain.
- The company is implementing a new customer information system; timing remains subject to user testing and system acceptance.
- The quarterly dividend increased to $0.355 per share, or an effective annual rate of $1.42 per share.
Important Facts for Investors to Verify
- Progress and final outcomes of Unitil Energy, Fitchburg, Northern Utilities, and Granite State rate proceedings.
- Actual weather-normalized demand and whether customer growth and rate increases offset weather-related margin pressure.
- Cash flow generation relative to capital expenditures, dividends, debt maturities, and planned utility investment.
- Availability and covenant capacity under the revolving credit facility, particularly as seasonal borrowing changes.
- Recovery timing for regulatory assets, storm costs, environmental expenditures, pension costs, and customer refund liabilities.
- Potential effects of pending energy-efficiency, grid-modernization, transmission-rate, environmental, and legal proceedings.
- Future pension contributions, interest-rate sensitivity, and the company’s ability to maintain its dividend and BBB+ credit profile.