Unitil(UTL) - 2021 Q2 - Quarterly Report

Part I. Financial Information Management's Discussion and Analysis (MD&A) of Financial Condition and Results of Operations Unitil's Q2 2021 net income decreased due to higher operating expenses, while the first six months saw increased net income driven by higher gas and electric margins and customer growth Overview Unitil Corporation is a public utility holding company distributing electricity and gas in New Hampshire, Massachusetts, and Maine, with earnings primarily from utility asset returns and pass-through energy costs - Unitil's principal business is the local distribution of electricity and gas through its three wholly-owned distribution utilities: Unitil Energy Systems, Inc., Fitchburg Gas and Electric Light Company, and Northern Utilities, Inc[15][16] - The company serves approximately 107,100 electric customers and 85,600 gas customers across its service territories in New Hampshire, Massachusetts, and Maine[17] - As of June 30, 2021, Unitil had a Net Utility Plant investment of $1,209.8 million. The company's earnings are not directly affected by changes in the cost of purchased electricity and gas due to a reconciling rate structure[19] Results of Operations Net income for the first six months of 2021 increased to $21.6 million, driven by higher gas and electric margins, despite increased O&M and depreciation expenses, while Q2 net income slightly decreased Earnings Summary ($ millions, except per share data) | Period | Net Income ($ millions) | EPS ($) | Change (Net Income, $ millions) | Change (EPS, $) | | :--- | :--- | :--- | :--- | :--- | | Q2 2021 vs Q2 2020 | $2.7 | $0.18 | -$0.4 | -$0.03 | | 6M 2021 vs 6M 2020 | $21.6 | $1.44 | +$3.3 | +$0.21 | Adjusted Gross Margin (Non-GAAP) Performance ($ millions) | Segment | Period | 2021 ($ millions) | 2020 ($ millions) | Change ($ millions) | Key Drivers | | :--- | :--- | :--- | :--- | :--- | :--- | | Gas | 3 Months | $25.0 | $22.9 | +$2.1 | Higher rates, customer growth, warmer weather | | Gas | 6 Months | $72.8 | $65.3 | +$7.5 | Higher rates, customer growth, colder winter | | Electric | 3 Months | $24.3 | $22.4 | +$1.9 | Higher rates, customer growth, warmer weather | | Electric | 6 Months | $48.0 | $45.5 | +$2.5 | Higher rates, customer growth, colder winter | - Operation and Maintenance (O&M) expenses increased by $2.9 million in Q2 2021 and $2.0 million in the first six months of 2021, primarily due to higher labor costs, utility operating costs, and professional fees[45] - Depreciation and Amortization expense rose by $2.7 million for the six-month period, reflecting higher levels of utility plant in service[46] Capital Requirements Unitil funds capital needs via internal cash and a $120 million credit facility, with $90.3 million available as of June 30, 2021, and maintains investment-grade credit ratings Revolving Credit Facility Status ($ millions) | Date | Limit ($ millions) | Outstanding Borrowings ($ millions) | Available ($ millions) | | :--- | :--- | :--- | :--- | | June 30, 2021 | $120.0 | $29.7 | $90.3 | | June 30, 2020 | $120.0 | $74.9 | $45.0 | | Dec 31, 2020 | $120.0 | $54.7 | $65.2 | - In September 2020, subsidiaries Northern Utilities, Fitchburg, and Unitil Energy collectively issued $95 million in long-term notes and bonds to repay short-term debt and for general corporate purposes[79] - Unitil Corporation and its utility subsidiaries hold investment-grade credit ratings, with a 'BBB+' from S&P and ratings of 'Baa1' or 'Baa2' from Moody's[80] Financial Statements - Unaudited Unaudited financial statements for H1 2021 show increased operating revenues and net income, stable total assets, significantly higher operating cash flow, and continued dividend payments Consolidated Statements of Earnings For H1 2021, total operating revenues increased to $235.4 million, with net income rising to $21.6 million, while Q2 net income decreased to $2.7 million Consolidated Earnings Summary ($ millions, except per share data) | Metric | Six Months Ended June 30, 2021 ($ millions) | Six Months Ended June 30, 2020 ($ millions) | | :--- | :--- | :--- | | Total Operating Revenues | $235.4 | $214.3 | | Operating Income | $44.2 | $38.7 | | Net Income | $21.6 | $18.3 | | Net Income Per Share | $1.44 | $1.23 | Consolidated Balance Sheets As of June 30, 2021, total assets were $1,477.1 million, with Net Utility Plant at $1,209.8 million and total common stock equity at $400.6 million Key Balance Sheet Items ($ millions) | Item | June 30, 2021 ($ millions) | Dec 31, 2020 ($ millions) | | :--- | :--- | :--- | | Total Current Assets | $114.2 | $139.3 | | Net Utility Plant | $1,209.8 | $1,193.2 | | TOTAL ASSETS | $1,477.1 | $1,477.9 | | Total Current Liabilities | $133.3 | $136.1 | | Long-Term Debt, Less Current Portion | $505.3 | $523.1 | | Total Common Stock Equity | $400.6 | $389.0 | | TOTAL LIABILITIES AND CAPITALIZATION | $1,477.1 | $1,477.9 | Consolidated Statements of Cash Flows For H1 2021, operating cash flow significantly increased to $84.4 million, while investing activities used $42.5 million and financing activities used $42.9 million Cash Flow Summary ($ millions) | Activity | Six Months Ended June 30, 2021 ($ millions) | Six Months Ended June 30, 2020 ($ millions) | | :--- | :--- | :--- | | Cash Provided by Operating Activities | $84.4 | $58.3 | | Cash (Used in) Investing Activities | ($42.5) | ($48.8) | | Cash (Used in) Financing Activities | ($42.9) | ($10.5) | | Net Decrease in Cash | ($1.0) | ($1.0) | Notes to Consolidated Financial Statements Notes detail accounting policies, segment performance, debt, stock plans, and regulatory matters, including segment revenue growth and updates on state-level rate cases Segment Profit (Loss) for Six Months Ended June 30 ($ millions) | Segment | 2021 ($ millions) | 2020 ($ millions) | | :--- | :--- | :--- | | Gas | $16.2 | $12.2 | | Electric | $6.3 | $5.7 | | Non-Regulated | $0.1 | $— | | Other | ($1.0) | $0.4 | | Total | $21.6 | $18.3 | - On April 2, 2021, Unitil Energy filed a base rate case with the NHPUC, requesting a permanent annual revenue increase of $12.0 million. A temporary rate increase of $4.5 million was approved effective June 1, 2021[197] - Fitchburg's gas division received approval for a two-phase rate increase totaling $4.6 million, with the second phase of $0.9 million becoming effective on March 1, 2021[202] - The company is actively involved in regulatory proceedings regarding the financial effects of the COVID-19 pandemic, including the deferral of bad debt expense[211] Quantitative and Qualitative Disclosures About Market Risk Market risk primarily stems from interest rate fluctuations on variable-rate short-term debt, with commodity price risk limited by pass-through regulatory frameworks - The company's primary market risk is interest rate risk on its short-term, variable-rate debt. A 1% change in interest rates on an average short-term debt balance of $25 million would change annual interest expense by approximately $250,000[93] - Commodity price risk is considered limited because the regulatory framework allows for the full collection of electric power and natural gas supply costs from customers on a pass-through basis[95] Controls and Procedures As of June 30, 2021, management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - Management concluded that as of June 30, 2021, the company's disclosure controls and procedures were effective[251] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[253] Part II. Other Information Legal Proceedings The company is involved in ordinary course legal proceedings, which management believes will not materially affect its financial position - The company states that ongoing legal proceedings, which arise in the ordinary course of business, are not expected to have a material effect on its financial position[254] Risk Factors No material changes to the risk factors previously disclosed in the company's 2020 Form 10-K were reported for the quarter - No material changes to the risk factors disclosed in the company's 2020 Form 10-K were reported for the quarter ended June 30, 2021[255] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity securities were sold in Q2 2021, and no shares were repurchased under the Rule 10b5-1 trading plan adopted for Directors' retainers - There were no sales of unregistered equity securities during the fiscal quarter ended June 30, 2021[256] - A Rule 10b5-1 trading plan was adopted on May 1, 2021, to repurchase shares for Directors' retainers, with a value limit of $350,500. No shares were purchased under this plan in the quarter[257][259] Exhibits This section lists exhibits filed with the Form 10-Q, including executive certifications, an employment agreement, and the earnings press release - Exhibits filed with the report include CEO and CFO certifications (31.1, 31.2, 32.1), an employment agreement (10.1), and the earnings press release dated August 3, 2021 (99.1)[261]