Executive Summary / Key Takeaways

• Strategic Diversification and Accelerated Growth: Unitil is actively transforming its business through strategic acquisitions in natural gas and, notably, its first entry into water distribution, projecting an acceleration of rate base growth to approximately 10% annually through 2029 and supporting earnings growth at the high end of its 5-7% long-term guidance.
• Robust Financial Performance and Outlook: The company delivered strong adjusted earnings growth in the first half of 2025, driven by higher distribution rates, customer expansion, and favorable weather, while reaffirming its 2025 adjusted EPS guidance of $3.01-$3.17.
• Technological Edge for Efficiency and Sustainability: Investments in Advanced Metering Infrastructure (AMI) and Picarro Advanced Mobile Leak Detection are enhancing operational efficiency, improving customer engagement, and significantly contributing to greenhouse gas emission reduction targets.
• Constructive Regulatory Environment: Recent rate case approvals and fuel choice legislation in key operating states provide a stable foundation for cost recovery and continued investment, although regulatory scrutiny on gas infrastructure and decarbonization pathways presents an evolving dynamic.
• Solid Financial Foundation for Expansion: Unitil maintains a strong balance sheet, ample liquidity, and investment-grade credit ratings, enabling it to fund its ambitious capital plan and integrate new acquisitions effectively.

Forging a Diversified Future in New England Utilities

Unitil Corporation (NYSE: UTL) is strategically evolving beyond its traditional role as a regional electricity and natural gas distributor, embarking on a transformative journey marked by targeted acquisitions and significant technological modernization. Incorporated in 1984, Unitil has historically focused on delivering essential energy services across New Hampshire, Massachusetts, and Maine. Its foundational strategy has centered on regulated growth, infrastructure reliability, and strong customer service, a commitment reflected in its consistent top-tier customer satisfaction ratings among eastern utilities.

The company's history reveals a pragmatic approach to market shifts, including the early divestment of its wholesale power supply operations due to industry restructuring. This adaptability is now manifesting in a bold expansion strategy, notably with its recent entry into the water distribution sector. This diversification is not merely opportunistic but a calculated move to leverage predictable returns and critical resource provision within familiar regulatory jurisdictions, complementing its core gas and electric operations.

Technological Prowess: Enhancing Efficiency and Environmental Stewardship

Unitil's strategic vision is deeply intertwined with its commitment to technological advancement, which serves as a critical differentiator and competitive moat. The company is deploying state-of-the-art solutions to modernize its infrastructure, improve operational efficiency, and meet ambitious sustainability targets.

A cornerstone of this technological roadmap is the Advanced Metering Infrastructure (AMI) upgrade project. This initiative replaces a legacy system that has been in service for over 15 years, transitioning to new smart meters that utilize wireless radio frequency and cellular communication. This upgrade provides near real-time information to customers, empowering them with improved energy decision-making capabilities and enabling enhanced grid optimization. The project entails an estimated capital investment of approximately $40 million, with meter replacements in Massachusetts expected to conclude by the end of 2025 and in New Hampshire by 2026. Crucially, the costs associated with the Massachusetts portion of this project are eligible for accelerated cost recovery, directly supporting Unitil's financial performance.

In its gas operations, Unitil has implemented Picarro’s Advanced Mobile Leak Detection technology across all its natural gas systems. This technology offers a significantly more accurate method for measuring methane emissions compared to traditional EPA and Massachusetts Department of Environmental Protection emission factors. Initial deployments in Massachusetts revealed that approximately half of the company's fugitive emissions originated from a relatively small number of leaks, allowing for rapid identification and mitigation. This program is a direct contributor to Unitil's greenhouse gas mitigation strategy, aiming for significant reductions in Scope 1 emissions, thereby enhancing its environmental stewardship and potentially reducing operational losses from gas leakage.

Further demonstrating its commitment to clean energy, Unitil Energy's utility-scale solar facility in Kingston, New Hampshire, became operational in May 2025. This 4.88 MW photovoltaic generating facility, a first-of-its-kind for the company and the state, will be included in the rate base, with cost recovery currently being sought through the Unitil Energy Systems (UES) base rate case. These technological investments collectively bolster Unitil's competitive position by driving operational efficiencies, improving service reliability, and aligning the company with evolving environmental and energy transition mandates.

Strategic Expansion and Competitive Landscape

Unitil operates within a competitive New England utility landscape, where it distinguishes itself through a focused regional strategy, strong regulatory relationships, and a growing diversified asset base. While larger players like Eversource Energy (ES) and Consolidated Edison, Inc. (ED) command greater scale and broader geographic footprints, Unitil's strength lies in its deep local market penetration and customer-centric approach. Its regulatory licenses and established distribution networks provide a significant competitive moat, offering stable, recurring revenue streams and a degree of pricing power that insulates it from the more project-based, competitive bidding environment faced by infrastructure contractors like MYR Group Inc. (MYRG).

The company's recent acquisition spree underscores its growth ambitions. On January 31, 2025, Unitil completed the acquisition of Bangor Natural Gas Company, adding approximately 8,500 customers and expanding its central Maine service territory. This was swiftly followed by an agreement on March 31, 2025, to acquire Maine Natural Gas Company for $86 million, expected to close by late 2025. These gas acquisitions are strategically sound, targeting regions with low natural gas penetration and strong customer growth (4-5%), offering significant long-term earnings accretion once new cost-of-service rates are established.

A pivotal strategic move was the May 6, 2025, definitive agreement to acquire three water utilities—Aquarion Water Company of Massachusetts, Inc., Aquarion Water Company of New Hampshire, Inc., and Abenaki Water Co., Inc.—for approximately $100 million (including $30 million of assumed debt). This marks Unitil's strategic entry into water distribution, a sector characterized by critical resource provision, favorable ESG characteristics, and highly predictable returns. These acquisitions, collectively, are expected to accelerate Unitil's rate base growth to approximately 10% annually through 2029, supporting earnings growth near the top end of its long-term guidance range. While these transactions are anticipated to be earnings-neutral in the short term, their long-term accretive potential is significant as new distribution rates take effect.

Financial Performance and Growth Trajectory

Unitil's financial performance in the first half of 2025 reflects the early benefits of its strategic initiatives and a supportive operating environment. For the second quarter of 2025, adjusted net income rose to $4.7 million, or $0.29 per share, an increase of $0.4 million or $0.02 per share compared to the prior year's quarter. Year-to-date through June 30, 2025, adjusted net income reached $33.1 million, or $2.03 per share, representing a $1.6 million or $0.07 per share increase over the same period in 2024.

The Electric Adjusted Gross Margin for the first six months of 2025 increased by 2.5% to $53.3 million, driven by higher distribution rates and the addition of approximately 730 new electric customers. The Gas Adjusted Gross Margin saw a more substantial increase of 17.1% to $108.1 million over the same period, benefiting from higher rates, robust customer growth (including 8,800 customers from the Bangor acquisition), and colder winter weather in 2025. The Bangor acquisition alone contributed $5.9 million to the year-to-date gas adjusted gross margin.

Operating expenses saw an increase, with Operation and Maintenance (O&M) expenses rising by $7.1 million year-to-date through Q2 2025. This includes $1.7 million related to Bangor Natural Gas operations and $2.2 million in acquisition transaction costs, which are excluded from adjusted net income for a clearer view of baseline performance. Excluding these, O&M expenses increased by $3.2 million, reflecting higher utility operating costs, labor, professional fees, and transmission expenses. Depreciation and Amortization expense increased by $7.4 million, primarily due to higher depreciation rates from recent base rate cases and a larger utility plant in service, with Bangor contributing $1.3 million to this increase. Net Interest Expense also rose by $3.7 million, reflecting higher long-term debt levels and increased interest on regulatory liabilities.

Unitil's capital investment plan is a key driver of its future growth. The company projects approximately $1 billion in capital spending through 2029 for existing operations, a 46% increase over the prior five-year period. This plan is expected to generate rate base growth within the long-term guidance range of 6.5% to 8.5%. For 2025, capital spending is anticipated to be around $176 million, with an additional $3-5 million annually from Bangor Natural Gas. The company also highlights potential upside from further electric sector modernization projects, particularly in Massachusetts, as policies shift towards electrification.

Outlook and Shareholder Returns

Unitil has reaffirmed its 2025 adjusted earnings guidance range of $3.01 to $3.17 per share, with a midpoint of $3.09 per share. This guidance assumes normal weather and consistent customer growth, with the Maine Natural Gas and Aquarion acquisitions, expected to close in late 2025, not significantly impacting the current year's results. The company's long-term guidance for earnings growth (5-7%), dividend growth, and rate base growth (6.5-8.5%) remains firm, with acquisitions expected to push earnings growth towards the upper end of this range.

The company's commitment to shareholder returns is evident in its dividend policy. The annualized dividend for 2025 has been increased to $1.80 per share, representing a 5.9% increase from 2024. This growth is supported by a payout ratio that has consistently remained within the target range of 55-65%, demonstrating a disciplined approach to dividend sustainability. Even with a projected slight net loss in the third quarter of 2025, management has confirmed that the full-year earnings trajectory supports its dividend approach.

Risks and Regulatory Dynamics

While Unitil's outlook is strong, investors should consider several key risks. The company's growth strategy relies heavily on successful integration of its recent and pending acquisitions, which carries inherent operational and financial challenges. Regulatory risk remains a constant, as commissions can reach varying conclusions on cost recovery, potentially impacting financial statements. This is particularly relevant in Massachusetts, where the Department of Public Utilities is scrutinizing the role of gas local distribution companies in achieving net-zero greenhouse gas emissions by 2050. This evolving regulatory landscape places a burden on LDCs to demonstrate the prudence of traditional projects over non-gas pipeline alternatives (NPAs) for cost recovery.

Furthermore, the company's variable-rate short-term debt exposes it to interest rate risk, although its strong balance sheet and investment-grade credit ratings provide a buffer. While commodity price risk is largely mitigated by pass-through rate mechanisms, the broader industry trend towards electrification, as noted by management, necessitates continued investment in electric infrastructure, potentially shifting capital allocation away from gas operations over time. Despite these considerations, Unitil's proactive engagement with regulators, its focus on customer service, and its strategic investments in modern, efficient, and environmentally responsible infrastructure position it favorably to manage these challenges.

Conclusion

Unitil Corporation is executing a compelling growth narrative, strategically expanding its regulated utility footprint through a series of well-timed acquisitions and a steadfast commitment to technological modernization. The company's entry into the water distribution sector, alongside its natural gas expansion in Maine, is set to significantly accelerate rate base and earnings growth, pushing performance towards the upper end of its long-term guidance. This diversification, coupled with advanced technologies like AMI and Picarro leak detection, not only enhances operational efficiency and customer value but also firmly aligns Unitil with the evolving demands of the clean energy transition and environmental stewardship.

With a strong financial foundation, a disciplined approach to capital allocation, and a constructive regulatory environment, Unitil is well-positioned to deliver consistent shareholder returns. While the evolving regulatory landscape for gas utilities and the inherent complexities of integrating new businesses present challenges, Unitil's proactive strategy and proven operational excellence underscore its potential as a resilient and growing investment in the New England utility sector. The company's ability to leverage its technological leadership and strategic acquisitions will be paramount in realizing its ambitious growth targets and solidifying its competitive standing in the years to come.