Black Hills Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Black Hills provides electric and natural gas utility services to approximately 1.3 million customers in eight states, alongside power generation and coal mining operations. Comparisons below are with Q1 2020 unless noted. Results are seasonal and may not indicate full-year performance.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $633.4 million | $537.1 million |
| Operating income | $138.3 million | $153.2 million |
| Net income | $100.5 million | $97.2 million |
| Net income available to common stock | $96.3 million | $93.2 million |
| Diluted EPS | $1.54 | $1.51 |
| Net cash from operating activities | $(386.1) million | $192.0 million |
| Capital expenditures | $146.3 million | $171.9 million |
Revenue increased 18%, while operating income declined about 10%; net income and diluted EPS increased modestly. The filing attributes the revenue increase principally to higher utility revenues and Winter Storm Uri-related activity. Income tax expense fell to $0.5 million from $16.0 million, with the effective tax rate declining to 0.5% from 14.1%, mainly because of tax benefits associated with customer bill credits, deferred tax amortization and wind production tax credits.
Margins and segments: Electric Utilities’ non-GAAP gross margin was $95.3 million, down $14.3 million; adjusted operating income was $21.8 million, down $13.8 million. Gas Utilities’ non-GAAP gross margin was $209.5 million, up $4.1 million, while adjusted operating income was $102.1 million, down $0.8 million. Power Generation adjusted operating income rose $2.9 million to $14.3 million, primarily reflecting favorable Winter Storm Uri impacts. Mining adjusted operating income was $3.3 million, broadly comparable with the prior year. Gross margin is a non-GAAP measure and is not directly comparable across companies.
Balance sheet, debt and liquidity
- At March 31, 2021, total assets were $8.70 billion, current assets $578.6 million, and current liabilities $1.23 billion. Cash and cash equivalents were $13.4 million; restricted cash was $4.5 million.
- Long-term debt, including current maturities, had a carrying amount of approximately $3.54 billion. Notes payable were $815.9 million, including $600 million outstanding under the term loan and $215.9 million of commercial paper. Total debt based on these reported balances was approximately $4.35 billion.
- The company had $517 million of available capacity under its $750 million revolving credit facility and commercial paper program at quarter-end. Its indebtedness-to-capitalization ratio was 62.6%, within the 65% covenant limit; the company reported compliance with covenants.
- Operating cash flow was negative $386.1 million, largely because of cash outflows associated with Winter Storm Uri regulatory assets and liabilities. Financing activities provided $539.5 million, including net term-loan proceeds. The term loan matures November 24, 2021; management expected to refinance a portion with longer-term debt.
Material changes and developments
- Winter Storm Uri: The company recorded approximately $571.3 million of net incremental pre-tax costs. Approximately $558.8 million was recorded as regulatory assets, and $12.5 million was expensed net. Utilities had mechanisms expected to recover approximately $559 million, but regulators were conducting heightened reviews and recovery timing remained under discussion. Potential delayed pipeline transportation charges were not included in the estimate.
- The company entered into an unsecured $800 million, nine-month term loan in February to address storm-related liquidity needs and repaid $200 million during the quarter. The loan carried LIBOR plus 75 basis points and had a 0.86% interest rate at quarter-end.
- Nebraska Gas received approval for consolidated statewide rates, expected to produce $6.5 million of new annual revenue, with an authorized 9.5% return on equity and an extended infrastructure rider. Colorado Gas’s prior rate-review filing was dismissed; it planned to refile in Q2 2021.
- Colorado Electric signed a 15-year power purchase agreement for up to 200 MW from a planned solar facility expected to be completed by the end of 2023.
Outlook, risks and other notable items
- The company forecast 2021 capital expenditures of $647 million, including $132 million spent in Q1. It expected to fund its capital plan and strategic objectives with operating cash flow, credit facilities/commercial paper, and $100 million to $120 million of common stock issuance under its at-the-market program.
- The board declared a quarterly dividend of $0.565 per share, or $2.26 annualized, payable June 1, 2021. Future dividends remain subject to financial condition, cash generation, capital needs, credit restrictions and business prospects.
- Management said COVID-19 had not significantly affected Q1 financial results, liquidity or operations, while continuing to monitor customer payment ability, supply chains and capital markets. The company reported no material changes to previously disclosed risk factors.
- Key uncertainties include regulatory approval and timing of Winter Storm Uri cost recovery, possible additional supplier transportation charges, refinancing the term loan, commodity and interest-rate exposure, and the execution and funding of planned capital investments. Management also noted that it expects to pursue mitigation of storm-related impacts through cost management and regulatory actions.
Important facts for investors to verify
- Regulatory filings, decisions, recovery periods and customer-bill impacts for the approximately $559 million of Uri costs expected to be recovered.
- Any additional pipeline transportation charges and the final amount of storm costs ultimately recoverable or expensed.
- Refinancing plans and liquidity available before the $600 million remaining term-loan balance matures in November 2021.
- Progress against the $647 million 2021 capital plan and the expected $100 million to $120 million ATM equity issuance.
- Whether Nebraska Gas’s approved rates and Colorado Gas’s planned rate and rider proceedings deliver expected revenues and recovery.