Business context and reporting period
Spire Inc. filed this combined, unaudited Form 10-Q for the quarter and six months ended March 31, 2021 (its fiscal second quarter), covering Spire Inc., Spire Missouri Inc. and Spire Alabama Inc. The request metadata says “2020 Q2,” but the filing itself reports fiscal 2021 Q2. Spire operates regulated natural gas utilities and a nonregulated gas-marketing business; utility earnings are typically concentrated in the November–April heating season.
Key financial metrics
| Spire consolidated | Three months ended March 31, 2021 | Six months ended March 31, 2021 |
|---|---|---|
| Operating revenue | $1,104.9 million; prior year $715.5 million | $1,617.5 million; prior year $1,282.4 million |
| Operating income | $257.4 million; prior year $210.5 million | $390.3 million; prior year $312.8 million |
| Net income | $187.4 million; prior year $133.6 million | $276.3 million; prior year $200.6 million |
| Diluted EPS | $3.55; prior year $2.54 | $5.20; prior year $3.77 |
| Net economic earnings, non-GAAP | $195.6 million, or $3.71 per diluted share; prior year $144.0 million | $272.5 million, or $5.12 per diluted share; prior year $215.8 million |
| Operating cash flow | $159.2 million for six months, down from $321.7 million | |
| Capital expenditures | $303.5 million for six months; fiscal 2021 expected to total approximately $590 million |
Revenue and operating expenses rose sharply, in large part because higher natural-gas costs flow through customer rates and because of exceptional February weather-related sales and charges. Spire’s non-GAAP contribution margin was $443.6 million for the quarter, up from $380.5 million, and $753.3 million for six months, up from $660.9 million. These measures exclude natural-gas costs and gross-receipts taxes and are not GAAP profit margins.
At March 31, 2021, Spire reported $104.0 million cash, $2,803.3 million long-term debt including current maturities, and $653.5 million notes payable. Shareholders’ equity was $2,731.3 million. The company had a $975 million shared revolving credit facility and reported debt below 60% of total capitalization for each borrower, within its 70% covenant limit. Management said capital-market access and resources were adequate.
Material changes versus the prior comparable period
- Quarterly net income rose $53.8 million year over year. Higher Gas Marketing results, driven by extreme weather, market conditions and storage-position monetization, contributed $28.2 million of the increase; Gas Utility net income increased $24.1 million.
- For six months, net income increased $75.7 million. Gas Marketing reported $40.1 million net income versus none in the prior-year period; Gas Utility net income increased $33.5 million.
- Utility revenue growth reflected higher gas costs, off-system sales, colder weather and usage, Missouri infrastructure surcharges, and Alabama rate stabilization adjustments. Higher gas costs largely pass through to customers and do not translate directly into operating income.
- Operating cash flow fell $162.5 million for six months, primarily due to working-capital and regulatory timing, including a $342.3 million cash-flow use from accounts receivable, partly offset by accounts payable.
- Long-term debt and short-term borrowings increased. Spire issued $175 million of equity units (net proceeds $169.3 million); Spire Alabama issued $150 million of 2.04% notes due 2030; and Spire Missouri borrowed $250 million under a 364-day term loan.
Outlook, management commentary, risks and unusual items
- February cold-weather event: Spire Missouri invoiced noncompliant marketers $195.8 million for gas and related penalties after supply shortfalls. The three largest counterparties did not pay when due; Spire Missouri sued them. Management said collection was probable, but the MoPSC opened an investigation and marketers sought regulatory review. The filing does not report how much has been collected.
- Spire Missouri recorded a $25 million regulatory liability, reducing revenue, related to a $100 million incremental off-system sale. The company expects to discuss with the MoPSC and community partners whether and how much of its usual share should be distributed to customers. Deferred gas costs and average inventory cost increased approximately $110 million, including projected offsets.
- Spire Marketing recorded an estimate of potential damages from weather-related supply disruptions, force-majeure and commercial disputes, and a pipeline tariff dispute. Management warned final settlements may materially differ from its estimate.
- Spire Missouri’s pending rate case requests a $64.2 million net base-rate increase; together with $47.3 million already recovered through the infrastructure surcharge, the total request is $111.5 million. Regulatory approval is pending, and the request is not a forecast of approved rates.
- The Missouri Supreme Court reversed part of a prior rate-case pension-cost disallowance. Spire recognized a $9 million regulatory asset and reduced operating and maintenance expense; this item is excluded from net economic earnings.
- COVID-19 effects included higher expected credit losses and prior lost late fees. Spire Missouri’s authority to defer certain pandemic costs ran through March 31, 2021; recovery treatment remains subject to the rate case. Management cited severe weather, gas-price volatility, supply and pipeline availability, regulation, litigation, customer collections, capital access and cybersecurity among material risks.
- Spire Storage’s FERC capacity-expansion application and court review of the Spire STL Pipeline certificate proceedings remained pending. Management reported no material change in previously disclosed risk factors and no defaults on senior securities. No company-wide earnings guidance is provided in the filing text.
Most important facts for investors to verify
- Collections, litigation outcomes and regulatory treatment of the $195.8 million Missouri marketer invoices, and the ultimate customer treatment of the $25 million off-system-sale liability.
- Final Spire Marketing exposure from February weather-related counterparty and tariff disputes compared with the recorded estimate.
- Outcome and timing of Spire Missouri’s rate case, including the requested rates, rate base and return assumptions.
- Cash conversion and seasonal liquidity, given lower operating cash flow, elevated receivables and reliance on short-term funding.
- Whether strong Gas Marketing earnings from exceptional weather and storage positions persist; assess alongside the company’s non-GAAP earnings adjustments.
- Actual fiscal 2021 capital spending versus the approximately $590 million estimate and the financing needed to support investment and debt maturities.