Black Hills Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Black Hills is an energy utility serving more than 1.3 million customers across eight states, with Electric Utilities and Gas Utilities segments. Unless noted, financial amounts below are in U.S. dollars.
Financial results and key metrics
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $921.2 million | $823.6 million |
| Operating income | $174.9 million | $173.4 million |
| Net income | $117.4 million | $121.0 million |
| Net income available to common stock | $114.1 million | $117.5 million |
| Diluted earnings per share | $1.73 | $1.82 |
| Net cash from operating activities | $328.7 million | $264.1 million |
| Capital expenditures | $119.1 million | $136.8 million |
- Margins and segments: Electric Utility margin, a company-defined non-GAAP measure, rose to $163.3 million from $154.1 million; segment operating income increased to $61.1 million from $50.7 million. Gas Utility margin declined to $236.0 million from $236.7 million; segment operating income fell to $114.6 million from $123.5 million.
- Liquidity: At March 31, cash and cash equivalents were $39.4 million, restricted cash was $5.8 million, and current assets were $918.3 million versus current liabilities of $1,038.9 million. The revolving credit facility and commercial paper program had no balance outstanding and $747.6 million available capacity.
- Debt: Current maturities of long-term debt were $525.0 million and long-term debt, net of current maturities, was $3,954.4 million. In March, the company issued $350 million of 5.95% senior unsecured notes due in 2028, using proceeds in part to repay commercial paper. It plans to refinance a portion of $525 million of 4.25% notes due November 30, 2023. The company reported compliance with debt covenants; its consolidated indebtedness-to-capitalization ratio was 59.1%, against a maximum of 65%.
- Dividends and equity: Dividends paid were $0.625 per share for the quarter. The board declared another $0.625 quarterly dividend, payable June 1, 2023. The company issued 445,578 shares through its at-the-market program for net proceeds of $27.4 million.
Material changes versus Q1 2022
- Revenue increased $97.6 million, largely reflecting higher Gas Utilities revenue, including higher gas costs passed through to customers.
- Net income available to common stock declined $3.4 million and diluted EPS decreased from $1.82 to $1.73. Higher interest expense, up approximately $5.0 million, reflected higher interest rates.
- Electric Utilities operating income increased $10.3 million, helped by new rates and rider recovery, transmission and off-system sales, and a one-time gain related to the planned sale of Northern Iowa Windpower assets.
- Gas Utilities operating income decreased $8.9 million. Higher operating and employee costs and unfavorable mark-to-market adjustments on wholesale commodity contracts offset new rates, customer growth, and demand.
- Operating cash flow increased $64.6 million, mainly due to working-capital and regulatory-account movements. Financing cash outflow increased to $209.1 million, including net debt repayments, partly offset by debt and equity issuance.
Outlook, commentary, risks and unusual items
- Capital plan: Forecast capital expenditures are $615 million for 2023, $819 million for 2024, and approximately $700 million annually for 2025–2027. The company expects to use operating cash flow and financing alternatives to fund its capital plan and strategic objectives.
- Clean energy and rates: Colorado regulators approved a settlement for the Clean Energy Plan, expected to add approximately 400 MW of clean-energy resources toward the state’s 2030 emissions-reduction requirement. Wyoming Electric’s approved rate settlement is expected to generate $8.7 million in new annual revenue, with rates effective March 1, 2023. A proposed RMNG settlement, filed April 7, 2023, is expected to generate $8.2 million in new annual revenue and remained subject to regulatory approval.
- Unusual item: The March sale of Northern Iowa Windpower assets contributed a $7.7 million gain and proceeds included in other investing activities. Electric Utilities results also benefited from the gain.
- Risks: Results are seasonal and the quarter is not necessarily indicative of full-year performance. Key disclosed risks include regulatory cost recovery and rate timing, capital-project execution and costs, financing and interest rates, inflation and volatile energy prices, supply-chain availability, and achieving greenhouse-gas reduction goals. Commodity and counterparty credit risks are managed in part through hedging and credit protections.
- The company reported no significant changes to previously disclosed commitments, contingencies, guarantees, or risk factors. Management stated disclosure controls were effective as of March 31, 2023.
Important facts for investors to verify
- Whether the company can refinance the $525 million of notes due in November 2023 on acceptable terms and maintain covenant headroom.
- Actual capital spending and financing needs relative to the multiyear capital plan, including any further ATM equity issuance.
- Regulatory approval and timing of the RMNG settlement and recovery of deferred energy, fuel, and Winter Storm Uri costs.
- Whether electric segment gains from the Northern Iowa Windpower sale and other non-recurring items affect comparisons in subsequent periods.
- How higher interest costs, operating expenses, commodity-market movements, and seasonal demand affect earnings and cash flow through the rest of 2023.