Business context and reporting period
This combined unaudited Form 10-Q covers Spire Inc. and its subsidiaries Spire Missouri Inc. and Spire Alabama Inc. The actual reporting period is the three and nine months ended June 30, 2020 (fiscal 2020 Q3), not 2019 Q3 as stated in the request metadata. Spire operates regulated gas utilities and a nonregulated gas-marketing business; utility earnings are typically concentrated in the November–April heating season.
Key financial results
Dollars in millions, except per-share amounts. Consolidated Spire results:
| Metric | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Nine months ended June 30, 2020 | Nine months ended June 30, 2019 |
|---|---|---|---|---|
| Operating revenue | $321.1 | $321.3 | $1,603.5 | $1,726.8 |
| Operating income (loss) | $(106.5) | $13.3 | $206.3 | $327.9 |
| Net income (loss) | $(92.3) | $(3.0) | $108.3 | $218.9 |
| Net income (loss) available to common shareholders | $(95.9) | $(4.6) | $97.0 | $216.8 |
| Diluted EPS | $(1.87) | $(0.09) | $1.90 | $4.27 |
| Net economic earnings (non-GAAP) | $7.3 | $5.0 | $223.1 | $218.8 |
| Net economic earnings per diluted share (non-GAAP) | $0.07 | $0.07 | $4.14 | $4.27 |
The quarter’s GAAP operating loss includes $148.6 of impairment charges: $140.8 for Spire Storage and $7.8 for two compressed-natural-gas fueling stations. Management reported that the storage development plan requires a longer timeline, while the fueling-station outlook reflected lower diesel prices and slower vehicle conversions. Excluding the impairment, management said quarterly net income increased $28.0 year over year.
For the nine-month period, operating cash flow was $453.8, investing cash outflow was $470.1, and financing cash inflow was $17.9. Capital expenditures were $475.7, versus $608.5 a year earlier. Cash and cash equivalents were $7.4 at June 30, 2020.
At June 30, 2020, Spire reported $2,478.3 of long-term debt excluding current maturities, $5.4 of current long-term debt, and $477.6 of notes payable. The company reported total debt below 60% of total capitalization for each borrower under its credit-facility covenant; consolidated long-term capitalization was 51% equity. A $975.0 revolving credit facility and a $975.0 commercial-paper program were in place. Spire had $150.0 outstanding on a term loan due March 25, 2021.
Material changes versus comparable periods
- Quarterly revenue was essentially flat year over year, but the impairment charge drove a $106.5 operating loss and a $92.3 net loss, compared with operating income of $13.3 and a net loss of $3.0 in the prior-year quarter.
- Nine-month revenue declined $123.3, primarily reflecting lower utility gas costs and lower weather-related/volumetric usage. Nine-month GAAP net income fell $110.6, principally due to the impairment charge.
- Nine-month non-GAAP net economic earnings rose to $223.1 from $218.8, helped by improved results from Spire STL Pipeline and Spire Storage, partly offset by weaker Gas Marketing results. These adjusted results exclude specified items and are not a substitute for GAAP results.
- Long-term debt excluding current maturities rose to $2,478.3 from $2,082.6 at September 30, 2019. Spire issued $510.0 of long-term debt during the nine months and repaid $147.0; short-term debt repayments were $265.6.
- Operating cash flow increased $13.2 from the prior-year nine-month period, while capital expenditures declined $132.8.
Outlook, management commentary, risks and contingencies
- Capital spending: Management expected fiscal 2020 capital expenditures of approximately $650. It also expected about $20 of Spire Storage investment over the following two years and planned a FERC application by early fiscal 2021 outlining a development path.
- COVID-19: Management estimated pre-tax impacts of $6–$7 through fiscal year-end and a full-year fiscal 2020 net economic earnings impact of approximately $0.09 per diluted share. Reported impacts included higher bad-debt expense, lost late-payment fees and reduced commercial/industrial volumes, partly offset by cost reductions. No COVID-related regulatory assets or cost deferrals had been recorded at June 30. Spire Missouri had requested regulatory authority to track and defer certain pandemic costs and lost revenues; hearings were scheduled later in 2020.
- Regulation: A Missouri settlement approved in Q3 requires a $15.0 one-time customer bill credit in August 2020 related to ISRS recovery disputes. The filing says $12.2 had been provided for in fiscal 2019, with the remaining $2.8 affecting fiscal 2020 revenue and earnings; the Q3 provision included a $2.0 reversal. Missouri legislation clarifying ISRS eligibility was signed July 2, 2020 and was to take effect August 28, 2020.
- Legal and environmental matters: The filing describes ongoing appeals and proceedings concerning Missouri ISRS recovery and the FERC certificate for Spire STL Pipeline. It also discusses former manufactured-gas-plant and Superfund-related matters. Management did not expect the disclosed matters to materially affect financial condition or results, but noted uncertainty around potential remediation costs and recoveries.
- Other risks: Management cited pandemic duration and economic effects, customer collections and demand, weather, gas-price and supply volatility, regulatory and litigation outcomes, access to capital, pension investment performance, cyber and operational-system risks, and environmental and safety requirements. The company reported investment-grade ratings with stable outlooks and said it believed it had adequate capital-market access and resources.
Important facts for investors to verify
- Confirm the filing period: the supplied filing is for the quarter ended June 30, 2020, despite the 2019 Q3 request metadata.
- Review the impairment assumptions and any subsequent developments in Spire Storage’s development plan, valuation, and expected investment requirements.
- Track the Missouri $15.0 customer refund, related ISRS appeals, and the effect of the new ISRS statute on future cost recovery.
- Compare management’s estimated COVID-19 impacts with later reported bad debts, customer demand, regulatory recovery, and cash collection trends.
- Monitor short-term borrowing, the $150.0 term-loan maturity, capital spending, and access to revolving-credit and capital markets.
- Assess reported GAAP earnings separately from non-GAAP net economic earnings, including the exclusions and adjustments used in that measure.