Business context and reporting period
This filing is Spire Inc.’s combined unaudited Form 10-Q, filed August 4, 2022, for the quarter and nine months ended June 30, 2022 (Spire’s fiscal third quarter and year to date). The filing also presents separate statements for Spire Missouri and Spire Alabama. Spire operates regulated natural gas utilities and a non-regulated Gas Marketing business; results are seasonal, with utility earnings typically concentrated in November through April. The request metadata identifies 2021 Q3, but the filing itself reports 2022 Q3.
Financial performance and position
Amounts below are in millions of dollars, except per-share data and percentages.
- Quarter: Revenue was $448.0, up from $327.8; operating income was $37.9 versus $33.2. Net loss was $1.4 versus net income of $5.3, and diluted EPS was $(0.10) versus $0.03. Net economic earnings, a non-GAAP measure, were $4.1 ($0.01 per diluted share), down from $6.9 ($0.06).
- Nine months: Revenue was $1,884.3 versus $1,945.3; operating income was $378.4 versus $423.5. Net income was $227.9 versus $281.6, and diluted EPS was $4.16 versus $5.23. Net economic earnings were $247.7 ($4.54 per diluted share), compared with $279.4 ($5.18).
- Margins: GAAP operating margin was approximately 8.5% for the quarter versus 10.1% a year earlier, and 20.1% year to date versus 21.8%. Non-GAAP contribution margin was $221.4 for the quarter versus $213.0, and $942.7 year to date versus $966.3.
- Cash flow: Nine-month operating cash flow was $204.6 versus $220.7; capital expenditures were $402.5 versus $463.2; investing cash use was $398.3 versus $461.7. Financing provided $212.5 versus $260.8. Cash, cash equivalents and restricted cash totaled $30.1 at period-end, including $14.1 of restricted cash.
- Debt and liquidity: At June 30, long-term debt including current maturities was $3,239.1 and short-term notes payable were $709.2. The company reported equity at 47% of consolidated capitalization. A $1.3 billion revolving credit facility had no borrowings at June 30; the company also had $709.2 of notes payable outstanding. Management said capital resources were adequate. Cash and cash equivalents on the balance sheet were $16.0.
- Capital and dividends: Fiscal 2022 capital expenditures were planned at $540.0. Spire issued shares through its at-the-market program during the period and declared common dividends of $2.055 per share for the nine months.
Material changes versus the prior comparable period
- Quarterly consolidated net income declined $6.7, principally due to an $7.9 reduction in Gas Utility results, partly offset by a $1.5 improvement in Gas Marketing. Utility contribution margin rose, but Missouri earnings were affected by the timing of regulatory recovery, while depreciation and property taxes increased with infrastructure investment.
- Year-to-date net income fell $53.7. Gas Marketing income declined from $33.5 to a $0.4 loss, reflecting the exceptionally favorable market conditions during Winter Storm Uri in the prior-year period and current-year unrealized derivative fair-value losses. Gas Utility income also declined, despite higher contribution margin, as depreciation, taxes and interest costs increased.
- Year-to-date Gas Utility revenue was lower in part because the prior period included $195.8 in Missouri Operational Flow Order charges and unusually high off-system sales. Current-period Missouri revenue was reduced by approximately $150 following a settlement in principle over the 2021 storm charges; the settlement was approved by the Missouri regulator in May 2022.
- Spire Missouri’s new rates took effect December 23, 2021, increasing aggregate annual gross base-rate revenue by $72.2, including $24.9 incremental to amounts already being collected through the infrastructure surcharge. Spire Alabama’s rate stabilization adjustments also supported revenue and contribution margin.
Outlook, commentary, risks and unusual items
- Management did not provide a consolidated earnings forecast in the supplied filing text. It planned $540.0 of capital expenditures for fiscal 2022. Spire Missouri’s pending general rate case seeks an approximately $151.9 annual net revenue increase; the filing expected resolution in nine to eleven months, with an evidentiary hearing scheduled to begin November 28, 2022.
- Spire STL Pipeline was operating under temporary FERC certificates after a court vacated its permanent certificate and remanded the matter. The FERC draft environmental impact statement found continued-operation impacts generally less than significant, while not characterizing greenhouse-gas impacts as significant or insignificant. The company warned that loss of service could adversely affect results and potentially impair pipeline assets carried at over $270.
- Spire Marketing’s Winter Storm Uri-related commercial disputes remain uncertain; final settlement amounts may materially differ from current estimates. The filing also discusses environmental and other litigation contingencies, while stating that recorded MGP-site estimates were immaterial and management did not expect them to materially affect results.
- Other risks include natural-gas price and supply volatility, weather, regulatory and rate decisions, litigation, financing access and covenant compliance, customer collections, cybersecurity and operational disruptions, and pension obligations. Management reported no material changes to previously disclosed risk factors. The company and utility registrants said disclosure controls were effective and reported no material internal-control changes.
- Interest expense rose year over year amid higher borrowing levels and rates. Spire Missouri issued $300.0 of floating-rate first mortgage bonds due December 2024. The revolving credit agreement was amended in July 2022 to extend its term through July 2027 and set a $1.3 billion aggregate commitment.
Most important facts for investors to verify
- Confirm the fiscal period: the filing is for the quarter ended June 30, 2022, not 2021 Q3 as stated in the request metadata.
- Track progress and regulatory outcomes for Spire Missouri’s rate case and deferred overhead costs, and the recovery of gas costs through PGA/ACA mechanisms.
- Monitor the Spire STL Pipeline’s permanent FERC authorization, related court proceedings and potential operational or impairment consequences.
- Assess the sustainability of cash generation relative to capital spending, debt service and dividends, including commercial-paper borrowing and the availability of committed credit.
- Review Gas Marketing derivative valuation volatility and the resolution of remaining Winter Storm Uri counterparty disputes.