NiSource Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. NiSource is a regulated natural gas and electric utility holding company serving six states, with Gas Distribution Operations and Electric Operations as its principal segments. Figures below are unaudited.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Operating revenue | $986.0M | $962.7M | $2,531.6M | $2,568.2M |
| Operating income | $142.2M | $91.7M | $575.4M | $239.9M |
| Net income (loss) attributable to NiSource | $60.3M | $(4.7)M | $355.8M | $70.9M |
| Net income (loss) available to common shareholders | $46.5M | $(18.5)M | $328.2M | $43.3M |
| Diluted EPS | $0.11 | $(0.05) | $0.80 | $0.11 |
| Cash from operating activities | Not separately presented quarterly | $703.0M | $707.7M | |
| Capital expenditures | Not separately presented quarterly | $798.1M | $819.3M |
Q2 revenue rose 2.4%, while six-month revenue was slightly lower year over year. Six-month earnings improved substantially, principally because 2020 included a large loss on the sale of the Massachusetts Business. Operating income margin was approximately 14.4% for Q2 2021 versus 9.5% in Q2 2020, and 22.7% for the first half versus 9.3% in the prior-year period; these are calculated from reported revenue and operating income.
Six-month operating cash flow was nearly flat year over year. Investing cash outflow was $862.4M; operating cash flow less capital expenditures was approximately $(95.1)M. Cash and cash equivalents were $77.5M at June 30, with restricted cash of $12.9M.
Balance sheet, funding and liquidity
- Long-term debt was $9.20B, plus $45.3M current portion; total debt including the current portion was $9.25B. Short-term borrowings were zero, compared with $503.0M at December 31, 2020.
- Total stockholders’ equity was $6.61B. NiSource completed an $835.5M net-proceeds Series A Equity Units offering in April; the units include future common-stock purchase contracts and mandatory convertible preferred stock.
- Net available liquidity was $2.16B, including a $1.85B revolving credit facility. The debt-to-capitalization covenant ratio was 58.6% against a 70% maximum.
Changes and segment performance
- Gas Distribution: Q2 operating income was $61.2M, up $59.5M; first-half operating income was $408.1M, up $327.9M. Results benefited substantially from the absence of the 2020 Massachusetts sale loss and from lower expenses. Revenue declined as the sold Massachusetts business was no longer included; new rates partly offset the reduction.
- Electric Operations: Q2 operating income was $79.6M, down $7.3M; first-half operating income was $167.5M, up $2.1M. Higher customer usage, particularly industrial demand recovering from COVID-related weakness, supported revenue, while generation maintenance, employee and other costs pressured results.
- In March 2021, NiSource recorded a further $6.9M pretax loss related to final purchase-price adjustments for the 2020 Massachusetts Business sale. Total sale loss through June 30 was $419.3M. The Q2 2020 comparison included an $83.8M consolidated asset-sale loss.
- Cash flow from operations was reduced by lower collections of gas and fuel costs, partly offset by lower Greater Lawrence Incident payments: approximately $11M in first-half 2021 versus $162M in first-half 2020.
Outlook, management commentary and risks
- NiSource projected 2021 capital expenditures of approximately $1.9B–$2.1B. The filing text does not provide a clear full-year earnings guidance figure.
- NIPSCO’s plan targets retirement of all coal generation by 2028 and a 90% reduction in NiSource greenhouse-gas emissions by 2030 from 2005 levels. Management estimated more than $4B of customer savings over 30 years and approximately $2B of incremental capital investment, primarily in 2022–2023.
- MISO approved suspension and retirement of two R.M. Schahfer coal units effective October 1, 2021; the remaining two were scheduled for retirement in 2023. Estimated net book value of the coal units and associated plant to be retired was $823.1M. An IURC sub-docket was reviewing potential customer cost impacts; NiSource did not expect it to change the planned retirement timing.
- Greater Lawrence matters remain a material uncertainty. The Massachusetts subsidiary’s probation ended June 23, 2021, but NiSource’s deferred prosecution agreement obligations and certain bodily-injury and wrongful-death claims remained relevant. The company could not estimate losses for remaining claims; insurance recovery for approximately $258M of pipeline replacement costs was also uncertain.
- Other risks include environmental remediation liabilities of $93.3M, potential additional MGP remediation costs of up to $17M above the recorded estimate, customer collection risks and remaining COVID-19 service-disconnection moratoriums in Virginia and Maryland. Management reported no goodwill impairment and stated disclosure controls were effective.
- Management highlighted regulatory rate proceedings, infrastructure and renewable construction execution, extreme weather, commodity and interest-rate exposure, cyber and operational risks, and evolving climate and pipeline-safety requirements.
Most important facts for investors to verify
- How much of the earnings improvement reflects recurring utility performance versus the prior-year Massachusetts sale loss and other nonrecurring items.
- Progress, spending, regulatory recovery and customer impacts of the coal-to-renewables transition, including the $2B incremental investment estimate.
- Cash generation relative to capital spending, future financing needs, debt levels and the dilution or payment terms of equity units and ATM forward agreements.
- Developments and potential cash exposure from Greater Lawrence claims, the deferred prosecution agreement, environmental matters and insurance recovery.
- Outcomes and timing of pending rate cases and the impact of COVID-related collection protections on receivables and bad-debt costs.