Spire Inc. Form 10-Q Summary
Period clarification: The supplied filing is for the quarter ended June 30, 2021, and the nine months ended June 30, 2021—not 2020 Q3 as stated in the request metadata. It is a combined filing for Spire Inc., Spire Missouri Inc., and Spire Alabama Inc. Financial statements are unaudited. Dollar amounts are in millions unless noted.
Business context and reporting period
Spire operates regulated natural gas utilities and a nonregulated Gas Marketing business. Nearly all earnings are generally generated by the Gas Utility segment, and results are seasonal, typically weighted toward the November–April heating season. Accordingly, interim results may not indicate full-year performance.
Key financial results
| Spire consolidated | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Nine months ended June 30, 2021 | Nine months ended June 30, 2020 |
|---|---|---|---|---|
| Operating revenue | $327.8 | $321.1 | $1,945.3 | $1,603.5 |
| Operating income (loss) | $33.2 | $(106.5) | $423.5 | $206.3 |
| Net income (loss) | $5.3 | $(92.3) | $281.6 | $108.3 |
| Diluted EPS | $0.03 | $(1.87) | $5.23 | $1.90 |
| Net economic earnings (non-GAAP) | $6.9 | $7.3 | $279.4 | $223.1 |
| Net economic earnings per diluted share (non-GAAP) | $0.06 | $0.07 | $5.18 | $4.14 |
Quarterly operating income and net income improved sharply from the prior-year quarter, primarily because that quarter included a $148.6 impairment charge ($117.3 after tax). Excluding that charge, management said quarterly net income declined $19.7 year over year, largely due to weaker Gas Marketing results and slightly lower Gas Utility performance. Quarterly contribution margin, a non-GAAP measure, was $213.0 versus $231.0, as the $25.8 decline in Gas Marketing more than offset a $5.7 increase in Gas Utility and a $2.4 increase in Other.
For the nine-month period, operating income and net income increased year over year, also reflecting the absence of the prior-year impairment. Net economic earnings rose to $279.4 from $223.1, with growth in both Gas Utility and Gas Marketing. Nine-month contribution margin increased to $966.3 from $891.9.
- Gas Utility: Nine-month net income was $255.0, versus $222.0. Drivers included higher Missouri infrastructure surcharge revenue, the $9.0 Missouri pension-cost regulatory adjustment, colder-weather volumetric impacts, Alabama rate adjustments, and lower operating costs. Quarterly Gas Utility net economic earnings increased $3.9 year over year.
- Gas Marketing: Nine-month net income was $33.5, versus $13.6, benefiting from strong results during February’s extreme weather. Quarterly net economic loss was $5.2, versus earnings of $0.1, reflecting weaker contribution margin, derivative and fair-value movements, lower volumes and basis differentials, and higher demand charges.
Cash flow, liquidity, and debt
- Nine-month operating cash flow was $220.7, down from $453.8. Management attributed the decrease principally to working-capital and regulatory timing, including higher receivables and delayed collections related to the February 2021 cold-weather event.
- Capital expenditures were $463.2, compared with $475.7. Management expected fiscal 2021 capital expenditures of approximately $590.
- Financing provided $260.8, compared with $17.9. Cash and cash equivalents were $23.9 at June 30, 2021, versus $4.1 at September 30, 2020.
- At June 30, Spire reported $3,049.8 of long-term debt including current portion, and $461.0 of notes payable. Long-term debt fair value was estimated at $3,440.2. Total debt was below 60% of total capitalization for each borrower under the revolving-credit covenant; the covenant limit is 70%.
- The companies shared a $975.0 revolving credit facility expiring October 2023. Spire had investment-grade ratings with stable outlooks as of June 30. Management stated it believed capital-market access and available resources were adequate for anticipated needs.
- Spire issued $175.0 of equity units in February; net proceeds were $169.3. The units include stock purchase contracts requiring a variable number of common shares to be issued in March 2024. Spire Missouri issued $305.0 of 3.30% first mortgage bonds due 2051; Spire Alabama issued $150.0 of 2.04% senior notes due 2030.
Material developments, outlook, and risks
- Spire STL Pipeline: In June 2021, the D.C. Circuit vacated the pipeline’s certificate and remanded the matter to FERC; the vacatur was not yet effective pending reconsideration. The pipeline and Spire Missouri pursued further legal and regulatory action. Pipeline assets were carried at more than $270. If service is halted, impairment and supply-capacity constraints could materially affect Spire and Spire Missouri; the filing warns that replacement capacity may be difficult to secure and customer curtailment may be necessary in prolonged cold weather.
- February cold-weather event: Spire Missouri invoiced noncompliant marketers $195.8 for gas and related penalties, but had collected only $3.2 by the filing. Three large counterparties had not paid, and lawsuits and regulatory complaints remained pending; management considered collection probable. Separately, a $25.0 regulatory liability was recorded for Spire Missouri’s share of unusually large off-system sales, with the company considering customer distribution of some or all of its usual share. Spire Marketing also faced commercial and regulatory disputes; potential liabilities were estimated but could materially differ from final settlements.
- Missouri rate case: Spire Missouri sought a net base-rate increase of $64.2, in addition to $47.3 already being recovered through the ISRS, for a total request of $111.5. A unanimous settlement with parties addressed nearly 40 issues, but hearings and further proceedings remained underway as of the filing. The requested outcome is not assured.
- Other regulatory items: The Missouri Supreme Court reversed a prior disallowance of $9.0 in pension costs; the MoPSC was to address the matter in the ongoing rate case. Spire Storage’s FERC application to expand capacity and pipeline connectivity remained pending.
- Commitments and contingencies: Minimum payments under natural gas storage, transportation, and supply contracts were estimated at $1,579.2 for Spire, $1,200.6 for Spire Missouri, and $275.5 for Spire Alabama. Environmental remediation exposures were described as not material based on current estimates, but future costs are uncertain. Management noted that environmental law changes could add costs.
- Other risks and outlook: Management cited weather and catastrophic events, natural-gas price and supply volatility, COVID-19 effects, regulation and litigation, customer collections, access to capital, cybersecurity and system disruptions, and workforce costs. It reported effective disclosure controls and no material change in internal controls during the quarter. No specific earnings guidance is provided in the supplied text.
Most important facts for investors to verify
- Confirm the reporting period: the filing covers Q3 and nine months of fiscal 2021, not 2020 Q3.
- Track the D.C. Circuit/FERC proceedings and whether Spire STL Pipeline remains authorized and in service, including implications for Missouri gas supply and potential asset impairment.
- Monitor collection and litigation outcomes for the $195.8 marketer invoices, and the ultimate customer treatment of the $25.0 off-system-sale regulatory liability.
- Review the final Missouri rate-case outcome against the $111.5 total request, including the treatment of deferred costs, pension costs, and ISRS recovery.
- Assess whether operating cash flow, receivables collection, capital spending, and debt funding remain consistent with management’s liquidity assessment and approximately $590 fiscal 2021 capex expectation.
- Interpret GAAP comparisons in light of the prior-year $148.6 impairment and distinguish reported earnings from management’s non-GAAP net economic earnings and contribution margin.