Algonquin Power & Utilities (AQN) - 2023 Q2 - Quarterly Report

Unaudited Interim Consolidated Financial Statements Interim Consolidated Statements of Operations AQN reported a significant increase in net loss for Q2 2023, primarily due to long-term investment losses, while six-month net earnings attributable to shareholders declined Consolidated Statements of Operations Highlights (in thousands of U.S. dollars, except per share amounts) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $627,871 | $619,385 | $1,406,498 | $1,352,622 | | Operating Income | $93,714 | $107,035 | $236,188 | $244,281 | | Loss from Long-term Investments | ($277,696) | ($113,380) | ($57,684) | ($124,069) | | Net Loss | ($262,321) | ($62,322) | ($12,711) | ($9,724) | | Net (Loss) Earnings Attributable to Shareholders | ($253,231) | ($33,387) | $16,908 | $57,578 | | Basic and Diluted Net (Loss) Earnings Per Share | ($0.37) | ($0.05) | $0.02 | $0.08 | Interim Consolidated Statements of Comprehensive Income (Loss) The company reported a significantly increased comprehensive loss for Q2 2023, primarily due to OCI volatility, while the six-month period saw a reversal to comprehensive income Comprehensive Income (Loss) Summary (in thousands of U.S. dollars) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Loss | ($262,321) | ($62,322) | ($12,711) | ($9,724) | | Other Comprehensive Income (Loss), net of tax | $35,728 | ($61,412) | $68,538 | ($112,446) | | Comprehensive (Loss) Income | ($226,593) | ($123,734) | $55,827 | ($122,170) | | Comprehensive (Loss) Income Attributable to Shareholders | ($217,900) | ($93,359) | $85,234 | ($54,115) | Interim Consolidated Balance Sheets Total assets remained stable at $17.97 billion, while total liabilities increased to $11.14 billion, primarily due to higher long-term debt Balance Sheet Highlights (in thousands of U.S. dollars) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $1,048,996 | $1,094,481 | | Total Assets | $17,968,713 | $17,627,613 | | Total Current Liabilities | $1,471,480 | $1,534,460 | | Total Long-Term Debt | $7,569,344 | $7,088,743 | | Total Liabilities | $11,133,247 | $10,791,150 | | Total Equity | $6,835,466 | $6,836,439 | Interim Consolidated Statement of Equity Total equity remained stable at $6.84 billion, with OCI gains largely offset by net loss attributable to non-controlling interests and dividends Statement of Equity Reconciliation - Six Months Ended June 30, 2023 (in thousands of U.S. dollars) | Item | Amount | | :--- | :--- | | Balance, December 31, 2022 | $6,836,439 | | Net Earnings (Loss) | ($12,711) | | Other Comprehensive Income (OCI) | $68,538 | | Dividends declared and distributions | ($157,969) | | Contributions from non-controlling interests | $107,933 | | Share issuances and other | ($4,764) | | Balance, June 30, 2023 | $6,835,466 | Interim Consolidated Statements of Cash Flows Operating cash flow slightly decreased, while investing activities significantly reduced cash usage, and financing activities provided less cash compared to the prior year Cash Flow Summary - Six Months Ended June 30 (in thousands of U.S. dollars) | Cash Flow Category | 2023 | 2022 | | :--- | :--- | :--- | | Operating Activities | $294,677 | $301,558 | | Investing Activities | ($494,568) | ($1,314,533) | | Financing Activities | $228,518 | $981,721 | | Net Increase (Decrease) in Cash | $29,499 | ($33,100) | Notes to the Unaudited Interim Consolidated Financial Statements Note 3: Business Acquisition This note details the termination of the Kentucky Power acquisition, resulting in a $46.5 million loss, and the acquisition of the remaining 50% of the Deerfield II wind farm Kentucky Power Company Acquisition Termination The company terminated its agreement to acquire Kentucky Power Company, resulting in a $46.5 million loss from the write-off of transaction costs - The company terminated its agreement to acquire Kentucky Power Company on April 17, 2023[23] - A loss of $46.5 million was recognized for the six months ended June 30, 2023, due to the write-off of costs related to the terminated transaction[23] Acquisition of Deerfield II Wind Facility AQN acquired the remaining 50% of the Deerfield II wind farm for $23.1 million, followed by additional funding from tax equity investors - Acquired the remaining 50% of the Deerfield II wind farm for $23.1 million on June 15, 2023[24] Note 5: Regulatory Matters The company is involved in several regulatory proceedings, including rate increases for CalPeco Electric and St. Lawrence Gas, and a potential $45 million loss for Empire Electric - CalPeco Electric System (California) received final approval for a revenue increase of $26,979,000, with new rates effective June 2023 and retroactive to January 2022[30] - St. Lawrence Gas (New York) was authorized for a revenue increase of $5,249,000 to be implemented over three years, effective July 1, 2023[30] - Empire Electric (Missouri) may incur a one-time net loss of approximately $45,000,000 related to a securitization order if it does not pursue further appeals[30] Note 6: Long-Term Investments Long-term investments decreased to $1.72 billion, primarily due to a fair value loss on Atlantica, contributing to a $57.7 million total loss from investments Long-Term Investment Breakdown (in thousands of U.S. dollars) | Investment Type | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Investments carried at fair value (incl. Atlantica) | $1,213,718 | $1,344,207 | | Other long-term investments (incl. equity-method) | $507,045 | $462,325 | | Total | $1,720,763 | $1,806,532 | Loss from Long-Term Investments (in thousands of U.S. dollars) | Component | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Fair value loss on investments | ($311,410) | ($132,026) | | Dividend and interest income | $26,616 | $54,272 | | Other long-term investments income | $7,098 | $20,070 | | Total Loss from Long-Term Investments | ($277,696) | ($57,684) | Note 7: Long-Term Debt Total long-term debt increased to $8.08 billion due to higher credit facility draws, leading to a rise in interest expense and a decrease in available liquidity Long-Term Debt Summary (in thousands of U.S. dollars) | Category | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Senior unsecured revolving credit facilities | $801,929 | $351,786 | | Total Long-Term Debt (including current portion) | $8,083,147 | $7,512,017 | | Total Liquidity and Capital Reserves | $1,859,158 | $2,346,330 | - Interest expense for the six months ended June 30, 2023, increased to $171.6 million from $122.5 million in the same period of 2022, largely due to higher costs on commercial paper and credit facility draws[50] Note 10: Shareholders' Capital Common shares outstanding increased to 688.8 million, with the dividend reinvestment plan suspended and $3.9 million in share-based compensation expense recorded - The dividend reinvestment plan (DRIP) was suspended effective March 16, 2023, with dividends to be paid only in cash while suspended[58] - During the six months ended June 30, 2023, the company issued 4,370,289 common shares under the DRIP before its suspension[58] - As of June 30, 2023, total unrecognized compensation costs related to non-vested share-based awards were $39.5 million, expected to be recognized over 2.27 years[58] Note 12: Dividends The company declared a reduced quarterly dividend of $0.1085 per common share, reflecting an earlier announced dividend cut Common Share Dividends Declared | Period | Dividend per Share (USD) | | :--- | :--- | | Three Months Ended June 30, 2023 | $0.1085 | | Three Months Ended June 30, 2022 | $0.1808 | | Six Months Ended June 30, 2023 | $0.2170 | | Six Months Ended June 30, 2022 | $0.3514 | Note 18: Segmented Information AQN's Regulated Services Group was the primary performance driver, and the company announced its intention to sell the Renewable Energy Group - On August 10, 2023, the company announced that it will pursue a sale of the Renewable Energy Group following a strategic review[85] Segment Performance - Six Months Ended June 30, 2023 (in thousands of U.S. dollars) | Segment | Revenue | Operating Income | | :--- | :--- | :--- | | Regulated Services Group | $1,206,394 | $235,289 | | Renewable Energy Group | $150,410 | $11,816 | | Corporate | — | ($10,917) | | Total | $1,356,804 | $236,188 | Total Assets by Segment (in thousands of U.S. dollars) | Segment | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Regulated Services Group | $12,247,694 | $12,109,575 | | Renewable Energy Group | $5,401,782 | $5,251,933 | | Corporate | $319,237 | $266,105 | | Total | $17,968,713 | $17,627,613 | Note 19: Commitments and Contingencies The company faces ongoing litigation related to the 2020 Mountain View Fire and has significant future commitments totaling approximately $1.97 billion - The company is a defendant in 17 active lawsuits related to the November 2020 Mountain View Fire; the likelihood of success cannot be predicted, but the company has wildfire liability insurance[98] Future Commitments as of June 30, 2023 (in thousands of U.S. dollars) | Commitment Type | Total Amount | | :--- | :--- | | Power purchase | $321,954 | | Natural gas supply and service agreements | $479,791 | | Service agreements | $578,685 | | Capital projects | $16,537 | | Land easements and others | $572,507 | | Total | $1,969,474 | Note 21: Financial Instruments The company uses various financial instruments, including derivatives, to manage interest rate, foreign exchange, and commodity price risks, with $63.3 million in supplier financing invoices outstanding - The company uses derivative instruments to hedge cash flow variability for natural gas purchases, price risk on power sales, interest rate risk on debt, and foreign currency exposure[108][110][114] - The company expects $19.7 million of unrealized losses currently in Accumulated Other Comprehensive Income (AOCI) to be reclassified into earnings within the next 12 months as underlying hedged transactions settle[114] - Under its supplier financing programs, the company had confirmed invoices of $63.3 million included in accounts payable as of June 30, 2023, a significant increase from $16.8 million at year-end 2022[121]