Algonquin Power & Utilities (AQN) - 2023 Q3 - Quarterly Report

Unaudited Interim Consolidated Financial Statements Interim Consolidated Statements of Operations For the nine months ended September 30, 2023, Algonquin Power & Utilities Corp. reported a net loss attributable to common shareholders of $163.9 million, or ($0.24) per share, compared to a net loss of $144.2 million, or ($0.21) per share, in the prior year period, driven by higher interest expenses and significant other net losses despite a slight increase in total revenue Consolidated Statement of Operations Highlights (Nine Months Ended Sep 30) | Metric (in thousands of U.S. dollars) | 2023 | 2022 | | :--- | :--- | :--- | | Total Revenue | $2,031,236 | $2,017,063 | | Operating Income | $369,547 | $379,182 | | Loss Before Income Taxes | ($285,103) | ($249,942) | | Net Loss | ($200,037) | ($217,059) | | Net Loss Attributable to Common Shareholders | ($163,930) | ($144,227) | | Basic and Diluted Net Loss Per Share | ($0.24) | ($0.21) | - For the third quarter of 2023, the company reported a net loss per share of ($0.26), an improvement from the ($0.29) loss per share in Q3 2022, primarily due to a smaller loss from long-term investments compared to the prior-year quarter[2] Unaudited Interim Consolidated Statements of Comprehensive Income (Loss) The company recorded a comprehensive loss attributable to shareholders of $107.3 million for the nine months ended September 30, 2023, a significant improvement from the $261.0 million comprehensive loss in the same period of 2022, primarily due to a positive change in the fair value of cash flow hedges Comprehensive Income (Loss) (Nine Months Ended Sep 30) | Metric (in thousands of U.S. dollars) | 2023 | 2022 | | :--- | :--- | :--- | | Net Loss | ($200,037) | ($217,059) | | Other Comprehensive Income (Loss), net of tax | $50,577 | ($125,889) | | Comprehensive Loss | ($149,460) | ($342,948) | | Comprehensive Loss Attributable to Shareholders | ($107,267) | ($261,031) | Unaudited Interim Consolidated Balance Sheets As of September 30, 2023, total assets increased slightly to $18.0 billion from $17.6 billion at year-end 2022, driven by an increase in property, plant, and equipment, while total liabilities also grew to $11.4 billion from $10.8 billion, primarily due to a rise in long-term debt, resulting in a decrease in total equity from $6.8 billion to $6.5 billion Balance Sheet Summary (as of Sep 30, 2023 vs Dec 31, 2022) | Metric (in thousands of U.S. dollars) | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $17,982,766 | $17,627,613 | | Property, plant and equipment, net | $12,449,278 | $11,944,885 | | Long-term investments | $1,573,368 | $1,806,532 | | Total Liabilities | $11,440,163 | $10,791,174 | | Long-term debt (including current portion) | $8,367,096 | $7,512,017 | | Total Equity | $6,542,603 | $6,836,439 | Unaudited Interim Consolidated Statement of Equity For the nine months ended September 30, 2023, total equity decreased by approximately $294 million to $6.54 billion, primarily driven by a net loss of $200 million and dividends declared of $243 million, partially offset by contributions from non-controlling interests and positive other comprehensive income Changes in Total Equity (Nine Months Ended Sep 30, 2023) | Item (in thousands of U.S. dollars) | Amount | | :--- | :--- | | Balance, December 31, 2022 | $6,836,439 | | Net loss | ($200,037) | | Dividends declared and distributions | ($243,340) | | Other comprehensive income (OCI) | $50,577 | | Contributions from non-controlling interests | $107,933 | | Balance, September 30, 2023 | $6,542,603 | Unaudited Interim Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, cash from operating activities was $427.3 million, a slight increase from $404.5 million in the prior year, while investing activities used $839.2 million, significantly less than the $1.64 billion used in 2022, and financing activities provided $438.4 million, a sharp decrease from $1.23 billion in 2022 Cash Flow Summary (Nine Months Ended Sep 30) | Cash Flow Activity (in thousands of U.S. dollars) | 2023 | 2022 | | :--- | :--- | :--- | | Net cash from operating activities | $427,304 | $404,463 | | Net cash used in investing activities | ($839,227) | ($1,637,195) | | Additions to PP&E and intangibles | ($694,047) | ($897,193) | | Acquisitions of operating entities | $0 | ($632,797) | | Net cash from financing activities | $438,422 | $1,231,843 | | Increase in long-term debt | $1,787,190 | $2,815,506 | | Repayments of long-term debt | ($1,047,263) | ($1,308,345) | | Cash dividends on common shares | ($247,005) | ($281,922) | Notes to the Unaudited Interim Consolidated Financial Statements Note 1: Significant accounting policies The financial statements are prepared in accordance with U.S. GAAP, with accounting policies consistent with those from the year-ended December 31, 2022, and the company's operating results are subject to seasonal fluctuations across its electric, gas, and water utilities, as well as its renewable energy assets, with the U.S. dollar as the reporting currency - The company's operations are organized into two primary business units: the Regulated Services Group and the Renewable Energy Group[18] - Operating results experience seasonal fluctuations, with natural gas demand higher in winter and solar energy generation greater in summer[19] Note 3: Business acquisitions The company terminated its agreement to acquire Kentucky Power Company, resulting in a $46.5 million write-off of related costs in the first nine months of 2023, while completing the acquisition of the remaining 50% of the Deerfield II wind farm for $23.1 million - On April 17, 2023, the agreement to acquire Kentucky Power Company from AEP was mutually terminated[23] - The company recognized a loss of $46.5 million in the nine months ended September 30, 2023, related to the write-off of costs from the terminated Kentucky Power Transaction[23] - On June 15, 2023, the company acquired the remaining 50% of the Deerfield II wind farm for $23.1 million[23] Note 5: Regulatory matters The company's regulated utilities operate under cost-of-service regulation, with recently completed proceedings including a revenue increase for CalPeco Electric System and St. Lawrence Gas, and a significant MPSC order for Empire Electric that authorized securitization of costs from a 2021 winter storm and the Asbury plant retirement, but resulted in a one-time net loss of $63.5 million due to disallowed costs - Empire Electric received an order to securitize approximately $290.4 million in costs related to the Midwest Extreme Weather Event and the Asbury plant retirement, but the exclusion of certain costs resulted in a one-time net loss of $63.5 million ($48.5 million net of tax)[29] Regulatory Assets and Liabilities (as of Sep 30, 2023) | Category (in thousands of U.S. dollars) | Amount | | :--- | :--- | | Total regulatory assets | $1,284,878 | | Key Asset: Fuel and commodity cost adjustments | $333,813 | | Total regulatory liabilities | $682,272 | | Key Liability: Income taxes | $297,549 | Note 6: Long-term investments The company's long-term investments are dominated by its holding in Atlantica, carried at fair value, and for the nine months ended September 30, 2023, the company recognized a total loss of $258.7 million from long-term investments, primarily driven by a $352.8 million fair value loss on these investments, with the Atlantica holding being the main contributor, and the company also has significant commitments and maximum exposure of over $1 billion related to its Variable Interest Entities (VIEs) Loss from Long-Term Investments (Nine Months Ended Sep 30) | Category (in thousands of U.S. dollars) | 2023 | 2022 | | :--- | :--- | :--- | | Fair value loss on investments | ($352,824) | ($484,387) | | Dividend and interest income | $76,565 | $80,597 | | Equity method loss & other | $17,606 | ($52) | | Total Loss from Long-Term Investments | ($258,653) | ($403,842) | - The fair value of the investment in Atlantica decreased from $1.27 billion at year-end 2022 to $935.2 million as of September 30, 2023[34] - The company's maximum exposure related to its Variable Interest Entities (VIEs), including carrying amount, loans, and guarantees, was approximately $1.0 billion as of September 30, 2023[42] Note 7: Long-term debt Total long-term debt increased to $8.37 billion as of September 30, 2023, from $7.51 billion at the end of 2022, primarily due to higher drawings on senior unsecured revolving credit facilities, while total liquidity and capital reserves decreased significantly from $2.35 billion to $1.45 billion over the same period, and subsequent to the quarter, the company extended maturities on certain credit facilities and redeemed $287.5 million of subordinated notes Long-Term Debt Composition (as of Sep 30, 2023) | Borrowing Type (in thousands of U.S. dollars) | Amount | | :--- | :--- | | Senior unsecured revolving credit facilities | $1,334,516 | | Senior unsecured notes (Green Equity Units) | $1,144,376 | | Senior unsecured notes | $1,406,963 | | Subordinated unsecured notes | $1,657,196 | | Other Debt | $2,824,045 | | Total Long-Term Debt | $8,367,096 | - Total liquidity and capital reserves stood at $1.45 billion as of September 30, 2023, a decrease from $2.35 billion at December 31, 2022[47] - Subsequent to quarter-end, the company redeemed all $287.5 million of its 6.875% fixed-to-floating subordinated notes[48] Note 10: Shareholders' capital The company's common shares outstanding increased to 689.0 million as of September 30, 2023, with the Dividend Reinvestment Plan (DRIP) suspended effective March 16, 2023, and participating shareholders now receiving cash dividends, while share-based compensation expense for the first nine months of 2023 was $7.8 million - The company suspended its dividend reinvestment plan (DRIP) effective March 16, 2023, with shareholders previously enrolled beginning to receive cash dividends starting with the Q1 2023 dividend[58] - No common shares were issued under the at-the-market (ATM) equity program during the nine months ended September 30, 2023[57] - Total share-based compensation expense was $7.8 million for the nine months ended September 30, 2023, up from $6.6 million in the prior-year period[58] Note 12: Dividends The company declared a common share dividend of $0.1085 per share for the third quarter of 2023, and for the first nine months of 2023, total common dividends were $0.3255 per share, a significant reduction from $0.5322 per share in the same period of 2022, reflecting the company's previously announced dividend cut Dividends Declared Per Common Share | Period | 2023 | 2022 | | :--- | :--- | :--- | | Three months ended Sep 30 | $0.1085 | $0.1808 | | Nine months ended Sep 30 | $0.3255 | $0.5322 | Note 16: Other net losses The company recorded significant other net losses of $119.0 million for the nine months ended September 30, 2023, a substantial increase from $19.3 million in the prior year, with key drivers including a $63.5 million securitization write-off for Empire Electric, $46.5 million in costs from the terminated Kentucky Power acquisition, and $7.6 million in costs related to the planned sale of the renewable energy business Other Net Losses (Nine Months Ended Sep 30, 2023) | Item (in thousands of U.S. dollars) | Amount | | :--- | :--- | | Securitization write-off | $63,495 | | Kentucky termination costs | $46,527 | | Renewable energy business sale costs | $7,557 | | Other | $13,419 | | Acquisition-related settlement payment (Gain) | ($11,983) | | Total Other Net Losses | $119,015 | - The company announced it is pursuing a sale of its renewable energy business and incurred $7.6 million in related costs during the first nine months of 2023[81] Note 18: Segmented information The company operates through two segments: Regulated Services Group and Renewable Energy Group, with the Regulated Services Group generating operating income of $358.2 million and the Renewable Energy Group generating $19.2 million for the nine months ended September 30, 2023, and the company has announced its intention to sell the Renewable Energy Group, though it does not yet meet the criteria for 'held for sale' accounting, with the United States remaining the largest source of revenue - The company is pursuing a sale of its Renewable Energy Group business segment[86] Segment Performance (Nine Months Ended Sep 30, 2023) | Segment (in thousands of U.S. dollars) | Revenue | Operating Income | Property, Plant & Equipment | | :--- | :--- | :--- | :--- | | Regulated Services Group | $1,745,687 | $358,206 | $8,797,756 | | Renewable Energy Group | $214,209 | $19,190 | $3,623,020 | Revenue by Geographic Area (Nine Months Ended Sep 30) | Region (in thousands of U.S. dollars) | 2023 | 2022 | | :--- | :--- | :--- | | United States | $1,635,892 | $1,621,194 | | Canada | $118,474 | $125,986 | | Other regions | $276,870 | $269,883 | | Total | $2,031,236 | $2,017,063 | Note 19: Commitments and contingencies The company is involved in 18 active lawsuits related to the 2020 Mountain View Fire in its CalPeco Electric territory, the outcome of which cannot be reasonably predicted, and the company has wildfire liability insurance, with total future commitments of approximately $1.85 billion as of September 30, 2023, primarily for power purchases, natural gas supply, and service agreements - The company faces 18 active lawsuits and one non-litigation claim concerning the Mountain View Fire of November 2020, and intends to vigorously defend these claims with liability insurance[100] Future Commitments (as of Sep 30, 2023) | Category (in thousands of U.S. dollars) | Total Commitment | | :--- | :--- | | Power purchase | $250,729 | | Natural gas supply and service agreements | $450,121 | | Service agreements | $561,649 | | Land easements and others | $569,115 | | Capital projects | $21,819 | | Total | $1,853,433 | Note 21: Financial instruments The company uses a variety of derivative financial instruments to manage exposure to interest rate, foreign currency, and commodity price risks, holding derivative assets with a fair value of $112.3 million and derivative liabilities of $127.4 million as of September 30, 2023, and utilizing cash flow hedges, net investment hedges, and other derivatives not designated as hedges, with a significant portion of derivative fair values classified as Level 2 and Level 3, and a supplier financing program with $87.5 million in confirmed invoices outstanding Fair Value of Financial Instruments (as of Sep 30, 2023) | Category (in thousands of U.S. dollars) | Carrying Amount | Fair Value | | :--- | :--- | :--- | | Financial Assets | | | | Long-term investments at fair value | $991,593 | $991,593 | | Derivative instruments | $112,328 | $112,328 | | Financial Liabilities | | | | Long-term debt | $8,367,096 | $7,425,499 | | Derivative instruments | $127,420 | $127,420 | - The company expects $25.2 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[117] - The company has a supplier financing program where suppliers can sell their receivables, and as of September 30, 2023, accounts payable included $87.5 million of confirmed invoices under this program, up from $16.8 million at year-end 2022[126]