ALLETE Q3 Net Income Plunges 40% Amid Revenue Drop, Higher Debt

TL;DR

**ALLETE's Q3 results are a red flag, with net income down nearly 40% and debt soaring – proceed with caution.**

AI Summary

ALLETE, Inc. reported a significant decline in net income attributable to ALLETE for the third quarter of 2025, falling to $27.1 million from $45.0 million in the prior-year quarter, a decrease of 39.8%. Basic earnings per share also dropped to $0.47 from $0.78. Total operating revenue decreased by 7.9% to $375.0 million from $407.2 million, primarily due to a substantial reduction in non-utility contracts from $95.4 million to $53.3 million. Operating income saw a sharp decline of 34.6% to $29.6 million from $45.3 million. The company experienced increased interest expense, rising to $25.6 million from $20.3 million, and a notable increase in additions to property, plant, and equipment, which surged to $540.3 million for the nine months ended September 30, 2025, compared to $230.3 million in the same period of 2024. Long-term debt increased to $2,098.9 million from $1,704.7 million at December 31, 2024, reflecting significant capital investments. The company is also subject to an Agreement and Plan of Merger dated May 5, 2024, with Alloy Parent and Alloy Merger Sub, which could impact future operations and financial condition.

Why It Matters

ALLETE's substantial decline in Q3 net income and operating revenue, coupled with a significant increase in long-term debt and capital expenditures, signals potential headwinds for investors. The ongoing merger agreement with Alloy Parent introduces uncertainty, as regulatory approvals and potential commitments could impact future cash flows and operational flexibility. For employees and customers, the increased debt and capital spending might indicate future rate adjustments or operational shifts. In a competitive utility landscape, these financial pressures could affect ALLETE's ability to invest in critical infrastructure and maintain service quality, potentially impacting its market position against peers.

Risk Assessment

Risk Level: high — The risk level is high due to a 39.8% decrease in net income attributable to ALLETE, from $45.0 million in Q3 2024 to $27.1 million in Q3 2025. Additionally, long-term debt increased significantly by 23.1% from $1,704.7 million at December 31, 2024, to $2,098.9 million at September 30, 2025, indicating increased financial leverage and potential interest rate sensitivity. The ongoing merger agreement also presents regulatory and operational uncertainties.

Analyst Insight

Investors should closely monitor the progress and terms of the merger with Alloy Parent, as it represents a significant future catalyst or risk. Given the substantial increase in debt and decline in profitability, consider re-evaluating ALLETE's long-term financial stability and its ability to manage increased interest expenses in a rising rate environment.

Financial Highlights

debt To Equity

1.14

revenue

$375.0M

operating Margin

7.9%

total Assets

$7,152.9M

total Debt

$2,237.0M

net Income

$13.3M

eps

$0.47

gross Margin

27.5%

cash Position

$78.7M

revenue Growth

-7.9%

Revenue Breakdown

Key Numbers

• $27.1M — Net Income Attributable to ALLETE (Q3 2025) (Decreased 39.8% from $45.0M in Q3 2024)
• $0.47 — Basic Earnings Per Share (Q3 2025) (Decreased from $0.78 in Q3 2024)
• $375.0M — Total Operating Revenue (Q3 2025) (Decreased 7.9% from $407.2M in Q3 2024)
• $2,098.9M — Long-Term Debt (Sept 30, 2025) (Increased 23.1% from $1,704.7M at Dec 31, 2024)
• $540.3M — Additions to Property, Plant and Equipment (9M 2025) (Increased significantly from $230.3M in 9M 2024)
• $25.6M — Interest Expense (Q3 2025) (Increased from $20.3M in Q3 2024)
• $53.3M — Non-utility Contracts Revenue (Q3 2025) (Decreased from $95.4M in Q3 2024)
• 58.1M — Shares Outstanding (Sept 30, 2025) (Slight increase from 57.9M at Dec 31, 2024)

Key Players & Entities

• ALLETE, Inc. (company) — Registrant and parent company
• Alloy Parent LLC (company) — Acquiring entity in the merger agreement
• Alloy Merger Sub LLC (company) — Wholly owned subsidiary of Alloy Parent involved in the merger
• Canada Pension Plan Investment Board (company) — Joint owner of Alloy Parent
• Global Infrastructure Management, LLC (company) — Affiliate of investment vehicles managing or advising funds that will jointly own Alloy Parent
• $27.1 million (dollar_amount) — Net income attributable to ALLETE for Q3 2025
• $45.0 million (dollar_amount) — Net income attributable to ALLETE for Q3 2024
• $2,098.9 million (dollar_amount) — Long-term debt as of September 30, 2025
• $1,704.7 million (dollar_amount) — Long-term debt as of December 31, 2024
• $540.3 million (dollar_amount) — Additions to Property, Plant and Equipment for the nine months ended September 30, 2025

FAQ

Risk Factors

• Merger Agreement Uncertainty [high — legal]: The company is subject to an Agreement and Plan of Merger with Alloy Parent and Alloy Merger Sub. While the MPUC voted in favor of approval on October 3, 2025, the consummation of the merger is still subject to the satisfaction of certain closing conditions, including the receipt of the MPUC's written order. Any delays or failure to close could impact future operations and financial condition.
• Increased Debt Load [high — financial]: Long-term debt has increased to $2,098.9 million as of September 30, 2025, from $1,704.7 million at December 31, 2024. This 23.1% increase is largely due to significant capital investments, leading to higher interest expenses of $25.6 million in Q3 2025, up from $20.3 million in Q3 2024.
• Capital Expenditure Surge [medium — operational]: Additions to property, plant, and equipment surged to $540.3 million for the nine months ended September 30, 2025, compared to $230.3 million in the same period of 2024. While this indicates investment in future growth, it strains current cash flows and contributes to the increased debt.
• Regulatory Matters [medium — regulatory]: The company is subject to various regulatory matters, including the MPUC's approval of the merger and deferred accounting for the CCR legacy rule. Changes in regulatory environments or adverse decisions could impact operating costs and revenue streams.
• Non-utility Contract Volatility [medium — market]: Revenue from non-utility contracts decreased significantly from $95.4 million in Q3 2024 to $53.3 million in Q3 2025. This highlights the volatility and dependence on specific large projects within this segment, impacting overall revenue stability.

Industry Context

ALLETE operates in the regulated utility sector, characterized by stable but regulated revenue streams and significant capital intensity for infrastructure maintenance and upgrades. The energy transition is driving investments in renewable energy and grid modernization. Competition exists from other utilities and independent power producers, with regulatory bodies playing a crucial role in approving rates and strategic initiatives.

Regulatory Implications

The company's operations are heavily influenced by regulatory bodies like the MPUC. Decisions regarding rate increases, environmental compliance, and major transactions like the proposed merger have direct and significant impacts on financial performance and strategic direction. Ongoing scrutiny of environmental regulations and energy policies presents a continuous compliance challenge.

What Investors Should Do

1. Monitor Merger Completion
2. Analyze Capital Expenditure Impact
3. Evaluate Non-Utility Segment Performance
4. Scrutinize Debt Levels and Interest Coverage

Key Dates

• 2025-10-03: MPUC Public Hearing - Merger Approval Vote — The MPUC voted in favor of approving the Agreement and Plan of Merger, a key step towards potential acquisition, though a written order is still pending.
• 2025-10-23: MPUC Public Hearing - CCR Legacy Rule Deferred Accounting — Minnesota Power received approval for deferred accounting related to the CCR legacy rule, which could impact future regulatory asset recognition.
• 2025-09-30: End of Third Quarter 2025 — Reporting period for the 10-Q, showing decreased net income, revenue, and increased debt due to capital investments.
• 2025-05-05: Agreement and Plan of Merger — Date of the merger agreement with Alloy Parent and Alloy Merger Sub, outlining the terms of a potential acquisition.

Glossary

Regulatory Assets

Costs that have been incurred and are expected to be recovered from customers in the future through rates approved by regulatory agencies. (ALLETE has $360.4 million in regulatory assets, indicating significant costs subject to future regulatory approval for recovery.)

Regulatory Liabilities

Obligations that are expected to be settled in the future and are subject to regulatory oversight, often related to deferred costs or credits. (The company has $593.5 million in regulatory liabilities, representing future obligations or amounts to be refunded to customers, impacting future cash flows.)

Non-controlling Interest

The portion of equity in a subsidiary that is not attributable to the parent company, representing ownership by external shareholders. (A decrease in non-controlling interest from $542.1 million to $491.3 million suggests changes in ownership structure or performance of subsidiaries.)

Deferred Income Taxes

Taxes that are recognized in the financial statements but are not paid until a future period, often due to differences in accounting and tax rules. (An increase in deferred income taxes to $291.7 million from $253.4 million indicates timing differences in tax recognition, potentially affecting future tax payments.)

Equity Investments

Investments made in other companies where the investor has a significant influence but not control, often accounted for using the equity method. (ALLETE's equity investments increased to $357.7 million, contributing to other income and potentially offering diversification.)

Year-Over-Year Comparison

Compared to the prior year, ALLETE Inc. has experienced a notable downturn in financial performance. Total operating revenue for the nine months ended September 30, 2025, decreased by 2.6% to $1,135.5 million from $1,165.0 million in the same period of 2024. This revenue decline, coupled with increased operating expenses, led to a significant drop in operating income. Net income attributable to ALLETE also fell substantially, reflecting higher interest expenses and a decrease in non-utility contract revenue. The company's balance sheet shows a substantial increase in long-term debt, up 23.1% year-to-date, driven by aggressive capital investments.

Filing Documents

• ale-20250930.htm (10-Q) — 1618KB
• ale9-30x2025exx31a.htm (EX-31.A) — 10KB
• ale9-30x2025exx31b.htm (EX-31.B) — 10KB
• ale9-30x2025exx32.htm (EX-32) — 8KB
• ale9-30x2025exx95.htm (EX-95) — 12KB
• ale9-30x2025exx99.htm (EX-99) — 130KB
• logoallete201510ka14a.jpg (GRAPHIC) — 103KB
• 0000066756-25-000088.txt ( ) — 9406KB
• ale-20250930.xsd (EX-101.SCH) — 62KB
• ale-20250930_cal.xml (EX-101.CAL) — 99KB
• ale-20250930_def.xml (EX-101.DEF) — 235KB
• ale-20250930_lab.xml (EX-101.LAB) — 720KB
• ale-20250930_pre.xml (EX-101.PRE) — 485KB
• ale-20250930_htm.xml (XML) — 1661KB

Forward-Looking Statements

Forward-Looking Statements 5 Part I. Financial Information Item 1. Consolidated Financial Statements - Unaudited 7 Consolidated Balance Sheet 7 Consolidated Statement of Income 8 Consolidated Statement of Comprehensive Income 9 Consolidated Statement of Cash Flows 10 Consolidated Statement of Equity 11

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements 12 Note 1. Operations and Significant Accounting Policies 12 Note 2. Regulatory Matters 15 Note 3. Equity Investments 18 Note 4. Fair Value 18 Note 5. Short-Term and Long-Term Debt 20 Note 6. Commitments, Guarantees and Contingencies 21 Note 7. Earnings Per Share and Common Stock 29 Note 8. Income Tax Expense 29 Note 9. Pension and Other Postretirement Benefit Plans 31 Note 10. Business Segments 32 Note 11. Agreement and Plan of Merger 36 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 38 Comparison of the Quarters Ended 40 Comparison of the Nine Months Ended 43 Critical Accounting Policies 46 Outlook 47 Liquidity and Capital Resources 50 Other 52 Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Quantitative and Qualitative Disclosures about Market Risk 53 Item 4.

Controls and Procedures

Controls and Procedures 54 Part II. Other Information Item 1.

Legal Proceedings

Legal Proceedings 54 Item 1A.

Risk Factors

Risk Factors 54 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 54 Item 3. Defaults Upon Senior Securities 54 Item 4. Mine Safety Disclosures 54 Item 5. Other Information 55 Item 6. Exhibits 55

Signatures

Signatures 56 ALLETE, Inc. Third Quarter 2025 Form 10-Q 2 Definitions The following abbreviations or acronyms are used in the text. References in this report to "we," "us" and "our" are to ALLETE, Inc., and its subsidiaries, collectively. Abbreviation or Acronym Term AFUDC Allowance for Funds Used During Construction – the cost of both debt and equity funds used to finance regulated utility plant additions during construction periods ALLETE ALLETE, Inc. ALLETE Clean Energy ALLETE Clean Energy, Inc. and its subsidiaries ALLETE Properties ALLETE Properties, LLC and its subsidiaries ALLETE South Wind ALLETE South Wind, LLC ALLETE Transmission Holdings ALLETE Transmission Holdings, Inc. Alloy Merger Sub Alloy Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of Alloy Parent. Alloy Parent Alloy Parent LLC, a Delaware limited liability company which, upon closing, will be jointly owned by a wholly owned subsidiary of Canada Pension Plan Investment Board and affiliates of investment vehicles affiliated with one or more funds, accounts, or other entities managed or advised by Global Infrastructure Management, LLC ATC American Transmission Company LLC BNI Energy BNI Energy, Inc. and its subsidiary Boswell Boswell Energy Center Caddo ALLETE Clean Energy's Caddo Wind Energy Facility CCR Coal Combustion Residuals from Electric Utilities CFIUS The Committee on Foreign Investment in the United States Cliffs Cleveland-Cliffs Inc. Company ALLETE, Inc. and its subsidiaries CSAPR Cross-State Air Pollution Rule Diamond Spring ALLETE Clean Energy's Diamond Spring Wind Energy Facility ECO Energy Conservation and Optimization Plan EPA United States Environmental Protection Agency ESOP Employee Stock Ownership Plan ESPP Employee Stock Purchase Plan Executive Officers of ALLETE Chair, President and Chief Executive Officer; Vice President and President of ALLETE Clean Energy; Vice President, Chief Legal Officer and Cor

Forward-Looking Statements

Forward-Looking Statements In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, we are providing this cautionary statement to identify important factors that could cause our actual results to differ materially from those indicated in forward-looking statements made by or on behalf of ALLETE in this Form 10-K, in presentations, on our website, in response to questions or otherwise. These statements are qualified in their entirety by reference to, and are accompanied by, the following important factors, in addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements that could cause our actual results to differ materially from those indicated in the forward-looking statements: our ability to successfully implement our strategic objectives; global and domestic economic conditions affecting us or our customers; changes in and compliance with laws and regulations, the direct and indirect effects of new or changes in existing tariffs, or changes i

Forward Looking Statements (Continued)

Forward Looking Statements (Continued) the announcement and pendency of the Merger, during which ALLETE is subject to certain operating restrictions, could have an adverse effect on ALLETE's businesses, results of operations, financial condition or cash flows; and The consummation of the Merger, subject to a final written order, could result in commitments agreed to with counterparties in the state of Minnesota that may have an impact on ALLETE's results of operations or cash flows. Additional disclosures regarding factors that could cause our results or performance to differ from those anticipated by this report are discussed in Part I, Item 1A. Risk Factors of our 2024 Form 10-K. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which that statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all of these factors, nor can it assess the impact of each of these factors on the businesses of ALLETE or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. Readers are urged to carefully review and consider the various disclosures made by ALLETE in this Form 10-Q and in other reports filed with the SEC that attempt to identify the risks and uncertainties that may affect ALLETE's business. ALLETE, Inc. Third Quarter 2025 Form 10-Q 6

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

CONSOLIDATED FINANCIAL STATEMENTS

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS ALLETE CONSOLIDATED BALANCE SHEET Unaudited September 30, 2025 December 31, 2024 Millions Assets Current Assets Cash and Cash Equivalents $ 78.7 $ 32.8 Accounts Receivable (Less Allowance of $ 1.7 and $ 1.7 ) 146.1 148.1 Inventories – Net 184.9 154.6 Prepayments and Other 75.3 99.7 Total Current Assets 485.0 435.2 Property, Plant and Equipment – Net 5,528.8 5,181.5 Regulatory Assets 360.4 371.7 Equity Investments 357.7 340.1 Goodwill and Intangible Assets – Net 155.2 155.3 Other Non-Current Assets 265.8 270.5 Total Assets $ 7,152.9 $ 6,754.3 Liabilities, Redeemable Non-Controlling Interest and Equity Liabilities Current Liabilities Accounts Payable $ 116.7 $ 113.6 Accrued Taxes 56.9 54.6 Accrued Interest 26.1 23.4 Long-Term Debt Due Within One Year 138.1 94.7 Other 75.4 117.9 Total Current Liabilities 413.2 404.2 Long-Term Debt 2,098.9 1,704.7 Deferred Income Taxes 291.7 253.4 Regulatory Liabilities 593.5 570.5 Defined Benefit Pension and Other Postretirement Benefit Plans 99.6 118.2 Other Non-Current Liabilities 312.1 312.8 Total Liabilities 3,809.0 3,363.8 Commitments, Guarantees and Contingencies (Note 6) Redeemable Non-Controlling Interest 0.7 0.4 Equity ALLETE Equity Common Stock Without Par Value, 80.0 Shares Authorized, 58.1 and 57.9 Shares Issued and Outstanding 1,839.0 1,823.2 Accumulated Other Comprehensive Loss ( 18.1 ) ( 18.1 ) Retained Earnings 1,031.0 1,042.9 Total ALLETE Equity 2,851.9 2,848.0 Non-Controlling Interest in Subsidiaries 491.3 542.1 Total Equity 3,343.2 3,390.1 Total Liabilities, Redeemable Non-Controlling Interest and Equity $ 7,152.9 $ 6,754.3 The accompanying notes are an integral part of these statements. ALLETE, Inc. Third Quarter 2025 Form 10-Q 7 ALLETE CONSOLIDATED STATEMENT OF INCOME Unaudited Quarter Ended Nine Months Ended September 30, September 30, 2025 2024 2025 2024 Millions Except Per Share Amounts Operating Revenue C

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and do not include all of the information and notes required by GAAP for complete financial statements pursuant to such rules and regulations. Similarly, the December 31, 2024, Consolidated Balance Sheet was derived from audited financial statements, but does not include all disclosures required by GAAP. The presentation of certain prior period amounts on the Consolidated Financial Statements have been adjusted for comparative purposes. In management's opinion, these unaudited financial statements include all adjustments necessary for a fair statement of financial results. All adjustments are of a normal, recurring nature, except as otherwise disclosed. Operating results for the nine months ended September 30, 2025, are not necessarily indicative of results that may be expected for any other interim period or for the year ending December 31, 2025. For further information, refer to the Consolidated Financial Statements and notes included in our 2024 Form 10-K. NOTE 1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES Subsequent Events. The Company performed an evaluation of subsequent events for potential recognition and disclosure through the date of the financial statements issuance. On October 3, 2025, the MPUC held a public hearing in which the MPUC voted in favor of approval of the Merger. In connection with the MPUC's public hearing, a written order is expected to follow. The consummation of the Merger remains subject to the satisfaction of certain closing conditions, including the receipt of the MPUC's written order approving the Merger. (See Note 11. Agreement and Plan of Merger.) On October 23, 2025, the MPUC held a public hearing at which the MPUC approved Minnesota Power's request for deferred accounting relating to the CCR legacy rule

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