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Northwest Natural pany(NWN) - 2023 Q4 - Annual Results

Financial and Operational Highlights NW Natural Holdings reported increased net income for 2023, driven by new rates and customer growth, while providing 2024 earnings guidance and reaffirming long-term growth targets Full Year 2023 Performance Summary NW Natural Holdings reported a net income of $93.9 million ($2.59 per share) for 2023, an increase from $86.3 million ($2.54 per share) in 2022, driven by new rates and customer growth, partially offset by higher operating and interest expenses Full Year 2023 vs 2022 Financial Results | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net Income | $93.9 million | $86.3 million | | Diluted EPS | $2.59 | $2.54 | - Invested $327.3 million in utility systems to enhance reliability and resiliency1 - Added over 15,000 gas and water utility connections, achieving a combined growth rate of 1.8% as of Dec. 31, 2023, largely driven by water acquisitions1 - Increased the dividend for the 68th consecutive year, reaching an annual indicated rate of $1.95 per share1 2024 Guidance and Long-Term Outlook The company initiated its 2024 earnings guidance in the range of $2.20 to $2.40 per share, which is below its long-term target due to regulatory lag and inflationary cost pressures, but reaffirmed its long-term EPS growth target of 4% to 6% compounded annually 2024 Guidance and Long-Term Targets | Metric | Value/Range | | :--- | :--- | | 2024 EPS Guidance | $2.20 to $2.40 | | Long-Term EPS Growth (2022-2027) | 4% to 6% annually | | 2022 Base Year EPS | $2.54 | - The 2024 guidance is impacted by regulatory lag from increased capital investments and inflationary effects on operating costs, which are being addressed in the Oregon general rate case126 Projected Capital Expenditures | Entity | 2024 Projection | 5-Year Projection (2024-2028) | | :--- | :--- | :--- | | NW Natural (Gas) | $350M - $400M | $1.4B - $1.6B | | NW Natural Water | ~$40M | $120M - $140M | Key Initiatives and Events The company initiated a general rate case in Oregon, expanded its renewable natural gas efforts, and continued growth in its water and wastewater utility business Oregon General Rate Case NW Natural filed a general rate case with the Oregon Public Utility Commission (OPUC) on December 29, 2023, requesting a $154.9 million annual revenue increase to cover costs from a $381 million increase in the average rate base - Filed a request for a $154.9 million annual revenue requirement increase with the OPUC on Dec. 29, 20233 - The request is driven by a $381 million increase in average rate base from investments in safety, reliability, and IT upgrades3 - The review process is expected to take up to 10 months, with new rates anticipated to take effect on November 1, 20243 Renewable Natural Gas (RNG) Initiatives NW Natural secured exclusive rights to build and operate a Renewable Natural Gas (RNG) facility at a WM landfill in East Wenatchee, Washington, including a 20-year RNG supply contract once operational in late 2025 - Signed an agreement with WM for exclusive rights to construct and operate an RNG facility at a landfill in East Wenatchee, WA4 - The agreement includes a 20-year RNG supply for NW Natural from the facility4 - The new facility is anticipated to begin generating RNG in late 20254 Water and Wastewater Business Expansion In 2023, NW Natural Water expanded its footprint by closing four acquisitions in three states, adding approximately 6,200 customers, increasing its ownership stake in Avion Water Company, and launching a new operations and maintenance services business - Closed four water utility acquisitions in 2023, adding approximately 6,200 customers5 - Increased ownership in Avion Water Company to 45.6%5 - Launched a water operations and maintenance services business in April 2023, which now serves nearly 20,000 connections6 Financial Results Analysis Consolidated net income increased for the full year 2023, primarily driven by the Natural Gas Distribution segment, despite a decline in the 'Other' segment and a slight decrease in the fourth quarter Full Year 2023 Results For the full year 2023, consolidated net income rose to $93.9 million from $86.3 million in 2022, with the Natural Gas Distribution segment's net income increasing by $14.4 million, while the 'Other' segment saw a net income decrease of $6.8 million Consolidated Annual Results Consolidated net income for 2023 was $93.9 million, or $2.59 per share, compared to $86.3 million, or $2.54 per share, in 2022, primarily driven by the Natural Gas Distribution segment Consolidated Net Income by Segment - Full Year (in thousands) | Segment | 2023 Net Income | 2022 Net Income | Change | | :--- | :--- | :--- | :--- | | Natural Gas Distribution | $94,042 | $79,690 | $14,352 | | Other | ($174) | $6,613 | ($6,787) | | Consolidated | $93,868 | $86,303 | $7,565 | Natural Gas Distribution (NGD) Segment - Annual The NGD segment's net income increased by $14.4 million in 2023, driven by a $69.1 million margin growth from new rates and customer growth, partially offset by higher operating and interest expenses - Net income increased by $14.4 million, reflecting new rates in Oregon and Washington10 - Margin increased by $69.1 million, driven by new rates ($56.7M), a gas cost incentive sharing gain ($9.4M), and customer growth ($4.6M)11 - Operations and maintenance expense rose by $40.0 million due to higher payroll, IT, contractor, and bad debt costs12 Other Segments - Annual Net income from 'Other' activities decreased by $6.8 million in 2023, primarily due to $9.1 million in higher interest expense related to increased debt balances at the holding company and NW Natural Water - Net income decreased by $6.8 million (or $0.20 per share)16 - The decrease was driven by $9.1 million of higher interest expense from increased debt at NW Natural Holdings and NW Natural Water16 Fourth Quarter 2023 Results For the fourth quarter of 2023, consolidated net income was $44.6 million ($1.21 per share), a decrease from $47.9 million ($1.36 per share) in Q4 2022, driven by higher operating and interest expenses not fully offset by new rates Consolidated Fourth Quarter Results Consolidated net income for Q4 2023 decreased by $3.3 million to $44.6 million compared to Q4 2022, with diluted EPS falling to $1.21 from $1.36, also impacted by a higher number of diluted shares outstanding Consolidated Net Income by Segment - Q4 (in thousands) | Segment | Q4 2023 Net Income | Q4 2022 Net Income | Change | | :--- | :--- | :--- | :--- | | Natural Gas Distribution | $46,522 | $47,159 | ($637) | | Other | ($1,882) | $777 | ($2,659) | | Consolidated | $44,640 | $47,936 | ($3,296) | Natural Gas Distribution (NGD) Segment - Q4 The NGD segment's net income saw a slight decrease of $0.6 million in Q4 2023, as a $6.5 million margin increase from new rates was more than offset by a $9.2 million rise in operations and maintenance expenses and higher interest expense, compounded by warmer weather - Net income decreased slightly by $0.6 million, primarily due to higher operating and interest expenses18 - Margin increased by $6.5 million, but was negatively impacted by $4.9 million due to warmer weather (22% warmer than average)19 - Operations and maintenance expense increased by $9.2 million due to higher payroll, IT, and contractor costs20 Other Segments - Q4 Net income from 'Other' activities decreased by $2.7 million in Q4 2023, resulting from $1.2 million in higher interest expense for NW Natural Water and the holding company, and $1.0 million in additional operating expenses for water utilities - Net income decreased by $2.7 million (or $0.07 per share)24 - The decrease was caused by $1.2 million in higher interest expense and $1.0 million in additional operating expenses for water utilities24 Financial Position and Cash Flow The company generated strong operating cash flow in 2023, funding significant utility system investments and water utility acquisitions, while maintaining a healthy cash balance Balance Sheet and Cash Flows Summary For the full year 2023, the company generated $279.9 million in operating cash flow, invested $327.3 million in utility capital expenditures and $7.5 million in water and wastewater acquisitions, and ended the year with $32.9 million in cash 2023 Cash Flow and Investment Summary | Item | Amount (in millions) | | :--- | :--- | | Cash from Operating Activities | $279.9 | | Natural Gas Utility Capex | $327.3 | | Water & Wastewater Acquisitions | $7.5 | | Net Cash from Financing | $64.2 | | Cash at Year-End | $32.9 | Shareholder Information NW Natural Holdings continued its long history of increasing dividends and provided details for its upcoming financial results conference call Dividend Information NW Natural Holdings marked its 68th consecutive year of annual dividend increases, declaring a quarterly dividend of 48.75 cents per share, bringing the current indicated annual dividend rate to $1.95 per share - The company paid its 68th consecutive annual dividend increase30 - The current indicated annual dividend rate is $1.95 per share, with a quarterly dividend of 48.75 cents per share30 Conference Call and Webcast The company announced it would host a conference call and webcast on Friday, February 23, at 8 a.m. PT (11 a.m. ET) to discuss its fourth quarter and annual 2023 financial and operating results - A conference call to discuss Q4 and full-year 2023 results was scheduled for Feb. 23, 2024, at 8 a.m. PT3132 Company Overview NW Natural Holdings is a long-standing utility company operating natural gas, water, and renewable energy businesses across multiple states Company Profile NW Natural Holdings is a 165-year-old company based in Portland, Oregon, operating through its subsidiaries: NW Natural Gas Company, NW Natural Water Company, and NW Natural Renewables, serving millions of people across multiple states - Owns NW Natural Gas Company, NW Natural Water Company, and NW Natural Renewables Holdings33 - NW Natural Gas serves ~2 million people through over 795,000 meters in Oregon and SW Washington35 - NW Natural Water serves over 180,000 people through ~73,000 meters in the Pacific Northwest, Texas, and Arizona36 Appendix: Consolidated Financial Statements This appendix provides detailed consolidated financial statements, including the income statement, balance sheets, and cash flow statements for 2023 and 2022 Consolidated Income Statement This statement details the company's revenues, expenses, and profits for the fourth quarter and full year of 2023 compared to 2022, showing total operating revenues of $1.20 billion and net income of $93.9 million for the full year 2023 Full Year 2023 vs 2022 Income Statement Highlights (in thousands) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Operating Revenues | $1,197,475 | $1,037,353 | | Income from Operations | $184,941 | $167,477 | | Net Income | $93,868 | $86,303 | Consolidated Balance Sheets This statement presents the company's financial position as of December 31, 2023, compared to year-end 2022, with total assets increasing to $4.87 billion and total equity growing to $1.28 billion Balance Sheet Highlights (as of Dec 31, in thousands) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Total Assets | $4,867,092 | $4,748,326 | | Total Liabilities | $3,583,254 | $3,572,885 | | Total Equity | $1,283,838 | $1,175,441 | Consolidated Statements of Cash Flows This statement shows the cash inflows and outflows from operating, investing, and financing activities for the full year 2023 compared to 2022, with cash from operating activities significantly increasing to $279.9 million in 2023 Cash Flow Highlights (Year Ended Dec 31, in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Cash from Operating Activities | $279,949 | $147,672 | | Cash used in Investing Activities | ($335,497) | ($435,460) | | Cash from Financing Activities | $64,208 | $301,632 |