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Northwest Natural pany(NWN) - 2024 Q1 - Quarterly Results

Executive Summary & Highlights First Quarter 2024 Overview NW Natural Holdings reported Q1 2024 net income of $63.8 million ($1.69 per share), a decline from 2023, yet reaffirmed its 2024 earnings guidance and long-term growth targets Net Income and EPS Overview | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Net Income ($ millions) | $63.8 | $71.7 | -$7.9 | | Net Income Per Share ($) | $1.69 | $2.01 | -$0.32 | - CEO David H. Anderson stated that employees successfully maintained natural gas supply during January's winter weather events, ensuring safe and reliable energy for customers; the company was also recognized by Ethisphere as one of the "World's Most Ethical Companies" for the third consecutive year12 - The company reaffirmed its 2024 earnings per share guidance between $2.20 and $2.40 and maintained its long-term earnings per share CAGR target of 4% to 6% from 2022 to 20272 Key Operational and Strategic Highlights The company added nearly 15,000 connections (1.7% growth), set a 9 million therms daily delivery record during winter, and earned Ethisphere recognition for ethical practices - As of March 31, 2024, nearly 15,000 new natural gas and water connections were added over the past 12 months, representing a 1.7% growth rate, primarily driven by strong water acquisitions2 - In early 2024, Oregon natural gas customers received nearly $30 million in bill credits, with NW Natural customers cumulatively saving over $250 million in the past 20 years due to Mist storage assets and pipeline capacity management2 - During the January 13 winter storm, the natural gas system delivered 9 million therms, with 8 million therms supplied to homes and businesses, setting a new daily peak record and breaking the Mist storage facility's withdrawal record2 - The company was recognized by Ethisphere as one of the "World's Most Ethical Companies" for the third consecutive year2 Financial Results Analysis Consolidated Financial Performance NW Natural Holdings' Q1 2024 consolidated net income decreased 11% to $63.8 million, primarily due to lower natural gas distribution and expanded 'other' business losses Consolidated Net Income by Segment | Metric (in thousands) | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Natural Gas Distribution Net Income | $65,715 | $71,951 | $(6,236) | | Other Business Net Income | $(1,892) | $(280) | $(1,612) | | Consolidated Net Income | $63,823 | $71,671 | $(7,848) | | Diluted Earnings Per Share ($) | $1.69 | $2.01 | $(0.32) | Natural Gas Distribution Segment Performance Natural gas distribution net income declined by $6.2 million due to increased operating expenses, despite customer growth, with warmer weather and lower commodity price volatility impacting gross margin - Natural gas distribution net income decreased $6.2 million ($0.28 per share), primarily reflecting increased operating expenses6 - Gross margin increased $0.5 million, mainly from deferred amortization and customer growth (contributing $5.5 million), partially offset by $3.5 million less gross margin due to warmer weather (Q1 2024 was 9% warmer than average, while Q1 2023 was 5% colder than average) and $1.5 million lower Oregon natural gas cost incentive sharing mechanism benefits7 - Operating and maintenance expenses decreased $0.3 million, primarily due to lower benefit costs, partially offset by higher wages, cloud computing amortization, and deferred amortization approved in the rate case; depreciation increased $1.0 million from additional capital investments in the distribution system; general taxes increased $1.1 million, mainly due to higher regulatory commission fees8 - Other net income decreased $3.8 million, primarily due to increased pension expense and lower interest income from reduced investment cash levels and decreased equity AFUDC; interest expense increased $1.5 million from higher long-term debt balances910 Other Business Activities Performance 'Other' business net income decreased by $1.6 million, primarily due to reduced asset management income - 'Other' business net income decreased $1.6 million ($0.04 per share), primarily due to reduced asset management income11 Balance Sheet and Cash Flows Balance Sheet Overview Total assets increased to $4.849 billion as of March 31, 2024, with the capital structure comprising 44.5% common equity, 52.3% long-term debt, and 3.2% short-term debt Total Assets and Liabilities | Metric (in thousands) | March 31, 2024 | March 31, 2023 | | :--- | :--- | :--- | | Total Assets | $4,849,066 | $4,592,096 | | Total Liabilities and Equity | $4,849,066 | $4,592,096 | Capital Structure | Capital Structure (as of period end) | March 31, 2024 | March 31, 2023 | | :--- | :--- | :--- | | Common Equity (%) | 44.5 | 43.7 | | Long-Term Debt (%) | 52.3 | 45.3 | | Short-Term Debt (%) | 3.2 | 11.0 | | Total (%) | 100.0 | 100.0 | Cash Flow Statement Analysis Q1 2024 operating cash flow was $125 million, a decrease from $176.9 million, with $82.5 million used in investing and a net $2.9 million used in financing activities Cash Flow Summary | Cash Flow (in thousands) | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Cash Flow from Operating Activities | $125,039 | $176,861 | $(51,822) | | Cash Flow from Investing Activities | $(82,488) | $(73,018) | $(9,470) | | Cash Flow from Financing Activities | $(2,917) | $11,187 | $(14,104) | | Cash and Cash Equivalents, End of Period | $72,375 | $140,821 | $(68,446) | - Investing activities primarily involved natural gas utility capital expenditures, totaling $82.5 million in Q1 2024, up from $73.0 million in the prior-year period12 Outlook and Guidance 2024 Guidance and Long-Term Targets The company reaffirmed 2024 EPS guidance of $2.20-$2.40 and a 4%-6% long-term CAGR target, with 2024 guidance below target due to regulatory lag, expecting new rates by November 1, 2024 2024 EPS Guidance and Long-Term Targets | Metric | Value | | :--- | :--- | | 2024 EPS Guidance ($) | $2.20 - $2.40 | | Long-Term EPS Growth Target (2022-2027 CAGR) | 4% - 6% | | 2022 EPS ($) | $2.54 | - The 2024 EPS guidance is below the long-term target primarily due to regulatory lag in the natural gas distribution business, driven by significant investments in the system for safe and reliable service, high technology investments leading to increased depreciation, and inflationary pressures on operating expenses, including multi-year O&M contract renewals, higher personnel costs, cloud computing technology amortization, and increased pension expense13 - The company filed a general rate case application in Oregon at the end of 2023, with new rates anticipated to become effective on November 1, 2024, under Oregon statutes13 Quarterly EPS Expectations for 2024 | 2024 Quarterly EPS Expectation | Range ($) | | :--- | :--- | | Q2 | -$0.08 to -$0.16 | | Q3 | -$0.74 to -$0.86 | | Q4 | $1.43 to $1.63 | Dividend Declaration NW Natural Holdings' Board declared a quarterly dividend of 48.75 cents per common share, resulting in an annual dividend rate of $1.95 per share Quarterly Dividend Declaration | Metric | Value | | :--- | :--- | | Quarterly Dividend (cents/share) | 48.75 | | Annual Dividend Rate ($/share) | $1.95 | | Payment Date | May 15, 2024 | | Record Date | April 30, 2024 | Company Overview About NW Natural Holdings Northwest Natural Holding Company, based in Portland, Oregon, has operated for over 165 years, focusing on safety, environmental management, and energy transition, earning Ethisphere's 'World's Most Ethical Companies' recognition - NW Natural Holdings is headquartered in Portland, Oregon, with over 165 years of operating history in the Pacific Northwest18 - The company is committed to safety, environmental stewardship, energy transition, and caring for its employees and communities, earning recognition from Ethisphere® as one of the "World's Most Ethical Companies®" for the third consecutive year in 202419 Business Segments NW Natural Holdings comprises NW Natural Gas, serving 2 million in Oregon/SW Washington; NW Natural Water, operating across the Pacific Northwest, Texas, and Arizona; and NW Natural Renewables, focused on decarbonization through renewable fuels - NW Natural Gas, a local distribution company, currently serves approximately 2 million people in over 140 communities across Oregon and Southwest Washington through more than 800,000 meters, boasting one of the nation's most modern pipeline systems and 21.6 Bcf of underground storage capacity2021 - NW Natural Water provides water and wastewater services to communities in the Pacific Northwest, Texas, and Arizona, currently serving over 180,000 people through approximately 74,000 meters and providing operations and maintenance services for an additional 20,000 connections21 - NW Natural Renewables is a competitive business leading the energy transition by providing renewable fuels to utility, commercial, industrial, and transportation sectors to support decarbonization22 Additional Information Conference Call and Webcast The company hosted a conference call and webcast on May 6, 2024, to discuss Q1 2024 financial and operational results, with detailed access information provided Conference Call and Webcast Details | Item | Details | | :--- | :--- | | Date and Time | May 6, 2024, 8:00 AM PT (11:00 AM ET) | | U.S. Dial-in | 1-833-470-1428 | | International Dial-in | 1-404-975-4839 | | Passcode | 701070 | | Webcast Address | ir.nwnaturalholdings.com | Forward-Looking Statements This press release includes forward-looking statements, based on current expectations and assumptions, which are subject to inherent uncertainties and risks, and actual results may differ materially, advising caution for investors - Forward-looking statements can be identified by words such as "anticipates," "assumes," "continues," "could," "intends," "plans," "seeks," "believes," "estimates," "expects," and similar references to future periods24 - These statements are based on current expectations and assumptions about the business, economic, geopolitical factors, and other future conditions, but are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict, and actual results may differ materially from forward-looking statements25 - Important factors that could cause actual results to differ materially from forward-looking statements are discussed in the "Risk Factors" section of the company's most recent annual report on Form 10-K and subsequent quarterly reports, including legal, regulatory, and legislative risks, public health risks, financial, macroeconomic, and geopolitical risks, growth and strategic risks, operational risks, business continuity and technology risks, environmental risks, and risks related to water and renewable natural gas businesses26 Non-GAAP Financial Measures The company uses non-GAAP financial measures, such as EPS, for performance analysis, providing useful information for investors, but these are not GAAP substitutes and have limitations, potentially differing from other companies' calculations - Non-GAAP financial measures, such as earnings per share, are used to analyze financial performance as they provide useful information for investors and creditors in evaluating financial condition and operating results28 - These non-GAAP financial measures should not be considered as alternatives to, or more meaningful than, GAAP measures and have limitations as they do not reflect all items of income and expense determined in accordance with GAAP; other companies may calculate similarly titled non-GAAP financial measures differently, limiting their comparative usefulness28 Financial Statements (Unaudited) Consolidated Income Statement and Financial Highlights This section provides NW Natural Holdings' unaudited consolidated income statement and financial highlights for Q1 2024 and 2023, and the twelve months ended March 31, 2024 and 2023, detailing key financial metrics Consolidated Income Statement and Financial Highlights | In thousands, except per share amounts, customer, and degree day data | March 31, 2024 (Three Months) | March 31, 2023 (Three Months) | Change (%) | March 31, 2024 (Twelve Months) | March 31, 2023 (Twelve Months) | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Operating Revenues | $433,470 | $462,423 | (6) | $1,168,522 | $1,149,475 | 2 | | Total Operating Expenses | $323,643 | $348,915 | (7) | $987,262 | $956,128 | 3 | | Operating Income | $109,827 | $113,508 | (3) | $181,260 | $193,347 | (6) | | Net Income | $63,823 | $71,671 | (11) | $86,020 | $101,735 | (15) | | Diluted Earnings Per Share ($) | $1.69 | $2.01 | | $2.34 | $2.90 | | | Dividends Paid Per Share ($) | $0.4875 | $0.4850 | | $1.9450 | $1.9350 | | | Natural Gas Distribution Meters - End of Period | 800,978 | 796,848 | 0.5 | 800,978 | 796,848 | 0.5 | | Actual Degree Days | 1,216 | 1,385 | (12) | 2,311 | 2,880 | (20) | Consolidated Balance Sheets This section presents NW Natural Holdings' unaudited consolidated balance sheets, detailing the composition of assets, liabilities, and stockholders' equity as of March 31, 2024, and December 31, 2023 Consolidated Balance Sheet Details | In thousands | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and Cash Equivalents | $72,375 | $140,821 | | Total Current Assets | $537,714 | $576,173 | | Plant, Property, and Equipment, Net | $3,441,524 | $3,155,978 | | Total Noncurrent Assets | $4,311,352 | $4,015,923 | | Total Assets | $4,849,066 | $4,592,096 | | Short-Term Debt | $94,700 | $72,500 | | Total Current Liabilities | $468,344 | $644,080 | | Long-Term Debt | $1,574,735 | $1,294,590 | | Total Deferred Credits and Other Noncurrent Liabilities | $1,462,601 | $1,405,119 | | Total Equity | $1,343,386 | $1,248,307 | | Total Liabilities and Equity | $4,849,066 | $4,592,096 | Consolidated Statements of Cash Flows This section provides NW Natural Holdings' unaudited consolidated statements of cash flows, detailing cash flows from operating, investing, and financing activities for the three months ended March 31, 2024, and 2023 Consolidated Cash Flow Statement | In thousands | March 31, 2024 (Three Months) | March 31, 2023 (Three Months) | | :--- | :--- | :--- | | Cash Provided by Operating Activities | $125,039 | $176,861 | | Cash Used in Investing Activities | $(82,488) | $(73,018) | | Cash (Used in) Provided by Financing Activities | $(2,917) | $11,187 | | Increase in Cash, Cash Equivalents, and Restricted Cash | $39,634 | $115,030 | | Cash, Cash Equivalents, and Restricted Cash, End of Period | $89,258 | $155,994 |