Q4 2021 NorthWestern Corp Earnings Call

And going back to what you really want to hear about are the 2021 highlights.

Starting with the financial results net income of $186.8 million, can I call out 187 or $3.60

Diluted EPS non-GAAP EPS of $3.51 is with very much within our guidance range of 4.8% increase over non-GAAP results to the previous year.

We expect long term EPS growth rate of between 3% and 6%. 2021 was a record year for our capital investment. This is exciting because it's a living up to our commitments to our customers and the communities that we serve.

We got a 12% CAGR and capital investment over the last five years, 2017 to 2021 and this really is in all aspects of our business We anticipate making a Montana electric rate filing later this year to recover the significant investment since our last test year of 2017.

And we expect long term rate base growth of between 4% and 5%.

In terms of balance sheet, we're committed to maintaining investment-grade ratings and as you know in November of last year.

Undertook a forward, which should address our equity needs into 2023.

And we've maintained our commitment to a sustainable long term dividend.

The board has approved a quarterly dividend increase of 1.6% to 63 cents per share.

This marks the 17th consecutive year of increases and the CAGR would be.

5.6% since 2004.

So moving from the highlights into the details I'll turn it over to 

Our Chief Financial Officer Crystal Lail.

Thank you, Bob and good afternoon, everyone and for those of you who know Bob if you need a small bakery referenced pretty much anywhere in the US or outside of it hit them up he can help you with that.

I'm here to serve. [inaudible] our conversation today.

With that, I'll hit the highlights of our 2021 solid full-year financial results and then comment on a bit going forward as Bob noted for 2021 net income of $168.8 million.

As compared with $155.2 million in 2020, that's an improvement of $31.6 million or 20.4%. On a diluted earnings per share basis, $3.60 as compared with $3.06 that performance improvement really driven by improvement at the margin line with both transmission revenues and volumes, but I'll get into it.

And add a little bit more detail here. Meanwhile, setting the base on operating costs at a sustainable level going forward offsetting that a little bit.

And then as Bob alluded to importantly in closing out 2021 financial performance was also executing on the financing plan that we had announced.

Late in 2021 as far as supporting our ongoing growth and ongoing capital and investment in our system by executing on the equity issuance in Q4 with that afore transaction involved and that allows us flexibility to support our CAPEX spend in '22, which will get into in a bit here as far as record level.

there on top of closing out '21's record levels, and with that allowing us flexibility and not meeting equity again into 2023.

With that, I will transition to slide five and speak a bit to our margin results.

Margin of $54.3 million or 6.1%.

Of that you will see at the top line is increased transmission Bill driven by a couple of things. One, our formula rate in Montana overall higher rates and demand.

Increased transmission Bill driven by a couple of things one our formula rate in Montana overall higher rates and demand.

And recognition of some deferred revenue in there. We saw that trend continue throughout 2021 with higher volatility driving need to transport across our lines favorable to our results also $17.1 million of improvement in electric retail volumes. This is a combination of customer growth again strong growth in our service territory.

And recognition of some deferred revenue in there. We saw that trend continue throughout 2021 with higher volatility driving need to transport across our lines favorable to our results also $17.1 million of improvement in electric retail volumes. This is a combination of customer growth again strong growth in our service territory.

Also higher usage rebounding, particularly on the commercial and industrial side off of 2020's COVID impacted results and also while from an

Overall perspective, we have unfavorable weather, which I'll get into here it was favorable compared to the prior period.

And that electric retail volumes decline. Also the absence of in the prior period in 2020, we'd have a disallowance of supply costs from the MPOC. So the period over period results favorable driven by that. The other piece I'll touch on in offsetting that was increased Montana electric supply costs of $5.3 million those reflect our PCCAM tracker.

Which for costs above the baseline we absorbed 10% of those cost 90% of recovered through a deferral mechanism with that we saw higher.

Sustained level prices, and certainly higher volatility driving a $5.3 million increase in those costs offsetting the other favorable margin items.

Moving into slide six gives you an overall picture of our weather. The thing I will tell you there is through Q3, we had favorable weather, I think colder winter weather in some warmer summer weather. In Q4, we gave all that back plus more of. A very warm October and November into December so from a full year weather perspective, and you all know we non GAAP

that out consistently we estimate overall unfavorable weather resulted in a $1.1 million pretax detriment as compared to normal. However that was an $8.7 million dollar benefit as compared with 2020, obviously 2020's weather was significantly unfavorable to us in that period.

So with that, I'll close out margin and move onto operating costs, you'll see on slide seven.

From an increase in operating expenses of $14.8 million or 2.3%. Of that $13.1 million falls to the bottom line. These costs were in line with our plan and expectations for the year drivers really the topline labor and benefits bank a stronger financial performance leads to increased incentive costs.

From an increase in operating expenses of $14.8 million or 2.3%. Of that $13.1 million falls to the bottom line. These costs were in line with our plan and expectations for the year drivers really the topline labor and benefits bank a stronger financial performance leads to increased incentive costs.

Medical costs back to what is more of a normal basis for us off of 2020. Additional costs include $4.6 million of generation maintenance and $2.4 million of technology implementation and maintenance costs. The thing I would highlight here is again in line with our plan and consistent with our desire to get back to a sustainable level of operating costs as we move forward.

A follow a rate case in Montana based off 2021 results.

With that, slide eight.

Operating income again, $275.7 million as compared with $236.2 million, which is a $39.5 million improvement driven by the results at the margin line that we discussed.

Offset by a bit of increased operating costs in our structure.

Below that, you'll see interest expense $3.1 million lower than the prior period.

Other income up $3.4 million compared to that period, both of those driven by [AFUDC] and the ongoing construction projects that we have currently are driving the improvement in both of those lines. From an income tax perspective.

Increase in income taxes, driven by favorable revenues and operating income there with a little bit lower flow through repair deductions in 2021.

Closing out net income and moving into cash flow perspective.

Slide nine. You will see class cash flow from operations of $220 million as compared with $352.1 million in 2020. The decrease there really driven by an under-collection of energy supply costs, you'll recall us discussing the impact of winter storm Yuri and an increase in natural gas and electric costs in Q1, and then we saw sustained 

Slide nine. You will see class cash flow from operations of $220 million as compared with $352.1 million in 2020. The decrease there really driven by an under-collection of energy supply costs, you'll recall us discussing the impact of winter storm Yuri and an increase in natural gas and electric costs in Q1, and then we saw sustained 

C class cash flow from operations of $220 million as compared with $352 1 million in 2020. The decrease there really driven by an under collection of energy supply costs, you'll recall us discussing the impact of winter storm, Yuri and an increase in natural gas and electric costs in Q1, and then we saw sustained her.

higher pricing and more volatile pricing both on the electric side in Q3 into Q4, and also with broader natural gas costs.

I'll remind everyone we entered into agreements to recover those natural gas costs in both Nebraska and South Dakota and recover that through a tracker in Montana on the natural gas side and then the electric costs are recovered through our [PCCAM] mechanism.

So that's really what's driving the lower cash flows from operations for 2021, I would point you to the bottom of the slide though with funds from operations. So backing out the working capital impact.

FFO $340.6 million compared to $304.1 million, reflecting that improvement and net income performance.

With that, slide 10.

GAAP earnings that we've just discussed $3.60 or $186.8 million.

The adjustments from a non-GAAP basis include unfavorable weather add back of $1.1 million and then our QF liability adjustment, you'll recall, we consistently non-GAAP out those impacts, resulting in net income of $182.4 million or $3 and 51 cents.

That is right in the midpoint of the guidance range that we had announced for 2021. With that $3.51 compared to non-GAAP earnings in 2020 of $3.35. That's a 16th that improvement or 4.8% again solid financial performance as we close out 2021 and right in the midpoint of our previously.

Announced guidance range.

With that, I'll transition you to slide 11, and our previously announced 2022 earnings bridge guiding down to $3.20 to $3.40, we are reiterating that guidance.

Driven by improvement at the net income line, while offset by the dilution of the equity transaction, we just announced to support our ongoing growth and increased capital investment also with that pressure include sustainable cost structure as we move forward. The thing I would reiterate as we close out this section is our long term.

Commitment to a 3% to 6% growth rate off a 2020 base year and also as Bob mentioned as they started their comments our ongoing commitment to the dividend.

So with that, Bob.

I will hand it back to you.

Thank you, Crystal. And I will say, just a little bit about the capital budget at a high level and then turn it over to Brian. First of all, we're coming off of our largest base capital budget ever and Brian in his role as CEO of working with the operational Vice President.

Successfully manage that despite all the challenges of supply chain and everything else. So we feel very good about where we are what you see here is a five-year look ahead that contemplates $2.4 billion of low-risk capital investments.

As we tell you virtually every quarter.

Those stair steps down do fill in.

Yes.

With important investment projects and we certainly expect that to continue.

Nonetheless here, what we have is base investments across transmission distribution and generation gas and electric we expect to finance this with a combination of cash from operations first mortgage bonds.

Base investments across transmission distribution and generation gas and electric we expect to finance this with a combination of cash from operations first mortgage bonds.

Equity issuances under existing forward contract. Of course, financing plans are subject to change. So this is an important commitment to invest in our service territory, Brian could you provide some more detail and then I'll also provide us an update on

Also provide us an update John.

progress and taken some of the risk out of the Montana capacity deficit.

Yes. Thanks, Bob. A couple of things first of all in on the $2.4 billion a substantial amount of capital over the next five years, Bob just talked about.

Busiest capital years ever last year. So we continue that tradition here on the right-hand chart there of that 2.4.

Nearly 75% of that spend is in the T&D space.

Less controversial acknowledge I'd also tell you is the remainder.

A good portion of that generation investment is maintaining our existing generation. Also, some [BGGS] spend is in there this year and then hydro upgrades as we continue to increase the capacity.

Generation also some bgs spenders in there this year and then hydro upgrades as we continue to increase the capacity.