Q1 2022 Northwest Natural Holding Co Earnings Call
Hello, and welcome to end there'll be natural Holdings Company Q1, 2022 earnings call. My name is Alex and I'll be coordinating Nicole today, if you'd like to ask a question at the end of the presentation. You can press star one on your telephone keypad.
You'd like to Australia. A question you May press Star two.
I'll hand over to your host Nikki <unk> director of Investor Relations event to you Nikki.
Thank you Alan Good morning, and welcome to our first quarter 2022 earnings call as a reminder, some things.
Forward looking statements are based on management's assumptions, which may or may not occur.
We went to the cautionary statements refer to the language.
Our press release.
We expect to file our 10-Q later today.
This teleconference is being recorded and will be available on our website following the call.
Please note. These calls are designed for the financial community you already have.
You have additional questions. After the call. Please contact me directly at 503, seven Q1, 'twenty Baxter's News media May contact David Roy.
3610, 70 157.
Even this morning are David Anderson, President and Chief Executive Officer, Frank <unk>, Our senior Vice President and Chief Financial Officer, David and Frank prepared remarks, and then will be available along with other members of our executive team to answer your questions.
With that I will turn it over to David.
Thank you and good morning, everybody and welcome.
Started off the year strong and in line with our expectations. Our financial results were solid and we continue to make progress on our key objectives.
We reported net income today of $1 80 per share in the first quarter compared to net income of $1 94 per share for the same period last year.
For 2021 includes a <unk> <unk> per share benefit related to a severe cold weather event in February last year setting that aside financial results in 2022 were driven by new rates in Washington, and customer growth as well as continued growth in expenses as we invest in our natural gas utility system.
We also see positive momentum in our local Portland Metro area economy.
Wrong labor market helped drive unemployment down to near historic lows.
Employment rates in Oregon declined to three 8% in March 2022, compared to six 1% a year ago.
Multifamily housing activity remains robust the average sales price of a home was up over 10% for the first quarter of March 2022, compared to last year.
<unk> family permits issued were up almost 3% in Oregon through February 2022, compared to the prior period construction and development remain robust in our region.
We continue to see a healthy pipeline of conversions to natural gas in single family homes in the last 12 months 2200 customers have converted in our service territory. These conversions along with new construction translated into nearly 11000 customers connected to our gas system. During the last 12 months.
That equates to a growth rate of about one 4%.
Our water and wastewater utilities also continued to grow strong residential housing construction, primarily in Idaho, and Texas translated into a three 1% organic customer growth rate over the last 12 months ended March 31, the combination of this organic growth and acquisitions resulted in a 27% increase in our water utilities.
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Turning to R&D carbonization activities, we continue to make progress under the landmark, Oregon Senate Bill 98 legislation, which supports renewable energy procurement and investment by natural gas utilities.
In January this year northwest natural recent important milestone as the first R&D facility with Tyson foods, and Biochar pin began operations more towards natural as the first local gas distribution utility in the continental United States to invest in and own and R&D facility on behalf of all of its sales customers as well.
Work to Decarbonize Decarbonize, our gas portfolio.
Construction on our second facility has begun with commissions slated for early 2023 to.
To date, we signed agreements with options to purchase or develop R&D on behalf of our customers totaling about 3% of northwest Natural's current annual sales volume in Oregon, I am very proud of the progress we've made in less than two years to put that into perspective today wind and solar account for about 12% of our nation's electrics.
After decades of investment in.
In March we also interconnected and R&D facility in Eugene, Oregon to our system, we're excited to be flown renewables through our own pipeline system here in Oregon.
Reflecting our dedication to the carbonization northwest natural was recently named an environmental champion among 140 of our largest utilities and a national study by US one I am proud of our customers' recognition of this dedicated of our dedication and leadership in this area.
Thanks, and greatly with that let me turn it over to Frank to cover the financials in the quarter.
Thank you David and good morning, everyone.
I'll begin by discussing the highlights of the first quarter of 2022 results and conclude with guidance for the year I'll describe the earnings drivers on an after tax basis using the statutory tax rate of 26, 5% as a reminder, northwest Natural's earnings are seasonal with a majority of the revenues and earnings generated in the first and fourth quarters during the winter heating months.
For the quarter, we reported net income of $56 $2 million or $1 80 per share compared to net income of $59 $5 million or $1 94 for the same period in 2021, a decline of <unk> 14 per share.
The decrease in net income largely reflects the $2 $8 million or nine cents per share benefit of the February 2021, cold weather event.
The gas utility posted a one cent per share increase in earnings while results from our other businesses declined 15 cents per share.
Higher earnings at the gas utility were primarily related to new rates in Washington customer growth and an improvement in the results from the gas cost incentive sharing mechanism as the prior year included the effect of purchasing higher priced gas during the February weather event. As a result of these factors utility margin increased $3 $7 million.
Utility O&M increased $3 5 million, reflecting higher levels of expense for payroll contractor in professional services and it upgrades.
Utility depreciation and general taxes increased $900000 due to higher property plant and equipment as we continue to invest in our system.
Other income increased $1.9 million driven by lower pension costs.
Net income from our other businesses decreased $4 $7 million as the prior period benefited from higher asset management revenues related to the cold weather event.
For 2022 cash provided by operating activities was $141 million, an increase of $4 million compared to last year, we invested $70 million into the business most of which was for gas utility capital expenditures on.
On April 1st we completed an equity offering and received approximately $140 million of proceeds to support our growing businesses, our balance sheet remains strong with ample liquidity.
Moving onto financial guidance the company Reaffirms 2022 earnings guidance today for net income in the range of $2.45 to $2 65 per share.
Guidance assumes continued customer growth average weather conditions and no significant changes in prevailing regulatory policies mechanisms or outcomes or significant changes in laws legislation or regulations. We continue to target a long term earnings per share growth rate of four 6% with that I'll turn the call back over to David.
It's Frank we continue to progress and execute on our business strategy. Our focus is maximizing returns from our strong and growing regulated gas utilities and positioning our business for incremental long term growth by investing in water utilities and the competitive renewable natural gas business.
In addition to moving our gas utility towards a renewable future last year. We also launched a competitive renewable natural gas strategy, we're committed to leading in the energy transition and providing renewable natural gas to the utility commercial industrial and transportation sectors were focused on providing cost effective solutions to help those these sectors.
Carbonize.
While existing waste streams and renewable energy sources are using existing waste streams and renewable energy sources.
As you know we've already taken our first steps with a 20 year RMG supply agreement and a total of $50 million committed investment in to R&D facilities.
Instruction has begun on both of those facilities and we expect them, we expect them to be placed into service in early 2023.
At the end of January Mike Kozak joined our team Lee our competitive R&D efforts in just a few short months, Mike hired additional members of the <unk> team, who come with significant R&D experience.
The team is fully engaged pursuing incremental opportunities and putting the final touches on the business plan, we will share more details on that in the coming months.
Turning to our water and wastewater utility businesses as previously mentioned in December 2021, we signed our largest acquisition to date to acquire far west water and wastewater utilities in Yuma, Arizona, a very fast growing region with which currently serves approximately 25000 customers. We've met with all the Arizona utility commissioners and look forward to.
Working closely with them and staff in March we submitted the application for approval approval of the transaction to the Arizona Commission, we expect to close the transaction in the fourth quarter of this year in it to be accretive to earnings per share. After its first full year of operations.
In the first quarter, we also announced additional agreements to acquire two water utilities near our existing systems in Texas.
We remain excited about the investment potential for this business and we look forward to more announcements soon and finally this morning I'm proud of northwest Natural holdings being named one of 2020 twos world's most ethical companies by Ethisphere. This reflects our long standing commitment to leadership and business integrity through best in class ethics compliance and Gulf.
<unk> practices. It is the first year northwest Natural holdings has been recognized as one of only nine honorees in the energy and utilities industry and all 136 honorees were recognized spanning 22 countries and 45 industries.
I view good governance as the background backbone of a strong company and we will continue focus on this going forward in conclusion. Your company is financially strong and fleet and I'm very pleased with the opportunities the opportunities we have across all businesses.
So with that thank you for joining us this morning, and Alex will open it up for questions if anybody has them.
If you'd like to ask a question E compressor star one on your telephone keypad.
I'd like to withdraw your question you May press Star two.
Decent show you on mute locally when upscale question.
Our first question for today comes from Julien Smith from Bank of America Julien. Your line is now open.
Good morning, Hey, Good morning, David and Brian This is Kevin Clark on for Julian Thanks for the time.
You bet.
So first.
Curious if you can share more on what youre seeing with the current in place scenario backdrop, specifically how much is expected as it relates to the <unk> program for 'twenty two versus some other pressures that we saw.
<unk> seen with the backdrop.
Hey, good morning, Cody its Frank Yeah, I wouldn't I don't want to describe the O&M change that youre seeing as inflationary it's really.
An effort that we're making right now it's a lot of that impact is coming.
From some investments that we're having to make in <unk> and.
And part of that is.
Taking on some cloud arrangements, which flows through O&M now that that's a fair piece of that the rest of it is salary and benefits are up I wouldn't call that inflationary we didn't see a huge.
Say it extraordinary change in in our salary and benefits year over year and then we also have a little bit more business development. We're doing RMG now it's in a competitive market as well as the water business. So you kind of have those three things and then just your ordinary the business is growing. This is why we filed the rate case were a big part of it year over year, just we knew this growth was coming.
I will say, though that the first quarter shows a bigger change if you looked at it as a percentage probably almost double what we would expect for the full year. So we expect O&M to grow this year nothing unusual there, but the first quarter theres, a little bit of a timing impact that makes the first quarter versus the first quarter last year look a bit higher so that'll normalize a bit.
As the year plays out.
Understood got it.
On regulated R&D, you're at 3% of volumes, but as we think about the caps in 'twenty five and beyond how should we be thinking about your ability to rate based investments versus just offtake.
What's the difference in customer cost if any.
Any data points or color there that you can point to would be helpful.
Yes, Tony I think the number one thing that you and everybody should understand is we're going to do all we can to decarbonize as much of our product as we can under Senate Bill 98, and that will be through it could be through investments or it could be through just direct purchases whatever is in the best interests.
Of our customers and right now we've done.
And we've done it through a rate base investment with Tyson opportunity that I referenced in my prepared remarks, and then we've also got purchase agreements. So I expect more coming down as we continue to progress and and hopefully reaches close to the limits of Senate Bill 98 as quickly as we possibly can so it's a little hard right now to say X amount will come from rate base.
Matt will come from.
Purchases again will do what it is in the best interest of our customers, which I believe going forward will be a combination of all.
Yeah.
Okay got it and then just lastly, if I can squeeze it in on competitive Orangey.
And you mentioned potentially getting some additional announcements here, but.
Wondering if there's any timing that you can quite too is it a matter of getting those first projects under your belt and in service in early 2023 before committing to anything incremental or could we see some additional announcements sooner.
Yes, we're in the early stages as we just mentioned.
Really pleased with the progress that Mike has made with his team of getting a team established.
There is already a incremental opportunities that we're looking at and it's one of the reasons. When we came out with a straightforward strategy late last year that we raised our earnings growth guidance from a 3% to 5% to a 4% to 6% because we do see we do see additional opportunities here that will help the company grow faster than it would without that so more details to come in the coming months.
Youre right, Tony I think we need to do some more transactions and then we'll be a little bit more descriptive when those transactions happen.
And some of those could be development some of them could be contract purchases and we market them. There's various options that mic is working through as a team right now.
Okay. That's very helpful. Thanks, so much for the time and good luck.
You bet. Thank you.
Thank you as a reminder, if you'd like to ask a question Thats star one on your telephone keypad.
Question for stay cultural lifestyle.
From Stifel Feldman Your line is now open.
Thank you good morning.
Just staying with renewables was there any update on hydrogen really were just starting to hear more about it. So I was just curious from what you're seeing on your side.
Nothing new updating on our front I mean, Ken do you want to kind of give an indication of what we're working on.
We have a couple of that effort and are active right now one of them is a continuation of our work with nietzschean electric utility to develop a hydrogen blending project in Eugene.
Where we're at there and we haven't engineered equipment consultant working on the project plan.
And we also hired a consultant to deal.
Just an audit readiness on it and that site and where we're going to be blending in that area that helps us understand hydrogen readiness for all archive and components and metering and we expect that work to be done in July .
And then we'll be wrapping all of that into <unk>.
Finally under Senate Bill.
98 here in Oregon.
With that securing potentially other funding.
In energy.
In the United States and the other thing that we're doing it.
<unk>, our hydrogen blend cat at our share went to 30.
Again, and remember blending about 5% hydrogen in a section of that facility for about a year and a half at testing end used applications furnaces water heaters fireplace.
Our our 2022 goals are to step up that land you at 24, seven operation with the ramp up at 15% blend and 5% increments through this year.
Of course subject kept requirement.
And on the engine and platinum.
And we've got another.
You know other opportunity with hydrogen.
And in our area and nationally partnering with other grant.
The application that I mentioned for the Eugene project I would be under that Senate Bill 98.
This legislation that was passed several years ago in Oregon that allow natural gas utilities.
I for spending on projects that reduce emissions and that would otherwise not be cost effective.
And Avenue that we have to.
To work on.
To work collectively with E wrap electric utility.
And I'm, sorry, it's SB 844 times at 90, and I apologize, that's our LNG legislation.
But a lot of activity and you're right. We're hearing a lot of interest in hydrogen and we're working hard on it ourselves, yes, Selman I mean, we're really focused on R&D and hydrogen theyre, both going to be the solutions for the industry and I would argue for the greater economy as a whole so pulse.
Hopefully more to come on that front, but.
We're all in on bulk.
Got it and very helpful. I'm, just pivoting over to water can you just maybe talk a little bit about what you're seeing out there in.
Maybe your pipeline and just how pricing is going are you is there.
Pressure on the system that you're you're seeing in terms of pricing.
Or is it sort of in line with what you've been doing.
Yeah, I'm really pleased with the success we've had to date in the last year. So the Justin why don't you jump in as our president of the water company and let me get him to address it.
Good morning Selman.
We continue to see a robust set of opportunities and pipeline in the water space.
It is competitive and Theres a number of players out there that are also pursuing opportunities that competition varies a little bit depending on the specific market.
But we are pleased with the progress we've been making and we see a fairly robust pipeline of opportunities going forward. We will continue to tuck in smaller acquisitions around our existing service territories and we're working hard on.
Investing in the existing utilities that we own and we actually just completed a couple of rate cases.
This last quarter with new rates in effect made first and bolt.
One of our Oregon subsidiaries in one of our Washington subsidiaries.
So things are going well, there and I believe that will continue to see.
A robust set of opportunities and acquisitions going forward.
Alright, Thank you very much.
Alright, Thank you Tom.
Thank you we have play for the questions first state so I will hand, it back to David Anderson for any closing remarks.
Thank you Alex and thank you guys for joining us and for those of you that it'll be at the <unk> event here in a couple of weeks, we'd love to see you give a give nikki a call and we'll see if we can set up time with that have great day everybody. Thank you.
Yes.
Thank you for joining today's call you may now disconnect.
Okay.
Uh huh.
Okay.