Q1 2025 Northwest Natural Holding Co Earnings Call
Thank you.
Brika: Thank you all for attending. I would like to welcome you all to today's call, the Northwest Natural Holdings Companies, Q1 2025 earnings call. My name is Breaker and I will be your moderator
Brika: All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.
Speaker Change: I would now like to pass you over to our host, Nikki Sparley, head investor relations to begin. Thank you, you may proceed.
Thanks for watching!
Nikki Sparley: Thank you. Good morning and welcome to our first quarter 2025 earnings call.
Speaker Change: A presentation for today's call is available on our Investory Relations website at r n w naturalholdings.com and following this call a recording will be available on our website.
Speaker Change: Turning to slide 2. As a reminder, some things that will be said this morning contain forward-looking statements. They are based on management assumptions which may or may not occur. For a complete list of cautionary statements, refer to the language at the end of our press release.
Speaker Change: Additionally, our risk factors are provided in our 10Q and 10K filings. We will also refer to certain non-GAAP financial measures.
Speaker Change: For additional disclosures about these non-GAAP measures , including reconciliation to comparable GAAP measures , please see the slides that accompany today's call, which are available on the investor relations page of our website.
Thank you for watching!
Speaker Change: Please note, our 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.
Speaker Change: Beginning with first quarter 2025 results, we are providing information on two additional segments, RC Energy Gas Utility Segment and our Northwest Natural Water Utility Segment.
Speaker Change: Finally, the other category includes our Interstate Storage Services and Affent Management Services, Northwest Natural Renewables and Holding Company Expenses. We expect to file our 10Q later today.
Please note, these calls are designed for the financial community.
Speaker Change: If you are an investor and have additional questions after the call, please contact me directly at 503-721-2530.
News media may contact David Roy at 503-610-7157.
Speaker Change: Moving to Slide 3, with us today are Justin Palfreyman, President and Chief Executive Officer and Ray Kaszuba, Senior Vice President and Chief Financial Officer.
Speaker Change: Justin will provide an update on each of our businesses and Ray will walk through financial results, liquidity and financing and guidance. After Justin and Ray's prepared remarks, they will be available, along with other members of our executive team, to answer your questions.
Speaker Change: With that, I will turn it over to Justin on Slide 4.
Thanks, Nikki. Good morning, and welcome everyone.
Justin Palfreyman: It is an honor to be speaking to you this morning and I am pleased to report that Northwest Natural Holdings had a solid first quarter
Justin Palfreyman: Before getting into the business highlights, I'd like to take a moment to thank David Anderson for his over 20 years of service at Northwest Natural. Our employees, customers and communities have benefited greatly from David's dedication. Thank you very much.
Justin Palfreyman: Under his leadership, our company has expanded into new areas and evolved significantly.
Justin Palfreyman: David led initiatives that improved employee and customer safety, maintained low customer rates, and extended our tradition of excellent customer service and community engagement.
Justin Palfreyman: We wish David all the best in retirement. He has left the company well positioned for future growth and importantly with an excellent team that is focused on delivering long-term value to our shareholders.
Speaker Change: Part of David's legacy is the company's long-standing commitment to leadership and business integrity. I am proud to say that Northwest Natural Holdings was named one of the 2025 world's most ethical companies by ethosphere for the fourth year running.
Speaker Change: Turning now to Q1 results, we have executed well across all of our businesses.
Speaker Change: Our financial results are on track for the year and in line with our full year guidance issued in February .
Speaker Change: We reported an adjusted net income of $2.28 per share in the first quarter of 2025, compared to net income of $1.69 per share for the same period last year.
Speaker Change: Our combined utility customer growth rate was 9.6% for the 12 months and at March 31, 2025. The main driver was the acquisition of C-Energy, which added about 73,000 gas meters in Texas.
Speaker Change: Northwest Natural Water is contributing strong incremental meter growth as well, posting a 5.9% increase.
Speaker Change: Our financial results reflect the strength of our business plan and collective utilities.
Speaker Change: Moving to slide five, our key initiatives for 2025 are underway and we are well positioned to meet our annual goals. Let me provide an update on each of our businesses.
Turning to our Northwest Natural Gas Utility
Speaker Change: Our overall earnings per share improvement year-over-year is predominantly driven by the Northwest Natural Gas Utility, which benefited from new rates that went into effect on November 1st, 2024.
Speaker Change: After careful consideration, at the end of December 2024, Northwest Natural filed an Oregon General Rate Case to recover our critical investments in gas infrastructure and expenses related to providing safe and reliable service to customers.
Speaker Change: The request included a revenue requirement increase of $59.4 million or 5.8% over current rates.
The case is made up of a few key components [inaudible]
Speaker Change: First, it includes an increase in average rate base of $204 million since the last rate case. This is mainly related to investments in our critical infrastructure, including capital expenditures to ensure reliability during the coldest winter days at our missed storage facility.
Speaker Change: Second, the case includes a capital structure of 52% equity and 48% long-term debt, a return on equity of 10.4% in a cost of capital of approximately 7.7%.
Finally, it includes an updated depreciation study.
Speaker Change: Oregon rate cases are adjudicated over a 10 month period, so we are still in the early months of the process. Right now, we are working through apply testimony to staff and interveners with settlement conferences scheduled in June . We look forward to continued collaboration with parties and expect new rates to be effective starting November 1st.
Speaker Change: I want to emphasize that we carefully consider this rate case filing and the effect on customer bills and broader affordability concerns.
Speaker Change: It is important to note that today, our Northwest Natural Gas customers are paying less for their natural gas service than they did 20 years ago.
Speaker Change: This past winter, I'm pleased to report that once again, we were able to provide credits on our Oregon customers' bills as a result of savings we generated from efficient gas supply management. Over the last 20 years, we have been able to provide more than $280 million in bill credits to Northwest Natural Gas customers.
Moving to our Sea Energy Gas Utility in Texas.
Speaker Change: We were thrilled to close the C-energy acquisition on January 7th and add this rapidly growing business to our portfolio.
Speaker Change: Out of the gate, the energy has produced strong customer growth in line with our expectations and is hitting its meter set targets. We believe the energy is on track to meet its operational and financial targets for the year.
Speaker Change: Further supporting sea energy, we recently signed an agreement to purchase huge gas resources from EPCOR for $60 million dollars.
Speaker Change: Hughes is expected to have approximately $46 million of rate base at the end of 2025, and is a logical bolt-on acquisition for us in Texas.
Speaker Change: With a similar business model as the energy, Hughes has grown organically by providing infrastructure to residential and commercial developments in the high-growth areas surrounding Houston.
Speaker Change: The energy's overlapping footprint with hues allows for operational synergies in addition to incremental future customer growth.
Speaker Change: I am excited about our continued expansion in the Texas market. We expect the transaction to close in the second quarter of this year and expect that it will be a creative in 2026.
Speaker Change: On a combined basis, C-Energy and Hughes served approximately 80,000 customers at March 31, 2025 with an impressive, contracted customer backlog of over 200,000.
Speaker Change: Turning now to Northwest Natural Water. Collectively, our water and wastewater utility customer base grew 5.9% over the last 12 months, including three acquisitions.
Speaker Change: While we continue to manage a robust acquisition pipeline, we are staying focused and disciplined as we seek the right opportunities to create value.
Speaker Change: In 2025, we expect to refresh rates at multiple water utilities, including in Idaho, Washington and Oregon These requests are primarily related to recovery of critical infrastructure investments as we continue to find these systems need substantial improvements [inaudible]
Speaker Change: During 2025, we expect to invest approximately $60 million in our water utilities to replace end-of-life infrastructure, improve our water and wastewater treatment facilities, and support continued growth in our communities.
Speaker Change: We are enthusiastic about the long-term earnings power of Northwest Natural Water and believe they are on track for the year.
Now a brief update on Northwest Natural Renewables
Speaker Change: Both of our renewable natural gas projects with EDL began operations last year. Production levels have been meeting our expectations and operations are running smoothly.
Speaker Change: These facilities and our related offtake contracts provided a full quarter of steady cash flows and earnings during the first quarter of 2025, and we expect this to continue going forward.
Speaker Change: I'd like to turn to slide six and highlight a few items on the Pacific Northwest Energy System.
Speaker Change: Northwest Natural Gas System today is perhaps more essential to the region than ever, and we expect that to continue given the heightened focus on reliability and affordability.
Speaker Change: Our system delivers about 50% more energy than any other organ utility, gas or electric over the course of a year, and reliably serves peak heating loads throughout the winter.
Speaker Change: The fact that we are delivering more energy than any other utility is even more remarkable when you consider that electric utilities in Oregon consume more natural gas for power generation than all the state's gas utilities combined.
Speaker Change: And as you can see from this chart of IEA data, Natural Gas usage for power production has been increasing significantly in recent years as they shift away from coal and bring on more intermittent renewables.
Speaker Change: With these grid dynamics as a backdrop, recent analysis shows under a variety of operating conditions, gas furnaces are not only more cost effective for customers, but they are also resulting in lower emissions over electric heat pumps for most of the people we serve.
Speaker Change: These findings are consistent with analysis recently conducted for other regions, which evaluated marginal emissions for the grid and the massive electric buildout that would be required to serve gas heating loads.
Speaker Change: This clearly highlights the value and efficiency of our gas distribution and storage infrastructure in the Northwest.
Speaker Change: And this is why we will continue to work closely with other utilities, with policymakers and with stakeholders to emphasize these important facts in support of energy policy that is focused on the most reliable and cost effective ways to meet our climate goals.
I'm
Speaker Change: In conclusion, I am happy to report that all of our businesses are in a strong financial position and we are well poised for future growth. With that, let me turn it over to Ray to cover the financials in more detail.
Ray Kaszuba: Thank you Justin and good morning everyone, turning to slide 7
Ray Kaszuba: As we've seen in the earnings release, and as we mentioned on our last call, we've begun providing financial data for our sea energy gas utility and Northwest Natural Water utility segments.
Ray Kaszuba: You can find additional information by segment in the 10Q we expect to file later today.
Ray Kaszuba: We reported a Justin Net income of $91.8 million or $2.28 per share for the first quarter of 2025.
Ray Kaszuba: Compared to net income of $63.8 million or $1.69 per share for the same period in 2024.
The increase reflected strong results across all our business segments
Ray Kaszuba: We saw new rates for our gas utility in Oregon, contributions from sea energy, higher income from Northwest natural water related to new rates in acquisitions, and a full quarter of revenues from our renewables business.
Ray Kaszuba: These items were partially offset by higher depreciation and interest expense.
David Anderson, Christopher Ellinghaus, Christopher Ellinghaus
Ray Kaszuba: For Northwest Natural Gas Segment, net income increased $21.5 million or 42 cents per share. Margin increased $38.7 million mainly due to new rates in Oregon effective November 1st, 2024.
O&M increased $2.2 million, reflecting higher payroll and benefit expense.
Ray Kaszuba: Depreciation and General Taxes increased $4.8 million due to continued investment in our system.
Ray Kaszuba: Other expense increased $1.4 million, mainly driven by higher pension costs.
Ray Kaszuba: C-energy provided net income of $5.5 million or $0.14 per share for the first quarter of 2025. Margin and net income results met our expectations for the quarter. Historically, roughly 30% of margin for C-energy is earned in the first quarter.
Ray Kaszuba: Our water segment net income increased $2.4 million or $6 cents per share.
Ray Kaszuba: The key drivers were new rates at our largest water and wastewater utility in Arizona, and additional revenues from the Pupman Utilities after the acquisition in September 2024.
Ray Kaszuba: Finally, moving to our other businesses, the other category included our Interstate Storage Services and Asset Management Services.
Northwest Natural Renewables, and Holding Company Expenses
Ray Kaszuba: Collectively, the other businesses provided an adjusted net loss of $2.6 million, which was an increase of $1.4 million or $6 cents per share compared to the same period last year.
Ray Kaszuba: This was primarily due to higher interest expense at the Holman Company, partially offset by higher revenues from the renewables business as it completed its first full quarter of operations.
David Anderson, Christopher Ellinghaus, Christopher Ellinghaus, Northwest Natural Gas Co
Turning to our growth outlook and guidance on slide 8.
Ray Kaszuba: The company reaffirmed annual 2025 adjusted earnings guides today in a range of $2.75 per share and $2.95 per share.
Ray Kaszuba: First quarter results were in line with our expectations and we remain confident in our four-year guidance.
Ray Kaszuba: As a reminder, our gas utility earnings are seasonal with the majority of revenues and earnings generated in the first and fourth quarters during the winter heating months.
Ray Kaszuba: We expect the quarterly profile for 2025 for the Consolidated Company to be roughly similar to the past couple of years.
Ray Kaszuba: We continue to expect sea energy and water to each provide approximately 25 to 30 cents of earnings per share this year.
Ray Kaszuba: Regarding tariffs, we have analyzed our actively monitoring the new tier of regulations, negotiations, impact on our supply chain and the effect on our businesses.
Ray Kaszuba: At this time, we do not expect a material effect on 2025 financial results from tariffs.
Ray Kaszuba: Related to organic customer growth, collectively our utilities grew 2.2% during the first quarter on an annualized basis.
Ray Kaszuba: For 2025, we continue to project 2-2.5% organic customer growth with C-energy expected to contribute an impressive 20% or more. I am happy to report we are on track based on first quarter results.
Turning to our capital expenditures.
Ray Kaszuba: For 2025, consolidated capital expenditures are expected to be in a range of $450 to $500 million, anchored by significant projects at our Northwest Natural Gas Utility related to modernizing end-of-life meters.
system reinforcement, and gas storage upgrades.
Ray Kaszuba: Our CAPEX projections only include line of site projects that have been specifically identified and estimated.
Ray Kaszuba: It doesn't include any pending or future acquisitions, including the Hughes transaction.
Ray Kaszuba: Longer term, we continue to expect an earnings per share growth rate of 4% to 6% compounded annually from 2025 adjusted EPS.
Moving to Slide 9
Ray Kaszuba: Our objective remains to keep our balance sheet strong with ample liquidity.
Ray Kaszuba: At March 31st, 2025, we have liquidity of more than $600 million but significant availability on our lines of credit and cash on hand.
Ray Kaszuba: We continue to see modest regular common equity financing needs in 2025 with equity issuances expected to be in the range of $65 million to $75 million.
Ray Kaszuba: Even with the Hughes acquisition, we expect to be within our original financing range.
Ray Kaszuba: In March, we completed a $325 million junior subordinated debenture issuance successfully securing permanent financing for the C-energy transaction.
Ray Kaszuba: In 2025, we have no material debt maturities, but do expect to refinance the existing debt of approximately $150 million currently at sea energy
Ray Kaszuba: In summary, we are off to a strong start in 2025. Our expectations for the four-year remain in line with our guidance, and we continue to expect to maintain a strong balance sheet. Thanks for joining us this morning. With that, I'll open it up for questions.
Ray Kaszuba: Thank you very much. We will now begin the question and answer session.
Thank you. Thank you.
Ray Kaszuba: If you would like to ask a question, please press a star follow by one on your telephone
Ray Kaszuba: And if for any reason you would like to remove that question you can do so by pressing
Ray Kaszuba: And as a reminder, that is still Philip I, to register for a question.
Thanks for watching!
Ray Kaszuba: And when speaking please ensure your phone is unmuted locally and you pick up your handset before asking your question.
We will pause here briefly whilst questions are registered.
Ray Kaszuba: Just to remind of that column to register for a question.
Speaker Change: And we have the first question from Selman Akyol with Stephen, please go ahead.
Thank you for watching!
Speaker Change: Hey, this is Tyler on for Selman. I wanted to ask about the pickup in 2025 on the water side. Obviously, probably 25, but it's pretty favorable and I'm just wondering.
Speaker Change: As you may go into these rate cases again for safety investments, just sort of what y'all's what looks like in Arizona and your other geographies for water.
Thank you for watching!
Good morning Tyler, thank you for the question [inaudible]
Speaker Change: The water utilities, the increase in Q1, the results that you're seeing, is largely driven by rate case activity from last year, the largest of which was
Speaker Change: the foothills rate case with new rates and effect late last year.
Speaker Change: We continue to file rate cases across our water service territories. Most of these are small on an individual basis, but you'll see that over time, as we continue to file rate cases and recover the investments in rates.
Speaker Change: that growth will continue and earnings contribution will continue from Northwest Natural Water. We anticipate about 25 to 30 cents earnings contribution in 2025. And I'll just put some additional numbers around it.
Tyler: that 25 to 30 cents that translates to about 10 to $15 million in net income on top of the 5.5 that you saw in Q1 and then over the next couple of years an EPS growth rate of 10 to 15 percent.
Tyler: That appreciate the color on that. Also, if I could ask on the on the Hughes acquisition, the backlog for that is that sort of similar to that of C in that it's primarily residential and commercial as opposed to any industrial customers in that.
Tyler: Yeah, that's right. It's primarily residential and commercial customers. There's no transmission business within the used gas entity. So it's very similar to to see energy. In fact, there's a lot of geographic overlap or surrounding Houston with these assets. So it's a very logical acquisition for see energy. It adds a little more scale and growth for us in the Texas jurisdiction.
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Alright, thank you guys for the time.
Thanks, Tyler. Thanks, Tyler.
David Anderson, Christopher Ellinghaus, Northwest Natural Gas Co
Speaker Change: Just as a quick reminder, if you would like to ask any further questions, so please press star one on your telephone questions now.
Thank you.
Speaker Change: I can confirm we will conclude the question and answer session there and I'd like to hand it back to Justin for some final closing comments.
Thanks for watching!
Justin Palfreyman: Great. Well, thanks everybody for participating and listening in on the call this morning. 2025 is off to a great start, wishing everybody a safe day today, and we'll talk to you soon.
Speaker Change: Thank you all for dialing in for the Northwest Natural Holdings Company's Q1 2025 earnings call. Today's call has concluded. Thank you all for your participation and you may now disconnect.