Q2 2025 Northwest Natural Gas Co Earnings Call

Good morning, and thank you all for attending the Northwest Natural Holdings company. Second, quarter, 2025 earnings call. My name is Bria and I will be your moderator for today.

All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.

I would now like to pass the conference over to your host, Nikki Sparley, Head of Investor Relations. Thank you. You may proceed, Nikki.

Thank you. Good morning, and welcome to our second quarter 2025 earnings call presentation. The material for today's call is available on our Investor Relations website at IR.NWnaturalholdings.com.

And following this call, a recording will also be available on our website turning to slide 2 as a reminder. Some things that will be said this morning contain 4 looking statements. They're based on Management's 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.

Additionally, our risk factors are provided in our 10q and 10K filings. We will also refer to certain non-gaap Financial measures for additional disclosures about these non-gaap measures including reconciliations to comparable. Gaap results, please see the slides that accompany today's call, which are available on the investor relations page of our website.

Please note our guidance assumes continued, customer growth average, weather conditions, and no significant changes in prevailing regulatory policies, mechanisms or assumed outcomes or significant changes in local state, or federal laws, legislation, or regulations. For context. We have 3 business, segments, our Northwest Natural, Gas utility our sea energy gas utility and our Northwest Natural water. Utility our other category includes our Interstate storage services and Asset Management Services, Northwest Natural Renewables and holding company expenses.

As a reminder, our gas utility earnings are seasonal with a majority of revenues and earnings generated in the first and fourth quarters during the winter heating months. We expect to file our 10q later today.

Please note, these calls are designed for the financial Community. 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.

Moving to slide 3.

With us today are Justin palmen president and chief executive officer and Ray kaszuba senior vice president and Chief Financial Officer. Justin will provide an update on each of our businesses and Ray will walk through our financial results. Liquidity and financing and guidance.

After Justin and raise prepared remarks, they will be available along with other members of our executive team to answer your questions with that. I will turn it over to Justin on slide 4.

Thanks, Nikki. Good morning, and welcome everyone. I am pleased to report that Northwest Natural Holdings. Had a solid second quarter and first half of 2025.

We continue to execute well on initiatives across all of our businesses and we remain confident that our financial results are on track for the year.

We reported adjusted net income of $2.28 per share in the first 6 months of 2025 compared to net income of $1.60 per share for the same period last year.

Our combined utility customer. Growth rate was 10.6% for the 12 months. Ended June 30th 2025 this. Substantial growth was driven by our Gas Utilities in Texas Northwest Natural water. Also contributed incremental meter growth posting a 5.8% increase

We reaffirmed our annual 2025 adjusted earnings guidance today and continue to expect our long-term earnings per share growth rate to be 4 to 6%.

While our growth and financial metrics are strong, the real momentum lies in how we're executing against our strategic priorities for 2025.

Moving to slide 5.

Our key initiatives are translating into tangible outcomes, and we're progressing well toward our full-year targets.

Turning first to our Northwest Natural Gas utility after careful consideration. We filed an Oregon general rate case in December 2024 to recover our critical investments in gas infrastructure and expenses related to providing safe and reliable service to customers.

Parties have been working collaboratively and constructively.

Last month parties filed a settlement resolving Northwest Naturals Revenue requirement components of the case.

That included a revenue, requirement increase of 21.3 million. The settlement also included a 50/50 capital structure, an Roe of 9.5%, an increase from the previous 9.4% and a cost of capital of approximately 7.12%.

In addition rate base would increase 144 million since the last case, for a total of 2.2 billion.

We expect an order from the commission on the full rate case this fall with rates effective October 31st.

We carefully consider the effect on customer bills and broader affordability concerns. And the ending result of the case is expected to be a relatively modest 2 and 1/2% rate increase.

Taking into account this rating increase and preliminary gas cost estimates, we expect Northwest Natural residential customers this fall will be paying about the same as they did 20 years ago for their gas service.

Turning to our sea energy, gas utility in Texas. Sea energy continues to produce strong customer growth and is hitting its Financial targets. Perhaps, most importantly, sea energy posted a sizable increase to its customer backlog. And now has signed contracts representing over 217,000 future meters.

That backlog includes meters from the acquisition of Hughes gas resources, which we have rebranded as Pines Holdings, another fast growing Texas, gas utility.

Pines added approximately 7,000 connections northeast of Houston, with a contracted backlog of 12,000 meters. The integration has gone smoothly.

On a combined basis, sea energy and Pines served approximately 83,000 customers at June 30th 2025.

While C energy is about 10% of our business today, its high growth potential makes us, optimistic about its future. And we anticipate sea energy to be an increasing portion of our business, mix moving forward.

Turning now to Northwest Natural water.

Collectively our water and wastewater utility. Customer base, grew 5.8% over the last 12 months, including 3 acquire capex plan for 2025 continues to be robust as our utilities replace end of life infrastructure. Improve our wastewater treatment facilities and support clean water and continued growth in our communities to recover on water investments in 2025 we are working hard on rate cases at multiple water utilities including an Idaho Washington and Oregon.

We remain confident in the long-term earnings prospects of Northwest Natural water. The business is making great progress on its customer growth capex and rate case goals for 2025.

Now, a brief update on Northwest Natural Renewables, both of our renewable, natural gas projects continue to run smoothly with current production levels meeting our expectations.

These projects and our related fixed price offtake, contracts with investment grade counterparties, provided solid earnings, and cash flows. During the first half of 2025, we expect this to continue going forward.

Importantly, our renewable gas business has no meaningful exposure to the Wren or lcfs markets.

In conclusion, I am happy to report that all of our businesses are in a strong financial position and poised for future growth with that. Let me turn it over to Ray to cover the financials in more detail.

Thank you, Justin, and good morning, everyone. Turning to slide 6.

We reported to Justin net income of 315,000 or 1 cent per share for the second quarter of 2025 compared to a loss of 2.8 million or 7 cents per share for the same period in 2024.

Hi Justin, net income, excludes the effects of transaction, and Business Development costs, the Improvement in net income. Reflected higher margin from new rates, at our Oregon gas utility, partially offset by higher onm, expense depreciation, and interest expense.

For our Northwest Natural Gas segment, net income increased by $4.5 million, or 12 cents per share.

margin increased 16.9 million, mainly due to new rates in Oregon and effective, November 1st 2024,

Onm, increase 6.3 million, mainly reflecting higher, payroll and benefits expense.

To appreciation and general taxes, increased 4.8 million due to continued investment in our system.

The energy provided, net income of 1 million or 3 cents per share for the second quarter of 2025.

In our first year, after the acquisition margin and net income, or trending well and aligned with our expectations.

For 4 cents per share.

The key drivers were new rates at our largest water and wastewater utility in Arizona, and additional revenues from the utilities after the acquisition in September 2024.

Finally, the adjusted net loss from our other businesses increased 4.2 million or 11 cents per share compared to the same period last year.

This increase was primarily due to higher interest expense at the holding company.

On slide 7, we've outlined our year-to-date results. Adjusted net income was 92.1 million or $2.28 per share for 2025 compared to 61 million or 1.60 cents per share for the same period of 2024.

The year-to-date increase in net income reflected themes similar to the second quarter.

Namely, strong net income across all business segments, including new rates at our gas utility in Oregon, contributions from sea energy, higher net income from our water utilities, and earnings contribution from Renewables.

These items were partially offset by higher operations and maintenance costs.

Depreciation and interest expense.

Returning to our growth outlook and guidance on slide 8.

We reaffirmed annual 2025 adjusted earnings guidance today in the range of 2.75 cents per share to 2.95 cents per share.

Results for the first half of 2025, we're in line with our expectations and we remain confident in our full year guidance.

As a reminder, we expect quarterly earnings Cadence, for 2025 of the Consolidated company to be roughly, similar to the past couple of years.

We continue to expect to see energy at Northwest Natural water to each provide approximately 25 to 30 cents of adjusted earnings per share this year.

Collective organic customer growth was 1.9% during the first half of 2025 on an annualized basis.

For 2025, we continue to reject 2 to 2 and a half percent Consolidated, organic customer growth across our utilities.

Turning to our Capital expenditures.

For the year Consolidated, Capital expenditures are expected to be in the 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.

Our capex, projections only include line of sight projects that have been specifically identified at estimated.

It does not include capex related to any pending or future acquisitions.

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 11.

Regarding capital structure, our objective remains to keep our balance sheet, strong with ample liquidity.

At June 30, 2025, we had liquidity of approximately $550 million, with significant availability on our gas utility line of credit and cash on hand. 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.

In 2025, we have no material debt maturities. Although we do expect to refinance the existing C energy debt, this year of approximately 148 million.

In summary, we are pleased with our performance for the first half of 2025 and remain confident. In our financial targets for the full year.

Thanks for joining us this morning with that. We will open it up for questions.

Thank you, Ray. We will now begin the question and answer session.

If you would like to ask a question please press star. Followed by 1 on your telephone keypad.

if for any reason you would like to remove that question,

You can do so by pressing star, followed by 2. And again, to ask a question, please press star 1

And as a reminder, if you were using a speaker-phone, please remember to pick up your handset before asking a question.

Of registered.

The first question we have comes from,

Salman, at all with Stifel, you may proceed.

Hi guys, good morning. This is Tim on for Selman. Congrats on the quarter.

Um just wanted to start off with C energy, it it's, you know, it's been under your belt for a couple quarters and and now you guys have added Pines. So just wondering if you could talk about the growth, you're seeing there now maybe versus a quarter or 2 ago, when you first kind of acquired, it, I know you guys mentioned the impressive backlog but just curious if you could expand a bit on that.

Things are progressing well down in Texas and see energy. I would say is is, uh, performing as expected for us this year. Um, as you've probably seen, there's been a lot of discussion about housing slowing down, a bit in Texas, and in some of our communities, we've seen signs of that. But overall, there continues to be strong growth down there. A lot of new meter sets, uh, in addition to extremely strong backlog, uh, growth as we mentioned on the call and to give you a little move, Excuse me, give you a little more. Um,

Uh, color on that. We had a, an annual goal of a certain amount of meters to add to our backlog this year. And the business development team has has already exceeded that goal by mid year and so there's there's just a lot of uh interest down there a lot of ongoing growth and finds just enhances that for us as well.

Got it, that's nice to hear. Uh, and then just 1 last 1 for me, you guys kind of mentioned a couple up count upcoming water. Uh,

Rate cases just wondering kind of the the the scale of those are are how big we should um expect those to be.

Yeah, for the most part, the water rate cases because we have a combination of multiple subsidiaries across our water company. For the most part, the individual water rate cases themselves are are relatively small. So, uh, in some cases we're talking uh less than a million dollars of of Revenue. Requirement in some cases, it's it's more than that, uh, which is why you typically see us executing, uh, somewhere between 3 and 5 rate cases a year. Uh, right now and you saw that last year as well,

Got it. Thank you guys for the time.

Thank you. Thank you.

As a reminder, if you would like to ask any questions, please press star for it by 1 on your telephone keypad now.

That is dark followed by 1 to ask a question.

And I can confirm that this does include the Q&A session today, and I would like to hand it back to Justin for some closing comments.

Well, thanks everybody for joining. It was a pretty straightforward quarter. As always, if you have additional questions, please do not hesitate to reach out to Nikki and thanks again for joining everybody.

Thank you all for dialing in. I can confirm that does conclude the Northwest Natural Holdings company. Second quarter, 2025 and cool. Thank you for your participation email disconnect and please enjoy the rest of your day.