Northwest Natural Holding Co (NWN) Q2 2024 Earnings Call Transcript Highlights: Key Financial Metrics and Strategic Initiatives

Despite a net loss in Q2, Northwest Natural Holding Co (NWN) remains on track with its annual earnings guidance and continues to focus on growth and sustainability.

Summary
  • Net Loss: $2.8 million or $0.07 per share for Q2 2024.
  • Net Income (Q2 2023): $1.2 million or $0.03 per share.
  • Net Income (First 6 months of 2024): $61 million or $1.60 per share.
  • Net Income (First 6 months of 2023): $72.9 million or $2.03 per share.
  • Utility Margin Increase: $0.4 million for Q2 2024.
  • Gas Utility O&M Decrease: $3.5 million for Q2 2024.
  • Utility Depreciation and General Taxes Increase: $2.5 million for Q2 2024.
  • Other Income Decline: $4.2 million for Q2 2024.
  • Interest Expense Increase: $0.4 million for Q2 2024.
  • Cash Provided by Operating Activities: $246 million for 2024.
  • Investment into Business: $200 million for 2024.
  • 2024 Annual Earnings Guidance: Net income in the range of $2.20 to $2.40 per share.
  • Customer Base Growth: 1.8% over the last 12 months.
  • Revenue Requirement Increase (Gas Utility Oregon Rate Case): $95 million.
  • Rate Base Increase: $357 million for a total rate base of $2.11 billion.
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Release Date: August 02, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Northwest Natural Holding Co (NWN, Financial) reported that their financial results are on track for the year and in line with their full-year guidance issued in February.
  • Oregon's unemployment rate remains low and on par with the national average, signaling a stable economic environment in their service territory.
  • Single-family housing permits in Oregon and the Portland metro area have increased significantly, indicating favorable conditions for customer growth.
  • The company has made substantial progress in their gas utility Oregon general rate case, including a revenue requirement increase of $95 million.
  • Northwest Natural Holding Co (NWN) continues to work on decarbonization initiatives, including renewable natural gas and hydrogen pilots, showcasing their commitment to sustainability.

Negative Points

  • Northwest Natural Holding Co (NWN) reported a net loss of $2.8 million for the second quarter of 2024, compared to net income of $1.2 million for the same period in 2023.
  • The company is experiencing regulatory lag on investments and inflationary pressures, which have negatively impacted earnings.
  • Other income declined by $4.2 million, mainly driven by higher pension costs.
  • Interest expense increased by $0.4 million due to incremental long-term debt financing.
  • The company is contending with inflationary pressures on operating expenses, which has led to the filing of rate cases for their gas and water utilities.

Q & A Highlights

Q: The recycled water aspect of the recent announcement, can you just talk about where you see that market?
A: (Justin Palfreyman, President) The recycled water technology involves wastewater treatment plants that reuse treated effluent, typically for irrigation. This reduces the overall water required to serve a community, which is crucial in water-scarce areas like California, Arizona, and parts of Idaho and Central Oregon. We see it as a promising technology that will support growth and create new opportunities.

Q: Do you have any other industries like geothermal that could utilize your recycled water?
A: (Justin Palfreyman, President) There are some commercial and industrial customers that Puttman Infrastructure serves similarly. While we don't have specific geothermal applications currently, it's something we could explore in the future.

Q: What are your thoughts on the current environment for water M&A, and do you see any opportunities to accelerate growth there?
A: (Justin Palfreyman, President) The M&A market has slowed somewhat due to the cost of capital and market conditions. However, we still have a robust pipeline of acquisition opportunities, mainly tuck-ins around our existing service territories. We're also open to more substantial opportunities on an opportunistic basis.

Q: Is there an opportunity to expedite your water segment reporting to benefit from higher valuations for water utilities?
A: (Brody Wilson, CFO) We're always considering our disclosures and what's valuable for our investors. As the water business grows, we will evaluate our reporting practices to ensure they align with investor needs and regulatory requirements.

Q: Given this is a lag year, have you thought about providing early 2025 guidance once you get a final order in Oregon?
A: (David Anderson, CEO) We will consider that. Our first priority is to get through the rate case, but we understand the importance of providing guidance and will evaluate the timing accordingly.

Q: On the Puttman Water acquisition, what does CapEx look like, and are you focusing on geographic expansion or wastewater services?
A: (Justin Palfreyman, President) The acquisition includes existing assets serving an existing customer base with long-term growth potential. There are opportunities for capital investment to support growth in rapidly growing areas like Boise, Idaho, and San Diego. We see future opportunities both within existing service territories and beyond.

Q: Regarding hydrogen, are you focusing solely on Turquoise Hydrogen, or are you exploring other forms like blue or green hydrogen?
A: (David Anderson, CEO) We are open to all forms of hydrogen. The unique aspect of Turquoise Hydrogen is that it can be integrated directly into the distribution system without needing a large hydrogen hub. This is just one example of how R&D and technology are helping the gas business decarbonize.

Q: How does warmer weather affect your earnings, and what are your assumptions for the rest of the year?
A: (Justin Palfreyman, President) Warmer-than-normal weather impacted the first quarter, but we assume normal weather for the rest of the year. Most of our load is weather normalized, so while weather can have some impact, it is generally minor.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.