Nw natural holdings reports fourth quarter and full year 2022 results
Portland, ore.--(business wire)--northwest natural holding company, (nyse: nwn) (nw natural holdings), reported financial results and highlights including: reported net income of $86.3 million (or $2.54 per share) for 2022, an increase of $7.6 million or 10%, compared to net income of $78.7 million (or $2.56 per share) for 2021 added 8,600 natural gas meters over the last 12 months equating to a 1.1% growth rate invested $338.6 million in our gas and water utility systems to support growth and greater reliability and resiliency scored second in the west for customer satisfaction among large utilities in the 2022 j.d. power gas utility residential customer satisfaction study, making this the 19th consecutive year customers have ranked nw natural among the top two utilities new rates went into effect on nov. 1, 2022 related to oregon and washington nw natural general rate cases closed our largest water and wastewater acquisition to date in yuma, arizona increasing nw natural water's customer base by approximately 70% and bringing total connections to approximately 62,500 at dec. 31, 2022 demonstrating continued success, in 2023 nw natural water signed agreements to add over 2,800 water and wastewater connections in key states in its service territory expect renewable natural gas (rng) facilities, in which nw natural renewables is investing, to begin producing commercial volumes in the second quarter of 2023 honored as one of the 2022 world's most ethical companies® by ethisphere1 increased our dividend for the 67th consecutive year to an annual indicated dividend rate of $1.94 per share initiated 2023 earnings guidance in the range of $2.55 to $2.75 per share and reaffirmed long-term earnings per share growth rate target of 4% to 6% "in 2022, nw natural holdings demonstrated our continued commitment toward decarbonization, diversification and growth and delivered strong financial performance," said david h. anderson, president and ceo of nw natural holdings. "it was a transformative year on many fronts. we grew our gas and water utilities, began operation of the first rng facility under the landmark oregon senate bill 98 - producing rng on behalf of our gas utility customers, closed our largest water and wastewater acquisition to date, and began construction of the first rng facilities we’re investing in through our competitive rng business. we’re proud to operate three growing businesses that provide essential services." for 2022, nw natural holdings reported net income of $86.3 million (or $2.54 per share), an increase of $7.6 million or 10%, compared to $78.7 million (or $2.56 per share) for 2021. results reflected higher revenues in oregon and washington for our natural gas utility, customer growth, and lower pension expense, partially offset by higher operations and maintenance expenses, depreciation, and general tax expenses. net income from our other activities decreased primarily due to higher interest expense. earnings per share were also affected by issuing common shares in 2022. 1 “world’s most ethical companies” and “ethisphere” names and marks are registered trademarks of ethisphere llc. key initiatives and events new rates effective from nw natural's oregon general rate case new rates in oregon were effective beginning nov. 1, 2022. the opuc approved the multi-party settlements in nw natural's general rate case increasing the revenue requirement $59.4 million including final adjustments for capital projects placed into service and the depreciation study. the order included a capital structure of 50% common equity and 50% long-term debt, return on equity of 9.4%, cost of capital of 6.836%, and rate base of $1.76 billion, or an increase of $320 million since the last rate case. second year of washington multi-year rate case goes into effect washington rates increased $3.0 million on nov. 1, 2022 as the second year of the washington general rate case went into effect. in 2021, the washington utilities and transportation commission issued an order concluding nw natural's general rate case filed in december 2020. the order provides for an annual revenue requirement increase over two years, consisting of a $5.0 million increase in the first year beginning nov. 1, 2021 and up to an incremental $3.0 million increase in the second year beginning nov. 1, 2022. nw natural renewables poised to see rng facilities begin operations nw natural renewables holdings, llc (nw natural renewables), a competitive rng business, is investing a combined $50 million in two rng facilities owned by edl. substantial completion and commissioning of the facilities is anticipated in the second quarter of 2023. nw natural water continues steady pace of acquisitions in october 2022, nw natural water closed its acquisition of the far west water and wastewater utilities (referred to as foothills utilities post acquisition) in yuma, arizona adding 25,000 connections and expanding water's service territory into a fifth state. in addition to far west, nw natural water recently signed other agreements to acquire water and wastewater utilities serving more than 2,800 connections with key additions to its newly acquired arizona territory and growing texas assets. complimenting this acquisition activity, nw natural water signed an agreement to support a realty management company as it builds out the water and wastewater infrastructure for a new multi-family development on the west side of houston. annual results the following financial comparisons are between the annual results for 2022 and 2021 with individual year-over-year drivers below presented on an after-tax basis using a statutory tax rate of 26.5%, unless otherwise noted. nw natural holdings' annual results by business segment are summarized in the table below: 2022 2021 change in thousands, except per share data amount per share amount per share amount per share net income: natural gas distribution segment $ 79,690 $ 2.34 $ 68,988 $ 2.24 $ 10,702 $ 0.10 other 6,613 0.20 9,678 0.32 (3,065 ) (0.12 ) consolidated $ 86,303 $ 2.54 $ 78,666 $ 2.56 $ 7,637 $ (0.02 ) diluted shares 33,984 30,752 3,232 natural gas distribution segment natural gas distribution (ngd) segment net income increased $10.7 million (or $0.10 per share) reflecting new rates in oregon that went into effect on nov. 1, 2022, new rates in washington that went into effect on nov. 1, 2021 and nov. 1, 2022, and customer growth, partially offset by higher operating expenses. earnings per share was affected by issuing 4.4 million of common shares during 2022. margin increased $19.2 million reflecting new rates, which contributed $11.0 million; the amortization of deferrals approved in the rate case, including covid and cybersecurity, contributed $2.1 million; and customer growth of 1.1% over the last 12 months provided $4.5 million. in addition, margin increased $1.5 million due to higher usage from colder comparative weather for customers not covered by the weather normalization mechanism, net of the loss from the oregon gas cost incentive sharing mechanism. weather was 1% colder than average for 2022, compared to 12% warmer than average for 2021. operations and maintenance expense increased $12.3 million as a result of higher contractor labor for safety and reliability projects, expenses related to information technology maintenance and support, amortization expense related to cloud-computing arrangements and deferrals, and professional service fees. depreciation expense and general taxes increased $3.2 million as we continue to invest in our natural gas utility system and facilities. other income, net increased $9.3 million driven by lower pension costs primarily related to higher returns and lower interest costs. interest expense increased $2.5 million due to a combination of higher interest rates on commercial paper, mitigated by a lower outstanding balance, and incremental long-term debt issued to fund capital expenditures, partially offset by higher allowance for funds used during construction (afudc). other net income from our other businesses decreased $3.1 million (or $0.12 per share) reflecting lower asset management revenues primarily related to a 2021 cold weather event, and higher interest expense primarily due to incremental debt issued. fourth quarter results the following financial comparisons are between the fourth quarter of 2022 and 2021 with individual year-over-year drivers presented on an after-tax basis using a statutory tax rate of 26.5%, unless otherwise noted. nw natural holdings' fourth quarter results by business segment are summarized in the table below: three months ended december 31, 2022 2021 change in thousands, except per share data amount per share amount per share amount per share net income: natural gas distribution segment $ 47,159 $ 1.34 $ 39,741 $ 1.29 $ 7,418 $ 0.05 other 777 0.02 787 0.03 (10 ) (0.01 ) consolidated $ 47,936 $ 1.36 $ 40,528 $ 1.32 $ 7,408 $ 0.04 diluted shares 35,294 30,883 4,411 natural gas distribution segment natural gas distribution segment net income increased $7.4 million (or $0.05 per share) reflecting new rates in oregon that went into effect on nov. 1, 2022 and new rates in washington that went into effect on nov. 1, 2021 and nov. 1, 2022, partially offset by higher operating expenses. earnings per share was affected by issuing common shares during 2022. margin increased $12.6 million primarily due to new rates, which contributed $8.9 million; the amortization of deferrals approved in the rate case contributed $2.1 million; and customer growth of 1.1% over the last 12 months contributed $1.6 million. operations and maintenance expense increased $4.1 million as a result of higher information technology costs, contractor labor for safety and reliability projects, and professional service fees. depreciation and general taxes collectively increased by $1.8 million due to additional capital investments in the distribution system. in addition, we placed two significant information technology projects into service in september 2022. other income, net reflected a benefit of $2.8 million primarily from lower pension expense. interest expense increased $2.3 million due to a higher interest rate on commercial paper and higher long-term debt balance. balance sheet and cash flows for 2022, the company generated $147.7 million in operating cash flow and invested $338.6 million in natural gas utility capital expenditures to support growth, safety, and technology and facility upgrades; and water & wastewater utility capital expenditures to support growth and safety. in addition, the company invested $94.3 million in water and wastewater acquisitions. net cash provided by financing activities was $301.6 million for 2022 primarily due to issuing long-term debt and equity. 2023 guidance and long-term targets nw natural holdings is initiating 2023 earnings guidance in the range of $2.55 to $2.75 per share. this guidance assumes continued customer growth, average weather conditions, and no significant changes in prevailing regulatory policies, mechanisms, or outcomes, or significant local, state or federal laws, legislation or regulations. nw natural holdings' long-term earnings per share growth rate target is 4% to 6% compounded annually from 2022 through 2027. we expect nw natural capital expenditures for 2023 to be in the range of $310 million to $350 million and for the five-year period from 2023 to 2027 to range from $1.3 billion to $1.5 billion. we expect nw natural water to invest approximately $25 million in 2023 related to maintenance capital expenditures for water and wastewater utilities owned as of dec. 31, 2022, and for the five-year period to invest approximately $90 million to $110 million. the timing and amount of the capital expenditures and projects for 2023 or additional investments in our infrastructure during or after 2023 could change based on customer growth, significant changes in prevailing regulatory policies or outcomes, or significant local, state or federal laws, legislation or regulations, or cost estimates. required funds for the investments are expected to be internally generated or financed with long-term debt or equity, as appropriate. 67 years of increasing dividends on nov. 15, 2022, nw natural holdings paid its 67th consecutive annual dividend increase. in january 2023, the board of directors of nw natural holdings declared a quarterly dividend of 48.50 cents per share on the company’s common stock. the dividend was paid on feb. 15, 2023 to shareholders of record on jan. 31, 2023. the company’s current indicated annual dividend rate is $1.94 per share. future dividends are subject to board of director discretion and approval. conference call and webcast as previously announced, nw natural holdings will host a conference call and webcast today to discuss its fourth quarter and annual 2022 financial and operating results. date and time: friday, february 24 8 a.m. pt (11 a.m. et) phone numbers: united states 1-844-200-6205 canada 1-833-950-0062 international 1-929-526-1599 passcode 193311 the call will also be webcast in a listen-only format for the media and general public and can be accessed at ir.nwnaturalholdings.com. a replay of the conference call will be available on our website and by dialing 1-866-813-9403 (u.s.), 1-226-828-7578 (canada), and +44-204-525-0658 (international). the replay access code is 343562. about nw natural holdings northwest natural holding company, (nyse: nwn) (nw natural holdings), is headquartered in portland, oregon and, with its predecessors, has been doing business for nearly 165 years. it owns nw natural gas company (nw natural), nw natural water company (nw natural water), nw natural renewables holdings (nw natural renewables), and other business interests. we have a longstanding commitment to safety, environmental stewardship and the energy transition, and taking care of our employees and communities. learn more in our latest esg report at nwnatural.com/about-us/the-company/sustainability. nw natural is a local distribution company that currently provides natural gas service to approximately 2.5 million people in more than 140 communities through nearly 795,000 meters in oregon and southwest washington with one of the most modern pipeline systems in the nation. nw natural consistently leads the industry with high j.d. power & associates customer satisfaction scores. nw natural owns and operates 21.6 bcf of underground gas storage capacity in oregon. nw natural water provides water distribution and wastewater services to an estimated 155,000 people through approximately 62,500 connections for communities throughout the pacific northwest, texas and arizona. learn more at nwnaturalwater.com. nw natural renewables is a unregulated business committed to leading in the energy transition by providing cost-effective solutions to support decarbonization in the utility, commercial, industrial and transportation sectors. learn more at nwnaturalrenewables.com. additional information is available at nwnaturalholdings.com. forward-looking statements this press release, and other presentations made by nw holdings from time to time, may contain forward-looking statements within the meaning of the u.s. private securities litigation reform act of 1995. forward-looking statements can be identified by words such as "anticipates," "assumes," “continues,” “could,” "intends," "plans," "seeks," "believes," "estimates," "expects" and similar references to future periods. examples of forward-looking statements include, but are not limited to, statements regarding the following: plans, objectives, assumptions, estimates, expectations, timing, goals, strategies, commitments, future events, investments, timing and amount of capital expenditures, targeted capital structure, risks, risk profile, stability, acquisitions and timing, approval, completion and integration thereof, the likelihood and success associated with any transaction, utility system and infrastructure investments, system modernization, reliability and resiliency, global, national and local economies, customer and business growth, continued expansion of service territories, customer satisfaction ratings, weather, performance and service during weather events, customer rates or rate recovery and the timing and magnitude of potential rate changes and the potential outcome of rate cases, environmental remediation cost recoveries, environmental initiatives, decarbonization and the role of natural gas and the gas delivery system, including decarbonization goals and timelines, energy efficiency measures, use of renewable sources, renewable natural gas purchases, projects, investments and other renewable initiatives, including the construction of rng facilities, and timing, magnitude and completion thereof, unregulated renewable natural gas strategy and initiatives, renewable hydrogen projects or investments and timing, magnitude, approvals and completion thereof, procurement of renewable natural gas or hydrogen for customers, technology and policy innovations, strategic goals and visions, the water and wastewater acquisition, partnerships, and investment strategy and financial effects of water and wastewater acquisitions, expected growth and safety benefits of facility upgrade investments, diversity, equity and inclusion initiatives, operating plans of third parties, financial results, including estimated income, availability and sources of liquidity, expenses, positions, revenues, returns, cost of capital, timing, and earnings, earnings guidance and estimated future growth rates, future dividends, commodity costs and sourcing asset management activities, performance, timing, outcome, or effects of regulatory proceedings or mechanisms or approvals, including opuc approval of the oregon general rate case settlements, regulatory prudence reviews, anticipated regulatory actions or filings, accounting treatment of future events, effects of legislation or changes in laws or regulations, effects, extent, severity and duration of covid-19, and any resulting economic disruption therefrom, geopolitical uncertainty and other statements that are other than statements of historical facts. forward-looking statements are based on current expectations and assumptions regarding its business, the economy, geopolitical factors, and other future conditions. because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. actual results may differ materially from those contemplated by the forward-looking statements. you are therefore cautioned against relying on any of these forward-looking statements. they are neither statements of historical fact nor guarantees or assurances of future operational, economic or financial performance. important factors that could cause actual results to differ materially from those in the forward-looking statements are discussed by reference to the factors described in part i, item 1a "risk factors", and part ii, item 7 and item 7a "management's discussion and analysis of financial condition and results of operations" and "quantitative and qualitative disclosure about market risk" in the most recent annual report on form 10-k and in part i, items 2 and 3 "management's discussion and analysis of financial condition and results of operations" and "quantitative and qualitative disclosures about market risk", and part ii, item 1a, "risk factors", in the quarterly reports filed thereafter, which, among others, outline legal, regulatory and legislative risks, covid-19 risks, macroeconomic and geopolitical risks, growth and strategic risks, operational risks, and environmental risks. all forward-looking statements made in this report and all subsequent forward-looking statements, whether written or oral and whether made by or on behalf of nw holdings or nw natural, are expressly qualified by these cautionary statements. any forward-looking statement speaks only as of the date on which such statement is made, and nw holdings and nw natural undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. new factors emerge from time to time and it is not possible to predict all such factors, nor can it assess the impact of each such factor or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statements. non-gaap financial measures in addition to presenting the results of operations and earnings amounts in total, certain financial measures are expressed in cents per share, which are non-gaap financial measures. all references to eps are on the basis of diluted shares. such non-gaap financial measures are used to analyze our financial performance because we believe they provide useful information to our investors and creditors in evaluating our financial condition and results of operations. our non-gaap financial measures should not be considered a substitute for, or superior to, measures calculated in accordance with u.s. gaap. moreover, these non-gaap financial measures have limitations in that they do not reflect all the items associated with the operations of the business as determined in accordance with gaap. other companies may calculate similarly titled non-gaap financial measures differently than how such measures are calculated in this report, limiting the usefulness of those measures for comparative purposes. a reconciliation of each non-gaap financial measure to the most directly comparable gaap financial measure is provided in the tables above. northwest natural holdings consolidated income statement and financial highlights (unaudited) fourth quarter and annual period three months ended twelve months ended december 31, december 31, 2022 2021 change 2022 2021 change operating revenues $ 375,253 $ 294,090 28% $ 1,037,353 $ 860,400 21% operating expenses: cost of gas 168,222 113,645 48 429,635 292,314 47 operations and maintenance 63,262 54,660 16 224,667 204,227 10 environmental remediation 4,439 3,846 15 12,389 9,938 25 general taxes 10,366 9,289 12 41,031 38,633 6 revenue taxes 15,789 12,514 26 41,826 34,740 20 depreciation 31,142 28,855 8 116,707 113,534 3 other operating expenses 806 1,103 (27) 3,621 3,897 (7) total operating expenses 294,026 223,912 31 869,876 697,283 25 income from operations 81,227 70,178 16 167,477 163,117 3 other income (expense), net 295 (4,204 ) (107) 1,203 (12,559 ) (110) interest expense, net 17,091 11,157 53 53,247 44,486 20 income before income taxes 64,431 54,817 18 115,433 106,072 9 income tax expense 16,495 14,289 15 29,130 27,406 6 net income $ 47,936 $ 40,528 18 $ 86,303 $ 78,666 10 common shares outstanding: average diluted for period 35,294 30,883 33,984 30,752 end of period 35,525 31,129 35,525 31,129 per share information: diluted earnings per share $ 1.36 $ 1.31 $ 2.54 $ 2.56 dividends paid per share 0.4850 0.4825 1.9325 1.9225 book value per share, end of period 33.09 30.04 33.09 30.04 market closing price, end of period 47.59 48.78 47.59 48.78 capital structure, end of period: common stock equity 42.4 % 39.5 % 42.4 % 39.5 % long-term debt 45.0 44.0 45.0 44.0 short-term debt (including current maturities of long-term debt) 12.6 16.5 12.6 16.5 total 100.0 % 100.0 % 100.0 % 100.0 % natural gas distribution segment operating statistics: meters - end of period 794,497 785,897 1.1% 794,497 785,897 1.1% volumes - therms: residential and commercial sales 271,289 247,166 766,592 703,054 industrial sales and transportation 125,548 131,546 485,745 481,721 total volumes sold and delivered 396,837 378,712 1,252,337 1,184,775 operating revenues: residential and commercial sales $ 328,512 $ 259,871 $ 881,370 $ 730,794 industrial sales and transportation 26,430 19,827 86,810 65,299 other distribution revenues 577 429 1,944 1,707 other regulated services 4,906 4,766 19,628 19,087 total operating revenues 360,425 284,893 989,752 816,887 less: cost of gas 168,183 113,701 429,861 292,538 environmental remediation expense 4,444 3,846 12,389 9,938 revenue taxes 15,720 12,457 41,627 34,600 margin, net $ 172,078 $ 154,889 $ 505,875 $ 479,811 degree days: average (25-year average) 1,046 1,052 2,686 2,692 actual 1,121 931 20% 2,712 2,378 14% percent colder (warmer) than average weather 7 % (12 )% 1 % (12 )% northwest natural holdings consolidated balance sheets (unaudited) as of december 31, in thousands 2022 2021 assets: current assets: cash and cash equivalents $ 29,270 $ 18,559 accounts receivable 168,906 101,495 accrued unbilled revenue 89,048 82,169 allowance for uncollectible accounts (3,296 ) (2,018 ) regulatory assets 117,491 72,391 derivative instruments 194,412 48,130 inventories 87,096 57,262 other current assets 61,286 59,288 total current assets 744,213 437,276 non-current assets: property, plant, and equipment 4,261,566 3,997,243 less: accumulated depreciation 1,147,166 1,125,873 total property, plant, and equipment, net 3,114,400 2,871,370 regulatory assets 340,432 314,579 derivative instruments 5,045 10,730 other investments 95,704 89,278 operating lease right of use asset, net 73,429 75,049 assets under sales-type leases 134,302 138,995 goodwill 149,283 70,570 other non-current assets 91,518 56,757 total non-current assets 4,004,113 3,627,328 total assets $ 4,748,326 $ 4,064,604 liabilities and equity: current liabilities: short-term debt $ 258,200 $ 389,500 current maturities of long-term debt 90,697 345 accounts payable 180,667 133,486 taxes accrued 15,625 15,520 interest accrued 10,169 7,503 regulatory liabilities 248,582 112,281 derivative instruments 28,728 10,402 operating lease liabilities 1,514 1,296 other current liabilities 64,552 54,432 total current liabilities 898,734 724,765 long-term debt 1,246,167 1,044,587 deferred credits and other non-current liabilities: deferred tax liabilities 366,022 340,231 regulatory liabilities 689,578 658,332 pension and other postretirement benefit liabilities 149,143 166,684 derivative instruments 20,838 412 operating lease liabilities 78,965 79,468 other non-current liabilities 123,438 114,979 total deferred credits and other non-current liabilities 1,427,984 1,360,106 equity: common stock 805,253 590,771 retained earnings 376,473 355,779 accumulated other comprehensive loss (6,285 ) (11,404 ) total equity 1,175,441 935,146 total liabilities and equity $ 4,748,326 $ 4,064,604 northwest natural holdings consolidated statements of cash flows (unaudited) year ended december 31, in thousands 2022 2021 operating activities: net income $ 86,303 $ 78,666 adjustments to reconcile net income to cash provided by operations: depreciation 116,707 113,534 regulatory amortization of gas reserves 5,589 13,897 deferred income taxes 17,410 14,617 qualified defined benefit pension plan expense 5,351 16,556 contributions to qualified defined benefit pension plans — (9,590 ) deferred environmental expenditures, net (18,160 ) (18,187 ) environmental remediation expense 12,389 9,938 asset optimization revenue sharing bill credits (41,102 ) (9,053 ) other 21,558 20,622 changes in assets and liabilities: receivables, net (76,454 ) (44,128 ) inventories (29,269 ) (14,571 ) income and other taxes 6,908 3,292 accounts payable 24,508 12,118 deferred gas costs 12,334 (40,541 ) asset optimization revenue sharing 28,937 44,458 decoupling mechanism 10,922 (5,206 ) cloud-based software (23,908 ) (7,407 ) other, net (12,351 ) (18,662 ) cash provided by operating activities 147,672 160,353 investing activities: capital expenditures (338,602 ) (293,892 ) acquisitions, net of cash acquired (94,279 ) (1,289 ) leasehold improvement expenditures (761 ) (1,364 ) proceeds from the sale of assets 870 3,926 purchase of equity method investment (1,000 ) (14,450 ) proceeds from sale of equity method investment — 7,000 other (1,688 ) (54 ) cash used in investing activities (435,460 ) (300,123 ) financing activities: proceeds from common stock issued, net 208,561 17,501 long-term debt issued 290,000 185,000 long-term debt retired — (95,000 ) proceeds from term loan due within one year — 100,000 repayment of term loan — (100,000 ) repayments of commercial paper, maturities greater than three months — (195,025 ) changes in other short-term debt, net (131,300 ) 280,000 cash dividend payments on common stock (62,771 ) (55,919 ) other (2,858 ) (5,121 ) cash provided by financing activities 301,632 131,436 increase (decrease) in cash, cash equivalents and restricted cash 13,844 (8,334 ) cash, cash equivalents and restricted cash, beginning of period 27,120 35,454 cash, cash equivalents and restricted cash, end of period $ 40,964 $ 27,120 supplemental disclosure of cash flow information: interest paid, net of capitalization $ 50,823 $ 43,719 income taxes paid, net of refunds 2,779 10,555 reconciliation of cash, cash equivalents and restricted cash: cash and cash equivalents $ 29,270 $ 18,559 restricted cash included in other current assets 11,694 8,561 cash, cash equivalents and restricted cash $ 40,964 $ 27,120
