Northwest Natural Holding Co. (NWN) — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. The combined filing presents separate consolidated results for Northwest Natural Holding Company (NW Holdings) and its principal subsidiary, Northwest Natural Gas Company (NW Natural). Figures below are NW Holdings unless noted; dollar amounts are in millions.
Financial results and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Operating revenue | $141.5 | $116.8 | $841.8 | $662.1 |
| Net income (loss) | $(23.7) | $(19.6) | $49.2 | $38.4 |
| Diluted EPS | $(0.65) | $(0.56) | $1.37 | $1.14 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $301.5 | $166.0 |
| Capital expenditures | Not provided for quarter | Not provided for quarter | $242.7 | $251.8 |
- NW Natural’s NGD margin, a company-defined operating measure, was $68.9 million for Q3, up $7.2 million, and $396.5 million year to date, up $62.7 million. Margin reflects distribution revenue less gas costs, environmental remediation expense, and revenue taxes.
- At September 30, NW Holdings had cash and cash equivalents of $156.6 million, current assets of $507.4 million and current liabilities of $590.1 million. Cash, cash equivalents and restricted cash totaled $171.5 million.
- Debt carrying amounts were $71.0 million of short-term debt, $190.7 million of current maturities and $1,424.6 million of long-term debt. Common equity was 43.0% of capitalization excluding short-term debt, compared with 46.8% at year-end 2022.
- NW Holdings reported nine-month operating cash flow of $301.5 million, investing cash outflow of $250.5 million and financing cash inflow of $79.5 million. NW Natural’s operating cash flow was $294.2 million.
Material changes versus comparable periods
- Q3 revenue rose $24.6 million year over year, while the net loss widened by $4.1 million. At NW Natural, higher NGD margin and other income were more than offset by increased operating and maintenance costs and interest expense; NW Holdings also had higher holding-company and water-company interest costs.
- Nine-month revenue increased $179.7 million and net income rose $10.9 million. NW Natural’s $62.7 million increase in NGD margin and higher other income were partly offset by higher operations and maintenance, interest, taxes and depreciation.
- Year-to-date operating cash flow increased $135.5 million at NW Holdings, mainly reflecting working-capital movements, including lower receivables and inventories, fewer customer bill credits, and higher net income.
- NW Holdings issued 955,325 shares through its at-the-market program for $40.9 million net proceeds in the first nine months. The share count increased to 36.6 million from 35.5 million at December 31, 2022.
Outlook, risks and unusual items
- No full-year earnings guidance is stated in the provided filing text. Management estimates NW Natural capital expenditures of $310–$350 million in 2023 and $1.3–$1.5 billion for 2023–2027; NW Natural Water expects about $25 million of 2023 maintenance capital spending and $90–$110 million over 2023–2027. Combined incremental capital needs for NW Holdings and NW Natural are estimated at $450–$550 million from 2023 through 2025.
- Management says liquidity is sufficient, citing cash, operating cash flows and committed credit capacity. NW Natural had no commercial paper outstanding and no balance drawn on its $400 million revolving credit facility at quarter-end. NW Holdings had $71 million drawn on its $200 million credit agreement.
- NW Natural’s environmental-site liabilities totaled $116.5 million. The Gasco sediments cleanup estimate ranges from $60.1 million to $350 million; the recorded liability is at the low end. Regulatory recovery mechanisms apply to eligible costs, but recovery remains subject to review and certain earnings tests.
- Washington’s Climate Commitment Act and Oregon’s Climate Protection Program create compliance-cost and demand risks. Management estimates first-year CCA compliance could increase non-low-income residential bills by 1.5%–6%, and Oregon CPP costs could increase bills by 1%–11% in the first compliance period; estimates may change and are intended to be pursued for rate recovery.
- Other risks highlighted include higher interest rates and financing costs, supply-chain delays, cybersecurity requirements, regulatory outcomes, and changing policies affecting natural gas demand. NW Natural’s S&P outlook changed to negative in October 2023. Management states the business is seasonal, so Q3 results are not necessarily indicative of full-year results.
- In October 2023, NW Natural received approval for 2023–24 PGA rate changes effective November 1. The board declared a quarterly dividend of $0.4875 per share, an indicated annual rate of $1.95.
Important facts for investors to verify
- Whether higher rates and NGD margin gains can offset continuing operating-cost and interest-expense increases.
- Debt maturities, refinancing needs and the effect of the negative S&P outlook on financing costs and access to capital.
- Environmental remediation estimates, allocation among responsible parties, and the timing and amount of regulatory recovery.
- Actual CCA and CPP compliance costs, customer bill impacts, and whether regulators allow recovery through rates.
- Execution and funding of the capital program, water acquisitions and other growth initiatives, alongside dilution from equity issuance.