Northwest Natural Hldg posts solid Q3 results, projects full-year earnings above midpoint of guidance, driven by robust customer growth and strategic investments.

OPERATOR - (00:01:06)

Good morning and thank you all for attending the Northwest Natural Hldg's third quarter 2025 earnings call. My name is Breca 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, Nicky Spali, Head of Investor Relations, Head of Investor Relations. Thank you. You may proceed. Nicky.

Nicky Spali - Head of Investor Relations - (00:01:39)

Thank you. Good morning and welcome to our third quarter 2025 earnings call. A presentation for today's call is available on our Investor relations website@ir.northwestnaturalholdings.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 forward looking statements. They are 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 measures, 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. 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 Pelferman, President and Chief Executive Officer, and Ray Kasuba, 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 Ray's 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.

Justin Pelferman - President and Chief Executive Officer - (00:03:51)

Thanks Nicky. Good morning and welcome everyone. I am very proud of the effort. And dedication from our team so far this year resulting in significant progress toward our strategic goals. While fulfilling our mission of delivering safe, reliable and affordable service to our nearly 1 million customers, we continue to expand our customer base, invest in our systems, drive operational excellence through cost efficiency and discipline, and achieve constructive regulatory outcomes we are well positioned to deliver on our commitments to shareholders and create value in the future. Starting this morning with financial results, Northwest Natural holdings continued its momentum from the first half of the year and delivered a strong third quarter. Our results reinforced my confidence in executing against our 2025 plan. That's why we are expecting full year 2025 results to be above the midpoint of our adjusted earnings range of $2.75 per share to $2.95 per share through September 30th. We invested over $330 million in our gas and water systems to support customer growth, system reliability and long term infrastructure resilience. Our combined utility customer growth rate was 10.9% for the 12 months ended September 30th. This substantial growth was largely driven by our gas utility acquisitions in Texas. Northwest Natural Water also contributed incremental meter growth, posting a 4.1% increase. With our robust long term capital plan and customer growth, we are reaffirming our long term earnings growth rate of 4 to 6%. We remain highly confident in our ability to execute. I am pleased to report that in the fourth quarter the board approved a dividend increase making this the 70th consecutive year of annual dividend increases. Northwest Natural holdings is one of only three companies on the New York Stock Exchange with this outstanding record. While our growth and financial results are strong, we are executing on our strategic priorities for 2025, laying the foundation for success in the coming years. Moving to slide 5 turning first to our Northwest Natural Gas Utility and a few updates on the regulatory front. I'm happy to report Northwest Natural and parties worked collaboratively and received a constructive order from the Oregon Public Utility Commission approving our all party settlements. Under the order, Northwest Naturals revenue requirement increased $20.7 million. That consisted of a 5050 capital structure, an ROE of 9.5% and a cost of capital of approximately 7.12%. In addition, rate base increased $180 million since the last case for a total of $2.3 billion. New rates went into effect on October 31. At the end of August, we filed our first Washington General rate case since 2021. As context, about 10% of our Northwest Natural Gas utility revenue comes from our Washington customer base. The three year rate case request has new rates beginning August 1, 2026. The request, to be spread over three years included a total revenue requirement increase of $42.4 million over current rates. The increase is based on a capital structure of 51% equity, 48% long term debt and 1% short term debt, a return on equity of 10.2% by year two of the filing, and a cost of capital of approximately 7.6% by year two. This request includes an increase in average rate base of $175 million since the last rate case. We carefully considered this rate case filing and the effect on customers bills in parallel. Our team continues to identify operational efficiencies and cost saving opportunities while remaining focused on delivering safe, reliable service. In October, we received approval for our annual purchase gas adjustments in both Oregon and Washington, taking into account the Oregon General rate case increase and gas costs. On average, Northwest Natural residential customers are paying about the same today for their natural gas service as they did 20 years ago. While a customer's monthly bill has not changed much over the last two decades, the value of the gas system in the Pacific Northwest has increased exponentially. Let me give you an example. During our last peak event on the coldest winter hour, Northwest naturals system delivered 2.5 times more energy than the largest electric utility in the region. Said another way, our gas system provided the equivalent of 12 gigawatt hours of electricity, which is comparable to about 11 nuclear power units operating at full capacity. At the same time, natural gas use in our customers, homes and businesses accounts for just 6% of Oregon's annual greenhouse gas emissions. Now that's an efficient system. During that event, our system performed well. Our MIST gas storage facility delivered a new record volume and provided essential support for the entire region's energy system. These facts underscore the unmatched reliability, scalability and efficiency of our gas system, especially during critical peak events. As demand continues to grow, our investments in long duration assets like our MIST storage facility position us to meet regional energy needs. Turning to our See Energy gas utility in Texas, See Energy continues to provide strong customer growth and is hitting its financial targets. Perhaps most importantly, See Energy posted a sizable increase to its customer backlog and now has signed contracts representing over 240,000 future meters, including the Pines backlog. That's nearly a 35% increase in a year, a strong signal that developers increasingly want to work with See Energy and expect to build Texas housing for years to come. Turning to regulatory updates, we are pleased with Texas House Bill 4384, which became law in June of 2025. This is a highly constructive piece of legislation for See Energy and we expect it to be particularly beneficial after our first rate case. The bill enables real time recovery of distribution investments, essentially eliminating lag, further streamlining the regulatory process and enhancing earned roes this mechanism strengthens our ability to invest efficiently in the infrastructure buildout needed in Texas. See Energy currently accounts for approximately 10% of our business. We anticipate it will be an increasing portion of our business mix moving forward and are very supportive of further investment in Texas. Turning now to Northwest Natural Water Our objective from the very beginning of our water strategy was to purchase anchor utilities in high growth regions and then tuck in smaller utilities and grow organically around that central utility. We continue to see the benefit of this strategy playing out. Over the last 12 months, our water and wastewater utility customer base grew quite rapidly at a 4.1% clip including three small acquisitions and organic customer growth on its own was 2.4%. Our water 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 our water Investments. In 2025, we completed seven rate cases at utilities in Idaho, Washington and Oregon. On average, we received about 67% of our requested revenue increases, a constructive outcome that reflects the value of upgrades to these systems and our regulatory approach. Looking ahead to 2026, we will continue to execute on rate cases to support essential investments in these utilities. Another recent success was the approval by the Texas Public Utility Commission of our purchase of Inline utilities in Houston, Texas. This is our second fair market value acquisition under the Texas rules and I'm pleased with how our team worked with regulators to get this across the finish we expect to close on the 1500 connection water and wastewater utility by year end. Beyond the regulatory progress, we're expanding our water playbook to further develop our footprint organically in Texas. To do that, we're leveraging See Energy's approach and relationships, partnering with developers and homebuilders in the region and establishing a strong reputation for building out new infrastructure reliably and on time. Our Texas Business Development team is now offering developers in Houston water and wastewater services. We are already seeing strong momentum here. So far we have signed multiple contracts for 3,200 future water and wastewater connections and the pipeline of opportunities is growing. We are just in the opening innings of this opportunity and will continue to leverage strong existing relationships with developers and home builders to increase the scale of our operations at both See Energy and our water utilities in Texas. Our renewables business also continues to deliver steady operational performance and consistent financial results supported by disciplined execution and long term contracts. While we are taking a cautious approach to future project investments in this space, we are pleased with the projects we have operating today and the steady earnings and cash flows that those assets are generating. 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.

Ray Kasuba - Senior Vice President and Chief Financial Officer - (00:14:31)

Thank you, Justin and good morning everyone. Turning to Slide 6 as Justin mentioned, third quarter results continued our momentum from the strong first half of the year. This performance keeps us firmly on track with our expectation to be above the midpoint of our guidance range for 2025. 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. We reported a loss of $0.73 per share for the third quarter of 2025, relatively unchanged from the loss of $0.71 per share for the same period in 2024. For our Northwest Natural Gas segment, earnings per share improved slightly largely in line with last year. See Energy provided an incremental $0.04 of earnings per share for the third quarter of 2025 compared to the same period last year. In our first year after the acquisition, margin and net income are trending well and are aligned with our expectations. Our water segment earnings per share increased $0.04. The key drivers were new rates at our largest water and wastewater utility in Arizona and additional revenues from the ICH utilities after the acquisition in September 2024. Finally, the adjusted net loss of our Other segment increased $0.14 per share compared to the same period last year, primarily due to higher interest expense at the holding company. On slide 7, we have outlined our year to date results. Adjusted earnings per share were $1.52 to date in 2025 compared to $0.88 for the same period of 2024. The year to date increase in earnings per share reflected strong earnings across all business segments, including new rates for our gas utility in Oregon, contributions from Sea Energy, higher net income from our water utilities, and earnings contribution from renewables, which is in other these items are partially offset by higher O and M costs, depreciation and interest expense. Turning to our growth outlook and guidance on Slide 8, we reaffirmed annual 2025 adjusted earnings guidance today in the range of $2.75 per share to $2.95 per share. Given the strong results from the first nine months of 2025, we expect to be above the midpoint for the full year. We continue to expect Sea Energy and Northwest Natural Water to each provide approximately 25 to 30 cents of adjusted earnings per share this year for 2025. We continue to project 2 to 2.5% consolidated organic customer growth across our utilities. Turning to our capital expenditures for the year, consolidated capital expenditures are still expected to be in the range of 450 to 500 million dollars, anchored by the significant projects at our Northwest natural gas utility related to modernizing end of life meters, system reinforcement and gas storage upgrades. Longer term, we continue to expect an earnings per share growth rate of 4 to 6% compounded annually from the midpoint of our 2025 adjusted EPS guidance range. Moving to Slide 9 regarding capital structure, our objective remains to keep our balance sheet strong with ample liquidity. On September 30, 2025 we had liquidity of approximately $437 million with significant availability on utility line of credit and cash on hand. Year to date we have issued $48 million of equity through our ATM program. At this point we have satisfied our 2025 ATM issuance needs and issued less than we originally expected. Related to debt, we have no material debt maturities in 2025. In August we successfully issued $185 million of inaugural investment grade bonds at Sea Energy, refinancing the existing debt of approximately $150 million. In summary, we are pleased with our performance so far in 2025 and remain confident in achieving our financial targets for the full year and beyond. Thanks for joining us this morning. With that we will open it up for questions.

OPERATOR - (00:18:40)

Thank you Ray. We will now begin the question and answer session and if you would like to ask a question during this time, please press STAR followed by the number one on your telephone keypad. If for any reason you would like to remove your question, you can press STAR followed by number two to remove your request to speak. And as a reminder, that is STAR followed by one. The first question we have comes from Alex Kinnear with btig. You may proceed with your question.

Alex Kinnear - Equity Analyst - (00:19:12)

Good morning. Thanks for taking my question. Maybe the first question would just be on a little bit more color just on the lower equity requirement for 25, you know, is this a function of just performance year to date, kind of better cash flow generation and is there any, you know, potential read through kind of on an ongoing basis to fund capital expenditures (capex)?

Ray Kasuba - Senior Vice President and Chief Financial Officer - (00:19:34)

Good morning Alex, appreciate the question. I think you, you've got it. We start the year off, we look at our plans from, from a overall capital structure perspective, debt issuance, earnings, cash. So as the year goes we reassess that. That's what you're seeing here where we are now over or completed our ATM program for the full year and we Wanted to communicate that.

Alex Kinnear - Equity Analyst - (00:20:01)

Great, thanks. And maybe just somewhat some additional follow up just on, you know, where the company is seeing, you know, additional tuck-in opportunities, I guess, particularly in Texas, around the water and gas lines of business here. Is there, you know, on top of the organic growth that you're seeing as well? It's just, is there, is there a fairly wide somewhat wide range of other somewhat opportunities to tuck-in relative, maybe and somewhat how would you compare that relative to the organic growth pattern? Yeah, thanks for that question, Alex.

Justin Pelferman - President and Chief Executive Officer - (00:20:36)

This is Justin. So the tuck-in opportunities for us across our water business, they constantly exist, but we have built up a platform now that gives us the opportunity to continue to build and expand through organic growth. And we are prioritizing that. We will continue to look at opportunities on an opportunistic basis as they arise. And as you probably know, the water segment is very, very fragmented. There's a lot of small systems out there, but where we're seeing most of our growth right now is organically and it's in areas like Texas, Arizona and Idaho where there's strong housing growth.

Alex Kinnear - Equity Analyst - (00:21:23)

Great, thanks very much.

OPERATOR - (00:21:27)

Thank you. Just as a quick reminder of Star One, if you would like to ask any further questions. And your next question comes from Salman Akiol with T4 on the line.

Tyler (for Salman Akiol) - (00:21:39)

Good morning team. Tyler on for Salman. With the change in the rate case timing, with sort of one behind you now in Oregon, does it seem as though the commission has been more or less receptive to certain items in the request versus the multi year rate cases. Thanks.

Ray Kasuba - Senior Vice President and Chief Financial Officer - (00:22:02)

Yeah, thanks for your question, Tyler. So we are, the commission has just opened up a docket on multi year planning in Oregon. As you know, that's something that's been in place for a while now in Washington. And as part of legislation that passed earlier this year, the commission is looking at implementing multi year plans. We'll be engaged with them throughout that process, which will be a rule-making process. That occurs next year. But right now, with new rates in effect here in Oregon, we think we're well positioned.

Tyler (for Salman Akiol) - (00:22:39)

And then is there, is there any change in the status of the hydrogen pilot projects? Given attitude with the administration, has anything been somewhat sidelined for the time being on blending or otherwise? Thanks.

Ray Kasuba - Senior Vice President and Chief Financial Officer - (00:22:58)

Yeah, so we have, as you know, we've done hydrogen blending tests over the Last few years at our facilities in Sherwood and are very comfortable with the technical capabilities there. We also had a hydrogen pilot at one of our facilities where we were testing new methane pyrolysis technology. And that, that pilot is largely complete. As well, there are broader hydrogen production projects. You've probably heard of the hydrogen hub projects across the country that were supported under the Biden administration. The latest news there, and we are not directly involved in those projects, but the latest news there is that funding has been reallocated away from, from those projects. So I think those are up in the air. But at some point in the future, if there is a clean hydrogen available that's affordable and can compete with other forms of renewable fuels on an affordability basis, we would be in a position. To blend that in in our systems.

Tyler (for Salman Akiol) - (00:24:06)

Okay. Thank you guys.

Ray Kasuba - Senior Vice President and Chief Financial Officer - (00:24:10)

Thank you.

OPERATOR - (00:24:12)

Thank you. I would like to conclude the question and answer session here and hand it back to Justin Pelfeman for some final closing comments.

Justin Pelferman - President and Chief Executive Officer - (00:24:23)

Great. Thank you. Appreciate everybody's interest in participating in this. Call this morning and appreciate the questions and wishing everyone a safe rest of the week. Thank you.

Sam - (00:24:37)

Thank you all for joining. I can confirm that does conclude the Northwest Natural Hldg's third quarter 2025 earnings call. Thank you all for your participation. You may now disconnect and please enjoy the rest of your day. Sam.