Slide 1: 2016 Third Quarter Earnings Webcast
2016 Third Quarter Earnings Webcast October 20, 2016
Slide 2: Presenting Today
Presenting Today 2 Bob Rowe, President & CEO Brian Bird, Vice President & CFO
Slide 3: Forward Looking Statements
3 Forward Looking Statements During the course of this presentation, there will be forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements often address our expected future business and financia
Slide 4: Third quarter highlights
• Net income for the quarter was $44.6 million, or $0.92 per diluted share, as compared with net income of $23.8 million, or $0.51 per diluted share, for the same period in 2015. • This $20.8 million increase in net income is primarily due to a $15.5 million tax benefit as part of a tax accounting c
Slide 5: Summary Financial Results (Third Quarter)
Summary Financial Results (Third Quarter) 5
Slide 6: Gross Margin (Third Quarter)
6 Gross Margin (Third Quarter) (dollars in millions) Three Months Ended September 30, 2016 2015 Variance Electric $ 176.9 $ 172.3 $ 4.6 2.7% Natural Gas 27.9 26.8 1.1 4.1% Gross Margin $ 204.8 $ 199.1 $ 5.7 2.9% Increase in gross margin due to the following factors: $ 9.2 South Dakota electric rate
Slide 7: Weather (Third Quarter)
Weather (Third Quarter) 7 Average Temperature Ranks (last 122 years) Mean Temperature from Normal While near normal for the quarter, cooler than normal late summer weather in Montana had an unfavorable impact, primarily to our electric volumes.
Slide 8: Operating Expenses (Third Quarter)
Operating Expenses (Third Quarter) 8 Decrease in operating expenses due mainly to the following factors: $11.0 million decrease in OG&A $ (4.0) Hydro operations (Kerr Conveyance) $ (2.9) Non-employee directors deferred compensation $ (1.7) Distribution System Infrastructure Project (DSIP) expenses $
Slide 9: Operating to Net Income (Third Quarter)
Operating to Net Income (Third Quarter) 9 $1.0 million decrease in interest expense was primarily due to debt refinancing transactions partially offset by lower capitalization of allowance for funds used during construction (AFUDC) and increased debt outstanding associated with the Beethoven wind pr
Slide 10: Balance Sheet
Balance Sheet (dollars in millions) As of September 30, 2016 Cash Restricted cash Accounts receivable, net Inver Other current assets Goodwill PP&E and other non-current assets Total Assets Payables Current maturities of long-term debt & capital leases Short-term borrowings Other current liabilities
Slide 11: Cash Flow
Cash Flow 11 The $46.5 million decrease in operating cash flows is primarily due to refunds associated with the DGGS FERC ruling and the South Dakota electric rate case of approximately $30.8 million and $7.2 million, respectively, to customers during the first nine months of 2016. * DGGS refund of
Slide 12: Income Tax Reconciliation (Third Quarter)
Income Tax Reconciliation (Third Quarter) 12 The $16.1 million improvement in income taxes is primarily driven by additional flow- through repairs deductions, as a result of a tax accounting method change with the IRS related to costs to repair generation property, and higher production tax credits.
Slide 13: Adjusted Earnings (Third Quarter '16 vs '15)
Adjusted Earnings (Third Quarter ‘16 vs ’15) 13 The non-GAAP measures presented in the table above are being shown to reflect significant items that were not contemplated in our original guidance, however they should not be considered a substitute for financial results and measures determined or cal
Slide 14: Summary Financial Results (YTD thru Qtr 3)
Summary Financial Results (YTD thru Qtr 3) 14
Slide 15: Weather (YTD thru Qtr 3)
Weather (YTD thru Qtr 3) 15 Northwestern’s service territory is much more impacted by variances to Heating Degree Days (HDD) than Cooling Degree Days (CDD) (i.e. approximately 16x more HDD’s than CDD’s in Montana). All three of our jurisdictions have experienced 10- 13% fewer HDD’s in 2016 than norm
Slide 16: Non-GAAP Adjusted Earnings ('16 vs '15)
Non-GAAP Adjusted Earnings (‘16 vs ’15) 16 The non-GAAP measures presented in the table above are being shown to reflect significant items that were not contemplated in our original guidance, however they should not be considered a substitute for financial results and measures determined or calculat
Slide 17: Non-GAAP Adjusted EPS
Non-GAAP Adjusted EPS 17 The non-GAAP measures presented in the table above are being shown to reflect significant items that were not contemplated in our original guidance, however they should not be considered a substitute for financial results and measures determined or calculated in accordance w
Slide 18: 2016 Earnings Guidance
2016 Earnings Guidance 18 NorthWestern reaffirms our full-year 2016 adjusted non-GAAP guidance range of $3.20 - $3.35 per diluted share, based upon, but not limited to, the following major assumptions and expectations: • Normal weather in our electric and natural gas service territories; • A consoli
Slide 19: Regulatory Update
19 Regulatory Update Regulatory Item Current / Anticipated Action FERC / DGGS: April 2014 order regarding cost allocation at DGGS between retail and wholesale customers. FERC denied our request for rehearing and required us to make refunds. Refunds were made in June 2016. Also in June 2016, we filed
Slide 20: Montana Natural Gas Rate Filing
Montana Natural Gas Rate Filing 20 Montana PSC Docket D2016.9.68 In September 2016, we filed a request with MPSC for an annual revenue increase of $10.9 million. This increase is primarily due to investments made to our gas infrastructure and natural gas reserves since 2012. The $10.9 million increa
Slide 21: 21 Appendix
21 Appendix
Slide 22: Segment Results (Third Quarter)
22 Segment Results (Third Quarter) Appendix
Slide 23: Electric Segment (Third Quarter)
23 Electric Segment (Third Quarter) Appendix
Slide 24: Natural Gas Segment (Third Quarter)
24 Natural Gas Segment (Third Quarter) Appendix
Slide 25: Gross Margin (YTD thru Qtr 3)
25 Gross Margin (YTD thru Qtr 3) (dollars in millions) Nine Months Ended September 30, 2016 2015 Variance Electric $ 510.9 $ 499.9 $ 11.0 2.2% Natural Gas 122.5 123.9 (1.4) (1.1%) Gross Margin $ 633.4 $ 623.8 $ 9.6 1.5% Increase in gross margin due to the following factors: $ 27.8 South Dakota elect
Slide 26: Operating Expenses (YTD thru Qtr 3)
Operating Expenses (YTD thru Qtr 3) 26 Increase in operating expenses due mainly to the following factors: $1.4 million decrease in OG&A $ (15.2) Hydro operations – Kerr conveyance (3.3) Distribution System Infrastructure Project (DSIP) expenses (1.5) Employee benefits (1.2) Bad debt expense (1.1) N
Slide 27: Operating to Net Income (YTD thru Qtr 3)
Operating to Net Income (YTD thru Qtr 3) 27 $3.9 million increase in interest expense was primarily due to $2.9 million of interest associated with the MPSC disallowance, lower capitalization of allowance for funds used during construction (AFUDC), increased debt outstanding associated with the Beet
Slide 28: Income Tax Reconciliation (YTD thru Qtr 3)
Income Tax Reconciliation (YTD thru Qtr 3) 28 Income taxes are considerably lower year-to-date through third quarter 2016 versus the prior year largely due to higher repair deductions (resulting from a tax accounting change to costs to repair generation property), lower pre-tax income, higher produc
Slide 29: Segment Results (YTD thru 3rd Quarter)
29 Segment Results (YTD thru 3rd Quarter ) Appendix
Slide 30: Electric Segment (YTD thru 3rd Quarter)
30 Electric Segment (YTD thru 3rd Quarter) Appendix
Slide 31: Natural Gas Segment (YTD thru 3rd Quarter)
31 Natural Gas Segment (YTD thru 3rd Quarter) Appendix
Slide 32: Highly Renewable Supply Portfolio
32 Highly Renewable Supply Portfolio Based upon 2015 delivered electric portfolio, approximately 54% of our total company owned and contracted supply is renewable or supports renewables. * Wind Owned delivered in 2015 includes a partial year of production from the Beethoven wind farm, which was acqu
Slide 33: Non-GAAP Financial Measures
These materials include financial information prepared in accordance with GAAP, as well as other financial measures, such as Gross Margin and Adjusted Diluted EPS, that are considered “non-GAAP financial measures.” Generally, a non- GAAP financial measure is a numerical measure of a company's financ
Slide 34: Delivering a bright future
Upelivering a bright future Energy