Northwestern Energy Group, Inc. · NASDAQ:NWE
Northwestern Energy — Q3 2018 Earnings Presentation
38 slides from Northwestern Energy's earnings presentation, Oct 24, 2018
Slide 1: 2018 Third Quarter Earnings Webcast
2018 Third Quarter Earnings Webcast October 24, 2018
Slide 2: Presenting Today / Forward Looking Statements
Presenting Today 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 Bob Rowe, statements often address our expected fut
Slide 3: Third Quarter Highlights
Third Quarter Highlights • Net income for the quarter decreased $8.2 million, Beethoven Wind Farm, near Tripp, SD or 22.6%, as compared to the same period in 2017. This decrease was primarily due to unfavorable weather, reduced recovery of energy supply costs and increased operating expenses. These
Slide 4: Summary Financial Results (Third Quarter)
Summary Financial Results (Third Quarter) (1) 4 (1) Gross Margin, defined as revenues less cost of sales, is a non-GAAP Measure See appendix for additional disclosure.
Slide 5: Gross Margin (Third Quarter)
Gross Margin (Third Quarter) (dollars in millions) Three Months Ended September 30, 2018 2017 Variance Electric $ 178.7 $ 183.5 ($ 4.8) (2.6%) Natural Gas 29.0 28.9 0.1 0.3% Total Gross Margin (1) $ 207.7 $ 212.4 ($ 4.7) (2.2%) Decrease in gross margin due to the following factors: $ (3.2) Electric
Slide 6: Weather (Third Quarter)
Weather (Third Quarter) We estimate unfavorable weather in Q3 2018 resulted in a $1.1M pretax detriment as compared to normal and $1.5M pretax detriment as compared to Q3 2017. 6
Slide 7: Operating Expenses (Third Quarter)
Operating Expenses (Third Quarter) (dollars in millions) Three Months Ended September 30, 2018 2017 Variance Operating, general & admin. $ 73.8 $ 67.7 $ 6.1 9.0% Property and other taxes 42.5 39.1 3.4 8.7% Depreciation and depletion 43.6 41.5 2.1 5.1% Operating Expenses $ 159.9 $ 148.3 $ 11.6 7.8% I
Slide 8: Operating to Net Income (Third Quarter)
Operating to Net Income (Third Quarter) (dollars in millions) Three Months Ended September 30, 2018 2017 Variance Operating Income $ 47.8 $ 64.1 $ (16.3) (25.4%) Interest Expense (22.0) (23.1) 1.1 4.8% Other Income / (Expense) 2.0 (1.8) 3.8 211.1% Income Before Taxes 27.8 39.2 (11.4) (29.1%) Income
Slide 9: Income Tax Reconciliation (Third Quarter)
Income Tax Reconciliation (Third Quarter) 9
Slide 10: Balance Sheet
Balance Sheet (dollars in millions) As of September 30, As of December 31, 2018 2017 Cash and cash equivalents $ 69 $ 85 Restricted cash 72 36 Accounts receivable, net 127.9 182.3 Inventories 52.7 52.4 Other current assets 52.5 496 Goodwill 357.6 357.6 PP&E and other non-current assets 4,895.3 4,167
Slide 11: Cash Flow
Cash Flow Cash from operating activities improved by $43 million primarily due to higher net income, improved customer receipts, the receipt of insurance proceeds and lower priced gas storage injections curing the current period. 11
Slide 12: Adjusted Non-GAAP Earnings (Third Quarter)
Adjusted Non-GAAP Earnings (Third Quarter) (1) During the first quarter of 2018, we revised our presentation of revenues associated with being a market participant in the Southwest Power Pool to net them with the associated cost of sales. These revenues were previously recorded gross in electric rev
Slide 13: 2018 Earnings Guidance
2018 Earnings Guidance $3.30$3.30-$3.45-$3.50 $3.10 - $3.30 $2.60$3.20 - $2.75-$3.40 NorthWestern reaffirms its 2018 earnings guidance range of $3.35 - $3.50 per diluted share is based upon, but not limited to, the following major assumptions and expectations: • Normal weather in our electric and na
Slide 14: Maintaining Full Year Non-GAAP Guidance
Maintaining Full Year Non-GAAP Guidance In order to meet 2018 guidance,$3.30$3.30-$3.45-$3.50 we will $3.10 - $3.30 need$2.60 to$3.20 - $2.75 deliver-$3.40 EPS of $1.03 - $1.18 during the fourth quarter of the year. This compares to $0.95 earned in the fourth quarter of 2017. The non-GAAP measures p
Slide 15: Looking Forward
Looking Forward Regulatory Black Eagle Power House • Regulatory treatment of tax reform - determine best way to provide long-term benefit to customers and system $3.30$3.30-$3.45-$3.50 $3.10 - $3.30 while keeping investors whole. $2.60$3.20 - $2.75-$3.40 • MPSC has voted on new Power Cost and Credit
Slide 16: Regulatory & Legal Update
Regulatory & Legal Update Power Cost and Credit Adjustment Mechanism (PCCAM) • In May 2017, the MPSC initiated a docket to implement House Bill 193 (HB193), which removed statutory language mandating tracking of electricity supply costs and replaced West Rosebud Creek, MT it with language that gives
Slide 17: Estimated Impacts of the Tax Cuts & Jobs Act
Estimated Impacts of the Tax Cuts & Jobs Act South Dakota – In September 2018, the South Dakota Public Utility Commission approved a settlement agreement resulting in a one-time refund to electric and natural gas customers of $3.0 million by October 31, 2018. This includes a two-year rate moratorium
Slide 18: South Dakota Electric Supply Resource Plan
South Dakota Electric Supply Resource Plan NorthWestern and HDR Engineering investigated various retirement & replacement scenarios to assess potential for modernizing its generation fleet and improve reliability and operational flexibility. The distributed generation fleet as shown in Scenario 5* (
Slide 19: Montana Electric Rate Case Background
Montana Electric Rate Case Background • First general electric rate case in Montana since 2009. Mystic Dam • While we have efficiently managed operating and administrative costs, increased Montana property taxes and significant investment in the system have compelled the request for rate relief. Fil
Slide 20: Capital Investment Forecast
Capital Investment Forecast $1.6 billion estimated cumulative 5 year capital investment. We anticipate funding the expenditures with a combination of cash flows (aided by NOLs available into 2020) and long-term debt issuances. Significant capital investments, that are not in the above projections, o
Slide 21: Conclusion
Conclusion Best Practices Corporate Governance Attractive Future Pure Electric Growth & Gas Utility Prospects Strong Solid Utility Earnings & Foundation Cash Flows 21
Slide 22: Appendix
Cr Appendix 22
Slide 23: Segment Results (Third Quarter)
Appendix Segment Results (Third Quarter) (1) (1) (1) Gross Margin, defined as revenues less cost of sales, is a non-GAAP Measure. 23 See appendix for additional disclosure.
Slide 24: Electric Segment (Third Quarter)
Appendix Electric Segment (Third Quarter) (1) (1) Gross Margin, defined as revenues less cost of sales, is a non-GAAP Measure. 24 See appendix for additional disclosure.
Slide 25: Natural Gas Segment (Third Quarter)
Appendix Natural Gas Segment (Third Quarter) (1) (1) Gross Margin, defined as revenues less cost of sales, is a non-GAAP Measure. 25 See appendix for additional disclosure.
Slide 26: Summary Financial Results (Nine Months Ended September 30)
Appendix Summary Financial Results (Nine Months Ended September 30) (1) (1) Gross Margin, defined as revenues less cost of sales, is a non-GAAP Measure. 26 See appendix for additional disclosure.
Slide 27: Gross Margin (Nine Months Ended September 30)
Appendix Gross Margin (Nine Months Ended September 30) (dollars in millions) Nine Months Ended September 30, 2018 2017 Variance(1) Electric $ 549.9 $ 528.0 $ 21.9 4.1% Natural Gas 132.8 131.8 1.0 0.8% Total Gross Margin $ 682.7 $ 659.8 $ 22.9 3.5% Increase in gross margin due to the following factor
Slide 28: Weather (Nine Months Ended September 30)
Appendix Weather (Nine Months Ended September 30) We estimate favorable weather through the first 9 months of 2018 has contributed approximately $2.3M pretax benefit as compared to normal and $0.7M pretax benefit as compared to the same period in 2017. 28
Slide 29: Operating Expenses (Nine Months Ended September 30)
Appendix Operating Expenses (Nine Months Ended September 30) (dollars in millions) Nine Months Ended September 30, 2018 2017 Variance Operating, general & admin. $ 222.0 $ 218.6 $ 3.4 1.6% Property and other taxes 128.3 118.5 9.8 8.3% Depreciation and depletion 130.9 124.5 6.4 5.1% Operating Expense
Slide 30: Operating to Net Income (Nine Months Ended September 30)
Appendix Operating to Net Income (Nine Months Ended September 30) (dollars in millions) Nine Months Ended September 30, 2018 2017 Variance Operating Income $ 201.5 $ 198.2 $ 3.3 1.7% Interest Expense (68.2) (70.0) 1.8 2.6% Other Income / (Expense) 1.8 (3.4) 5.2 152.9% Income Before Taxes 135.1 124.8
Slide 31: Income Tax Reconciliation (Nine Months Ended September 30)
Appendix Income Tax Reconciliation (Nine Months Ended September 30) 31
Slide 32: Adjusted Non-GAAP Earnings (Nine Months Ended September 30)
Appendix Adjusted Non-GAAP Earnings (Nine Months Ended September 30) (1) During the first quarter of 2018, we revised our presentation of revenues associated with being a market participant in the Southwest Power Pool to net them with the associated cost of sales. These revenues were previously reco
Slide 33: Segment Results (Nine Months Ended September 30)
Appendix Segment Results (Nine Months Ended September 30) (1) (1) (1) Gross Margin, defined as revenues less cost of sales, is a non-GAAP Measure. 33 See appendix for additional disclosure.
Slide 34: Electric Segment (Nine Months Ended September 30)
Appendix Electric Segment (Nine Months Ended September 30) (1) (1) Gross Margin, defined as revenues less cost of sales, is a non-GAAP Measure. 34 See appendix for additional disclosure.
Slide 35: Natural Gas Segment (Nine Months Ended September 30)
Appendix Natural Gas Segment (Nine Months Ended September 30) (1) (1) Gross Margin, defined as revenues less cost of sales, is a non-GAAP Measure. 35 See appendix for additional disclosure.
Slide 36: Qualified Facility Earnings Benefit
Appendix Qualified Facility Earnings Benefit The $25.1 million earnings improvement, recorded in the 2nd quarter of 2018, related to certain Qualified Facilities (QF) contracts is a result of: • A $17.5 million benefit resulting from the reduction of the estimated future liability of unrecoverable Q
Slide 37: Non-GAAP Financial Measures
Appendix 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 num
Slide 38: Delivering a bright future - NorthWestern Energy
Upelivering a bright future NorthWestern Energy