Northwest Natural Holding Company (NWN) Earnings Call Transcript & Summary

Well, good afternoon, everybody. I'm David Anderson, the President and Chief Executive Officer of Northwest Natural Holding Company. Welcome to our 2021 Annual Meeting of Shareholders. In the past, with the exception of last year, we have hosted an in-person annual meeting in Portland, Oregon. This year, as the world continues to grapple with the COVID-19 pandemic, we are again utilizing a virtual medium format. We did not come to this decision lightly. We believe this format is important to protect the health and well-being of our shareholders, our employees, our directors and, of course, the communities in which we serve. We are heartened by COVID-19 vaccination deployment and, at the same time, cognizant of medical expert advice regarding possible surges in new COVID-19 variants before our communities reach adequate vaccination, immunity levels and gathering restrictions are limited. We hope you and your families are safe and healthy as you navigate the unprecedented events and challenges that we -- that have unfolded over the past year. And while we miss enjoying your company here in person today, we are happy to have you with us for our second virtual shareholder meeting, and we look forward to gathering with you in person next year. With that, it is now my pleasure to introduce our Chair of the Board, Scott Gibson. Scott will lead us through the business portion of today's meeting. And Scott will be joined by our Vice President, Chief Compliance Officer and Corporate Secretary, Shawn Filippi. Scott, over to you.

Thank you, David. At this time, I would like to officially open this meeting. I declare the polls open. You will be able to cast your vote through the online portal during the meeting prior to the closing of the polls. I'm pleased to be joined today by our Board of Directors and officer team. More information regarding your company's leadership can be found in the proxy statement and annual report. I would also like to welcome those retired directors, officers and former employees, who've joined us today. I want to take a moment to honor and to make special mention of 2 directors in particular, Director and former Board Chair, Todd Hamachek; and Director, John Carter. Mr. Hamachek and Mr. Carter have announced that after the 35 and 19 years of service, respectively, to Northwest Natural Holdings, they have reached the mandatory retirement age for service on our Board, and they will be retiring from the Board of Directors today at the conclusion of the Board meeting later today. It is nearly impossible to summarize what Todd's and John's contributions have meant to the company's shareholders, Board, current and former employees, our community and to the state of Oregon. Todd is Northwest Natural's longest-serving director, having joined the Board in 1986. He has brought to the Board an immense wealth of business knowledge and acumen and served as a deep keel in helping to steer Northwest Natural. John joined our Board in 2002 and brought with him a literal world of experience and wisdom. He knows how to operate around the globe as well as in his home state of Oregon. And we are fortunate that he has freely shared his knowledge and experience with the Board. We are extremely grateful for their valuable contributions and wish them much success as they step forward to the next chapters in their lives. Also with us on the call today is Ian Fleming with the firm of PricewaterhouseCoopers. PricewaterhouseCoopers, an independent registered public accounting firm, was appointed by the audit committee in February to serve as the company's independent auditors for the fiscal year 2021. Mr. Fleming, do you wish to make a statement?

I do. Thank you, Mr. Chairman. We at PwC have completed our 2020 audits of Northwest Natural Holdings as well as Northwest Natural Gas Company, and we have issued unqualified opinions on both. I intend to remain in the meeting to address any questions that may arise as a result of our audit. Thank you.

Thank you, Mr. Fleming. The proxy committee for today's meeting is comprised of Frank Burkhartsmeyer, MardiLyn Saathoff and Shawn Filippi. Ms. Filippi has also been appointed as the inspector of elections for this meeting. The 2021 notice of meeting and proxy statement was properly sent to all shareholders in April and identifies 3 business matters to be transacted at this meeting. Proposal 1. The first proposal is the election of 4 Class I directors for 3-year terms ending in 2024 and 2 Class III directors for 2-year terms ending in 2023. Your Board of Directors unanimously recommends election of Timothy Boyle, Monica Enand, Dave McCurdy, Malia Wasson, Karen Lee and Nathan Partain. And I hereby place these names in nomination. The company has not received notice of any other shareholder nominations and, therefore, I declare the nominations to be closed. Proposal 2. The second proposal is the advisory vote on the compensation of the named executive officers. And the third proposal is the ratification of the appointment of PricewaterhouseCoopers LLP as independent registered public accountants of the company for the fiscal year 2021. Any shareholders who wish to vote and have not done so, please click the voting button on the online portal now to submit your votes. If you provided your proxy card previously, your shares will be voted as instructed. So please do not vote through the online portal, unless you wish to change your proxy vote. [Voting]

Now that everyone has had the opportunity to vote, I declare the polls closed. Ms. Filippi, would you please present the notice of this meeting, the report of the inspector of elections, verifying shares represented by proxy and review the vote.

Thank you, Mr. Chairman. As of April 8, 2021, the date established by the Board as the record date for determining holders of common stock entitled to vote at this meeting, there were 30,655,189 shares of common stock outstanding. The complete list of shareholders entitled to vote at this meeting is available for inspection in the online portal. I have reviewed the shares of common stock represented at this meeting either in attendance of the meeting or by proxy. Such shares total 85.74% of the outstanding shares as of the record date. Therefore, under the company's bylaws, I declare a quorum to be present for the transaction of business. I reviewed the validity of the shareholders' vote and found that for Proposal 1, each nominee recommended by the Board received the required number of votes cast and each has been duly elected. For Proposals 2 and 3, the required number of votes was received. And as such, the compensation of the named executive officers and the ratification of PricewaterhouseCoopers as the company's independent registered public accountant for fiscal year 2021 have been approved. There are no additional formal business matters to be acted upon. Mr. Chairman, that completes my report.

I declare the official portion of the meeting adjourned. Thank you again. Now David Anderson, the company's President and CEO, will provide a few remarks followed by our question-and-answer session. Questions can be submitted online through the portal. As a reminder, please limit your questions to matters of general interest. David?

Well, thank you, Scott. 2020 was a year of challenges, but also a year of perseverance and progress. As for Northwest Natural, it was a year to be proud of the company and all of our employees. In 2020, when uncertainty was the only certainty, we demonstrated our ability to adapt and meet our commitments without wavering from our mission or our values, and our employees showed our communities that we can rely on them regardless of circumstances. A year ago, when I addressed you, we knew that COVID would challenge us at every level of the company's operations, but we could not know for how long or how seriously the pandemic would be part of our lives nor did we anticipate other critical events that would affect our region. But regardless of what the year threw at us, we persevered. Field employees working with new safety protocols and wearing additional protective gear, even in the hottest weather, worked to serve customers, build out the system and reassure the community. Office employees quickly accommodated to working from home, often managing childcare duties while providing premier customer support and maintaining the highest productivity levels. Our nimble response to COVID was key to continued operations, employee health and safety and public confidence. As a result, fewer than 2% of our employees tested positive for COVID in 2020, and I'm happy to report they're all doing well and back on the job. As you know, the Pacific Northwest also experienced devastating wildfires in 2020. Our employees worked 24/7 to monitor the system in Lincoln City and Lane County as wildfires approached and reconnected customers once it was safe to do so. And then just a few days before Christmas, it was all hands on deck again after a disruption on the interstate pipeline. Employees rallied, so that customers could warm their homes and enjoy their holiday. And when the power was out through much of our region in February this year, customers told us how their Natural Gas fireplaces kept them warm and their gas cooktops kept them supplied with warm food. And during that same weather event, employees at our Texas water company moved quickly to get systems back up and running after power outages. These crises never diverted us from our primary goals. We kept the system safe and reliable while adding new customers. And we never lost sight of our long-term commitments to a low-carbon future and diversity, equity and inclusion at every level of our business. More than a year into the pandemic, we are happy to report the outlook is positive. The vaccine rollout has created an optimism we couldn't have imagined a few months ago. And we're finalizing our return to work plans, so that we're ready when it's safe to do so. On the economic front, Portland's unemployment rate is down from its peak of 14.9% last year to 6.1% in February 2021, which is, frankly, comparable to the national average. New single-family permits were up 4% year-over-year in Oregon with strong sales and price appreciation in our region. These are all positive signs for 2021 and for our business. While we are not fully out of the cloud of uncertainty, we can see blue skies ahead. Now let's look at some of the last year's highlights. Net income from continuing operations in 2020 was $70.3 million or $2.30 per share compared to $65.3 million or $2.19 per share in 2019. The 2019 results, as you might remember, were affected by a regulatory decision disallowing past pension cost, which totaled $10.5 million on a pretax basis. Last year's customer growth rate was a strong 1.5%, and we added nearly 11,600 meters as we continue successfully tapping into our region's strong single-family home sector. Our dedicated employees and customer-centric culture resulted in Northwest Natural ranking second in the west in the top and -- in the top 10 in the nation in the Annual J.D. Power's gas utility residential customer satisfaction survey. And despite COVID, we were able to do what we needed to to prepare for the future. We invested $280 million in gas utility infrastructure. We increased capacity on the system and strengthened our ability to serve the region's fast growing areas. We also made major upgrades at our Mist storage facility to protect our ability to meet demand during those coldest days. Our crews continue to meet rigorous safety requirements, responding to damage and odor calls within tight time frames. A new employee safety program that we call Journey to Zero was an important leap for our health and safety record. Last year, our employee injury rate fell by more than 40%, and our lost time injury rate was about 75% lower than it was in the 2019 time period. Our new office building is designed and built for resiliency and sustainability. Our headquarters is able to withstand a very major earthquake and is also LEED Core and Shell gold certified meeting high standards for health and sustainability. We concluded an Oregon rate case with a $45.1 million revenue increase over the previous rate case. We filed a multiyear rate case in Washington that will support our system's reliability and resiliency. And once again, we learned that homeowners love natural gas. Our 2020 preference study reinforced what we have known for a long time. Homeowners prefer natural gas appliances and amenities. For example, 82% of recent or potential homebuyers reported they would pay up to $50,000 more for a home in natural gas heating and cooking over an all-electric home. Social justice was front and center last year, perhaps second only to COVID. Northwest Natural has long had a no-tolerance policy when it comes to racism in any form. Over the years, we have worked aggressively to assemble both a workforce and a Board that reflect the communities we serve. We work to support companies owned by minorities, veterans, women, people with disabilities and those considered economically disadvantaged. But we know that our work isn't done, and we'll continue focusing on these areas. We continue to make progress toward our low-carbon future also. We have set an aggressive and voluntary goal of reducing carbon from our own customers' use of natural gas by 30% by 2035 and have a vision forward on becoming a carbon-neutral energy provider by 2050. And we're well on our way. The landmark Oregon Senate Bill 98, the Governor Brown signed into law a couple of years ago, enables us to procure and invest in renewable natural gas and hydrogen. As a result of Senate Bill 98, our state has a voluntary goal of 30% of renewables in natural gas system by 2050. And in December, I'm excited to report that we signed our first RNG investment contract with options to invest up to $38 million to convert methane produced at Tyson Food facilities into renewable natural gas. At the same time, we're also focused on hydrogen. With several partners, we're exploring hydrogen project in Eugene. And today, we're testing hydrogen blending at our Sherwood training facility. We know this transformational work is not easy, but we're making progress and moving closer to our vision. We continued also expanding our water and wastewater utility businesses last year. In 4 years, we've quadrupled the number of water customers we serve throughout utility acquisitions in Oregon, Washington, Texas and Idaho. All the while, we maintained strong credit ratings and continue to be the highest valued stock in our sector. Last year, your stock closed at $46.99 per share, which was a decline from 2019 record highs. The stock reflected a volatile market amid COVID and utilities, particularly small-cap gas utility stocks experienced pressure as investors searched for liquidity. However, as the vaccine expectations increased so did our stock price. Today, your stock closed at $52.98, making strides in appreciation that we all desperately want to see. We continue to be highly valued by the market and maintain one of the highest PE ratios in the industry. And last November, the quarterly dividend rate increased $0.48 per share. That marks the 65th consecutive year of increasing dividends paid and is one of the longest records of any company on the New York Stock Exchange. Our annual indicated dividend rate is now $1.92 per share, which currently equates to a 3.6% yield. Before I move on, I want to offer our most heartfelt gratitude to our employees. Throughout a year of uncertainty, they were rock solid. At every step, they kept their families and their customers safe, while watching out for the health and the welfare of the many communities we serve. I'm so proud that we performed at the highest levels. We kept our system operating safely, made wise financial decisions. We protected customers and communities. We invested for reliability and resilience, and our employees stayed safe and healthy. Rest assured, your company remains well positioned and came out of 2020 stronger than ever. As always, we appreciate your investment and your continued support of Northwest Natural. At this point, I'm happy to answer any questions that you have. So Julianna, I think we're ready for that. As a reminder, you put the questions in the queue, and we'll give it a couple of minutes here to see if anybody has any questions. All right. Well, seeing that there are no questions, if there's -- I will close -- I will now close the meeting. So thank you for your continued confidence in Northwest Natural and for being with us today. Best wishes for a safe, healthy and predictable 2021. Thank you.