NorthWestern Energy Group, Inc.

Good afternoon, and thank you for joining Northwestern Energy Group's year-end 2023 financial results webcast. My name is Travis Meyer. I'm the Director of Corporate Development and Investor Relations Officer for Northwestern. Joining us today to walk you through the results and provide an overall update are Brian Byrd, President and Chief Executive Officer, and Crystal Lael, Chief Financial Officer. All participant lines are currently muted. After the presentation, we have allowed time for a Q&A session. I will provide instructions for asking questions at that time. However, if you intend to ask a question and are joining us by computer, please set your Zoom identity to your first and last name and firm so we can call on you by name to let you know when your line is open. Northwestern's results have been released and the release is available on our website at northwesternenergy.com. We also released our 10K pre-market this morning. Please note that this presentation, the company's press release, comments by presenters, and responses to your questions may contain forward-looking statements. As such, I'll direct you to the disclosures contained within our SEC filings and safe harbor provisions included in the second slide of this presentation. Please also note this presentation includes non-GAAP financial measures. Please see the non-GAAP disclosures, definitions, and reconciliations also included in the presentation today. The webcast is being recorded. The archived replay of today's webcast will be available for one year, beginning at 6 p.m. Eastern time, and can be found in the financial results section of our website. With that, I'll hand the presentation over to CEO Brian Bird.

Thanks, Travis. You know, the first slide here, we talk about recent highlights. We just had two days of board meetings, and one of the recent highlights was our ability to serve our customers in a cold snap in the middle of January. And really, that cold snap really demonstrated two things. One, it demonstrated our need for capacity. So the importance of the Yellowstone County plant and the incremental cold strip that we'll be adding in 1-1-26, that's the first thing. The second thing is just the fantastic coordination of our operating folks to serve our customers when they need it most. That means days of minus 45 degree weather Very, very proud of our team and our ability to serve our customers. So the points on this particular page, recent highlights, reported GAAP diluted EPS of $3.22 for the year and non-GAAP diluted EPS of $3.27. We're affirming our 2024 diluted EPS guidance of $3.42 to $3.62. We're also affirming our long-term five-year rate base and earnings per share growth rates targets of four to 6%. Also like to point out, we had unanimous approval of multi-party rate review settlements. In Montana, both our electric and natural gas rate reviews. In South Dakota, our electric rate review. We completed the second and final phase of the holding company reorganization on January 1st, 2024. Certainly can't overlook the monumental task that was and the great work throughout our company to make that happen. And we also declared a dividend for the quarter, 65 cents per share, payable March 29th, 2024, to shareholders of record as of March 15th, 2024. And lastly, a recent highlight for us, certainly we talked about it before, but Northwestern celebrating 100 powerful years. You may recall back in 2012, Montana Power, celebrated its 100-year anniversary, and our proud companies coming together now collectively have been serving our customers and our service territories for over 100 years. If I move forward to the next page, I think about the great outcomes we had in 2023, particularly the rate reviews and clarity associated with earnings growth on a going-forward basis. It still surprises me to see a 5% dividend yield. in terms of that clarity. But with that is where we sit today. And a base capital plan with a 4% to 6% EPS growth rate based upon capturing the value of $2.5 billion of investment provides a total return opportunity of 9% to 11%, which is fantastic. And you can put on top of that opportunities we're focusing on and trying to also capture in our plan, associated with a creative EPS projects associated with work transmission, incremental generate capacity, trying to buy out certain power purchase agreements and QF facilities. And lastly, electrification supporting economic development. Many projects associated with that that we continue to stay focused on. And with being able to capture any of those helps push us over 11% total return. So we feel very good about the opportunities for this company on a going forward basis. It's still a tad surprised to sit here today with a five plus dividend yield. And with that, I'm going to pass it to Crystal.

Thank you, Brian. Spoken like a former CFO, I believe. So good afternoon, everyone. And thank you for joining us to discuss our year-end financial performance here. Brian was highlighting what felt like a year of a lot of execution, I can tell you, on this side of the house. And all of that led to the financial performance that we're closing out here and I'll speak to, but highlighting specifically the element of regulatory execution. And that theme will continue throughout my remarks regarding our financial performance. As Brian mentioned, closing out the quarter on a non-GAAP basis, we reported EPS of $1.38 in Q4 of 2023. That's versus $1.13 in the fourth quarter of 2022. For a full-year perspective on 2023 on a non-GAAP basis, we delivered $3.27, and that's versus $3.18 in 2022. Moving to slide seven for a bit more detail, I'll talk about the fourth quarter and give you a bit of color there and then talk about the year in recap. Slide seven, you'll see a significant driver that improved performance is 18 cents at the margin line in Q4, reflecting the impacts of our regulatory execution. That's both on base rates and also our tracking mechanisms. Think about that, both the supply PCAM impact and also our property tax tracker. In addition, you'll see we have 11 cents of improvement in income taxes versus the prior period, driven by the release of a tax reserve, which is adjusted out, and we'll talk about that in more detail in a minute here, and then impacts of the Montana rate review. Notably, I would mention that financial performance overall in Q3 before was a bit stronger than we had expected, driven by final clarity in the Montana rate review related to ultimately the PCAM piece and retroactivity of that and also income taxes. Also, we always have estimates in our numbers with regard to the impact of property taxes that are collected through our bills in Montana and had a bit of favorability there too. Moving to slide eight to As always, we quantify for you how we think about weather and how that impacted our results. We certainly see volumetric swings there. And 23 versus 22 definitely shows that a nine cent swing in weather from what was favorable weather in 2022. You'll see that was three cents that we backed out versus here in Q4 of 23. It was warm relatively. So we saw six cents of unfavorable weather this year. So versus normal Q4, six cents of unfavorable weather. added back compared to last year, $0.03 of favorable. So you have a $0.09 swing in our performance related to weather. In addition, you see the release of the tax reserve as discussed related to final closeout of that uncertain tax positions related to gas repairs. And you will see we have adjusted that out. That is consistent with how we've handled these types of adjustments in the past. So $3.2 million there or $0.05 adjusted out. On a fourth quarter basis, you can see that leads to significant improvement over the prior period of $1.38 on an on-gap basis versus $1.13 last year, or 22%. Moving to full-year financial performance on slide 11. Driven by thematically the same types of things, driving our numbers as drove Q4, 20 cents of improvement Overall, before you get to share account dilution was driven by regulatory execution, as we talked about here, driving really recovering our costs that we need to serve customers and also improving our earned returns. That margin improvement was the most significant portion of that offset by a 16 cents. 16-cent swing in weather. I'll say that fast. And I'll speak to that in a little bit more detail, but the continuing theme of what happened in Q4, also the same impacts that we're seeing across the industry of higher depreciation, the impact of higher interest rates, and, of course, inflationary impacts on O&M that we are working hard to manage. This improvement overall of 20 cents versus 2022 was offset by 23 cents of share count dilution in on a full year basis. Moving to slide 11 for a bit more detail on the margin impact of that, which is of course critically important to how we think about the business going forward. Execution of the Montana Rate Review impacted the first three columns as you see them here on slide 11, including that increase to base rates and also adjustments to our tracking mechanisms, including the PCAM and the property tax tracker. Notably, I've talked reticently maybe about the PCAM mechanism in our earnings call frequently. I'm sure you all recall that last year as we closed out the year, we were talking about an unfavorable impact of 7.2 million to us in 2022. And here in 2023, on the backs of adjusting that base and also receiving a reasonable adjustment to retroactively impact that in 2023, we have a favorable impact of 7 million. So a significant swing versus the detriment we had in our earnings last year to favorability in 2023. The 2023 PCAM adjustment, I would note, did include reporting and adjustment related to the final outcome in the Montana rate review. That was favorable, about 3.1 million. Offsetting that improvement, as I've already spoken to, was unfavorable weather during the period, driving lower volumes. So you can see a significant improvement overall at the margin line. Slide 12 shows, again, how we depict and quantify that weather impact. So for 2023, we had 5 cents of unfavorable weather impacting us. In 2022, on a comparative basis, we have 11 cents of favorable. So you'll see on a year-over-year basis, that's 16 cents of detrimental swing and weather as it relates to our overall numbers. Overall performance here, I also just would mention we had a tax item in Q1 that was adjusted out. The tax item in Q4, those two net to zero. So you can see on an overall basis, strong performance in 2023. resulting on an adjusted non-GAAP basis with $3.27 versus $3.18 in 2022 or a 2.8% improvement. So that closes out my comments on earnings for 2023. And again, I would just say in the face of unfavorable weather and timing of rates and final outcomes there, the most significant piece is working with our commissions on regulatory execution. driving important improvement in our earnings results and what we deliver to shareholders. And importantly, as I slide to the balance sheet, really on the next slide, positioning us in a point of strength as we move forward. So as we closed out 2023, we were at a 13.4% FFO and have a very clear path in 2024 to being above 14% and staying above that, beyond that in their financial plans. We have also affirmed and separated out our strong credit ratings in Q4 as we worked with the rating agencies in advance of our legal holding company reorganization, which I will speak to a little bit more in a minute. but affirmed our credit ratings with each of the agencies. And then with regard to 2024 financing plans, we've talked about no equity in our plan. So a significant capital plan here to invest and deliver to our customers supported by debt issuances, which will include a bit of refinancing and then a very manageable overall financing plan to support that capital structure and leave us where we need to be. And importantly, in a balance sheet and a position of strength as we move forward. Moving to slide 14, Brian's already mentioned overall the strength of our investor thesis and where we see our earnings growth rate at a 4% to 6% EPS growth. We had announced 2024 guidance in Q4 of $3.42 to $3.62, and we are reaffirming that here also today. no material changes in how we think about the business going forward and where we expect to be on an overall FFO perspective. And all of this, I think, leaves us in a good spot from both the shareholder perspective, but importantly to our customers as well to deliver to them. And a key piece of that, as you think about slide 15 in our capital plan, is no material updates from what we talked to you about when we released our guidance for 2024 and rolled this plan forward. But overall, it's a balanced plan with significant opportunities on both the electric and gas side, T and E, and also some generation build out here. As we've talked about, we don't ever include anything into our plans until we know that we're doing them. And we currently believe there's certainly upside to opportunity to this plan, but it's balanced to provide us a strong balance sheet, a self-funded plan, managing the impact of customers overall rates, while importantly focused on the reliability needs of our customers as well. My final, close to final comment here, South Dakota Electric Rate Review. Many of you know we filed that rate review in June of last year. We worked with the South Dakota Commission here in January, received approval of our settlement and implemented final rates on January 10th, 2024. I would mention that in South Dakota, we have a very strong relationship with the South Dakota Commission and staff. They're very fair regulators. They hold us to a high standard, but they also I appreciate the efficiency with which they work through rate cases and do their due diligence. So we were able to close out that and implement our final rates plan. in January of 2024 here, and you'll see that final adjustment is a $21.5 million adjustment for rate relief, notably the most important piece there. We managed O&M during that period, and that's something we talked about with the commission. They asked us lots of questions on that, but it's a significant amount of investment in the state, including a gas peaker, similar to Yellowstone on a smaller scale that we constructed during COVID. on time, under budget, and serving customers, and they definitely see the importance of reliability. So overall, a really good process with the South Dakota Commission that will impact and is reflected in our 2024 guidance. And finally, closing out my comments, we also, another element of our regulatory execution, we had filed with our commissions and received approval to complete a legal restructuring and from a holding company, as most of you know, That is a structure similar to how most of our peers are legally structured. And so this completes that process. We effectuated the final steps of that. You're basically moving into 2024. And this is just another significant area of moving forward where we want to be positioned. We notably, however, don't expect to see any differences from how we finance the business or move forward with this reorganization completed. So with that, I will turn it back to Brian for concluding remarks.