NiSource Inc. (NYSE:NI) Q4 2023 Earnings Call Transcript
NiSource Inc. (NYSE:NI) Q4 2023 Earnings Call Transcript February 21, 2024
NiSource Inc. beats earnings expectations. Reported EPS is $0.53, expectations were $0.52. NI isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and welcome to NiSource Company Conference Call. Participants will be able to listen-only until the question-and-answer portion of this call. Please note that today’s call is being recorded. [Operator Instructions] I’d now like to introduce to the call Chris Turnure, Head of Investor Relations. You may now proceed. Thank you.
Chris Turnure: Good morning, and welcome to the NiSource Fourth Quarter 2023 Investor Call. Joining me today are President and Chief Executive Officer, Lloyd Yates; Executive Vice President and Chief Financial Officer, Shawn Anderson; Executive Vice President of Strategy and Risk and Chief Commercial Officer, Michael Luhrs; and Executive Vice President and Group President, NiSource Utilities, Melody Birmingham. The purpose of this presentation is to review NiSource’s financial performance for the fourth quarter of 2023 as well as provide an update on our operations and growth drivers. Following prepared remarks, we’ll open the call to your questions. Slides for today’s call are available in the Investor Relations section of our website.
We would like to remind you that some of the statements made during this presentation will be forward-looking. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements. Information concerning such risks and uncertainties is included in the risk factors and MD&A sections of our periodic SEC filings. Additionally, some of the statements made on this call relate to non-GAAP measures. Please refer to the supplemental slides, segment information and full financial schedules for information on the most directly comparable GAAP measure and a reconciliation of these measures. I’d now like to turn the call over to Lloyd.
Lloyd Yates: Thanks, Chris. Good morning, and thank you for joining us. I’m excited to be with you this morning to share outstanding financial results and to discuss the advancement of key business initiatives, which are devoted and talented workforce delivered to support our customers, communities and our shareholders across all of 2023. We began the year with a premium business plan represented by the value proposition you see on Slide 3. The bottom line is the NiSource team delivered. You’ll notice successful execution of these key initiatives across the Board. Let me provide a few highlights, which fuel our resilient and sustaining business across all years of our plan. We executed our highest CapEx investment in 2023, exceeding our rate based investment goals.
As of the year-end 2023, we had $18.8 billion of rate base. We continue to forecast $3.3 billion to $3.5 billion of capital expenditures in 2024 and $16 billion over our five-year financial plan through 2028. Year-over-year, NOEPS growth achieved 9% increase and achieved the highest end of our guidance range. We are acutely focused on smart capital deployment and maximizing risk adjusted returns and responsible rate-based investing through strong recovery mechanisms across our businesses. Project Apollo achieved this goal of over $50 million of cost savings initiatives. Perhaps more important than the amount of savings is the energy and support demonstrated by our people to build a continuous improvement mindset and enhance productivity by doing things safer, better, more efficiently and with less cost.
These initiatives contributed greatly to a total shareholder return, which exceeded mid cap and large cap U.S. utility peers in 2023. For the three-year period, total shareholder return was 10.1% compound annual growth rate versus 5% per peers, which is reflective of our strong earnings per share execution and future growth prospects. We are confident our commitments are resilient to rapidly changing business conditions such as those seen by the utility industry over the last two years and which our financial results have delivered over this period. We continue building a track record of growth and execution, and our commitment to investors, customers, employees is central to everything we do. On Slide 4, you’ll see our key priorities. First, as you observed in our release, we delivered 2023 non-GAAP EP – NOEPS of $1.60 versus the upper half of $1.54 to $1.60 revised guidance range.
This underscores our execution of resilient financial commitments and a business plan which anticipated the broader headwinds our customers and our sector are facing today. This result was achieved despite a $128 million increase in interest expense and without sacrificing our FFO to debt commitment. Built on the strength of our infrastructure investment programs, we are raising 2024 guidance to $1.70 to $1.74 from $1.68 to $.72, which we initiated in November. We continue to expect a 2023 through 2028 annual EPS growth rate of 6% to 8%, supported by 8% to 10% annual rate-based growth. The 2024 guidance range is refreshed reflective of the annual growth expected up our strong year-end 2023 financial results. Second, our superior regulatory and stakeholder foundation differentiates us from peers.
NIPSCO received IURC approval of renewable CPCN amendment for several of our investments in January. Intervener testimony was also received last month for our NIPSCO gas rate case filed in October 2023. Third, our balance sheet flexibility allows us to optimize cost of capital for customers and ultimate return on capital for shareholders. A key focus for 2023 was the NIPSCO minority interest transaction with Blackstone Infrastructure Partners, which successfully closed in December. This transaction diversified capital fundraising for NiSource from public capital markets and creates a long-term partnership for years to come. Fourth, our company is experiencing a record investment cycle driven by safety, reliability, regulation, decarbonization and modernization.
Slide 5 details our annual capital expenditures across our six state service territory. Our $16 billion five-year plan was introduced in November 2023, built on and extended our prior November 2022, $15 billion plan. It incorporates electric generation, transmission, gas modernization and economic development investments through 2028. The nature of our capital plan diversifies project risk, including our generation project investments, which lack the large project execution risk on the scale seen elsewhere in the industry in recent years. We intend to layer in projects from our $2 billion upside capital program as they meet our threshold for base plan execution. Key rate case and capital rider activity is shown on Slide 6. Our leading regulatory and stakeholder execution advances as we continue to work with stakeholders through rate case and tracker cycles to efficiently deploy capital investments and recover cost associated with these investments to drive value for customers, our communities and our shareholders.
The strength of our company continues to be working constructively with stakeholders and communities to safely and reliably deliver the energy they deserve and to be there for our customers when they need energy most. Since our last update, our Virginia SAVE Rider was approved and implemented and our Kentucky SMRP Rider went into effect subject to refund, together covering over $100 million of capital investment made for our customers. Slide 7 shows how our operational excellence model is incorporated into decision making in all areas of the company. Last year, we significantly improved safety performance by delivering a 14% reduction in Days Away Restricted or Transferred or DART, and are on a path to achieving a goal of top decile performance.
Additionally, we recorded a 16% reduction in Preventable Vehicle Collisions, or PVC. As I already mentioned, Project Apollo is generating enhanced productivity by doing things safer, better, more efficiently and with less costs. The improvements in our work plans and cost profiles are expected to continue and sustain this year after an implementation that exceeded expectations in 2023. I have provided you with specific examples of project initiatives in recent quarters, but want to highlight the underlying cultural change occurring throughout the company. The team continues to find new ways to improve every day and this will generate value for all our stakeholders for decades. I am impressed with the continuous improvement mindset fueling our organization and I am excited for our teams as we continue this journey.
Before we advance the call, I want to close this section with the following. I couldn’t be more proud of our entire team and their devotion each and every day to support our nearly 4 million customers. With extreme cold weather across much of January, we delivered critical energy to keep our customers safe and warm. 2023 was a banner year for NiSource as the first full year of execution across our strategy shared in November 2022 and we deliver on all marks across the Board. This sets the foundation for continued growth in safety and reliability for our customers and value for our shareholders, which we strongly believe in. Michael and Shawn will dive into greater details on why 2023 was a successful year for our stakeholders, and also why 2024 and beyond will be even better.
Now, I’ll turn the call over to Michael.
Michael Luhrs: Thank you, Lloyd. I’ll begin on Slide 8. NIPSCO’s generation transition remains on track, I believe support the retirement of two of the remaining three coal-fired generation units by the end of 2025 and the final unit by 2028. To this end, construction on our crossroads two wind PPA was completed at the end of 2023 and the facility is now producing sustainable zero fuel cost generation for NIPSCO’s Northern Indiana customers. In fact, customers are seeing the benefit of this generation as part of our renewable portfolio already receiving $18 million in renewable energy credits sold into the marketplace in 2023, lowering customers overall cost of energy. In November of 2023, NIPSCO received approval on a CPCN amendment converting Gibson from a PPA to a build-transfer agreement.
Also, progress continues on Cavalry and Dunns Bridge II Solar facilities, and we expect both to be completed as planned later this year. In January, NIPSCO received approval from the IURC to own 100% of these two projects in lieu of owning them through tax equity joint ventures. Fully owning these projects will benefit customers by leveraging the tax credit transferability provisions of the IRA, NIPSCO will be able to monetize tax credits associated with the projects more efficiently than under tax equity agreements, resulting in comparatively lower energy costs for customers. We continue to evaluate the customer benefits of utilizing similar approaches for the Fairbanks and Gibson projects, which are in development. Though we have made significant advancements in our generation portfolio, we are looking forward to how we advance the portfolio in reliability, resiliency, customer benefits, and towards our goal of net zero by 2040.
An important component of our generation portfolio planning process is NIPSCO’s Triennial Integrated Resource Plan, or IRP. The 2024 IRP will evaluate NIPSCO’s long-term generating capacity requirements and inform generation investment decisions beyond NIPSCO’s gas peaker project and the renewable projects already in development. The 2024 IRP will incorporate a number of scenarios and updates since the 2021 IRP, such as MISO seasonal construct and its proposed resource accreditation approach. The customer centric process will include a series of stakeholder meetings that will kick off in the spring and will culminate with the submissions of an integrated resource plan to the IURC in November. We look forward to working together with stakeholders to continue on our path to reliably serve and strengthen our communities.
The IRP will build on our current generation portfolio, our build transfer agreements and PPA projects in development as outlined on Slide 8, and our 400 megawatt gas peaker project expected in service in 2027. As a reminder, the base capital plan released in November includes the gas peaker full ownership of Cavalry and Dunns Bridge II projects, and tax equity joint ventures for the Fairbanks and Gibson projects. On Slide 9, you’ll see additional investment opportunities not included in our current base five-year capital plan. We continue to develop and grow in a disciplined and measured way a portfolio of opportunities that benefit customers and stakeholders. We continue to advance these opportunities and will layer them into the upside CapEx plan as appropriate.
Relative to gas system investments, the PHMSA rulemaking process is now expected to take longer than originally anticipated. However, we still expect regulatory clarity in 2024. We do not believe the final rule will materially shift CapEx within our base plan. We will continue to evaluate how the rules apply to our systems and engage with stakeholders to deliver the system reliability and benefits expected under the rules. This engagement will inform how the implementation of rules may shape timing of investments in our upside CapEx plan. I would like to conclude my comments today with an update on our ESG performance. In addition to being on track to achieve our net zero and interim decarbonization goals, we achieved 19% diverse supplier spend in 2023, up from 16% in 2022 and 10% in 2021, and are well on our way to our goal of achieving 25% diverse supplier spend by 2025.
I’ll now turn the call over to Shawn.
Shawn Anderson: Thanks, Michael, and good morning, everyone. I’m excited to share our 2023 financial results on Slide 10. Non-GAAP net operating earnings in the fourth quarter were $239 million or $0.53 per diluted share, up from $221 million or $0.50 per diluted share in the same period in 2022. This earnings increase is driven by regulatory mechanisms recovering capital investment, partly offset by a modest increase in non-tracked O&M and higher interest expense. For the full year, we reported $716 million of non-GAAP net operating earnings for $1.60 per diluted share, up from $648 million and $1.47 in 2022, respectively. Across this period, regulated revenue returns were partly offset by higher depreciation expense, interest expense, and lower other income.
On Slide 11, you’ll find segment detail and key drivers of our results. For the full year, non-GAAP operating income increased across each of the gas, electric and corporate segments, accounting for a $209 million increase to consolidated net operating earnings. Capital expenditures fueled regulated returns, and as Lloyd highlighted earlier, we deployed approximately $3.6 billion in infrastructure projects to enhance safety and reliability of our energy systems. This drove an increase of $335 million through regulatory activity, in rate cases and capital trackers across our jurisdictions. A growing customer base across our businesses also provided a lift in our 2023 financial results and supports customer affordability. Demand for our fuel continues to be very strong, with residential customer count growing over 80 basis points in our gas businesses and over 50 basis points in our electric business last year, both of which enhanced the scale of NiSource.
Economic development continues to thrive in the Midwest, and there is no better example of how this collaboration can benefit customers, communities and investors than in Ohio. Our operations in the state serve 1.5 million customers, nearly 550,000 of which are supported by our Columbus operations center. Public private partnership has propelled Ohio’s recent economic development success. In 2023 alone, 33 projects were brought to central Ohio, with over $10 billion in investment being committed. This momentum continues today as there are nearly 100 active opportunities being pursued for future development with the potential to create thousands of new jobs and invest billions of dollars more into central Ohio communities. The majority of these projects are focused in manufacturing industries, representing a diverse range of sectors, including electric vehicles, energy storage, logistics, life sciences, semiconductors, advanced computing facilities and many more.
Additionally, Ohio will continue to see new corporate investment driven by downstream supplier activity from megaprojects currently under construction, such as a joint venture with Honda and LG Energy and the Intel chip manufacturing facility. This development can enhance value for NiSource and create an upside to our plan from residential housing demand, which grows as these secondary businesses develop. Central Ohio’s metro population grew an average of 1.8% annually over the last 30 years, and the population is expected to grow an additional 30% by 2050, boosted by strong economic development prospects. Broad stakeholder and policy support is critical to onshoring and manufacturing success and will fuel healthy and growing Midwest economies.
Our communities benefit from numerous constructive regulatory mechanisms that encourage energy infrastructure investment across to our states, including economic development programs to spur investments in our region, which create jobs and enhance local tax base. Switching to Slide 13, I’d like to highlight several key value drivers which represent the foundation of our long-term financial commitments. We have increased our non-GAAP net operating earnings per share guidance range for 2024 by $0.02 at the midpoint compared to the range introduced in November. This midpoint now represents a 7.5% year-over-year growth rate from 2023 actual results. The revised guidance is driven primarily by revenues from regulatory activity and enhanced customer demand and lower financing costs relative to our prior year forecast.
These growth drivers, along with the strength of our infrastructure investment programs, underpin our expectation to continue to deliver annual non-GAAP NOEPS growth of 6% to 8% and annual rate based growth of 8% to 10% over the 2023 to 2028 period. This is driven by $16 billion of capital expenditures, and it is expected to approximate residential customer bill growth to below 4% on average across the plan horizon. Finally, inconsistent with our last update, our base capital plan includes full ownership of Cavalry and Dunns Bridge II solar projects expected in service in 2024. Fairbanks and Gibson continue to be expected in service in 2025, using a tax equity financing structure. Our upside plan includes incremental CapEx associated with full ownership of these projects, as well as electric and gas investments which Michael detailed earlier.
Our financing plan is outlined on Slide 14, which remains unchanged from our mid-November update. As we outlined in that update, we continue to expect to issue up to $600 million in ATM equity in 2024 and $200 million to $300 million of maintenance ATM equity annually in the 2025 to 2028 period to support our base capital plan. Within the operation of our at-the-market program, we retain the flexibility to include small, bilateral discrete transactions should they be efficient to execute. We also continue to reaffirm our commitment to an FFO to debt ratio of 14% to 16% through 2028. In January, our board of directors authorized a 6% increase to our dividend, which is consistent with the annual increase authorized last year. This projects our annual dividend at the bottom half of our stated range for targeted dividend payout ratio of 60% to 70%.
We will continue to be thoughtful about capital allocation in the high cost of capital environment. The final two slides will conclude our presentation and focus on execution of our stakeholder commitments. First, our multiyear track record of execution and growth continued in 2023. Lloyd touched on the premium business plan we shared with each of you in November of 2022, and this represents the full year of execution of this plan. We continue to prioritize safety while optimizing our long-term cost profile. We built on our superior regulatory and stakeholder foundation through the execution of four general rate cases and numerous CPCN amendments and capital tracker approvals. During the year, we invested over $3.6 billion to support our customers and keep our communities and our employees safe, all while enhancing the balance sheet afforded through the minority interest sale.
We are proud of the execution delivered by the entire NiSource team, including achieving a 9% year-over-year growth rate and landing at the high end of our guidance range. All of these investments and the long-term visibility of our results fuel our confidence to execute each and every year as we move forward. As we share on Slide 16, each of the last three years, we’ve executed strong financial growth, achieving the upper half of our guidance range in each year. This is important. Each year we’ve done this, we’ve rebased future NOEPS guidance upwards off those actual results. We’ve accomplished this in 2021, 2022 and now 2023. And we expect to keep doing this, as we move forward, exemplified by our upgraded guidance range with an implied midpoint of 7.5% over 2023’s already strong results.
And this is differentiated in our sector, which has delivered an average 5% non-GAAP NOEPS CAGR since 2021 compared to the 8% achieved by NiSource. The underlying business plan supported by strong regulatory construct in NiSource jurisdictions coupled with responsible investments in identifiable regulatory programs, enable a reasonable return of investment over our plan. The confidence in these investments enables the rebasing of annual growth rate which supports this higher NOEPS range as we execute the plan, which in turn enhances the future earnings potential of our business in each forward year of our plan. We are excited about the future prospects of our business and to continue building a track record of execution and growth. We remain confident.
Our commitments are resilient to rapidly changing business conditions, as which was seen across the utility industry over the last two years. Despite this, the NiSource plan is stronger than ever. Thank you for your time this morning and your interest in NiSource. And with that, I’d like to open the call to your questions.
See also 11 Best Big Name Stocks to Buy Right Now and 20 Best Divorce and Child Custody Lawyers in New Jersey.
To continue reading the Q&A session, please click here.
