CenterPoint Energy : Third Quarter 2022 Earnings Conference Call Transcript

Third Quarter 2022 Earnings Conference Call

November 1, 2022

Jackie Richert - VP, Investor Relations and Treasurer

Good morning, everyone. Welcome to CenterPoint's earnings conference call. Dave Lesar, our CEO and Jason Wells, our CFO, will discuss the Company's third quarter 2022 results.

Management will discuss certain topics that will contain projections and other forward- looking information and statements that are based on management's beliefs, assumptions, and information currently available to management. These forward-looking statements are subject to risks or uncertainties. Actual results could differ materially based upon various factors, as noted in our Form 10-Q, other SEC filings and our earnings materials. We undertake no obligation to revise or update publicly any forward-looking statement.

We will be discussing certain non-GAAP measures on today's call. When providing guidance, we use the non-GAAP EPS measure of adjusted diluted earnings per share, on a consolidated basis, referred to as "non-GAAP EPS."

For information on our guidance methodology and a reconciliation of the non-GAAP measures used in providing guidance, please refer to our earnings news release and presentation, both of which can be found under the Investors' section on our website. As a reminder, we use our website to announce material information.

This call is being recorded. Information on how to access the replay can be found on our website. Now, I'd like to turn the discussion over to Dave.

Dave Lesar - President & CEO

Thank you, Jackie. Good morning and thank you to everyone joining us for our third quarter 2022 earnings call.

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Third Quarter 2022 Earnings Conference Call

November 1, 2022

As you have seen from the press release we issued this morning, this has been a very busy quarter at CenterPoint and today's call may seem a bit like a mini analyst day update.

When I became CEO of CenterPoint nearly two and a half years ago, the company needed to quickly establish a strategic path forward to, among other things, realign our relationships with our regulators, customers and investors. We looked to immediately set challenging but executable goals by which you could measure progress while collectively adopting a management mindset of "over delivering on our commitments." I want to highlight what that has looked like here at CenterPoint over the last 2 ½ years.

What we've achieved thus far…

First, we committed to achieving industry-leadingnon-GAAP EPS growth. Now, including this quarter, we have met or exceeded that goal for 10 consecutive quarters. In addition, we have over-delivered on that growth by raising our non-GAAP EPS guidance FIVE times during that 2 ½ year span and continue to reiterate that we will grow future earnings off of each new and higher base that we achieve.

Second, we committed to becoming a pure-play regulated utility that was not subject to the earnings volatility of our now divested midstream investment. And now, more than 95% of our earnings are derived from regulated utility operations. The approximately $1.3B of after-tax midstream sale proceeds exceeded your expectations and allowed us to reinvest the money into our regulated utility businesses for the benefit of our customers.

Finally, we committed to funding our increased regulated utility investments without reliance on external equity issuances. This led to the sale of our Arkansas and Oklahoma LDCs for which we obtained a landmark valuation and then recycled those cash proceeds efficiently back into our regulated businesses - all for the benefit of our customers and investors.

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Third Quarter 2022 Earnings Conference Call

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Now, looking at today…

We earned 32 cents in the third quarter on a non-GAAP basis.

We are also reiterating full year 2022 non-GAAP EPS guidance of $1.37 - $1.39 which represents a 9% growth rate at the midpoint, when compared to 2021 non-GAAP Utility EPS of $1.27. And, as Jason will discuss, we are also ahead of plan in terms of capital spend for 2022 in spite of supply chain pressures and have deployed more capital than anticipated.

In addition, today we are also initiating our full year 2023 non-GAAP EPS guidance target range of $1.48 - $1.50. At the midpoint, this represents an additional 8% growth over our previously raised 2022 non-GAAP EPS guidance.

Beyond 2023, we continue to expect 8% non-GAAP EPS growth for 2024 and at the mid to high end of 6% - 8% annually thereafter through 2030. I also want to point out here that these earnings growth rate targets do not reflect any potential earnings from the $5.3 billion in incremental capital opportunities that we will discuss next.

Our track-record of over delivering continues with today's announcement of what is now a third increase to our 2021 Analyst Day $40 billion 10-year capital plan. We continue to anchor around this Analyst Day number to provide consistency, clarity and clearly marked goalposts for our investors to follow. Our new incremental capital opportunities are based on customer-driven investments that were developed through our increased stakeholder engagement strategy.

Our outreach strategy, initially kicked off with the City of Houston on our collective Resilient Now initiative under the leadership of Mayor Sylvester Turner, has grown to include over 30 cities and some of our largest industrial customers. With their collective input, we have developed $5.3B in additional capital opportunities related to increased system resiliency, reliability, and grid modernization, as well as to facilitate eventual EV adoption.

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Third Quarter 2022 Earnings Conference Call

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There is a well-known saying that "demographics is destiny" and in looking at its demographics, the City of Houston is destined for great things. As the only investor-owned utility headquartered in Texas, we are fortunate to serve customers in the City of Houston and its surrounding areas. The Houston area is one of the fastest growing and most ethnically diverse areas in the nation, averaging more than 2% annual population growth over the last three decades. We believe that this diversity only strengthens Houston's future growth prospects which benefits our customers and our investors alike.

Although Houston today is well known as the energy capital of the world, not as well known is that it's also home to one of the largest active ports in the nation and the Houston based Texas Medical Center, which is the largest medical center in the world.

For example, the Port of Houston is the largest port in the US by waterborne tonnage and is also the US's largest exporter with over $140 billion of goods shipped annually. This is more than 35% greater than that of New York, the next largest US shipping exporter.

The Houston Ship Channel's petrochem complex alone boasts 272 chemical plants, refineries, and other industrial facilities which generate about $800 billion in business annually. Just this summer, an additional $1B project was started to widen and deepen the channel to support immense future growth. In addition, the port authority is now looking at electrifying its port operations. This will additionally benefit our communities and customers who live near the port by helping reduce emissions from idling cargo ships.

Turning to the Texas Medical Center, or TMC. If this complex was standing on its own, it would already be the eighth largest business district in the United States. And just last month, it was announced that the TMC would nearly double in size in the next 5 to 10 years. It is now anticipated that this doubling in size of the TMC will alone create over 100,000 new jobs. With a

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Third Quarter 2022 Earnings Conference Call

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greater focus on the bio sciences and biomanufacturing of critical medical products, the TMC should continue to attract diverse talent for years to come. Today, it already sees roughly 8 million patients every year - so much like the region, it continues to grow.

Lastly, in perhaps the purest illustration of Houston's incredible organic growth, there were over 70,000 births in the Houston area alone last year. That's a new baby born every 7 minutes.

While Houston's natural growth and positioning in the gulf coast provides a clear competitive advantage, we are also mindful of our exposure to severe weather.

Our Houston Electric customers know what's at stake - a day without power can equal a loss of up to $1.4B of GDP. This is one factor that drives the collective community desire for a more reliable and resilient energy supply. This desire has led to customer driven investment opportunities that we will be folding into our 10- year capital plan through 2030.

For reasons to be discussed next, at this time, we are now only incorporating $2.3B of this additional $5.3 billion in capital into the balance of our existing 10-year investment plan through 2030 -- $1.0 B of which is expected to be deployed by the end of 2025 and the other $1.3B to be deployed by the end of 2030. All for the benefit of our customers. And while we are not updating our Analyst Day non-GAAP EPS guidance targets previously discussed, the deployment of this increased capital will clearly increase the potential future earnings power of the company.

The initial $2.3B in capital now being added to our capital investment plan reflects the subset of opportunities we believe we can currently and confidently execute efficiently and is comprised of the following:

$1.6B - $1.8B of this new capital will be dedicated toward our distribution system resiliency, reliability and expanded grid modernization. This also includes strategically

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