New Jersey Resources Q2 2023 Earnings Call Transcript

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Provided by Quartr
May 4, 2023

There are 8 speakers on the call.

Operator

Good morning, ladies and gentlemen. Welcome to the New Jersey Resources Fiscal 2023 Second Quarter Conference Call and Webcast. At this time, all participants are in a listen only mode and please be advised that this call is being recorded. After the speakers' prepared remarks, there will be a question and answer session. And now at this time, I would like to turn things over to Mr.

Operator

Adam Prior, Director of Investor Relations. Mr. Pryor. Please go ahead, sir.

Speaker 1

Thank you. Welcome to New Jersey Resources fiscal 2023 2nd quarter conference call and webcast. I'm joined here today by Steve Westhoven, our President and CEO Roberto Bell, our Senior Vice President and Chief Financial Officer as well as other members of our senior management team. Certain statements in today's conference call contain estimates and other forward looking statements within the meaning of the securities laws. We wish to caution listeners of this call that the current expectations, assumptions and beliefs forming the basis for our forward looking statements include many factors that are beyond our ability Control or Estimate Precisely.

Speaker 1

This could cause results to materially differ from our expectations as found in Slide 1. Call. These items can also be found in the forward looking statements section of today's earnings release furnished on Form 8 ks and in our most recent Forms 10 ks and 10 Q as filed with the SEC. We do not, by including this statement, assume any obligation to review or revise any particular forward looking statement referenced herein in light of future events. We will also be referring to certain non GAAP financial measures such as net financial earnings or NFE.

Speaker 1

Call. We believe that NFE, net financial loss, utility gross margin and financial margin provide a more complete understanding of our financial performance. However, these non GAAP measures are not intended to be a substitute for GAAP. Our non GAAP financial measures are discussed more fully in Item 7 of our 10 ks. Call.

Speaker 1

The slides accompanying today's presentation are available on our website and were furnished on our Form 8 ks filed this morning. Our agenda for today is found on Slide 3. Call. Steve will begin with this quarter's highlights, followed by Roberto, who will review our financial results. Then we will open it up for your questions.

Speaker 1

Quarter. With that said, I will turn the call over to our President and CEO, Steve Westhoven. Please go ahead, Steve. Call.

Speaker 2

Thanks, Adam, and good morning, everyone. We had another solid quarter executing our strategy and delivering results in line with our expectations. Quarter. In addition, we are reiterating our fiscal 2023 NF EPS guidance range of $2.62 to $2.72 per share. Quarter.

Speaker 2

Overall, we reported net financial earnings of $1.16 per share in the Q2 of this year. During the 1st calendar quarter, quarter. Much of the eastern half of the country experienced the warmest weather in recorded history. But remember, our utility New Jersey Natural Gas is decoupled, meeting utility gross margin is insulated from changes due to weather and customer usage. We continue to see a trend in strong customer growth at New Jersey Natural Gas and achieved higher utility gross margin for the period.

Speaker 2

In addition, we were able to provide cost savings to our customers by issuing a bill credit and lowering rates following the recent decrease in natural gas prices. We will continue to monitor market conditions and use our expertise to manage costs and provide savings to our customers quarter. At CEV, we placed an additional 6 commercial solar projects into service, growing our installed capacity by over 13% since the end of our fiscal year. This increases our total solar in service to 4 40 megawatts. Quarter.

Speaker 2

In our storage and transportation business, we benefited from solid operating performance through the Delta Gateway and Leaf River and continue to explore potential organic growth opportunities to maximize those assets. And finally, although the winter was unusually warm, which resulted in lower energy usage, Energy Services generated another profitable quarter. Turning to Slide 5. As I noted earlier, we are reiterating our fiscal 2023 and EPS guidance range of $2.62 to $2.72 per share. We initially raised this guidance by $0.20 following our Q1 results due to higher contribution from New Jersey Natural Gas and Outperformance at Energy Services during Winter Storm Elliott in December of last year.

Speaker 2

Our expected long term NEPPS growth range remains at 7% to 9% from our original 2022 guidance, and we expect to be at the higher end of that range for fiscal 2024. Quarter. New Jersey Natural Gas had a strong quarter as highlighted on Slide 6. We invested $195,000,000 in New Jersey Natural Gas during the 1st 6 months of fiscal 2023 with over 37% of that CapEx providing near real time returns. We reported strong customer growth, adding over 4,000 new customers in the 1st 6 months of the year compared to approximately 3,600 customers during the same period last year.

Speaker 2

As indicated on prior calls, we expect to file our next rate case in fiscal 2024 consistent with the timeline of our major technology investments. Quarter. Moving to Slide 7, we continue to see positive momentum at Clean Energy Ventures. Since the end of fiscal 2022, we have placed 53 Megawatts of new solar projects into service. We continue to maintain a robust and diverse pipeline of solar investments in various stages of development, quarter, including greenfield and late stage projects, both within and outside of New Jersey.

Speaker 2

We continue to innovate, producing clean renewable energy to the repurposing of landfills and deployment of milestone floating solar arrays. Over the past few months, We have seen progress in New Jersey's solar policy. In December, New Jersey Board of Bulk Utilities approved the state's competitive solar incentive, CSI program for projects over 5 megawatts. Through this program, New Jersey seeks to award 300 megawatts of solar projects per year. Quarter.

Speaker 2

Although specific timing and results are still to be determined, we see that the CSI program is another sign of New Jersey's continued commitment to its renewable energy targets. Fiscal. With that, I will turn the call to Roberto for a review of the financial results. Roberto?

Speaker 3

Thank you, Steve, and good morning, everyone. Slide 9 shows the main drivers of our NFE for the Q2 and first half of fiscal twenty twenty three.

Speaker 2

Quarter. For the first half

Speaker 3

of fiscal twenty twenty three, we reported strong year over year improvement in our consolidated results. Year to date NFE was $282,600,000 or $2.30 per share compared with $196,000,000 or $2.04 per share last year. This represents a 13% improvement in our net financial earnings per share quarter. For the Q2 of fiscal 2023, we reported an EBIT of $112,300,000 $1.16 per share compared with $130,200,000 or $1.36 per share last year. Quarter.

Speaker 3

In the quarter, higher utility gross margin at New Jersey Natural Gas and higher revenues at our S and T and CEV businesses quarter. We're more than offset by higher depreciation and interest expenses, which now includes the impact of Delta Gateway being fully placed into service, lower financial margin at Henry Services, higher expenses related to variety investments and a $5,000,000 difference and the timing of incentive compensation accruals related to our NPL performance earlier this year. Quarter. Turning to our capital plan on Slide 10. As we have said before, for fiscal year 2023 2024, We expect to invest between $1,100,000,000 $1,400,000,000 across the company and our capital plan remains on track to achieve these investment levels.

Speaker 3

Conference Call. We expect to tighten our CapEx ranges in future quarters, specifically at CEB call as PJM's interconnection timelines and are ready under outcomes on certain New Jersey projects become more clear. Quarter. We're comfortable with the lower end of our CV CapEx range for fiscal 2023 and have a number of opportunities that could move us toward the higher end. Call.

Speaker 3

Our capital projections for fiscal 20 3 and 2024 are anchored by strong cash flow from operations quarter and consistent with our long term MECPS growth target of 7% to 9%. And while we have no plans to issue block equity, call. Our existing dividend reinvestment program includes a waiver discount feature that allows us to raise equity on an opportunistic basis. With that, I will turn the call back to Steve.

Speaker 4

Thanks, Roberto.

Speaker 2

Turning to Slide 11. In March, New Jersey's Governor Phil Murphy announced a series of executive orders with revised plans and targets for the state's clean energy future. We embrace our company's role in transitioning the state to cleaner forms of energy and reaching long term carbon emissions reduction goals. NJR has been working toward decarbonization and a cleaner energy future for many years and it's executing on our strategy to dramatically reduce greenhouse gas emissions. With the strong encouragement of the state, we've invested billions to reduce emissions through energy efficiency, modernize our infrastructure and advance Technological Innovation.

Speaker 2

We have had preliminary discussions with the state policymakers and will continue to collaborate with our regulators and other utilities in the state as these processes unfold. In conclusion, NJR is an energy infrastructure company focusing on meeting the needs of our customers as well as aligning with the clean energy future. The reaffirmation of our guidance range and long term growth rates reflects the strength of our complementary portfolio of businesses. Fiscal year. I also want to thank all of our employees for their hard work and contribution.

Speaker 2

And with that, I'll now open the call for questions.

Operator

Conference Call. Thank you, Mr. Westhoven. Ladies and gentlemen, at this time, if you have any questions, again, please press star 1. And if you do find that your question has been addressed, Q.

Operator

You can remove yourself from the queue by pressing star 1 again. We'll take our first question this morning from Mr. Richard Sunderland of JPMorgan.

Speaker 5

Call. Starting with CEV, you saw the shift in CEV's pipeline from New Jersey to out of state. Curious if you could speak to how the regional efforts are unfolding and how you see the relative attractiveness of opportunities out of state versus in state at this point and particularly compared back to your expectations a few years ago when you launched this broader initiative.

Speaker 4

Yes, Richard, thanks for the question. If you go back to our 2020 Investor Day, we highlighted that we have a strategy going forward to diversified our solar investments outside of the State of New Jersey. And that was really based on our ability and the capability that we've built here as Company to be able to invest in this place and certainly provide returns and also a little bit of vacation outside the state of New Jersey. I think it's healthy to accomplish capital as

Speaker 6

we look at projects

Speaker 4

and being able to get the highest return. Remember that as we look outside the state, we look for similar risk profile, one that really aligns with our overall company to make sure that the structure really fits and kind of simulates subsidies that are rec credits or feeder tariffs and things like that. The percentage seems to be around the sixty-forty level and we expect that to continue to go forward. So really a shift that we expected and have planned for our strategy and overall, you're seeing some of the success by some of the investments outside of the state of New Jersey.

Speaker 5

Quarter. Got it. It's very helpful context there. Just a quick follow-up on that front. So in consideration of what you're seeing here in those balance of opportunities, quarter.

Speaker 5

Could you just revisit again what you're looking for in kind of revising the CapEx outlook here? Quarter. Particularly what exactly would move you to the high end in consideration of both New Jersey and these regional opportunities?

Speaker 4

Yes. I think for this year, we've stayed in the range

Speaker 6

of our

Speaker 4

CapEx expectations. We feel comfortable at the lower end of the range. We have a lot of the fiscal year left. And we've got some decent amount of deal flow through this space, waiting for regulatory approvals and permits and things like that. So we stayed in the range for what it is, but we see potential to be within that range through the end of the year, if that's a helpful answer to your question.

Speaker 5

Got it. Certainly. And then shifting gears, quarter. Could you parse the storage and transportation results a little more finally? Curious what drove the year over year decline?

Speaker 5

And considering you've had some of the, I guess, hub services outperformance over the past few quarters. Is this now more of a normalized quarterly base for 2Q at least?

Speaker 4

So I'm going to ask Roberto to take that question because there's a little bit of a transition from construction going to and Active Operations.

Speaker 3

Yes. Hey, Rich. This is Roberto. So I think that the more helpful way to look at this is on a year to date basis. And year to date, actually the business unit is up.

Speaker 3

And when you parse it out and break it into pieces, you will see that revenues are quarter. And what's affecting that quarter in particular is that you have higher depreciation and amortization because remember The LCAC came into service at the end of last fiscal year and you have higher interest expenses and we don't have any more AGUBC equity. Quarter. So when you break it from that perspective, we're actually doing better than last year and the complexion of those earnings are much better. Quarter.

Speaker 3

All of this is cash earnings now compared to some non cash earnings we had that year

Speaker 6

before. Call.

Speaker 5

Got it. That was very clear. Thank you for that and thank you for the time today.

Speaker 4

All right. Thanks. Thanks, Richard.

Operator

Call. Thank you. We go next now to Travis Miller at Morningstar.

Speaker 7

Quarter. Thank you. Good morning.

Speaker 4

Thank you, Travis.

Speaker 7

Given the first half fiscal year performance here so far and thinking about the high end of the range. Any thoughts on pulling forward? Any kind of cost or investments. Is that a possibility? Is that something you're thinking about from 2024 to set that up?

Speaker 1

I think we

Speaker 4

do all the things that we tend to set up the fiscal year. And certainly, our guidance speaks for itself. I really don't have any things to speak about saying we're going to be moving things around to that point. So call. We've got our projections, we've got our earnings as we stated and I'll let those speak for themselves.

Speaker 7

Quarter. Okay. Very good. And then similar to the last question on storage and transportation, what about the energy services quarterly delta there. Any details that you could provide on that?

Speaker 6

I mean,

Speaker 4

it was a dramatically different year, last year than this year. So you've got a decent delta, but our Energy Services group going back to the last quarter has performed very well, year. It allowed us to a certain extent raise guidance for this year and they're still able to achieve positive earnings in this quarter, which is to very low energy use quarter and they're doing well. So that's the only color that I can give. But quarter to quarter comparisons.

Speaker 4

I know it can be a little bit difficult because of when volatility happens and how that this too performs on a quarter to quarter basis.

Speaker 7

Okay. So usage being a big factor, I

Speaker 4

have to say.

Speaker 6

Quarter. Yes. I think it's David. It's Morgan. Yes.

Speaker 3

This is Robert. You have to add to what Steve said. What I would say is that Once again, looking at the year to date, that business is actually performing better than last year. And so on an overall basis, we're doing better.

Speaker 7

Fiscal. Okay. Very good. That's all I had. Thanks.

Speaker 4

Thanks, guys.

Operator

Thank you. We go next now to Robert Mosca at Mizuho.

Speaker 6

Hi, thanks everyone. Call. So on your cash flow guidance, it didn't seem like there was a change in the near term outlook on your CFO guide despite the fall in cash prices. Can you just talk about puts and takes as to why there might not be modeling a working capital benefit there. Is that just conservatism?

Speaker 6

Call. Hey, Robert, can you just repeat

Speaker 4

the beginning of that question because I didn't catch that?

Speaker 6

Sure. Yes, sorry. So there wasn't a change in your cash flow from operations guidance, but we might have seen a little bit of a working capital benefit here. Could you just talk about why that's not being modeled in your outlook? Is that conservatism or something else?

Speaker 3

Quarter. So Robert, this is Roberto. So our cash flow from operational guidance for the year has not changed since last quarter. Quarter. And what you can see once you look at our results is that we are performing very well actually.

Speaker 3

Quarter. Remember, this is only the what you see there in our 10 Q is our year to date results. So again, for the year, quarter. We're not modifying those projections and we are exactly within our expectations.

Speaker 6

Right. And I guess I'm asking if I think in the prior quarter you said there was a working capital potential uplift if gas prices were to fall. And are you just being conservative with that outlook for the next couple of years on gas

Speaker 3

prices. Robert, it's hard to understand you. It's something going on with the line here. Can

Speaker 6

Sorry, guys. Yes, so maybe this will be better. Quarter. I was just wondering if we were going to Better?

Speaker 4

Yes.

Speaker 6

Okay. So I guess what I'm asking is, I think in the past quarter, you'd said that we might see a working capital benefit if gas prices were to fall and that was kind of an element conservatism you were taking in your guidance. Just wondering why that's maybe not being included in the 2023 and 2024 guidance yet?

Speaker 3

Yes. So we haven't fully updated that yet. Quarter. But you're right. We may have some upside in especially in 2024, which is not incorporating the numbers.

Speaker 3

But again, it's too early to 2018. We're still doing the year.

Speaker 6

Okay. That's fair. And then separately, just I think you mentioned in your prepared remarks, Looking at opportunities in storage and transportation, it sounds like maybe along the Gulf Coast. Can you kind of expand on those thoughts? Is that quarter.

Speaker 6

Within Leaf River, are there opportunities you're assessing around that asset or outside

Speaker 4

of quarter. Nothing to announce, I'll say that, but you can certainly see volatility in the Gulf Coast region, growth in usage either from electric generation or from the LNG liquefiers that are being built down there. It's put a lot of pressure on assets and so a lot of conversations talking about potential expansions in enhanced services, to things like that. So just giving a little bit of color around those markets as these natural gas demands grow, quarter. Our assets are in good places to be able to serve some of that.

Speaker 4

But again, nothing to announce, but we are having conversations.

Speaker 6

Call. Okay. Appreciate it, Steve. And then last one for me is just any impact to your system from the early in service at regional energy access?

Speaker 4

So any impact, I mean, we'll certainly get more supply to the region, stream amount of demand that's here. And our utility is the contractor for that. So more reliable supply confirmed contracts. It's always welcome to the area and we'll be using that contract when it comes into service.

Speaker 6

Call. Okay, great. Thanks for the time everyone. Thank you.

Operator

Thank you, Mr. Moskowitz. Ladies and gentlemen, just a final reminder, any further questions, Conference Call. And ladies and gentlemen, it appears we have no further questions today. I'd like to turn the conference back to the management team for any closing or additional remarks.

Speaker 6

I'd like to thank everybody

Speaker 1

for joining us this morning. As a reminder,

Speaker 4

the recording of this call is available replay on our website. As always, we appreciate your interest

Speaker 1

and investment in NJR and

Speaker 4

we look forward to seeing many of

Speaker 1

you at AGA later this month.

Operator

Quarter. Thank you, Mr. Westhoven. Ladies and gentlemen, again, that does conclude the New Jersey Resources fiscal 2023 2nd quarter conference call and webcast. We'd like to thank you all so much for joining us and wish you all a great day.

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