New Jersey Resources Q3 2023 Earnings Call Transcript

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August 3, 2023

There are 7 speakers on the call.

Operator

Hello, and welcome to the New Jersey Resources Fiscal 2023 Third Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. I will now turn the conference over to Mr. Adam Prior of New Jersey Resources.

Operator

Please go ahead.

Speaker 1

Thank you, operator. Welcome to New Jersey Resources Fiscal 2023 Third 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 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 of our forward looking statements including many factors that are beyond our ability to control or estimate precisely.

Speaker 1

This could cause results to materially differ from our expectations as found on Slide 1. 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

Speaker 2

and 10 Q as filed with the SEC. We do

Speaker 1

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 NFV. We believe that NFV, net financial loss, utility gross margin, financial margin, adjusted funds from operations and adjusted debt 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.

Speaker 1

The slides accompanying today's presentation are available on our We will begin with this quarter's highlights, followed by Roberto, who will review our financial results, and we'll open it up for your questions. With that said, I will turn the call over to our President and

Speaker 2

CEO, Steve Westhoven. Please go ahead, Steve. Thanks, Adam. Good morning, everyone. We had another solid quarter at NJR as our complementary portfolio of businesses continued to As a result, we remain on track to achieve our fiscal 2023 NFEPS guidance range of $2.62 to $2.72 per share.

Speaker 2

We reported net financial earnings of $0.10 per share in the Q3 of this year and $2.40 per share year to date. To summarize a few highlights, New Jersey Natural Gas added over 1800 new customers during With our growth rate now beginning to return to pre pandemic levels. In addition, we are proud that New Jersey Natural Gas has been recognized by Esalen as one of their 2023 most trusted utility brands. Clean Energy Ventures continued its strong momentum, increasing its in service capacity and growing its project pipeline to the highest level in our company's history. At S and T, We reported strong year over year revenue growth.

Speaker 2

And finally, Energy Services improved its NFE year over year, driven by continued contribution from the AMA and strong performance from our loan option strategy during the quarter. Turning to Slide 5. As I noted earlier, we are reiterating our fiscal 2023 NFEPS guidance range $2.62 per share to $2.72 per share. Early this year, we raised our guidance by 0.20 since driven by outperformance at Energy Service during Winter Storm Elliot in December of 2022. Our long term NF EPS 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.

Speaker 2

New Jersey Natural Gas had a strong quarter as highlighted on Slide 6. We invested $315,000,000 at New Jersey Natural Gas During the 1st 9 months of fiscal 2023, with approximately 40% of that CapEx providing near real time returns. We've added nearly 5,900 new customers this year compared to approximately 5,300 customers during the same period last year through a combination of new construction and conversions. In June, we filed our annual rate adjustments. We were once again able to provide cost savings to our customers effective this coming winter.

Speaker 2

This is in addition to the rate decrease in bill credits provided in March of this year. Our team works hard to manage supply costs, and we are pleased to pass these savings on to our customers. 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. Moving to Slide 7. The team at Clean Energy Ventures continues to grow its project pipeline and has made great progress increasing the size of its portfolio.

Speaker 2

We have added 75 megawatts of new solar capacity since the start of fiscal 2023. This represents the largest capacity increase in any fiscal year Since CEV's inception, we continue to expand geographically. Since the start of the year, approximately 40% of our capacity growth has come outside the state of New Jersey. This includes 2 operating assets in Michigan and Indiana that added 21 megawatts to our in service capacity in July. Operational asset acquisitions have proven successful for us in the past.

Speaker 2

We target projects with strong offtake that offer performance optimization and future organic growth opportunities. The operations and maintenance team at CEV does an excellent job ensuring our projects performed to the highest operational standards. In fact, our portfolio typically performs at over 99% availability, a significant advantage for us as an organization and a testament to the focus of the team at CEVATE. Finally, our project pipeline continues to grow It now includes over 7 50 megawatts of potential investment options, which is the highest in CED's history. And with that, I'll turn the call over to Roberto to review our financial results.

Speaker 2

Roberto?

Speaker 3

Thank you, Steve, and good morning, everyone. Slide 9 shows the main drivers of our revenue and fee for the Q3 year to date of fiscal 2023. For the 1st 9 months, we have reported strong year over year improvement in our consolidated results with NFE of 230 $2,300,000 or $2.40 per share compared with $192,400,000 or $2 per share last year. This represents a 20% improvement in our net financial earnings per share for the period. For the Q3, we reported NFE of $9,700,000 or $0.10 per share compared with a net financial loss of $3,600,000 or $0.04 per share last year.

Speaker 3

The quarterly results of our Visa segment We're consistent with our expectations, generally reflecting a year over year improvement in margins at NGNG and Energy Services And your revenues at CV and S and T, offset by higher depreciation and interest expenses. The largest difference compared to Q3 of last year was from the benefit that CV derived from the successful resolution of an income tax relation allowance. This benefit was included in our current NFF guidance for the year. Turning to our capital plan on Slide 10. For fiscal year 2023, we're slightly tightening our overall CapEx range, while keeping the midpoint unchanged.

Speaker 3

At the business unit level, we expect modest CapEx increases at NGNG and SME, offset by a reduction in the top end of the CV CapEx range. We'll update our CapEx expectations for fiscal years 2024 2025 in our year end conference call in November. Our capital projections are anchored by strong cash flows from operations. On Slide 11, we show our updated projections for fiscal year 2023. As you can see, we expect operating cash flow to range between $400,000,000 $420,000,000 This improvement from our previously stated range is mainly due to higher earnings and the positive impact the lower gas prices had on our working capital requirements.

Speaker 3

Our credit metric projections for fiscal 2023 have improved in tandem with our operating cash flows, which are shown on Slide 12. We now project Tangier's adjusted FFO to adjusted debt, our preferred credit metric to be between 19% 20% for the year, While NJNG maintains a favorable investment grade credit rating and while we have no plans to issue block equity, 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 2

Thanks, Roberto. We've been proactive in our discussions with the Governor's Concerning the executive orders made public several months ago. This week, the New Jersey BPU is holding a technical conference to discuss Executive Order 3 17. We have initiatives in place to align with the state's decarbonization goals and are actively participating in this conference, which is happening in real time. Governor Murphy has made clear strategy to build a clean energy economy that will drive job growth and create new investment opportunities.

Speaker 2

A number of the Governor's priorities are directly aligned with the strategy that we've been pursuing for more than a decade. In closing, NJR is an energy infrastructure company focused on meeting the needs of our customers, while transitioning to a clean energy future. Our capital investments and our efforts to develop organic growth These are supportive of our peer leading long term NF EPS growth targets. As always, I want to thank all of our employees for all their hard work and contribution. With that, I'll now open the call for questions.

Operator

Thank Scott with Mizuho, your line is open.

Speaker 4

Hi, good morning, everyone. Hi, Rob.

Speaker 3

So Just

Speaker 4

hoping to get your thoughts on the NJBP's SaaS recommendation on the CSI solicitation process. Was this an outcome you guys expected? And does it Your strategy at all in terms of scoping projects in New Jersey or your overall growth outlook for CEV?

Speaker 5

So with any new program, there should be a little bit of a learning curve. And I think the state is going through that learning curve right now. And certainly the state has been very committed to clean energy. So they'll get these programs worked out and they'll get the projects awarded. The Governor certainly has made his commitment to clean energy loud and clear in the sea.

Speaker 5

Just turning to how it may impact us, it's not going to. As you know, we've got a large pipeline of projects. 40% of those projects are outside the state. We started to diversify a number of years ago making investments outside of the state of New Jersey just because The size of the capital program and being able to reliably predict when we'd be able to make those investments, it was important and having diversification outside the state We're able to achieve the goals that we've stated. So all in all, it doesn't change our strategy.

Speaker 5

It's still moving forward. We've got large pipeline projects, 40% are outside of the state, but we still feel very confident the state is committed to clean energy and their clean energy goals And they'll get these programs worked out in the near future.

Speaker 4

Thanks. Appreciate it, Steve. And maybe with another quarter of Adelphi operations under your belt, any early indications on whether You can optimize certain segments of the pipe to accommodate volumes above its existing load. And maybe can we also get your latest thoughts on a potential Leaf River expansion?

Speaker 5

So I think it's too soon to say anything about the optimization Of adulte Gateway, certainly we're learning the asset as new gas pipeline. Remember the Northern Port Sheen It was natural gas for some time, but it had a single used customer up in the northern portion of it. The southern portion just came into commercial operations just as long. So still learning that, but I would expect in the future that there would be some optimization associated with it. All along, our target for making these investments throughout our company is for organic growth, being able to grow the assets that we have.

Speaker 5

So certainly there's an expectation to do that in the future. Nothing to announce on Leaf River, still working on Potential expansion down in that area, very constructive environment with both the LNG that's being built and volatility that they're experiencing down in that region. So when we do come to terms on something, we'll certainly make announcements. But again, nothing to announce at this point,

Speaker 4

Thanks for the time everyone. Thanks,

Operator

Rob. Your next question comes from the line of Travis Miller with Morningstar. Your line is open.

Speaker 6

Good morning, everyone. Thank you. Just following on that conversation that you're having on the Governor's office and all the debates and Discussion around the clean energy stuff. What's your thinking in terms of when some of these discussions get into actual Regulatory proposals, project proposals, regulatory filings, what's your thought in terms of the timeline? Would any of this make it into The next rate case filing or is there something beyond that?

Speaker 6

Does that make sense

Speaker 2

kind of timing? I

Speaker 5

guess, Are you talking about the when you said the Clean Energy, are you talking about the solar solicitation? Or are you talking about some of the Regulatory proceedings that are taking place around the expected quarter, clean energy?

Speaker 6

Yes, more around the clean energy, The latter, yes, not as much the solar stuff, yes.

Speaker 5

So I think with the clean energy, you've got kind of multiple discussions taking place timely. Predicting when those are going to come to conclusion and you might ultimately they would fall into policy and then ultimately into freeze. I think it's very hard to predict at this point in time. I think it's safe to say there's a lot of discussion that still needs to take place before that would happen. But just as a general comment, we talked about decarbonization, how we're reducing emissions here at NJR, New Jersey Natural Gas, now we're going to continue forward in this path to be able to deliver cleaner fuels to our customers.

Speaker 5

Everyone knows about our hydrogen plant, our energy efficiency programs and certainly our thoughts about the Future that we're going to continue to press this forward. So we feel good in this alignment with the Governor's stated goals And certainly state sales as well. And but I think when those all will come to basically Become part of regulation, unpredictably at this point in time, but we look forward to it. I think we're going to align nicely with future calls in the sea.

Speaker 6

Okay, sure. And remind me again, some of that will make it into the next rate case filing, especially on the hydrogen side. Is that correct?

Speaker 5

Well, so our hydrogen plan, remember, was already included in rates in our last rate case, Which is based on work by the state and it showed that they're supportive of clean energy and clean fuels.

Speaker 6

Okay. Okay. And then on the solar side, any updates in terms of changes in supply, ability to get Supply panels or costs, anything along those lines?

Speaker 5

Yes, nothing to add there. It's been business as Usually, you see that we're bringing projects to completion and putting them into service, 75 megawatts in service this fiscal year. So just moving forward, we're going to continue to execute on the plans, so really nothing to talk about there.

Speaker 6

Okay, great. That's all I had. Thanks so much.

Speaker 5

All right. Thanks,

Operator

There are no further questions at At this time, I will now turn the call back to Mr. Adam Prior for closing remarks.

Speaker 5

Well, thanks, everyone. I would like to thank all of you for joining us this morning. As a reminder, a recording of this call is available for replay on our website. And as always, we appreciate your interest and investment in NJR. Goodbye.

Operator

This concludes today's conference call. We thank you for joining. You may now disconnect your lines.

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Earnings Conference Call
New Jersey Resources Q3 2023
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