New Jersey Resources Q1 2024 Earnings Call Transcript

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February 6, 2024

There are 13 speakers on the call.

Operator

Thank you for standing by. My name is Jessica, and I will be your conference operator today. At this time, I would like to welcome everyone to the New Jersey Resources 20 24 First 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.

Operator

If you would like to ask a question during this time, simply press star Thank you. I would now like to turn the call over to Adam Prior, Director of Investor Relations. Please go ahead.

Speaker 1

Thank you. Welcome to New Jersey Resources Fiscal 20 24 First Quarter Conference Call and Webcast. I am joined here today by Steve Westhoven, our President 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 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 include 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 and 10 Q as filed with the SEC. We do not buy including this statement, assume any obligation to review or revise any particular forward looking statements referenced herein in light of future events.

Speaker 2

We will also be referring

Speaker 1

to certain non GAAP financial measures such as net financial earnings or NFE. We believe that NFE, net financial loss, 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. The slides accompanying today's presentation are available on our website and were furnished on Form 8 ks filed this morning.

Speaker 1

Our agenda for today is found on Slide 4. Steve will begin with this quarter's highlights followed by Roberto, who will review our financial results. Then we will open

Speaker 2

the call for your questions. With that,

Speaker 1

I will turn the call over to

Speaker 3

our President and CEO, Steve Westhoven. Please go ahead, Steve.

Speaker 2

Thanks, Adam. Good morning, everyone. Fiscal 2024 is off to a good start and we delivered strong performance in the Q1. Positive momentum continued in the start of the second quarter As Energy Services outperformed in January, capitalizing of weather volatility. As a result, we are announcing a $0.15 increase in our NF EPS guidance to $2.85 to $3 per share.

Speaker 2

Before we discuss our quarterly results and forecast more fully, I'll begin with an update on our sustainability and de carbonization efforts on Slide 5. Last month, we issued NJR's fiscal 2023 corporate sustainability our 15th consecutive report dating back to 2,008. This report is an important part of our commitment to transparency with all of our stakeholders in the evolving energy landscape. It details our leadership and accomplishments in emissions reduction and renewable energy, as well as our long term vision for the role of existing pipeline infrastructure in a lower carbon future. Just as important, this year's report also shows how the strong culture of innovation in our organization is having a positive impact on how we execute strategies, engage in dynamic partnerships and deploy cutting edge technology in new ways.

Speaker 2

I'd like to cover just a few of the reports highlights. Last year, we invested $60,000,000 in Safe Green, New Jersey Natural Gas' Energy Efficiency Program. Clean Energy Ventures continued to innovate commissioning the largest cap landfill and floating solar arrays in North America. We advanced cutting edge lower carbon energy solutions including the installation of localized carbon capture technology at our Wall New Jersey headquarters at high efficiency gas heat pumps at other facilities in the state. And as I mentioned, we engaged in new partnerships with a number of well known academic and research entities to support our innovation efforts.

Speaker 2

Finally, NIR was recognized by Newsweek as one of America's most responsible companies for the 5th consecutive year. We hope that you've all had an opportunity to review the report. Moving to the Q1 year to date operating highlights on Slide 6. We executed our business strategy and delivered net financial earnings of $0.74 per share in the Q1, which was in line with our expectations. At New Jersey Natural Gas, we filed a base rate case to recover capital investments of approximately $850,000,000 since the settlement of our last rate case in 2021.

Speaker 2

In addition, New Jersey Natural Gas filed for a new Save Green program of approximately $482,000,000 which is the largest energy efficiency filing in our history. At Clean Energy Ventures, we placed another 4 megawatts into service and continue to grow and diversify our project pipeline. And finally, we reported solid contributions from S and T and Energy Services in line with expectations. Moving to Slide 7, in November, we provided NF EPS initial guidance range of $2.70 per share to $2.85 per share. And as I mentioned earlier, we benefited from our outperformance at Energy Services during the January weather event It allowed us to raise our NF EPS 2024 NFEPS guidance by $0.15 to $2.85 to $3 per share.

Speaker 2

As discussed in prior calls, we expect fiscal 2024 to exceed our stated 7% to 9% long term growth rate. Slide 8 shows the expected NFEPS contribution by business segment for fiscal year 2024, which reflects the AMA contribution as well as a significant portion of our net financial earnings coming from our utility business. Looking ahead, we feel comfortable with our long term growth rate in future years and we expect to return to a more normalized segment contribution in fiscal 2025. With that, I'll turn the discussion of our business units beginning on Slide 9. We invested $102,000,000 at New Jersey Natural Gas through a variety of programs in the Q1 of fiscal 2024 with 46% of that CapEx providing near real time returns.

Speaker 2

Within that 46% is the Save Green program as I mentioned earlier, which helps residential and commercial customers lower their energy usage. We spent approximately $13,000,000 in the Q1 to help our customers save money and reduce their carbon footprint. Finally, we achieved solid new customer growth during the period adding approximately 2,100 new customers through the combination of new construction and conversions. Slide 10 provides additional detail on our base rate case filings. On January 31, we requested an increase of base rates of $222,600,000 equivalent to an increase of approximately $159,000,000 in operating income.

Speaker 2

Since the conclusion of our last case in 2021, New Jersey Natural Gas has invested nearly $850,000,000 to upgrade and enhance the safety and reliability of our transmission and distribution systems as well as our IT investments. Moving to Slide 11, our solar business Clean Energy Ventures followed an exceptional 2023 with continued momentum heading into the New Year. We added 4 megawatts of new solar capacity and continue to grow our pipeline, which now includes approximately 8 70 megawatts of potential investment options. Over the past few years, we have continued to expand our geographically with 51% of our pipeline now located outside of New Jersey. Our focus is on delivering solar investment opportunities to provide high single digit unlevered returns.

Speaker 2

With that, I'll turn the call to Roberto for a review of our financial results. Roberto?

Speaker 3

Thank you, Steve, and good morning, everyone. Slide 13 shows the main drivers of our NFE for the Q1 of fiscal 2024. We reported NFE of $72,400,000 or $0.74 per share compared with NFE of $110,300,000 or $1.14 per share last year. New Jersey Natural Gas reported NFE in line with expectations as higher utility gross margin was offset by higher depreciation and operating expenses. Premium Revisions increased in the fee by approximately $100,000 largely due to the timing of SREC revenues for the period.

Speaker 3

Storage and transportation NFE declined versus Q1 of last year as a result of higher operating revenues related to winter storm Elliott in the Q1 of fiscal 2023. Finally, Energy Services reported NAV of $7,800,000 compared to $52,500,000 in Q1 of the prior year. As a reminder, the Q1 of last year benefited from increased natural gas price volatility related to winter storm Elliott during December of 2022. In addition, BMA revenue recognized in the Q1 of fiscal 2024 was less than that recognized in Q1 of last year. As Steve mentioned earlier, our guidance raised for fiscal 2024 is into Energy Services outperformance in January 2024, which is our current fiscal Q2.

Speaker 3

As we look to the remainder of fiscal 2024, it's important to note that we expect to recognize significant portion of the AMA's total revenues later in the year with the majority being recorded during our fiscal Q4. Turning to our capital plan on Slide 14. Over the next 2 years, we expect to invest between $1,200,000,000 $1,500,000,000 across the company. We did not make any changes to our capital plan compared to our prior call. Our capital projections are anchored by strong cash flows from operations.

Speaker 3

On Slide 15, you can see that we expect cash flow from operations to range between $450,000,000 $490,000,000 in both fiscal 2024 and fiscal 2025. Slide 16 shows our credit metrics. We continue to project NGR's adjusted FFO to adjusted debt to be between 17% 18% for the year. 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. Finally, on Slide 17, we provide a breakout of our long term debt.

Speaker 3

As you can see, most of our debt is fixed rate in nature And we do not have significant maturities in any particular year. Our NSEPS guidance for fiscal 2024 Our long term NSEPS growth guidance assume high interest rates for the foreseeable future. We have substantial liquidity at both NER and NJNG. Overall, we are in an outstanding position to fund our growth objectives. With that, I will turn the call back to Steve.

Speaker 2

Thanks, Roberto. In conclusion, NJR is off to a good start and we expect fiscal 2024 to be a strong year due to higher NFE contributions from energy services and steady performance from our core businesses. In addition, we've been able to take advantage of the opportunities in energy markets that have resulted in considerable upside to our growth targets in recent years. And as always, I want to thank all of our employees for their hard work. And with that, I'll now open the call for your questions.

Operator

Our first question comes from the line of Richard Sunderland with JPMorgan. Please go ahead.

Speaker 4

Hi, good morning. Can you hear me?

Speaker 5

Good to hear you. Good morning, Rich.

Speaker 4

Great. Thank you. The $0.15 guidance range Sorry, guidance raised. Does that fully reflect the January weather benefit and not just at Energy Services, but anything at S or even on the BGSS incentive side to the extent realized?

Speaker 6

Yes. The financial team does a nice job of Really going through everything in our budgets and impacts from the weather event and try to put that all into our numbers going forward. So We believe it does fully reflect the January weather event across all the businesses.

Speaker 4

Understood. That's helpful color. Thanks. The big SRECs sale number at CEV, I guess, largely a timing factor. Could you Unpack that a little bit more, I was surprised to see that.

Speaker 6

Yes. As it goes as SRECs are commodities, it depends on the sales take place and we recognize that revenue impact at the time of the sale. So it's really just dependent on when those transactions really occur. So don't read anything into it. It's just our normal business.

Speaker 4

Understood. And then I know you've put a spotlight on the AMA benefits this year, now the weather benefits from January versus that long term growth rate. I guess turning to the base growth though in 2025, Could you provide any color around the shape to that meaning, do you expect it on a base business basis to be linear or should there be a bigger step up in 2025 given the rate case will be coming in that year?

Speaker 6

I mean, this is really the power of the portfolio of companies. We're going through a rate case cycle now that should be settled by the time we get to 25. And you've got the slight changes in percentage contribution. We've given we've shared with the financial community our Growth rate in the company over the period as well as our segment contributions, we expect those to be intact. And as we said before, we expect them to normalize as go into the future.

Speaker 6

So I hope that answers your question.

Speaker 4

Very helpful color as always. So thank you for the time today.

Speaker 7

All right. Thanks, Rich.

Operator

Your next question comes from the line of Shahriar Pourreza with Guggenheim Partners. Please go ahead.

Speaker 8

Hey guys, good morning.

Speaker 5

Hey, Shar. Good morning.

Speaker 8

So just real quick on the 24 financing plans, obviously, you guys now expect to issue slightly less debt, but then also raised your equity issuance guidance despite sort of that unexpected inflow from Energy Services, I guess just wondering what's driving the higher equity in plan?

Speaker 9

Hey, Charlie, it's Roberto. The increase in and it's a very small increase in equity by the way It's related to our REIT program. As you know, as part of our equity buyback program, our I'm sorry, As part of our REIT program, we have the option to issue a little bit of equity and from time to time we exercise that option. So that's really what you're seeing there.

Speaker 8

Okay. Okay, got it. And then just I know obviously highlighted a little bit peak earnings from the asset management agreement you struck in 2020. Just I guess remind us what the remaining years Kind of look like in terms of earnings and cash contribution and sort of the cadence, especially as we're thinking about 'twenty 25 and beyond, just maybe just elaborate a little bit on the Yes.

Speaker 9

This is Robert again, Shar. So as you know, this is going to be the peak year for the AMA in terms of our revenue contributions. From here on between 2025 and 31, we have a little bit of a step down in terms of the Early from a year and every year they become in terms of revenues around $15,000,000 to $20,000,000

Speaker 8

Okay, got it. And Steve, let me just I know this was asked from the prior question, but I just want

Speaker 3

to maybe Hit that hit it a

Speaker 8

little bit more accurately. Are you with sort of the step downs that you're seeing with AMA And maybe the Energy Services business going to a little bit more of a recurring figure versus what you're seeing now. Are you just confident that you can hit sort of the midpoint of that guidance range at least to show linear or should we just assume some gyrations? I know that was sort of the impetus of the prior question, but I didn't get a sense on whether you still assume there's going to be linearity despite some of the Step down in earnings we should be expecting in the near term?

Speaker 5

Yes.

Speaker 8

We'll confirm our long term growth range.

Speaker 2

It's kind of the best

Speaker 6

I can do. We'll normalize it to history. You do have a spike and we expect some other business units to contribute more going forward as you'd expect. That is the percentage normalized, but yes, we're confirming

Speaker 8

our long term growth rate.

Speaker 9

Yes. Just to clarify, Shahriar, as what we say in our earnings presentation, You should take our initial 2022 guidance and then basically grow that between 7% and 9% every year to find what our normalized expected earnings are going to be every year.

Speaker 8

All right. Let me take the rest off on. I appreciate it guys. Thank you.

Operator

Your next question comes from the line of Chris Ellinghaus with Seabert William Schenck. Please go ahead.

Speaker 7

Hey, good morning, everybody. Have you guys got any color At this point, in terms of the solar CapEx range, where you think you might be landing this year?

Speaker 2

Yes.

Speaker 9

It is what we're showing in the presentation. So we're not deviating from that. So for this year, what we expect for solar is to be between $140,000,000 $200,000,000 roughly.

Speaker 7

Have you got a number or some thoughts on what you're seeing for Solar costs all in per watt at this point?

Speaker 6

Chris, nothing that deviates significantly than what we've had historically. I know there's been some inflationary pressures. We've had some hedging in some of our solar panels as well, but we're continuing to install solar that's probably around that $2 a watt type range, give or take a few pennies. So hopefully that helps.

Speaker 7

Yes, that helps. Through the CSI process this year, have you guys gleaned anything that's valuable?

Speaker 6

I don't think the CSI process has been that robust. There's been some changes BPU and things like that. So a number of these initiatives have been drawn out a little bit. They're still working through it. I believe that the bids are all due in February and then there's going to be some time to analyze those.

Speaker 6

So continuing to move along, but really nothing to share as far as kind of a milestone event or some sort of change or insight into what's happening next.

Speaker 7

Okay. One last thing. As far as the rate case goes, is there Anything that you're aware of sort of in the BPU environment ecosystem that would suggest Sort of a traditional settlement is unlikely?

Speaker 10

Hey, Chris, this is Pat Bigliaccio. As we've talked Really for quite some time now. This is a vanilla rate case. We're seeking recovery of investments in safety and reliability. So think pre-70s pipe and other as well as some minor recovery for IT investments.

Speaker 10

I think if you look across the Outcomes that have occurred in a variety of the rate cases, they've been constructive. Our historical rate case has been constructive. So I would not expect any deviation from that.

Speaker 7

Okay, great. That's helpful. All right. Thanks a lot. Appreciate it.

Operator

And our next question comes from the line of Roger Liddell with Clear Harbor Asset Management. Roger, go ahead.

Speaker 11

Thank you. Good morning.

Speaker 7

Hey, Roger.

Speaker 11

I wanted to get some Texture on the energy efficiency program. To me, It's asymmetrically important because it illustrates how far this company has gone beyond the Industry standard mindset of in the old days, the customer was the meter. And you guys have just transformed that Kind of old models and the seriousness, the gravamen of the efficiency offerings to me illustrates that point. So it matters. I'm looking at the, call it, disconnect between the 60,000,000 of energy efficiency investments and the 482,000,000 Which I believe you said is a 3 year program.

Speaker 11

So how do we get from the 60 kinds of levels To the aggregate 482. And how are you measuring the outcomes Of those programs, is it simply on the investment being made or are there some measurables that you can take back and use for fine tuning the program.

Speaker 10

Hey, good morning, Roger. It's Pat Migliaccio. Thank you for your question and thank you for your long ownership in NJR. Good to hear from you. So I appreciate you acknowledging The role that energy efficiency plays in greenhouse gas emissions, we believe it's one of the most important things we can do to help driver reduction in GHG over time and because we are decoupled, we are able to offer those energy efficiency programs.

Speaker 10

So that $60,000,000 that you referred to is a significant number because it's our largest ever investment in energy efficiency. But that was under the old, I'll say old Triennial 1 or T1 as we refer to it. And so that was a 3 year $200,000 roughly $39,000,000 program that that spending is being recovered and invested under. The upcoming Trident II which is the $482,000,000 that you referred to That includes an increase in the size of certain programs that we normally offer. What we refer to as customized energy programs for small and large commercial customers, but also new elements that are related to building decarbonization.

Speaker 10

And to your point, while we do measure the investment certainly, Sabrina, for for investors. There are also measurable goals related to energy savings that we have to hit as well as part of that approval of that program. So

Speaker 11

is a year or so ago, the context is hydrogen. Your estimate back then at least was in the range of $8 an MCF equivalent And the contrast with the federal objective of around $2 Is there any progress to speak of? Has that number drifted the right direction?

Speaker 6

I mean the program is still being put together now and some of the rules associated with the taxes and how they're going to apply they're coming through. But I think generally speaking, The amount of dollars going towards hydrogen is going to drive down that price of hydrogen with their target price being around $1 a kilogram, which equates to about $8 an millimeters millimeters

Speaker 2

millimeters millimeters millimeters millimeters millimeters millimeters millimeters millimeters millimeters

Speaker 5

millimeters Btu

Speaker 6

natural gas almost brings it in parity. So we expect it to go in that direction, But those programs are moving forward as we speak and we'll see in time where it finally ends up.

Speaker 11

Okay. Last question. You mentioned gas fired heat pumps and Maybe it's better handled offline, but if it's useful for the call, I wasn't really aware that there was a Critical mass of technology in the gas fired heat pump area, could that be a meaningful opportunity?

Speaker 10

Roger, this is Pat Migliash again. Yes, so gas heat pumps have been available at the commercial level for some time. There are a number of vendors and manufacturers that have I'll call them early stage But commercially available residential gas heat pumps, some are being used in the European market, not broadly here yet in North America. But those heat pumps get an equivalent efficiency of north of 130%. And so they represent an improvement over a high natural gas furnace today.

Speaker 10

And so we do think that moving into the future that represents an opportunity for us to continue to drive efficiency gains in natural gas heating appliances.

Speaker 11

Great. And thank you and thank you all for the execution that you deliver again and again.

Speaker 7

Thanks, Carter. Thanks for the questions.

Operator

And our next question comes from the line of Gabe Moreen with Mizuho. Gabe, please go ahead.

Speaker 12

Thank you. Good morning, everyone. Just had a question on the CEV backlog additions. It seems like you had success in adding to the backlog and it's skewed heavily towards out of New Jersey. I'm just wondering if anything happened in changing in the competitive landscape to make that happen this past quarter and also just longer term, how you envision, I guess, the breakup between New Jersey and non New Jersey projects kind of shaking down if there's an ideal target that you're targeting?

Speaker 6

So we talked for a long time, Gabe, about First of all, outside the state of New Jersey and heading towards jurisdictions that we believe have the similar risk profile. And what you see in that number is essentially just executing that plan. So do we have target on a percentage split? No, I don't think so. At this point, it's really where's the jurisdiction That's friendly towards solar and where can we make the investments and where does it fit best for the deals that we're able to put together.

Speaker 6

But We're happy to see that number growing, that project pipeline and our available investments in that space continue to increase and support our investment in solar going forward.

Speaker 12

Thanks, Steve. And I think I ask you maybe every quarter, but any update on the potential Leaf River expansion. I'm also just curious with more winter weather under your belt at Adelphia, how that asset's been performing and whether there's Any room to squeeze more capacity out?

Speaker 6

So I'll take the first one. So we're continuing to look at Beef River and like I keep saying, We're working on transactions. We don't have anything to update at this point in time, but certainly the market is supportive. And yes, these burgers are the LTE Gateway is doing well. I know throughput year on year is up by a significant percentage And we're continuing to watch that asset and see where we can pursue organic growth opportunities just like we are across the whole company.

Speaker 5

Okay. Thanks, Steve.

Speaker 7

All right. Thanks, David.

Operator

Thank you. That concludes our and A session for today. And with that, I will pass it back over to Adam for some closing remarks.

Speaker 1

Thanks, Jessica. Thanks, everyone, for joining us this morning. As a reminder, recording of this call is available for replay on our website. And as always, we appreciate your interest and investment in NJR. Thanks, everyone.

Speaker 1

Have a good one.

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

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