NewJersey Resources Corporation

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 speaker's prepared remarks there will be a question and answer session. If you would like to ask a question during this time simply press star 1 on your telephone keypad and if you would like to withdraw your question you can press star 1 again. And now at this time, I would like to turn things over to Mr. Adam Pryor, Director of Investor Relations. Mr. Pryor, please go ahead, sir. Thank you. Welcome to New Jersey Resources Fiscal 2023 Second 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 to control or estimate precisely. This could cause results to materially differ from our expectations as found in slide one. These items can also be found in the forward-looking statement section of today's earnings release furnished on Form 8K and in our most recent Forms 10K and 10Q 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 NFV. We believe that NFV, 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 seven of our 10-K. The slides accompanying today's presentation are available on our website and were furnished on our form 8-K filed this morning. Our agenda for today is found on slide three. Steve will begin with this quarter's highlight, followed by Roberta, who will review our financial results. Then, we will open it up for your questions. With that said, I will turn the call over to our President and CEO, Steve Westhoven. Please go ahead, Steve.

Thanks, Adam, and good morning, everyone. We have another solid quarter executing our strategy and delivering results in line with our expectations. In addition, we are reiterating our fiscal 2023 NFVPS guidance range of 262 to 272 per share. Overall, we reported net financial earnings of $1.16 per share in the second quarter of this year. During the first calendar 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, meaning the 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. 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 whenever possible. At C&V, we placed an additional six 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 440 megawatts. In our storage and transportation business, we benefited from solid operating performance from the Delphia Gateway and Leap 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. Starting to slide 5, as I noted earlier, we are reiterating our fiscal 2023 NFVPS guidance range of $2.62 to $2.72 per share. We initially raised this guidance by 20 cents following our first quarter results due to higher contribution from New Jersey natural gas and outperformance at energy services during the winter storm Elliott in December of last year. Our expected long-term anti-DPS growth range remains at 79% from our original 2022 guidance, and we expect to be at the higher end of that range for fiscal 24. New Jersey Natural Gas had a strong quarter, as highlighted on slide 6. We invested $195 million in New Jersey Natural Gas during the first six 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 first six months of the year, compared to approximately 3,600 customers during the same period last year. 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 seven, 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, including greenfield and late stage projects, both within and outside of New Jersey. And we continue to innovate, producing clean, renewable energy through 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 Public Utilities approved the state's competitive solar incentive, CSI program, for projects over five megawatts. Through this program, New Jersey seeks to award 300 megawatts of solar projects per year. 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. With that, I will turn the call to Roberto for review of the financial results. Roberto? Thank you, Steve, and good morning, everyone.

Slide 9 shows the main drivers of our NFE for the second quarter and first half of fiscal 2023. For the first half of fiscal 2023, we reported strong year-over-year improvement in our consolidated results. Year-to-date, NFE was $222.6 million or $2.30 per share, compared with $196 million, or $2.04 per share last year. This represents a 13% improvement in our net financial earnings per share for the period. For the second quarter of fiscal 2023, we reported a benefit of $112.3 million, or $1.16 per share, compared with $130.2 million, or $1.36 per share last year. Through the quarter, higher utility gross margin at New Jersey National Gas and higher revenues at our S&P and CEV businesses were more than offset by higher depreciation and interest expenses, which now include the impact of the LCA Gateway being fully placed into service, lower financial margin at energy services, higher expenses related to variety investments, and a $5 million difference in the timing of incentive compensation accruals related to our NAPL performance earlier this year. Turning to our capital plan on slide 10, as we have said before, for fiscal year 2023 and 2024, we expect to invest between $1.1 and $1.4 billion across the company. And our capital plan remains on track to achieve these investment levels. We expect to tighten our CAPEX ranges in future quarters, specifically at CV, as PJMs, interconnection timelines, and regulatory outcomes on certain New Jersey projects become more clear. 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 a higher end. Our capital projections for fiscal 2023 and 2024 are anchored by strong cash flow from operations and consistent with our long-term NDCPS growth target of 79%. 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.

Thanks, Roberto. 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. We've 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 complimentary portfolio of businesses. But I also want to thank all of our employees for their hard work and contribution.

With that, I'll now open the call for questions. 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, 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 JP Morgan.

Hi, good morning. Thank you for the time today.

Hi, Richard.

Starting with CEV, I 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?

Yeah, Richard, thanks for the question. You know, if you go back to our 2020 investor day, you know, we highlighted that we had a strategy going forward to diversify our solar investments outside of the state of New Jersey. And that was really based on, you know, our ability and the capability that we built here as a company to be able to invest in this place and certainly provide returns and also a little bit of a diversification outside of the state of New Jersey. I think it's healthy to accomplish for capital as we look at projects and being able to get the highest return. Remember that as we look outside the state, we look for a similar risk profile, one that really aligns with our overall company to make sure that the structure really fits and kind of simulates a sub-season or The percentage seems to be around the 60-40 level, and we expect that to continue to go forward. So really, a shift that we expected to plan for in our strategy, and overall, you're seeing some of the success by some of the investments outside of the state of New Jersey.

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

Yeah, I think for this year, we've stayed in the range of our CapEx expectations. We feel comfortable at the lower end of the range. We still have a lot of the fiscal year left, and we've We stay 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.

Got it, certainly. And then shifting gears, could you parse the storage and transportation results a little more finely? I'm curious what drove the year-over-year decline. 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?

So I'm going to ask Roberto to take that question because there's a little bit of a transition from construction going to an active operation.

Yeah. Hey, Rich. This is Roberto. So I think that the more helpful way to look at this is on a year-to-date basis. basis, and year-to-date, actually, the business unit is up. And when you part it out and break it into pieces, you will see the revenues are actually dramatically up. And what's affecting that port in particular is that you have higher depreciation and amortization, because remember, Adelphia came into service at the end of last fiscal year, and you have higher interest expenses, and we don't have any more AAUDC equity. 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. All of this is cash earnings now compared to some non-cash earnings we had the year before.

Got it. That was very clear. Thank you for that, and thank you for the time today. All right. Thanks. Thanks, Richard.

Thank you. And just a reminder, ladies and gentlemen, please press star 1 for any questions. We go next now to Travis Miller at Morningstar.

Thank you. Good morning. Thank you, Travis. 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 costs or investments? Is that a possibility? Is that something you're thinking about from 2024 to set that up?

You know, I think, you know, we do all the things that we can to, you know, set up the fiscal year. And certainly, you know, our guidance speaks for itself. I really don't have any things to speak about saying, you know, we're going to be moving things around to that point. So, you know, we've got our projections.

We've got our earnings assessment. 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?

I mean, it was a dramatically different year, you know, last year than this year, so you've got a decent, you know, delta. But, you know, our energy services group, you know, going back to the last quarter, you know, has performed very well. You know, allowed us to a certain extent, you know, raised you know, guidance for this year. And, you know, they're still able to achieve positive earnings in this quarter, you know, which is a very low energy use quarter. And, you know, they're doing well. So that's the only color that I can give. But the quarter-to-quarter comparisons, I know, can be a little bit difficult because of when volatility happens and how that decision performs on a quarter-to-quarter basis.

Okay. So usage being a big factor. I'd like to say. Yes. Yeah, I think there's more.

Yeah, I think, this is Roberto. Yes, 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.

Okay.

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

Thanks, guys.

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

Hi. Thanks, everyone. 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 the putting cases to why there might not be modeling a working capital benefit there? Is that just conservatism?

Hey, Robert, can you just repeat the beginning of that question, because I didn't catch that.

Sure, yeah, sorry. So, there wasn't a change in your cash flow from operations guidance, so 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?

So, Robert, this is Roberto. So our cash flow from operational guidance for the year has not changed since last quarter. And what you can see once you look at our results is that we are performing very well, actually. Remember, this is only that what you see there in our 10Q is our year-to-date results. So again, for the year, we're not modifying those projections, and they are exactly within our expectations.

Right.

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

Robert, it's hard to understand you. It's something going on with Alain here.

Can you speak a little bit maybe louder and repeat that question? I apologize for that. Sorry, guys.

Yeah, so maybe this will be better. I was just wondering if we were going to... Better?

Yes.

Okay. So I guess what I'm asking is, you know, I think in a past quarter you'd said that we might see a working capital benefit if cash prices were to fall, and that was kind of an element of conservatism you were taking in your guidance. Just wondering why that's maybe not being included in the 23 and 24 guidance yet.

Yeah, so we haven't fully updated that yet, but you're right.

We may have some upside, especially in 2024, which is not incorporating the numbers, but again, it's too early to say that. We're still too early in the year.

Okay, that's fair. And then separately, 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 Within Leaf River, are there opportunities you're assessing around that asset or outside of it?

Yes, outside of it. 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 liquid buyers that are being built down there. It's putting a lot of pressure on. So, just getting a little bit of color around those markets as these, you know, natural gas demands grow. You know, RSS are in good places to be able to serve some of that.

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

Okay. Appreciate it, Steve. And then, last one from me is just, any impacts your system from the early in service of regional energy access?

So, any impact?

I mean, we'll certainly get more supply to the region, which is very much needed. You can see by the high gas price that we've seen in the past for CityGate that there's an extreme amount of demand that's here. And our utility is the contractor for that. So, more reliable supply. On firm contracts, you know, it's always welcome to the area and, you know, we'll be using that contract when it comes to the service.

Okay, great. Thanks for the time, everyone.

Thank you.

Thank you, Mr. Mosca.

Ladies and gentlemen, just a final reminder, any further questions, please press star 1 at this time. 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. I'd like to thank everybody for joining us this morning. As a reminder, the recording of this call is available to replay on our website. As always, we appreciate your interest and investment in NJR, and we look forward to seeing many of you at AGA later this month. Thank you, everyone, and goodbye. Have a good morning. Thank you, Mr. Westhoven. Ladies and gentlemen, again, that does conclude the New Jersey Resources fiscal 2023 second quarter conference call and webcast. We'd like to thank you all so much for joining us and wish you all a great day. Goodbye.