NewJersey Resources Corporation

Hello, my name is Ellie and I will be your operator for today. I would like to welcome everyone to New Jersey Resources fiscal 2024 third quarter conference call. For those of you listening on the live call, all participants will be on listen mode only. After today's participation and presentation, there will be an opportunity to ask for questions. If you'd like to ask a question during that time, please press star one. Thank you. I'd now like to hand over to Adam Pryor, Head of Investor Relations. You may now be.

Thank you. Welcome to New Jersey Resources Fiscal 2024 Third Quarter Conference Call and Webcast. I'm joined here today by Steve Westhoven, our President and CEO, Roberta 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 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 on 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 NFE. We believe that NFE, 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 financial 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-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 filed on slide 4. Steve will begin with this year's highlights, followed by Roberto, who will review our financial results. Then we will open 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 had a solid quarter at NJR as our complimentary portfolio of businesses performed in line with our expectations, and we remain on track to achieve our fiscal 2024 NFEPS guidance of $285 to $3 per share. I'll take you through the highlights as shown on slide five. At New Jersey Natural Gas, our rate case is proceeding as expected and we anticipate a resolution before the end of 2024. Clean Energy Ventures reported a solid year-over-year revenue growth while continuing to expand our robust project pipeline. This provides a long runway of investment options that deliver a minimum of high single-digit unlevered returns for each project, along with upside potential from increases in power demand. This quarter, we also saw solid contributions from S&T and performance from Energy Services that was in line with expectations. Moving to slide six, in November, we provided an initial NFVPS guidance range of $2.70 to $2.85 per share. In February, due to our outperformance at Energy Services, we increased this guidance by $0.15 per share to $2.85 to $3 per share. As discussed in prior calls, we expect our fiscal 2024 to exceed our long-term growth rate of 79%. Slide 7 outlines the expected NFVPS percentage contribution by business segment for fiscal 2024 and beyond. This year, energy services will represent a higher percentage than prior years due to the AMAs and recent outperformance. However, in future years, we expect to return to a more normalized segment breakout, with over 60% of our NFVPS coming from our utility business. Now let's discuss our business units, starting with New Jersey Natural Gas on slide 8. We have invested $345 million year-to-date at New Jersey Natural Gas in fiscal 2024, with 43% of that capex providing near real-time returns. This includes the Save Green program, which helps customers lower their energy usage. In June, Save Green reached a milestone, serving our 100,000th customer since its inception in 2009. Over the lifetime of this program, participating customers have significantly cut their energy bills and reduced their carbon emissions by over 312 million towns, equal to the energy use of over 18,000 homes. Congrats to the entire Save Green team on this accomplishment. Customer growth has remained steady all year, driven by a combination of both new construction and conversions. drive growth well into the future, such as the redevelopment project in Monmouth County to transform a mall into multifamily units, along with retail, commercial, and medical spaces. Turning to slide nine, our base rate case is progressing as planned. In May, we adjusted our filing to include nine months of actual results and aim to reach a resolution that balances our customers' and companies' interests by the end of 2024. Moving to slide 10, Clean Energy Ventures continue to add new solar capacity during this fiscal year. We're also growing our solar pipeline, which now includes over 870 megawatts of potential investment options, with an additional 51 megawatts under construction. Finally, on slide 11, our S&T business met expectations this period. Last quarter, we announced the start of a capital investment project at Leaf River to expand working capacity within our caverns. We completed an open season and contracted a portion of that capacity in terms that will pay back the full cost of that investment in less than four years. And with that, I'll turn the call over to Roberto to review our financial results.

Roberto? Thank you, Steve, and good morning, everyone. Slide 13 highlights the main drivers of our NFE for fiscal 2024 third quarter and year-to-date. We reported a net financial loss of $8.9 million, or 9 cents per share, compared with NFE of $9.7 million, or 10 cents per share last year. The quarterly results of our business segments were consistent with our expectations, with steady margin contribution at NJMD and energy services and higher revenues at CEV and S&T compared to the prior period, offset by increased depreciation and interest expenses. Clean energy ventures reported a net financial loss for the period of $6.7 million. The difference from the prior year period was due to the resolution of an income tax valuation allowance last year that did not reoccur. Looking ahead, we expect a significant year-over-year increase in NFE for the upcoming fourth quarter, as energy services will recognize a substantial portion of the asset management agreement's total revenue during the period. Turning to our capital plan in slide 14, over the next two years, we expect to invest between $1.2 and $1.5 billion across the company. For fiscal 2024, we have tightened our overall CapEx range with slight increases at NJNG and S&P, offset by a reduction in the top end at CEB. For NJR as a whole, the midpoint of our total capex remain largely the same for the year. In November, we'll update our capex expectations for fiscal year 2025 and provide fiscal 2026. Our capital projections are anchored by strong cash flow from operations. On slide 15, We expect cash flow from operations to range between $420 and $450 million in fiscal 2024. Slide 16 displays 10-year credit metrics. We project 10 years adjusted FFO to adjusted debt to be between 17% and 18% this year. While we have no plans to issue block equity, our existing zero reinvestment program includes a waiver discount feature that allows us to raise equity on an opportunistic basis. Slide 17 provides a breakout of our long-term debt, which is fixed rate with no significant maturities in any particular year. We don't have any debt maturities for the rest of fiscal 2024 and maintain substantial liquidity at both NGR and NG&E. With that, I'll turn it back to Steve for concluding remarks on slide 18.

Thanks, Roberto. In conclusion, NJR continues to deliver long-term value for its shareholders, anchored by our regulated utility and the infrastructure investment opportunities provided by the other business segments. Our rate case is progressing on schedule, and we look forward to a resolution later this year. To summarize, we offer investors an attractive 11% to 13% expected total return based on our long-term NFEPS growth rate of 7% to 9% and a current dividend yield of approximately 4%. We expect to grow our dividend to our shareholders in line with our earnings as NJR has raised the dividend every year for the last 28 years. Our next dividend announcement will come in September. We appreciate that you took the time to join us today. And I'd like to recognize and thank our employees for all their hard work and dedication that drives our performance. So let's now open up the call for questions.

Thank you so much. We are now opening the floor for question and answer session. If you'd like to ask a question, please press star 1. Our first question comes from Richard Sunderland from JP Morgan. Your line is now open.

Hi, good morning. Thank you for the time today. Hey, Rich. Starting with the rate case, is everything still progressing as expected towards the settlement? I'm just looking at the slide language here on settlement discussions and curious if we should expect an announcement I guess, either this month or next under that timeline. Hey, Rich. This is Steve.

I'm going to ask Pat Nivigace to take that question. Hey, Rich. Just as a reminder, this is a plain military case, investments around safety, reliability, and some IT investments. With the filing of our 10-Q today, that will pave the way for us to file a 12-0 with the Board of Public Utilities in the next couple of days. But as far as some of the discussions, they're progressing as we would expect them to, and no change to our previously communicated timing guidance, which is we expect to finalize the rate case with rates effective sometime in our first fiscal quarter of 25.

Got it. Thank you for that. Can you quantify your open megawatts and if power prices could be a tailwind to 4Q or even put 2025 earnings above the 7% to 9% outlook range?

So we've got a little bit of this fiscal year left and a little bit of, I guess, megawatt pricing to do for the rest of the season. You can, I guess, look to years past to determine how that could impact our earnings going forward. But, you know, I would expect to characterize it, you know, should be relatively, you know, minor contribution, you know, for this year, depending on where power prices go.

Great. Thank you for the color there. I'll leave it there. Thank you. All right. Thanks, Rich.

Before we move on to our next question, again, if you'd like to ask a question to our presenters, please press star one. Again, that's star one on your telephone keypad. Our next question comes from Travis Miller from Morningstar. Your line is now open.

Good morning, everyone. Thank you. I guess I was going to ask, Richard's question, but I'll ask it kind of a different way or clarify if I didn't hear you correctly. The open megawatts and then the high level, what are you seeing in terms of pricing? Is it stronger, weaker than you expected? Not necessarily for earnings, but just in general in the market. How are you seeing solar pricing?

So, I mean, you can see the pricing It's occurring on a daily basis. I can't say that it's been, you know, remarkable, you know, for this summer in comparison to previous summers. But like I just said to Rich, if you're looking at an indication on, you know, how it may impact us, you can look at years past. But I think all in all, you know, not much of the fiscal year left, you know, for us. And you have to see some extreme pricing to make significant change in our interest this year.

Okay. And about how much do you still have to price?

You know, I don't have that number off the top of my head, but if you look at our portfolio and our ratings, I'm sure you can calculate it out on how much that we price on a daily basis, especially, you know, considering, you know, big forces of our portfolio are grid-connected.

Okay. Okay, very good. And then staying on that subject cost side, what are you seeing in terms of your growth, not necessarily CapEx, but just growth in solar costs? What are you saying on the cost side for your new projects?

You know, I think they've been pretty steady, characterized. If you're talking about our costs and, you know, costs of development, just our normal, you know, construction, I think things have been steady, you know, for the, I guess, recent past projects. Nothing remarkable there either. The only thing I'd add there is that the United States still have a pretty robust and supportive renewable portfolio standard, so we're still able to make investments, and you can see the size of our portfolio continues to grow as well.

Okay, perfect. And then different subjects. Everybody's asking the electric utilities about data centers. From your perspective, I've understood that a lot of gas utilities are seeing demand or have had demand for a while from data centers in terms of either primary or backup generation. What does it look like in your service territory? Have you had data center customers for a while? Are you seeing demand for that either backup or primary on-site gas generation or services?

So we don't have, I don't believe we have any data centers within our service territory at this point. But I'd add to that that the increase in electric use, the increase in need for reliability, matches up nicely with our portfolio across really all of our companies. That reliability, the need for constant electricity in order to run those facilities, You know, whether it's our utility and the infrastructure there, you know, our S&T assets, you know, supportive of, you know, power prices for, you know, our CEV portfolio, you know, volatility that gets introduced for our energy services segment. You know, all those business units, you know, should participate in this market as it becomes tighter and there's a greater demand for power and reliability.

Okay, sure thing. Yep, appreciate it. That's all I had. Thanks, Travis.

Our next question comes from Michael Gogler from Jamie Montgomery Scott. Your line is now open. Good morning, everyone.

Hey, Mike.

Steve, I've got one more power price question for you. So as you're looking forward, future planning for CapEx, You know, does it make you want to invest more in the sector, given where power prices are going? Given what you're seeing, you know, particularly in the, like you referenced, the high prices we're seeing in PJM?

Yeah, you know, I think, you know, like I just said to Travis, you know, it supports all our infrastructure, infrastructure investment, and it really supports our general strategy in growing that infrastructure. Sure. going forward. You saw the recent PJM capacity auction. That was 10 times what it was previous year. You know, that's a real market signal that's going to put out there, and certainly there's a lot of anecdotal market signals that have been supportive as well. So, you know, I'd answer yes. You know, it certainly supports, you know, our business and really the strategy that we've been talking about for quite some time.

Does it make sense to look at projects that are actually, that are already, sorry, already operating?

Yeah, I mean, you know, we've done that as a course of business in the past, you know, whether that's a portfolio at CEV or, you know, an operating asset at S&T. We've looked at those in the past. So, yeah, I'd say yes to that.

Okay. And then one last one. For the S&T segment, you know, beyond what you're doing at Leaf River to expand capacity. What areas are you focused on in terms of future expansion of that business?

You know, anywhere that we can get, you know, a contract that's long-term that can support the expansion, whether it's a Delta gateway or whether it's at Leaf River. And, you know, we can essentially grow organically, you know, making it easy to get permits. You're, you know, connecting to an existing asset. Everything that's supportive, you know, we'll look at. You know, we don't have anything to announce beyond what we've talked about already with some of our organic expansion. But, you know, know that we are, you know, pursuing that.

All right. That's all I have, gentlemen. Thank you. All right.

Thanks, Mike. Our next question comes from Robert Mosca from the Euro. Your line is now open.

Hey, good morning, everyone. Just wondering, hey, just wondering if you guys could talk about some of the business opportunities you referenced in your customer growth commentary. Just wondering how significant that is, and is this something that's already captured in your 7% to 9% growth outlook?

Hey, Rob, I'm going to ask a pathway-oriented feedback question.

So look, as we think about the customer growth, we're still in that 1.7% marker. Really included that just to illustrate that as you think about New Jersey strategically, but more specifically our service territory, This is a growing environment service territory, so we've got a lot of tailwinds, both from the new construction market, because you continue to see people coming into both Monmouth Ocean County specifically, but then also a very healthy conversion market, because there are a number of customers who are still on oil, propane, and the like, converting over. So I would characterize it as something that's generally supportive of the utilities growth rate.

Appreciate it, Pat. And maybe turning to Leaf River, looking at that request for authorization to use some of those leaching facilities for hydrogen storage, just wondering what the latest on that is and how does that, what's that interplay with this working capacity expansion that you seem to have FID'd on the gas side?

So, you know, we're keeping all our options open, you know, definitely forever and certainly exploring, you know, like I said to Mike before, you know, every option that was available to us in order to expand, you know, our S&P assets. There's been a lot of, you know, market, you know, pull in that area. You've seen that in contracts that have been executed out there, you know, certainly elevated in price. So I think the view on that at this point is a marker that basically in order to expand in that fashion. We don't really have anything to announce just yet, but you can see how we're thinking about that asset and the many uses that it might be able to be applied to this market.

Got it. That's helpful. And maybe just a quick last one for me on the subject of power. Just wondering, is there does electricity sales become more of a factor in where you decide to locate some of these solar projects, or are the economics still really going to be focused on, you know, what the solar credits look like in the states that you do construct?

Yeah, I think, you know, power prices and, you know, power moves of, hierarchy of areas that we need to clear in order to build a solar project, having the land, having the interconnectability, having the right transaction with the developer, and so on and so forth. I think those would take more of a precedent. I believe that power, for the most part, as it increases, will increase, maybe not uniformly, but generally speaking, that rising tide will lift all boats in that way.

Maybe just one thing to add there, Rob, to this, Roberto, is just keep in mind when you look at our assets, right, that this type of revenues, that these that come from power, is very minor, right? On a regular year, it's about 10% to 15% only. So we look at it in, you know, in that lens.

Understood. No, that's helpful. And, all right, have a great day, everyone.

All right, thanks, Rob.

Again, if you'd like to ask a question, please press star 1. That is star 1. Thank you. So far, we don't have any pending questions. I'd now like to hand back over to Adam Pryor for further remarks.

Thank you, Ellie. I'd like to thank everyone on the call here today for joining us. As always, we appreciate your interest and investment in NJR. Thank you so much, and have a good rest of your morning.

Thank you, everyone, for attending today's call. You may now disconnect. Have a wonderful day.