NewJersey Resources Corporation

Hello and thank you for standing by. My name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to the New Jersey Resources Fiscal 2024 Fourth Quarter and Year End Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. To withdraw your question, press star one again. I would now like to turn the conference over to Adam Pryor, Director of Investor Relations. Please go ahead.

Thank you. Welcome to New Jersey Resources fiscal 2024 fourth quarter and year-end conference call and webcast. I am 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 law. 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 two. These items can also be found in the forward-looking statements section of yesterday'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 statements 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 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 yesterday. Steve will begin with this year's highlights beginning on slide four, followed by Roberto, who will review our financial results. Then we will open the call for your questions. With that said, I'll turn the call over to our president and CEO, Steve Westhoven. Please go ahead, Steve.

Thanks, Adam, and good morning, everyone. This was an excellent year for NJR, driven by strong financial performance across all of our business segments. In addition, we successfully completed a number of pending items, most notably the successful resolution of NJNG's base rate case in energy efficiency programs. This provides greater certainty as we enter fiscal 2025, which along with strategic investments throughout our businesses, leaves NJR positioned for success well into the future. In fiscal 2024, we exceeded the high end of the NFEPS guidance range that we raised earlier this year. This is our fourth consecutive year of surpassing initial guidance, demonstrating the strength of our diversified business model and our ability to deliver shareholder value. We have an industry-leading stated NFEPS long-term growth rate of 7 to 9 percent, and more importantly, our actual performance consistently exceeds that target. At New Jersey Natural Gas, we grew our customer base and reported a record level of energy efficiency investments through our Save Green program. Clean Energy Ventures commissioned our first community solar project, built on a capped landfill in New Jersey, which will provide clean energy to low- and moderate-income customers. It was a busy year for CEB, with nearly 70 megawatts of projects either placed in service or under construction. S&T continued to drive organic growth with Leaf River completing a booster compression project and initiating a new capacity recovery project. These will contribute to higher revenues over time through the enhanced storage services and operational efficiency. Energy services benefited from an outsized contribution from the asset management agreements announced in 2020 while delivering significant value from its long option strategy during the January weather event. And finally, our Home Services Division completed approximately 80,000 service calls with a near five-star Google rating and was recognized as a RUDE Top 20 Pro Partner for the eighth consecutive year. Overall, this was a great year with many accomplishments from our team. As we look ahead, NJR is well positioned for future growth as we outline on slide five. The New Jersey Board of Public Utilities approved a settlement to New Jersey Natural Gas' base rate case last week, securing recovery for investments that ensure safe and reliable service for our roughly 583,000 customers. Roberto will go through the details shortly, but overall, we were very pleased to reach a fair and equitable resolution with all parties. I want to thank the Board of Public Utilities and their staff and the Division of Rate Council for their hard work. We have a constructive working relationship with them that ensures the interests of both customers and shareholders are fairly balanced. Last month, we also received approval from the BPU for New Jersey Natural Gas to expand its energy efficiency offerings available through Save Green through 2027. At CEV, we continue to focus on commercial solar with over one gigawatt in our project pipeline, the largest in our company's history. In line with this strategy, we just completed the sale of our Sunlight Advantage residential solar portfolio. This transaction not only strengthens our balance sheet, but also sharpens our focus on commercial solar growth. We are well positioned to capitalize on commercial projects with high single-digit unlevered returns, reinforcing our commitment to clean energy and sustainable growth. At S&T, Adelphia Gateway filed a rate case with FERC to reflect the investments made in its pipeline system, and we are moving forward with our capacity recovery project at Leaf River. With a focused strategy and momentum across all segments, NJR is well-positioned to deliver on its long-term growth objectives, as reflected in our fiscal 2025 NFEPS guidance outlined on the next slide. NJR is maintaining its long-term NFEPS growth target of 7 to 9%, and after multiple years of outperformance, we are rebasing to $2.83 per share as of this current fiscal year. This is consistent with our previously stated long-term NFEPS guidance. For fiscal 2025, our initial NFEPS guidance range is 305 to 320 per share. This exceeds our long-term growth rate of 79% and reflects the one-time gain from the Sunlight Advantage transaction. We feel that our complementary portfolio of businesses provides a solid foundation that supports this leading growth rate which we outlined on slide seven. Looking ahead, key drivers to achieve our 79% growth target include continued rate-based investments, customer growth, and an expansion of our energy efficiency investments through Save Green at New Jersey Natural Gas. Additional capital deployment at CEV, providing stable revenues from commercial solar investments that operate at high operational availability. At Leaf River, strong demand for storage capacity that improves our re-contracting rates and allows us to further expand our total working capacity. At Adelphia, the expected recovery of investments through our rate case. And at Energy Services, we continue to benefit from the long-term asset management agreements and stable cash flows. Finally, NJR's diversified business model has mechanisms in place that provide additional upside potential driven by market opportunities and operational performance. Together, these drivers offer strong visibility into our long-term growth trajectory. On slide 8, we break out our fiscal 2025 NFEPS by segment, with approximately 70% of our NFEPS expected to come from utility operations. We have a strong foundation to provide reliable returns and long-term stability for our shareholders. Now let's discuss our complementary business units, starting with New Jersey Natural Gas on slide 9. At New Jersey Natural Gas, we invested $503 million in fiscal 2024, with 42% of that capex providing near real-time returns. Customer growth remained steady all year, driven by a combination of both new construction and conversions. Our focus will be on leveraging advanced technologies and innovation solutions to meet the evolving needs of our customers. Moving to slide 10, our clean energy ventures business continues to focus on expanding commercial solar opportunities CEV has over a gigawatt of commercial solar projects as potential investment options. Additionally, the sale of Sunlight Advantage strengthens our balance sheet while allowing us to prudently recycle capital. Moving to slide 11, our storage and transportation business continues to deliver stable returns through fee-based revenues. In fiscal 2024, we completed the booster compression project and initiated our 4-BCF capacity recovery project at Leaf River, supporting incremental firm capacity sales. Additionally, we filed a rate case with PERC for Adelphia Gateway to reflect the investments made in our pipeline system, which will further enhance the long-term value of this critical infrastructure. While we're still in the early stages of the rate case process, we hope to reach a resolution in calendar year 2025. With that, I'll turn the call over to Roberto for a review of the financial results. Roberto?

Thank you, Steve, and good morning, everyone. Fiscal 2024 was a strong year for NJR. We reported NFVPS on the higher end of our increased guidance range, finishing the year at $2.95 per share, compared with NFEPS of $2.70 per share last year. Our business segments performed better than initially expected, with strong contributions that allowed us to raise guidance during the year. In the fourth quarter, energy services recognized a significant portion of the asset management agreement's total revenues, contributing to a notable year-over-year NFE increase. As Steve mentioned earlier, the VPU approved a settlement of NJ&G's rate case with an annual revenue increase of $157 million that became effective on November 21st. We provided details last week in our 8K and are also summarizing it on slide 14. Under the terms of the settlement, our overall allowed rate of return is 7.08%, which includes a return on equity of 9.6% with a 54% equity layer. Our composite depreciation rate increased to 3.21%. Overall, we reached a fair and equitable settlement with a rate base of $3.2 billion, a 29% increase compared to our last settlement. Now, let's move to slide 15, where we'll discuss EGR's capital plan. Over the next several years, we expect to deploy capital to enhance our utility infrastructure, expand our clean energy portfolio, and grow our storage and transportation assets. For fiscal 2025 and fiscal 2026, we're planning capital expenditures ranging from $1.3 to $1.6 billion, which aligns with our long-term NFVPS growth target of 7% to 9%. Breaking it down by segment, as shown on the slide, NGNG will remain our largest area of investment, with $430 to $490 million planned for fiscal 2025. This includes critical infrastructure upgrades and customer growth projects. We will continue to invest in our safe green energy efficiency program with approximately 65 to 75 million projected for the year. Moving to CV, we have planned between 160 and 265 million for fiscal 2025. This reflects our continued commitment to growing our commercial solar portfolio. While we left the CV range largely the same from our previous disclosure, this only reflects our expected commercial solar investments following the sale of the Sunlight Advantage residential portfolio. Finally, our storage and transportation will see investments between 20 and 35 million in fiscal 2025. This includes ongoing projects at Least River and Adelphia Gateway, which are expected to generate stable fee-based revenue and support organic growth. Our disciplined capital allocation strategy positions NGR to not only deliver on our 7% to 9% long-term NFAPS growth, but also to generate stable cash flows and maintain a strong balance sheet. As highlighted on slide 16, our strong credit metrics allow us to invest in our businesses while delivering consistent returns for our shareholders. Our adjusted funds from operations to adjusted debt ratio was 20.6% for fiscal 2024 and is projected to remain strong, ranging between 18% and 20% for fiscal 2025, which reflects our ability to generate solid operating cash flows and manage debt effectively. These levels are consistent with maintaining our investment credit rating at NJ&G and a strong balance sheet at NJR. Our long-term debt is well staggered with no significant maturities in any particular year. This provides us with financial flexibility and reduced risk, especially in an evolving interest rate environment. Additionally, we have $825 million in facilities available for fiscal 2029, ensuring we have substantial liquidity to support future growth. We expect our cash flow from operations to be between 460 and $500 million in fiscal 2025, providing a solid foundation for funding our capital plan, dividends, and other corporate needs. Consequently, we also have no need for block equity issuances and only use our during investment program as an opportunistic method of raising equity. In summary, our strong balance sheet, stable cash flows, and superior credit metrics place NER in an excellent position to continue executing our strategic priorities while maintaining financial flexibility and delivering long-term shareholder value. With that, I'll turn the call back to Steve for concluding statements on slide 17.

Thanks, Roberto. As we execute our strategic plan, NJR is positioned for sustained long-term growth across our diverse businesses. With a strong focus on core business expansion, clean energy investments, and maximizing the value of our existing assets, we expect to continue creating significant value for our shareholders. We offer a 4% dividend yield, and combined with our industry-leading long-term NFVPS growth rate, we are targeting a total shareholder return of 11 to 13%. To sum up, we are driving growth in a sustainable and disciplined way while continuing to deliver superior returns and position NJR as a leader in energy infrastructure. And with New Jersey Natural Gas' base rate case settled and its energy efficiency program approved, NJR has significantly de-risked its financial outlook and positioned itself for additional growth. We appreciate that you took the time to join us today. And I'd like to recognize and thank our employees for their hard work during an excellent year for the company. Their dedication only serves to drive our performance into the future. With that, let's open up the call for questions.

At this time, I'd like to remind everyone, in order to ask a question, simply press star followed by the number one on your telephone keypad. Once again, that is star one for any questions. And our first question will come from the line of Robert Mosca with Mizuho Securities. Please go ahead.

Hi, good morning, everyone, and congratulations on another year in the books here. Just maybe if you guys could touch on the economics of the residential solar sale. Implied PEs seems like it could be north of 10, maybe even mid-teens. So any color there would be helpful. And does this affect the capacity you would have for electricity sales in the future? Or is that really derived from the commercial portfolio that you have?

Hey, Rob, it's Steve. Hey, thanks for the questions. So as far as the commercial portfolio and our electric sales, those will not change into the wholesale market. We'll continue to sell the same amount of electric in the wholesale market. The residential market was primarily a lease market. So you expect that to be the same going forward.

And Roberto will take the key question you asked. Yeah, hey, Rob. This is Roberto. So regarding the summit advantage transaction, What you'll see is that the proceeds were $132.5 million, and what you'll see later today in our 10-K is that pre-tax gain, we're providing a range of $45 to $60 million. And then finally, what you see on slide six is that we estimate that the net after-tax gain on this is going to be around 30 cents. That's why our guidance is higher than our long-term implied type of range.

Got it. Thanks, Roberto. That's really helpful. And maybe a follow-up question. Could you maybe provide some initial thoughts on a 2025 IIP-esque, and maybe more broadly, could that program look different, and is there a possibility it's not extended by the NJBPU? I understand you just got the EE order, but just wondering about the IIP program.

Hey Rob, it's Pat Migliaccio. Thanks for the question and appreciate acknowledging that we've had a busy regulatory calendar. So not only we now settled the base rate case, which we thought was very constructive and fair outcome. As you noted, that saving program is the largest ever in history and you can see from our projected capex that that will ramp up over time. Let's not forget that the IIP program, we will continue to have capital spend in our fiscal year 2025. That was always intended to sunset around this time with a discrete set of projects, and so we'll have an opportunity to evaluate what programs in the future might make sense for us and our key stakeholders.

Understood. Thanks, Pat, and thanks for the time, everyone. Thanks, Rob.

Again, for any questions, please press star followed by the number one on your telephone keypad. Our next question will come from the line of Chris Ellinghaus with Siebert Williamshank. Please go ahead. Chris, your line might be on mute.

Sorry about that, guys. Good morning. The guidance range for the year is a little on the wider side for NJNG. Can you give us any color on what your thoughts are there in terms of the range and why bigger this year and, you know, that sort of stuff?

Chris, are you talking about the earnings guidance range? It is $0.15, $3.05 to $3.20, and it was $0.15 wide last year as well, so there's no real change there.

In absolute dollar terms, it looks a little wider to me, maybe not in terms of percentage. It just appears a little bit bigger than normal in dollar terms.

You don't agree? No, no, sorry. No, you're talking about our earnings guidance, right? Yeah, so maybe, Grace, Just as a reminder, starting in 2024, we widened the range of our guidance from 10 cents to 15 cents, but this is the second year we're doing this.

Okay. Can you give us any thoughts in terms of the, you know, pluses and minuses on the accretion dilution from the sunlight advantage divestiture?

Yeah, so for fiscal 2025, once you take into account that one-time gain and you net that from dilution and taxes, we said we expect that's going to be about 30 cents. That's why we're increasing our guidance this year by that. For the future year, there is some dilution, but that dilution decreases over time. And over three or four years, it goes basically to zero.

Okay. Uhm, can you give us any thoughts in terms of you've got a pretty big? I'll call it backlog of. CV projects under construction at year end. Can you give us any thoughts in terms of how those completions play out through 25? So so with the the projects that we have in place, you know we're continuing you know we feel good about you know our capex schedule you know not only for the year that we just completed but also going forward and uh you know with the support of the state that we're operating in um you know our capex schedules you know stands okay uh lastly um as far as the leaf river expansion goes can you give us any color in terms of you know contracting or, you know, the increase in the size proportionately or any of those kind of color?

Yeah, you know, we've stated that the increase in that cavern is about 4 BCF, and that's going to be staged in as we, you know, kind of de-brine that facility to make it larger. And as that becomes larger over the term of construction, then we're going to, you know, match the contract in it.

Okay, great. Appreciate the callers. Thanks, guys. Thanks, Chris.

Again, if you'd like to ask a question, press star, followed by the number one on your telephone keypad, and we'll take our next question from the line of Travis Miller with Morningstar. Please go ahead.

Good morning, everyone. Thank you. Hey, Josh. Just wondering strategically on the sunlight advantage sale, could you talk a little bit more about why deciding to do that now why deciding to do it at all was there something where if someone came to you with a price you liked or was there something where you saw better returns somewhere else in the portfolio just wonder if you could talk strategically about that decision yeah travis you know uh sunlight advantage uh was a great you know it's a great business and uh certainly the team you know did a did a great job of you know developing that business and building it out to what it is today

You know, we had the opportunity to simplify that business model a little bit, and ultimately, you know, I think it's a good place for our customers. You know, Spruce is buying, you know, a good business there, and it's going to continue to operate and feel confident expanding for them. And what it did for us is it was able to, you know, focus us on the wholesale, you know, solar market and, you know, continue to grow in that space and, you know, and allow us to recycle some capital as well. So, You know, just a win-win all the way around and an opportunity that, you know, was good for the company.

Okay. I know the dollar goes anywhere, right? But your thought here is that you put a lot of those proceeds to support the growth of the solar pipeline more so than the commercial solar, more so than transferring it to NGNG and JNG.

Yeah, it's the portfolio of the company. So, you know, we'll take that back in and certainly when we look at, you know, allocating capital, you know, to its, you know, essentially highest returns, you know, we'll continue to do that. That's an exercise that's always done. Sure.

Okay. And then on the step up in the system integrity, CapEx in 2026, how much of that is approved? How much of that is in a program? Kind of what's the sensitivity in terms of regulatory approval around that $200 million or so in 2026? Hey, Travis.

This is Pat Migliaccio. So, everything that's in the system integrity line will be subject to RICCI's filing and RICCI's review. But, you know, all of the plain vanilla system integrity investment, If you look at our last rate case, there was no issues related to getting a technical assessment approved by our regulators.

Okay. So, there's been counting on some good read-through from the settlement and the support for system integrity.

Yes.

Okay. That's all I had. Thanks so much. All right. Thanks, Travis.

Once again, for any questions, simply press star followed by the number one on your telephone keypad. That is star one for any questions. We have no further questions at this time. I'll hand the call back to Adam Pryor for any closing comments.

Thank you, everyone, for joining us this morning. As always, we appreciate your interest and investment in NJR, and have a great day. Thanks.

That will conclude today's meeting. Thank you all for joining. You may now disconnect.