NewJersey Resources Corporation

Now I would like to turn the call over to Adam Pryor, Director of Investor Relations. Please go ahead, Adam.

Thank you. Welcome to New Jersey Resources Fiscal 2025 Third Quarter Conference Call and Webcast. I'm joined here today by Steve Westhoven, our President and CEO, Pat Migliaccio, our Senior Vice President and Chief Operating Officer of New Jersey Natural Gas, 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 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 2. These items can also be found in the forward-looking statement 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 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 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 yesterday. Steve will begin with this quarter's highlights beginning on slide four, followed by Pat, who will discuss New Jersey natural gas highlights, Roberto, who will review our financial results, and then we will open the call 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. Fiscal 2025 continues to be an excellent year for NJR, marked by disciplined execution and consistent performance across all segments. This quarter was no exception. NGR raised the lower end of its full-year guidance, increased CAPEX projections driven by utility investments, advanced projects through the CEV pipeline, and made regulatory progress while identifying multiple expansion opportunities at S&T. We reported robust investment at New Jersey Natural Gas under our Save Green program, investments that are delivering near real-time returns while helping customers manage their energy use. CEV placed 63 megawatts into service so far this year and will likely finish the year with close to a record amount of capacity placed into service, while also maintaining a project pipeline of investment options that remains diverse and flexible. In storage and transportation, we have reached a settlement in principle at the Adelphia Gateway rate case and expect resolution by the end of the year. At Leaf River, we continue to evaluate expansion opportunities that support future growth. Energy Services provides stability through fee-based performance from our asset management agreements. And finally, NJR Home Services was named a Top Route Pro Partner for the ninth consecutive year. This recognition is a testament to our entire team's dedication to service excellence and meeting our customers' home comfort needs with the installation of high quality and reliable equipment. Turn to slide five for more details on our guidance for the year. We are raising the lower end of our fiscal 2025 NFVPS guidance range by 5 cents to 320 to 330 per share. This reflects strong operating performance across our businesses and greater visibility into full year results. The revised range, which is above our long term 7 to 9% growth target, demonstrates our ability to execute through dynamic environments. On slide 6, We present our updated NFEPS guidance by segment. New Jersey Natural Gas remains the strongest contributor to NFEPS, benefiting from our recent rate case settlement and customer growth. CED is expected to contribute over 20% of our NFEPS this year, based on high performing operating assets and the monetization of the residential solar portfolio. We are slightly narrowing the range of contributions across our business lines, consistent with our practice as the year progresses. These updates reflect our performance and energy services and a modest change in the relative contributions from New Jersey Natural Gas and CEVA. Roughly 65% of our full year NFEPS is expected to come from utility operations, rising to over 70% when excluding the CEV gain related to the sale of a residential solar business. This shows how our platform is anchored in stable, reoccurring earnings. With that, I'll turn the call over to Pat to discuss New Jersey Natural Gas on slide seven. Pat. Thanks, Steve.

At New Jersey Natural Gas, customer growth continues to be consistent and reliable, contributing to our performance. We now serve approximately 588,000 customers. with over 90% of these customers being residential, and the vast majority being located in our core counties, Monmouth, Ocean, and Morris. These counties are experiencing solid population growth, steady housing starts, and new commercial development. Our service territories remain among the most economically vibrant in New Jersey, with stable trends and high demand for affordable, reliable energy. As these customers are integrated into our system, they drive a recurring margin that compounds over time and supports continued capital investments. I want to take a moment to highlight the importance of Save Green as part of our future investment. Save Green remains one of the most impactful and unique utility energy efficiency programs in the country. It serves as a model for how regular utilities can simultaneously deliver benefits to customers and shareholders. This quarter, we are raising our 2025 capital projections for Save Green by over 30%, bringing the expected range up to $90 to $95 million. This represents another year of record investment. This increase is driven by growing adoption to more efficient HVAC systems, insulation, and weatherization for both residential and commercial customers. From a financial standpoint, segment investment benefits from an accelerated cost recovery mechanism. This allows us to begin recovering our investment in real time, eliminating regulatory lag, and improving capital efficiency. Strategically segmentalizing our decarbonization goals, it reduces customer bills, lowers emissions, and positions NJMG as a forward-looking utility committed to sustainability. It's an example of how policy alignment, customer service, and investor returns can coexist within a single program. We expect SaveGrain to remain a core element of NG&G's capital strategy in the years ahead. As of third quarter, NG&G has invested approximately $383 million in capital projects, which we highlight on slide 9. More than 47% of these investments are earning near real-time returns through mechanisms such as SaveGrain. These programs provide timely recovery and reduced earnings lag traditionally associated with utility CapEx. Our capital allocation at NG&G is designed to support our three strategic pillars, safe and reliable service, customer-focused growth, and clean energy leadership. We maintain clear visibility into our capital plan, supported by a multi-year pipeline of planned work, strong regulatory relationships, and predictable customer demand. Looking ahead, we expect NG&G to continue driving value through targeted capital deployment, that aligns with the liability, safety, decarbonization goals for providing an appropriate return to our shareholders. With that, I'll turn it back to Steve.

Thanks, Pat. I'll move to a discussion of our other operating businesses, beginning on slide 10 with Clean Energy Ventures. CEV continues to demonstrate the value of a diversified and flexible development model. Year to date, we've placed approximately 63 megawatts into service, including adding over 30 megawatts since our last conference call. We've been closely monitoring the implications of the Big Beautiful Bill on the renewable sector. Our development pipeline is advancing projects through construction, and we are identifying attractive opportunities that align with our investment criteria. Our current pipeline includes approximately 131 megawatts of solar projects scheduled to be brought into service in the next two years, representing approximately $350 million of investment, with over 800 megawatts of additional investment opportunities in the future. Our project pipeline includes a range of opportunities, varying in size, location, and timeline, and our agreements with developer partners are scheduled to preserve returns. These contracts give NJR the right, but not the obligation, to move forward with individual projects at our discretion. This approach gives CED the flexibility to advance only those projects that are aligned with our long-term capital plan and offer the most attractive risk-adjusted returns. It also allows us to scale investment based on market dynamics, interconnection timing, and return profiles, ensuring disciplined capital deployment and a focus on value creation. CEV plays a strategic role in NJR's portfolio through disciplined, return-focused investments aligning with the broader capital plan that remains anchored in our core utility and infrastructure businesses. The sale of our residential solar portfolio earlier this year not only unlocked value, but demonstrated the strength of our execution and the underlying quality of our assets. Solar remains one of the fastest and most efficient ways to answer the need for new generating capacity. With a robust pipeline, flexible capital approach, and strong operational capabilities, we believe CEV is well positioned to address this need while contributing to NJR's long-term growth. Now let's turn to our storage and transportation segment. Our portfolio of midstream assets, Adelphia Gateway and Leaf River, positions us to serve growing energy demand in constrained markets with highly reliable infrastructure. At Adelphia, we reached a settlement in principle with the FERC staff and the customers participating in our Section 4 rate case. We expect to file an offer of settlement with FERC in the coming weeks and remain optimistic about reaching a resolution this year. At Leaf River, we're advancing our capacity enhancement efforts and evaluating multiple expansion opportunities for both existing and new caverns aimed at delivering attractive long-term returns. As noted on our last call, we recently completed a non-binding open season for a potential fourth cavern, which drew encouraging interest. As we assess the economics and refine the design criteria at the site, our due diligence has identified several organic growth opportunities. We expect to advance the subset of these projects and begin the regulatory process at FERC in the coming months. Market conditions for storage remain favorable, and the site's structural and geographic advantages reinforce its long-term value. As part of NJR's broader strategy, our S&T business complements both our utility and clean energy platforms, contributing stable fee-based cash flows and offering accretive reinvestment potential. With that, I'll turn the call over to Roberto for a review of our financial results.

Roberto? Thank you, Steve, and good morning, everyone. Slide 13 shows the main drivers of our NFE for that third quarter and year-to-date period of fiscal 2025. In the third quarter, we reported NFEPS of $0.06 per share, compared with a net financial loss of $0.09 per share last year. Year-to-date, NFE $313.4 million, or $3.13 per share, an increase of nearly 55% year-over-year. Drivers include higher utility margins at New Jersey Natural Gas post-rate case, a net benefit of approximately $0.30 per share for the sale of our residential solar portfolio during our fiscal first quarter, improved performance in our storage and transportation business, and strong results from energy services during the winter period. These results show the resiliency and valence of our business model. Now let's move to slide 14, where we will discuss EGR's capital plan. For fiscal 2025 and fiscal 2026, our planning capital expenditures ranging from $1.3 to $1.6 billion, which aligns with our long-term NFPA growth target of 7% to 9%. We increased the lower end of our capital plan from our prior disclosures. driven by better than expected safe green deployment at the utility. We now expect spending between $650 and $770 million in capital investments during fiscal 2025. We plan to update our fiscal 2026 capital plan in November, consistent with our typical timeline. This update may include several areas of potential incremental upside, including safe green. These investments align with our long-term strategy to enhance utility infrastructure, expand clean energy investments, and optimize our storage and transportation capabilities. As highlighted on slide 15, our strong balance sheet and disciplined financial management remain foundational to NGR's long-term strategy and our ability to invest through various economic or market conditions. We're projecting an adjusted FFO to adjust the debt ratio of 19% to 21%. reflecting our conservative approach to balance sheet management and ensuring ongoing access to low-cost capital. For fiscal 2025, we project cash flow from operations between $460 and $500 million. This robust cash generation is supported by stable utility earnings and contributions from CV, S&T, and energy services. In terms of liquidity, we have $825 million of credit capacity across our credit facilities. This flexibility positions us to fund our capital plan and manage working capital needs. Our debt maturity profile is well-laddered with no outside refinancing risks in the near term, limiting interest rate exposure. Our cash flow strength, liquidity position, and prudent financial policy support NGR's ability to fund growth, maintain flexibility, and preserve shareholder value across a variety of market conditions. With that, I'll turn the call back to Steve for concluding remarks on slide 16.

Thanks, Roberto. Fiscal 2025 has been an excellent year for NJR. In the third quarter, we delivered solid operational and financial results, raised the lower end of our full year earnings guidance, and advanced key strategic investments across all of our core business lines. These businesses work together to form a well-balanced enterprise that generates predictable earnings and a peer-leading long-term growth rate, supports consistent capital deployment with the ability for incremental upside and creates meaningful value for customers and shareholders alike. Just as important, our success this year has been supported by a healthy balance sheet, ample liquidity, and disciplined capital allocation. That financial strength allows us to maintain flexibility in how we fund growth, manage risk, and respond to changing market conditions. And at the core of all this is a team of dedicated employees who show up every day to serve our customers and communities. I want to give a special thank you to our employees out in the field working through 95 degree heat this summer to ensure our customers are safe and comfortable. Your hard work does not go unnoticed. To conclude, we believe NJR is well-positioned to deliver attractive, long-term, risk-adjusted returns. Our track record reflects not only the ability to navigate changing environments, but also to allocate capital to where it matters most, serving the evolving needs of our customers. So with that, we'll now open the line for questions.

We will now begin the question and answer session. If you would like to ask a question, simply press star followed by the number one on your telephone keypad. And your first question comes from the line of Richard Sunderland with JP Morgan. Richard, please go ahead.

Hi, good morning. Thanks for the time today. For the Adelphia rate case, what would be the year-over-year impact of the settlement in 2026? And are there any other key considerations here?

Rich, so right now, we're still in the, I guess, the middle of the settlement, and none of those details have been made public at this time. So, you know, negotiations have been constructive, and we're nearing an end, but we're not going to divulge any more information around that at this point. We'll reach out, and obviously, we'll share what we can.

Understood. Fair enough. And then, Turning to CEV, the 131 megawatt target over the next two years, how have you sized that relative to initial expectations last fall when you rolled out your 25 and 26 capital plan? And then I guess similarly, has OBBB changed your expectations at all around CEV?

So I'll take that in a few different parts. One, you know, we're trying to improve the way that we're reporting. So, you know, the 131 megawatts is really, you know, what's under construction or really nearing construction at this point in time. So we've got some good visibility on the investments that we'll make, you know, there, you know, over the next few years. And you'll see those, you know, come into service. You know, addressing, you know, OBD requirements. and all the other questions that are around that. We just talked about our capital plans and the clarity of that over the next few years. We've got high confidence in the projections that we're sharing with you, and that really drives our 79% growth rate. So when you look at OBD and you look at its potential impact on our total capex, You'll notice the majority of our infrastructure, our assets that deliver natural gas are natural gas related. And that's reflected in our earnings mix. In fact, over 80% of our capex in the past five years has come from natural gas business. And we expect the majority of our growth still to continue in that space. So you heard Pat talk today about the energy efficiency program and the growth that's there. We talked a little bit about the potential expansion. the organic growth of our core businesses. And we feel that this is going to drive the value across all of NJR's assets. So, you know, to put it into context, you know, the majority of the dollars that we're going to spend, you know, are going to be in our gas-related businesses. So regardless of how BBB, you know, BBB, you know, turns out, you know, we remain confident that we're going to hit our capital targets over the next few years. had shared with you. So, you know, obviously that flexibility and our ability to invest in multiple platforms is going to drive, you know, our growth going forward. And, you know, of course, that's driven by the fact that you've got some really, you know, some very real growth coming in the Overall, just to put it in context, we feel good about our businesses moving forward and our ability to invest and grow.

Great. Thanks for the thoughts there. I'll leave it there. Thank you.

And your next question comes from the line of Chris Ellinghaus with Seabird William Shank. Chris, please go ahead.

Hey, guys. How are you? Hey, Chris. Steve, the expansion of Leaf River, do you have any sense after the open season when a decision timeline might look or what a decision timeline might look like?

Yeah, you know, we're, you know, we said during the call, you know, that we expected in the coming months to be making, you know, filing at FERC. Right now, we have another open season, a binding open season that's taking place at Leaf River. So, you know, we're narrowing in on exactly what, you know, the expansion looks like and certainly, you know, hopefully will take place over the next, you know, few months, you know, depending on, you know, how these processes turn out.

Is there any incremental color you can add on S&T's relative strength this quarter?

You know, I think it's just that it's a strong natural gas market. You know, you saw weather certainly has contributed, you know, quite a bit. transportation demands and storage demands, balancing extremely hot days, things that we talk about all the time. This is real growth in the energy markets, and you need infrastructure to be able to supply that. And natural gas is a flexible fuel that's able to supply those needs when it's called upon.

Okay. Going back to the Adelphia case, it's certainly a really big catalyst for 2026, when you make your filing, do you anticipate you'll do a release for that?

When we, you say when we complete the, uh, uh, you know, I guess the settlement and the rate case and everything goes into effect. Yeah. There'll be, there'll definitely be a, you know, a public, uh, disclosure at that point in time, you know, we'll have to update tariffs. There'll be a number of things that will be required, you know, to do. but certainly we'll talk about it.

Roberto, the utility gross margin for the quarter was a little bit bigger than I was expecting. I'm guessing that that just has to do with some variance in my seasonality expectations for the rate case, but can you break out at all that $25 million case versus sort of organic growth?

Yeah, so maybe what I would say on that basis, you have benefits certainly from that new rate case, but then also we have been making a lot of progress on the OPEC side, so it's a combination of the two.

And lastly, I think you sort of intimated this, Steve, vis-a-vis the tax bill and what the outlook for CEV might be going forward, but the pricing in PJM was very strong. So are you kind of thinking, you know, part of your thought process is, you know, you have fungibility of CapEx across the board, but are you also thinking that sort of the pricing or solar is going to equalize to a certain extent where power prices are headed, and solar project economics will also adjust over time?

You know, there's certainly going to be a re-rationalization in this market, I'm aware. moving up in the electric side of the market. And that's driven, you know, kind of the value of all infrastructure. And it's really, you know, placed into our general premise that, you know, infrastructure, organically expand and participate in those markets. So, you know, it's been a thesis that, you know, we've been talking about for a while, and we continue to make investments and grow the company basically feeding into that real market demand. So, you know, one way of saying yes, you know, the demands of the market, you know, the pricing has to support new investment, and that's occurring in real time. Okay, great.

Thanks for the details. Appreciate it. All right. Thank you.

Again, if you would like to ask a question, seem to press star followed by the number one on your telephone keypad. And your next question comes from the line of Travis Miller with Morningstar. Travis, please go ahead.

Good morning, everyone. Thank you. Thanks, Travis. Just following up on the Leaf River conversation and the expansion, are there a series of discrete steps that have to be done for the expansion versus it sounds like you're also doing an open season for some of the existing capacity. What are the steps in terms of the expansion that you're looking at that would be next? The profiling and then is it up to you to decide an FID?

Yeah, I mean, really, you know, we'll get the customers lined up and, you know, what services That's all, you know, in motion right now. And then there'll be a FERC filing, you know, that approval, and then they'll set in motion the construction to be able to build the services and then go into commercial operations to meet the customer's needs.

Okay. At what point in that process would you know around the CapEx number that you'd either be willing to share or be putting explicitly into your CapEx forecast? At what point in this process for the expansion would you expect to have some kind of number?

Yeah, I think that's, you know, that'll be in the coming months, but, you know, we hope to have it done. You know, we normally update our CAPEX schedule, you know, in November, and I would expect, you know, that would take place then, you know, if everything winds up the way that we're expecting at this point.

Okay, great. Then different topic, the dividends. Traditionally, the board's considered a dividend increase here in the next couple months. Given the EPF that you've had over the last few years, how do you think the board is going to look at not necessarily the payout ratio, but just generally capital allocated to the dividend given, again, your payout ratio would be pretty low on this year's earnings, but then you also talk about the base earnings number. How is the board thinking about that, base versus actual?

Yeah, Travis, we typically view that, you know, related to our historical growth rate, right? you know, a little bit less. I think history is a good guide, you know, for the future. In this case, you know, we typically stay pretty tight to, you know, how we're growing the company, you know, longer term, and the dividend would follow that. And even seeing, you know, we've increased the dividend, you know, for the past, you know, 23, 24 years, and we expect to continue to do so. So I think, you know, historical performance would indicate, you know, how we'd act in the future.

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

All right.

Thanks, Travis. And your next question comes from the line of Robert Mosca with Missoula Securities. Robert, please go ahead.

Hey, morning, everyone. Hey, guys. Just wondering if you guys could speak to the higher CapEx and SaveGreen. Just wondering what's driving the stronger demand for that program. and early days here, but could this portend anything around the size of future iterations of this program as far as what gets approved?

Thanks, Robert. I'm going to ask Pat to take that question.

Hey, Rob. Good morning. Yeah, so January marks the start of the new triennium, as we refer to it, of the Energy Efficiency Program, and it's a combination of both strong demand from the market on the residential side for more efficient HVAC systems, but also on the commercial side, a direct install program, which is a newer feature of the SAGRE program. And combined with, candidly, our team's really strong execution of the program led to the guidance for this year. And as we've already indicated, we typically update CAPEX guidance in 2026, so we won't make any indications about any future SAGRE increases at that point in time. But just more broadly, as we think about the strategic advantage of the program, and at the risk of repeating my remarks, it really is a win-win-win, right? We're able to lower customers' bills, which is particularly important in a period where we're focused on affordability, while at the same time reducing emissions. It is a strong decarbonization tool. We have a toolkit. And, you know, as we pointed out a couple different times, this is one of the real-time recovery mechanisms that we have at our disposal.

Got it. Thanks for that, Pat. And for my follow-up, it seems like the permitting environment for gas infrastructure in the Northeast might be easing a little bit. Is there anything NGR would be interested in, be it growth projects or trying to secure system or supply redundancy to support some of the customer growth you guys are experiencing and maybe improve reliability?

I mean, you know, those are programs that we, you know, have continued to make investments, you know, reliability, expanding the system, you know, making sure you hit customer growth numbers, you know, that have been great, you know, over the past few years. So I would expect, you know, kind of more of the same. I know permitting and, you know, conversations around it, you know, at times have been difficult in the past, but we've always been able to achieve, you know, that investment in the building infrastructure that we need. So I just expect it to continue.

Got it. Appreciate the time, everyone.

That concludes our question and answer session. I will now turn the call over to Adam Pryor for closing remarks. Adam?

Thank you, and thank you all of you for joining us this morning. As always, we appreciate your interest and investment in NJR, and have a good rest of your day.

That concludes today's call. Thank you all for joining. You may now disconnect.