NewJersey Resources Corporation

Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the New Jersey Resources fiscal 2026 second quarter financial results 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 on today's call, Simply press star, then the number one on your telephone keypad. I would now like to turn the call over to Adam Pryor, Director of Investor Relations. Adam, please go ahead.

Thank you. Welcome to New Jersey Resources Fiscal 2026 Second Quarter and First Half 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 for our forward-looking statements include many factors that are beyond our ability to control or estimate precisely. This could cause results that 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 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 for today's presentation are available on our website and were furnished on our Form 8-K filed yesterday. Steve will start with this quarter's highlights and a business unit overview, beginning on Slide 5. Roberta will then review our financial results. Then we'll open it up 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. NGR reported excellent second quarter results during one of the most demanding winter periods in recent years. January and February brought sustained freezing temperatures in the northeast region of the country. New Jersey Natural Gas experienced the highest send-out days in its history, and our infrastructure, planning, and operations delivered. our teams provided safe, reliable service to homes, schools, hospitals, and critical services across our communities. Our system operated exactly as designed when customers needed us most. This reflects years of disciplined investment in our infrastructure and a continued focus on safety and reliability. At S&T, the Delta Gateway had multiple days of operating at maximum capacity, and Leaf River had withdrawals that exceeded winter storm URI of 2021. Finally, our energy services team delivered exceptional results. As a result of energy services outperformance, we were able to raise our fiscal 2026 NFVPS guidance for the second time this year. Roberto will provide additional details on our financial projections later in the call. With that, I'll turn to New Jersey Natural Gas and walk through how our efforts directly benefited customers on the next slide. Natural gas remains by far the most cost-effective option for home heating, particularly during periods of sustained cold. Affordability and reliability go hand in hand. The same planning and operational disciplines that allows us to meet record demand this winter also helps customers manage costs during periods of higher usage. That's why we take a proactive approach to managing gas costs. Each year we secure a significant portion of winter gas supply well in advance, limiting our customers exposure to sharp commodity price increases. As we noted last quarter, going into this winter, the projected gas supply requirements at New Jersey Natural Gas were over 87% hedged, securing cost effective supply to serve our customers. The average hedge price used for our compared to a city gate price, which we avoided that traded in excess of $135 per decather. This winter, New Jersey Natural Gas also delivered meaningful savings to our customers under the state-approved Basic Gas Supply Service Incentive Program. This helps to further manage gas costs during the periods of high usage and elevated commodity prices, which we highlighted on the slide. Under this program, we generated over $93 million in gross customer savings over the winter season. Over the life of the program, we have generated over $1.6 billion in gross customer savings by optimizing our gas supply while also creating value for our shareholders. In parallel, we continue to invest in energy efficiency through our Save Green program. More than 115,000 customers have taken part in our programs to date, with those utilizing our whole home offerings realizing bill savings of up to 30%. Finally, we provide payment flexibility and offer targeted assistance that helps customers manage usage and bills over time. Turning to slide seven, the cost advantage of natural gas continues to support steady customer growth across our service territory. That growth reflects a combination of new construction, conversions, and targeted infrastructure expansion. all driven by customer demand. A recent example is Chester Township in Morris County, which is now formally included in New Jersey Natural Gas's regulated service territory. This reflects our ability to partner with communities and regulators to thoughtfully expand our footprint while continuing to deliver safe, reliable service. Now turning to our storage and transportation business on the next slide, as we discussed on our year achieve or surpass that goal. Over the next two years, our growth is driven by strong re-contracting activity at both Adelphia and Leaf River. These are fixed-price, fee-based agreements with high-quality, credit-worthy counterparties, providing a high degree of predictability in our earnings. Moving to longer-term growth, at Leaf River, we continue to make steady progress on our expansion plans. During the first quarter, we filed a FERC application in which we proposed increasing working gas capacities by more than 70% over the next few years. We recently received the environmental assessment from FERC, which represents another important step in the review process, and the filing is progressing as expected. We've also secured a long-term contract supporting the initial expansion at our existing caverns, with the remaining phases to be underpinned by long-term fee-based contracts as well. Overall, this project remains on track, with regulatory review proceeding in line with our expectations, and we'll continue to provide updates as we move through the process. Moving to clean energy ventures on slide 9. During fiscal 2025, CED increased its installed capacity by almost 25%, and this momentum has continued with 33 megawatts of new capacity We expect to increase installed capacity by an additional 50% through the end of fiscal 2027, supported by a pipeline of safe harbor investment options in markets with supportive policy and strong demand growth. This diverse project pipeline that grants us the right but not the obligation to invest is over 1.2 gigawatts, well in excess of our capital deployment targets. Deal flow has been strong in this segment, a result of broad industry relationships and steps taken last year to preserve investment tax credits. CED is positioned to be increasingly selective with our investment decisions, with strong investment returns in the high single to low double-digit unlevered after-tax range. In addition, New Jersey and PJM require incremental electric capacity to meet rising demand, and solar offers the most expedient path to adding new supply to the grid in the near term. CED stands ready to be part of the solution. The team at CEV is in the early stages of exploring ways to leverage our portfolio of operational assets and existing PJM interconnections to add more supply to the grid in the near term. Technologies like linear generators, fuel cells, and batteries offer CEV a potential opportunity to optimize existing solar sites and benefit from investment tax credits into the 2030s. Moving to financing, We've historically utilized sale leasebacks as the main mechanism to efficiently monetize the tax attributes of our solar investments. In the future, this may include the use of tax credit transferability as an additional tool. We will continue to evaluate the most economically advantageous structures available to support long-term shareholder value. Finally, last month we reached an important milestone at CDB, surpassing 500 megawatts of in-service capacity. I want to thank the entire CED team for their strong execution. With that, I'll turn the call over to Roberto for a financial review, and then I'll return for a few closing remarks. Roberto?

Thanks, Steve. Turning to slide 11, the second quarter reflects strong execution across the portfolio and continuous momentum into the second half of the year. We delivered solid net financial earnings across both our regulated and non-regulated businesses with continuous performance at energy services. As a result, we're raising fiscal 2026 guidance for the second time this year. We'll continue to fund our capital plan and maintain a strong balance sheet. Moving to a brief walk for the courtroom, slide 12. Fiscal 2026 second quarter consolidated net financial earnings was $221.5 million, or $2.20 per share, a significant increase over the $178.3 million, or $1.78 cents per share reported in the second quarter of fiscal 2025. Net financial earnings reflect solid performance across the portfolio, with a notably higher contribution from energy services. For the year-to-date period, the higher net loss at CEB simply reflect last year's one-time gain resulting from the sale of our residential solar business. Overall, the mix of results underscores the value of our diversified model, With that, let's turn to our capital plan on the next slide. We deployed approximately $400 million of capital across our businesses year-to-date. New Jersey natural gas represented roughly two-thirds of total capital spending, with investments focused on strengthening core infrastructure, enhancing safety and reliability, and supporting continued customer growth. We do not have any change to our estimates for fiscal 2026 and fiscal 2027. and are reaffirming our five-year capital outlook of $4.8 to $5.2 billion through fiscal 2030. More than 60% of this capital is expected to be invested as a utility, with clean energy ventures and storage and transportation comprising the balance. Collectively, these investments support our 7% to 9% long-term NFPS growth target, while remaining well within our long-term credit parameters. which I'll cover on the next slide. On slide 14, we highlight the strength of our balance sheet, which continues to improve during periods of strong performance, like this winter. We raised our adjusted FFO to adjusted debt ratio expectations for fiscal 2026, and are projected to remain around 20% for the next five years. Energy services incremental cash flow this quarter enhances our ability to fund capital investment support credit metrics, and reinforces that we see no need for block equity in the foreseeable future. In addition, ample liquidity and a well-ladder debt maturity profile limit near-term refinancing risk and preserve financial flexibility. And finally, as shown with slide 15, we're again raising our NSFPS guidance range for fiscal 2026. During our prior conference call, we raised our guidance by 25 cents per share, driven by energy service outperformance in January 2026. With favorable results at energy services continuing through February and March, we're increasing our NFEPS guidance by an additional 20 cents to a higher range of $3.48 to $3.63 per share. We're also revising our expected NFEPS contributions by segment, with energy services percentage rising as a result of its outperformance and all dealer businesses adjusting accordingly. New Jersey Natural Gas will represent approximately 60% of the company's NFEPS for fiscal 2026. With that, I'll turn it to Steve for concluding remarks on slide 16.

Thanks, Roberto. NJR once again delivered exceptional results through a demanding winter period, reinforcing the reliability of our system and the durability of our business model. Our long-term growth continues to be anchored by our regulated utility with clear visibility into capital investment at New Jersey Natural Gas and a continued focus on operating safely and reliably when customers need us most. Storage and transportation remains well positioned with clear earnings visibility in the near term an additional upside over time as capacity expansion opportunities progress. At Clean Energy Ventures, our portfolio continues to scale as expected, supported by a secure development pipeline and disciplined capital deployment. Taken together, execution across our complementary businesses provides momentum into the remainder of the year and reinforces our confidence in the path ahead. Finally, I want to thank our employees across especially through another challenging winter, are the foundation for our success. With that, let's open up the line for questions.

At this time, if you would like to ask a question, press star, then the number one on your telephone keypad. To withdraw your question, simply press star one again. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Gabe Maureen with Mizuho. Please go ahead.

Hey, everybody. It's Dylan Lippert on for Gabe. Hey, Dylan. Good quarter. Just want to kind of hit back on CEV. provides more color in what you're seeing in terms of solar project opportunities and outreach from PGM and the state, particularly as New Jersey looks to the pre-generation gap?

Yeah, you know, really it's been playing out just like we said all along. You know, we save harbor in a number of projects. We've got a 1.2 gigawatt, you know, number of projects available to us. And the state has been, you know, certainly and PJM, the quickest way to bring, you know, new capacity to market is through solar. So, yeah, we're continuing to make investments, and we've got a number of really attractive choices in that space, and we're continuing to develop solar. So, you know, all things to go, and certainly playing out just like we've said over the past few calls.

Gotcha. And do you guys see this playing out more in the near term or towards the end of the decade?

I mean, we're not changing our CapEx guidance, so, you know, we're still, you know, continuing to move forward, you know, to hit those numbers. So, you know, really, you know, the things that I was talking about, you know, the pressure on the market to develop and bring more capacity, you know, to, you know, electric customers in New Jersey is moving forward and, you know, certainly an important part of the, you know, shuttle administration's, you know, goals of trying to lower electric prices.

All right, Jeff. All right, well, great grass and really great quarter for to see you guys soon in Scottsdale.

Thank you.

Again, to ask a question, it is star one on your telephone keypad. Your next question comes from the line of Travis Miller with Morningstar. Please go ahead.

Good morning, everyone. Thank you. Hey guys, I wonder if you could go into a little more on Energy services, what's happening fundamentally since February that's changed both your outlook and what you're actually realizing in that business? Are you just referring to the raising guidance? Yeah, the raising guidance relative to what you talked about in February, obviously less winter in March and April, but wondering what's going on there, what you're seeing differently.

Yeah, I, you know, really, when we, you know, raise guidance back in February, that was, you know, previous period. So, you know, much of the winter hadn't transpired to that point. And, uh, you know, through February and March, you know, that book, uh, continued to increase in value and add value and, uh, you know, conclusion to where we're able to. guidance raised that you see here is reflective of that. Energy services continues to be a business that performs, you know, does good things for us long-term, you know, lowers our debt and equity needs by the cash that they're able to bring in and, you know, all at, you know, a low-risk profile. So, you know, we hope it continues going forward. But really, the whole reason for the, you know, raised before and now are raised now was really just timing and having them let her conclude.

Okay. The initial one incorporated fern, right? And then subsequent here now, this is incorporated additional post-fern. Is that right? Yes, that's right. Okay. Okay. And then, Lee, for her, when does that expansion cutback start to come into the plan and start related to that at what point do you need some extra financing above and beyond your your plan either equity or debt to support the leaf river expansions so we won't need any additional financing you know for leaf river um but you know capital expenditures

begin that process of construction. You saw that we received the environmental assessment for FERC not too long ago. So everything's moving along as it should, according to schedule. And of course, we've got that all backed by a long-term contract. So we're moving forward with that project and expect to have that into service in fiscal year 2027-28. OK.

Very good. That's all I have for now. Thanks.

Thanks, Josh.

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

Thanks so much, and I'd like to thank everybody for joining us this morning. As always, we appreciate your interest and investment in NJR. We'll see many of you in Scottsdale at AGA in May, and have a good rest of your day. Appreciate it.

ladies and gentlemen this concludes today's call thank you all for joining you may now disconnect