New Jersey Resources Corporation (NYSE:NJR) Q1 2023 Earnings Call Transcript

New Jersey Resources Corporation (NYSE:NJR) Q1 2023 Earnings Call Transcript February 2, 2023

Operator: Hello, everyone, and welcome to the New Jersey Resources Fiscal 2023 First Quarter Conference Call and Webcast. My name is Bruno, and I will be operating your call today. I will now hand over to the management team.

Adam Prior: Thank you. Welcome to New Jersey Resources fiscal 2023 first quarter conference call and webcast. I’m joined here today by Steve Westhoven, our President and CEO; Roberto Bel, 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 1.

These items can also be found in the forward-looking statements section of today’s earnings release furnished on Form 8-K and in our most recent Forms 10-K and 10-Q as filed with the SEC. We do not by including this statement assume any obligation to review or revise any 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 and financial margin provide a more complete understanding of our financial performance. However, these non-GAAP measures are not intended to be a substitute for GAAP. Our non-GAAP financial measures are discussed more fully in Item 7 of our 10-K.

Our agenda for today is found on Slide 2. Steve will begin with this quarter’s highlights, followed by Roberto, who will review our financial results. Then we will open the call for your questions. The slides accompanying today’s presentation are available on our website and were furnished on our Form 8-K filed this morning. With that said, I will turn the call over to our President and CEO, Steve Westhoven. Please go ahead, Steve.

Steve Westhoven: Thanks, Adam, and good morning, everyone. We delivered strong results in the first quarter. This included exceptional performance during the unique weather event over the Christmas weekend. This speaks to the resiliency of our physical infrastructure and also to the talent and termination of our people. As a result of NJR’s successful operation during this event, we are raising our fiscal 2023 guidance by $0.20 to $2.62 to $2.72 per share. Before we move to the quarterly results and our forecast for the year, I’d like to begin with an update on our sustainability and decarbonization efforts on Slide 3. Last week, we issued NJR’s fiscal 2022 Corporate Sustainability Report, our 14th consecutive annual report dating back to 2008.

The report details our goals and accomplishments in sustainability and other ESG-related areas as well as our approach to innovation, low carbon fuels, energy efficiency and environmental stewardship. I’d like to cover just a few of the reports highlights with you. We believe the fastest and most cost-effective tool to reduce emissions is through energy efficiency initiatives. Last year, we invested more than $53 million in New Jersey Natural Gas’ energy efficiency programs, the highest single year investment of this type in our company’s history. Running these programs is a central element to our decarbonization strategy, and New Jersey Natural Gas has long been a leader in this area. On solar, we continue to advance our leadership at Clean Energy Ventures by placing into service two milestone projects of national significance, including one of the largest cap landfilled solar arrays and the largest floating solar installation in the United States.

And finally, our $20 million endowment supports our charitable foundation work. These resources enable our foundation to focus on medium and long-term partnerships that drive outcomes that make a difference for local communities and the environment. We hope that all of you have an opportunity to review the report. Turning to Slide 4. We reported net financial earnings of $1.14 per share in the first quarter, a 65% increase from the same period a year ago. As I noted earlier, we are especially proud of our company’s performance during Winter Storm Elliott, which was a historic event that impacted the entire country. In our service territory, we saw temperatures fall as much as 50 degrees in just under 12 hours. The impact of these record low temperatures limited gas supply in certain locations in the U.S. At New Jersey Natural Gas, our customers were able to enjoy their holiday without curtailments.

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This speaks to the resiliency of our gas supply network as well as the dedication of our team, which worked throughout the holiday week and to ensure that we met all obligations to our customers. In our Storage & Transportation business, we reported exceptional operating performance from Adelphia Gateway and Leaf River throughout the winter event. At Energy Services, our long option strategy generated significant value during the volatile conditions created by the winter storm, which led to higher than expected NFE during the period. We also continue to deliver on our commitment to generate more stable fee-based revenue at that business unit as we received a $73.5 million cash payment associated with the asset management agreements announced in December of 2020.

Finally, at Clean Energy Ventures, we placed four commercial solar projects into service since the end of the fiscal year, growing our installed capacity by approximately 43 megawatts or over 11%. Turning to Slide 5. As a result of this outperformance, we are raising our fiscal 2023 NFEPS guidance range by $0.20 to $2.62 to $2.72 per share. We are also maintaining our expected long-term NFEPS growth range of 79% from our original 2022 guidance, which is among the highest in our peer group. And as communicated last quarter, we expect to be at the higher end of the range for fiscal 2024. As I mentioned in my opening remarks, New Jersey Natural Gas had a strong quarter of execution as highlighted on Slide 6. We invested $91 million of New Jersey Natural Gas during the first quarter with over 36% of that CapEx providing near real-time returns.

We reported strong customer growth, adding over 2,100 new customers in the first quarter compared to approximately 1,700 in the first quarter last year. We still expect to file our next rate case in fiscal 2024, consistent with the completion of our major technology investments. Moving to Slide 7. We continue to see positive momentum at Clean Energy Ventures. Since the end of fiscal 2022, we have placed over 43 megawatts of new solar projects into service and maintain a robust pipeline of future solar investments. We are encouraged with recent progress at PJM Q reform and New Jersey solar policy. In late November, FERC approved PJM’s Q reform proposal. Although, we are still navigating near term delays, this process should create efficiencies and greater predictability for solar development.

In December, the New Jersey Board of Public Utilities approved the state’s solar successor program for projects over 5 megawatts. The goal of incentivizing at least 300 megawatts of annual solar capacity should help to broaden development opportunities in the state. And with that, I’ll turn the call to Roberto for a review of the financial statements. Roberto?

Roberto Bel: Thank you, Steve, and good morning, everyone. Slide 9 shows the main drivers of our NFE for the first quarter of fiscal 2023. We reported NFE of $110.3 million, or $1.14 per share compared with $65.8 million or $0.69 per share last year. New Jersey Natural Gas saw an improvement of $3.6 million, primarily due to the impact of new base rates that went into effect on December 1, 2021, a higher contribution to utility gross margin from our BGSS incentive programs and new customer growth. CEV’s (ph) NFE improved by $3.2 million, primarily due to higher SREC and electricity sales. Storage & Transportation increased by $3.3 million largely due to Adelphia Gateway becoming fully operational in the fourth quarter of fiscal 2022 and the excellent operational performance at both Adelphia and Leaf River during the quarter.

And finally, Energy Services improved by $35 million due to the execution from our team during Winter Storm Elliott. Turning to our capital plan on Slide 10. Our projections for 2023 and 2024 are unchanged from the last conference call. And over the next two years, we expect to invest between $1.1 billion and $1.4 billion across the company. We expect to tighten our CapEx projections in future quarters, particularly in the case of CEV, as New Jersey regulatory program approvals and PJM’s interconnection time lines become more clear. This capital deployment is expected to support growth throughout our business units and is consistent with our long-term NFEPS growth target of 7% to 9%. Finally, on Slide 11, most of our debt is fixed, and we don’t have significant maturities in any particular year.

As mentioned in our prior call, our NFEPS guidance for fiscal 2023 and our long-term NFEPS growth guidance incorporate assumption of high interest rates for the foreseeable future. With that, I’ll turn the call back to Steve.

Steve Westhoven: Thanks, Roberto. Overall, these results reflect the strength of our complementary portfolio of businesses and the value of our high integrity infrastructure. We are delivering on our strategy of derisking results, providing a more predictable base of net financial earnings with a growth rate that is at the top end of our peer group. In addition, we’ve been able to take advantage of opportunities in energy markets that have resulted in considerable upside to our growth targets in recent years. And finally, I want to thank all of our employees for their hard work and contribution. We expect these efforts will drive our NFE and produce strong cash flows that will support our dividend growth of 7% to 9% per year. And with that, I’ll now open the call for questions.

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Q&A Session

Operator: Our first question is from Chris Ellinghaus from Siebert Williams Shank. Chris, your line is now open. Please go ahead.

Chris Ellinghaus: Hey. Good morning, everybody. Thanks for the good quarter this morning. A lot of things have happened at like EPA and with the IRA. There’s some very attractive markets out there in renewables. I’m thinking about landfill gas generation and RNG. Have any of these things changed your sort of strategic outlook for renewable investments?

Steve Westhoven: So good morning, Chris. Thanks for the question. I think we’ve been talking for a long time about the evolving clean energy market and the opportunities that it will present to a company like ours that has capabilities of developing infrastructure, bringing into service and certainly earning returns. So IRA is in support of that. And we’ve got the solar division. We’re developing solar. It’s been supportive in that part of the world. We developed the hydrogen plant, and they’re certainly in the IRA, significant subsidies towards hydrogen. And we’re certainly looking at RNG as well, nothing to announce there. But when you put this all together, we’re well positioned to take a look and see where it makes sense for us to make investments and grow in this part of the market.

So long winded way of saying, yes, we do see opportunities and we continue to search them out. And certainly, as we become more firm in the CapEx that we’ll dedicate to that, we’ll share that with the investors.

Chris Ellinghaus: Okay. Great. There were a couple of things in the quarter that maybe were slightly surprising beyond Elliott’s impact. At CEV, you sort of noted in the press release some reduced operating costs. Can you give us a little color on that? And on the Storage & Transportation side, obviously, Storm Elliott provides some opportunity there. But also, you had Adelphia Gateway incrementally. Can you give us any color between sort of the northern and southern assets for the quarter?

Steve Westhoven: Yeah. I think broadly, it just points to the value of infrastructure. We’re an energy infrastructure, energy services company. And as you get more demand for energy, we’re able to profit from that. Energy Services was certainly the headline and their ability to take advantage of that volatility. But you also had outsized gains the utility in their incentive programs. We saw new customers at Adelphia Gateway signing up for short-term services. Leaf River as well was able to make profits from that. Electric prices has bumped up in CEV, so certainly all contributing towards the increases that we announced today.

Chris Ellinghaus: Can you give us any color on the higher CEV electric revenues? Is that more on the increased megawatt side or was that more on the commodity electric side, do you think?

Steve Westhoven: I’d say in the commodity electric side.

Chris Ellinghaus: Okay. Great. Thanks for the color. Appreciate it.

Steve Westhoven: All right. Thanks, Chris.

Operator: Our next question is from Richard Sunderland from JPMorgan. Richard, your line is now open. Please go ahead.

Richard Sunderland: Hey. Good morning and thanks for the time today. I know you hit this a little bit already, but if you just want to unpack the guidance raise a little bit more, the $0.20 raise, is that — is it the full amount of the outperformance you saw, I guess, across NJNG, Storage & Transportation and Energy Services or are there any either offsets to that versus your original plan or kind of cushion for the remainder of the year that you’re leaving outside of guidance right now?