New Jersey Resources Corporation (NYSE:NJR) Q4 2024 Earnings Call Transcript

New Jersey Resources Corporation (NYSE:NJR) Q4 2024 Earnings Call Transcript November 26, 2024

Operator: 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 a Form 8-K 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 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.

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 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. Go ahead, Steve.

Steve Westhoven: 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 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 NFVPS 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 NFVPS long-term growth rate of 7% to 9%, 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. Green 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 and 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 service 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 is 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.

Steve Westhoven: The New Jersey Board of Public Utilities approved a settlement to New Jersey Natural Gas’s 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 Counsel for their hard work. We have a constructive working relationship with them that ensures the interest 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 and 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 NF EPS guidance outlined on the next slide, NJR is maintaining its long-term NFVPS growth target of 7% to 9%. And after multiple years of outperformance, we are rebasing to $2.83 as of this current fiscal year. This is consistent with our previously stated long-term NFVPS guidance. For fiscal 2025, our initial NFVPS guidance range is $3.05 to $3.20 per share. This exceeds our long-term growth rate of 7% to 9% and reflects the one-time gain from the Sunlight Advantage transaction. We feel that our complementary portfolio of business provides a solid foundation that supports this leading growth rate, which we outlined on slide seven. Looking ahead, key drivers to achieve our 7% to 9% growth target include continued rate-based investments, customer growth, and 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 recontracting 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 eight, we break out our fiscal 2025 net EPS by segment.

Steve Westhoven: With approximately 70% of our NFVPS 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 nine. 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 innovative solutions to meet the evolving needs of our customers. Moving to slide ten, 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 eleven, 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 FERC 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 are 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.

Roberto Bel: Thank you, Steve, and good morning, everyone. Fiscal 2024 was a strong year for NJR. We reported an EPS on the higher end of our increased guidance range, finishing the year at $2.95 per share, compared with an EPS 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 BPU approved a settlement of NJNG’s rate case with an annual revenue increase of $157 million that became effective on November 21st.

We provided details last week in our 8-K and are also summarizing it on slide fourteen. 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 fifteen where we’ll discuss NJR’s Capital Plan.

Roberto Bel: Over the next several years, we expect to deploy capital to enhance our utility infrastructure, expand our solar portfolio, and grow our storage and transportation assets. For fiscal 2025 and fiscal 2026, we are planning capital expenditures ranging from $1.3 billion to $1.6 billion, which aligns with our long-term NFVPS growth target of 7% to 9%. Breaking it down by segment, as shown in this slide, NJNG will remain our largest area of investment with $430 million to $490 million planned for fiscal 2025. This includes critical infrastructure upgrades and customer growth projects. And we will continue to invest in our Save Green energy efficiency program with approximately $65 to $75 million projected for the year.

Moving to CEV, 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 CEV range largely the same from our previous disclosure, this only reflects our expected commercialization of our investments following the sale of the Sunlight Advantage residential portfolio. Finally, our storage and transportation will see investments between $20 million and $35 million in fiscal 2025. This includes ongoing projects at Leaf River and Adelphia Gateway, which are expected to generate stable fee-based revenue and support organic growth. Our disciplined capital allocation strategy positions NJR to not only deliver on our 7% to 9% long-term NFVPS growth but also to generate stable cash flows and maintain a strong balance sheet.

As highlighted on slide sixteen, 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-grade credit rating at NJNG and a strong balance sheet at NJR.

Roberto Bel: 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 credit 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 acquisitions and only use our new investment program as an opportunistic method of raising equity. In summary, our strong balance sheet, stable cash flows, and superior credit metrics place NJR 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 seventeen.

Steve Westhoven: 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.

Steve Westhoven: And with New Jersey Natural Gas’ base rate case settled and its energy efficiency program approved, NJR has significantly derisked 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.

Operator: And our first question will come from the line of Robert Moskow with Mizuho Securities. Please go ahead.

Q&A Session

Robert Moskow: 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 fees seem like it could be north of ten, 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?

Steve Westhoven: 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.

Roberto Bel: Yeah. Hey, Rob. This is Roberto. So regarding the Sunlight Advantage transaction, what you’ll see is that the proceeds were $2.5 million, and what you’ll see later during our 10-K, you know, that pretax gain, we’re providing a range of $45 to $60 million.

Steve Westhoven: And then finally, what you’re seeing on slide six is that we estimated 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 range.

Robert Moskow: Got it. Thanks, Roberto. That’s really helpful. And maybe a follow-up question. You know, could you maybe provide some initial thoughts on a 2025 IIP ask, and maybe more broadly, could that program look different, and is there a possibility it’s not extended by the NJBPU? Understand you just got the EE order, but just wondering about the IIP program.

Pat Migliaccio: Hey, Rob. It’s Pat Migliaccio. Thanks for the question and appreciate acknowledging again. We’ve had a busy break in the story calendar. So not only we now sell the base rate changes, which we thought was very constructive with outcome. As you noted, that safety program is the largest ever in history. Our projected CapEx that will wrap 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 the street set of projects. Until I have an opportunity to evaluate, you know, what programs in the future might make sense for us and our key stakeholders.

Robert Moskow: Understood. Thanks, Pat, and thanks for the time, everyone.

Roberto Bel: Thanks, Travis.

Operator: 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 Seaport William Schenker. Please go ahead. Chris, your line might be on mute.

Chris Ellinghaus: 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?

Roberto Bel: Are you still can Chris, are you still can use Roar? Are you talking about the earnings guidance range? It is 15 cents at $3.05 to $3.20. And it was 15 cents wide last year as well. So there’s no real change there.

Chris Ellinghaus: In absolute dollar terms, it looks a little wider to me, maybe not in terms of percentage. Just appears a little bit bigger than normal in dollar terms. You don’t agree?

Roberto Bel: No. No. Sorry. Yeah. You’re talking about our earnings guidance. Right? Yeah. So maybe, Chris, 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.

Chris Ellinghaus: Okay. Can you give us any thoughts in terms of the know, pluses and minuses on the accretion dilution from the Sunlight Advantage divestiture?

Roberto Bel: Yeah. So for fiscal 2025, once you take into account that one-time gain, I’m doing that from the illusion and Patrick, we said we’d say 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 are some dilution, but that dilution decreases over time. In I know we’re three or four years, it will be zero.

Chris Ellinghaus: Okay. Can you give us any thoughts in terms of you’ve got a pretty big I’ll call it, backlog of CV projects under at year-end. Can you give us any thoughts in terms of how those completions play out through 2025?

Steve Westhoven: So with the projects that we have in place, you know, we’re continuing to construct and 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, you know, with this support of the state that we’re operating in, you know, our CapEx schedules, you know, stands.

Chris Ellinghaus: Okay. And lastly, as far as the Leaf River expansion goes, can you give us any color in terms of you know, contracting or the, you know, the increase in the size proportionately or any of those kind of color?

Steve Westhoven: Yeah. You know, we’ve stated that the increase in that cavern is about 4 BCF, and that’s gonna be staged in we, you know, kind of deep brine that facility to make it larger. And as that becomes larger over the term of construction, then we’re gonna you know, match the contracting associated with that. So, you know, long and short, you know, over the period, you’re gonna be able to increase it by 4 BCF, and you should expect you know, the same as from the contract standpoint.

Chris Ellinghaus: Okay. Great. Appreciate the call. Thanks, guys.

Steve Westhoven: Thanks, Chris.

Operator: And we’ll take our next question from the line of Travis Miller with Morningstar. Please go ahead.

Travis Miller: Good morning, everyone. Thank you. Hey, Josh. Just wondering strategically on those 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 this something where someone came to you at the price you liked, or is this something where you saw better returns somewhere else in the portfolio. I’m just wondering if you could talk strategically about that decision.

Steve Westhoven: Yeah. Travis, you know, Sunlight Advantage was a great fit, you know, did a great business and certainly the team, you know, did a great job of, you know, developing that business and then 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 gonna continue to operate and I feel confident expanding for them. And what it did for us is it was able to, you know, focus us on the wholesale solar market. And, you know, continue to grow in that space and, you know, allow us to recycle some capital as well. So, you know, just the win-win all the way around and an opportunity that, you know, was good for the company.

Travis Miller: Okay. So now 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 NJNG.

Steve Westhoven: Yeah. It’s a portfolio of companies. So, you know, we’ll take that back in and certainly when we look at, you know, allocating capital, you know, to its essentially highest returns, you know, we’ll continue to do that. That’s an exercise that’s always done.

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

Pat Migliaccio: Hey, Travis. This is Pat. Maybe I So everything that’s just in territory line will be subject to a key filing and rate case review. But, you know, well, all of the plain vanilla integrity investment, if you look at our last rate case, I know there was, you know, no issues related to getting that type of investment approved by regulators.

Travis Miller: Okay. So there’s counting out some good read through from the settlement and the support for system integrity.

Pat Migliaccio: Yes.

Travis Miller: Okay. All I had. Thanks so much.

Pat Migliaccio: Alright. Thanks, Travis.

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

Adam Prior: Well, thank you everyone for joining us this morning. As always, we appreciate your interest and investment in NJR, and have a great day.

Operator: Thanks. That will conclude today’s meeting. Thank you all for joining. You may now disconnect.