New Jersey Resources - Earnings Call - Q1 2025

Executive Summary

• Q1 FY25 delivered strong YoY growth: revenue $488.4M, GAAP EPS $1.32, and NFEPS $1.29; upside drivers were NJNG’s new base rates (effective Nov 21, 2024) and a ~$54.9M pre-tax gain on CEV’s residential solar sale.
• Fiscal 2025 guidance maintained: NFEPS $3.05–$3.20, above the 7–9% long-term growth trajectory due to the one-time CEV gain; segment contribution ranges slightly tightened (NJNG 67–73%; CEV 20–25%; S&T 3–7%; ES 4–7%; HS 0–1%).
• Segment performance was broad-based: NJNG NFE $66.9M, CEV $48.1M (gain on asset sale), S&T $5.7M, ES $7.8M; BGSS incentive margin declined YoY to $3.2M.
• Capital deployment accelerated: Q1 capex $149.6M (vs $118.1M prior year); cash flows used in operations were -$9.0M due to working-capital mix shifts, consistent with seasonal utility cash flow patterns.
• Regulatory framework supportive: BPU-approved base rate settlement (+$157.0M) with 9.60% ROE and 54% equity ratio; SAVEGREEN approval ($385.6M) provides near real-time returns via rider recovery.

What Went Well and What Went Wrong

What Went Well

• NJNG rate case benefits flowing through: utility gross margin rose to $181.3M (from $155.8M), supporting NJNG NFE of $66.9M; CEO: “NJR is off to a good start…with new base rates at NJNG and solid performance”.
• Strategic portfolio repositioning at CEV: completed sale of 91MW residential solar portfolio for $132.5M, generating a ~$54.9M pre-tax gain; pipeline remains robust (~1GW) with 10.5MW placed in service in Q1.
• Guidance intact and confidence reiterated: maintained FY25 NFEPS $3.05–$3.20; management expects majority of NFEPS from utility operations and highlighted balanced growth across segments.

What Went Wrong

• BGSS incentive margin declined: $3.2M vs $5.4M in prior-year quarter due to less market volatility and lower capacity release volumes.
• Cash flow softness: cash flows used in operations (-$9.0M) vs +$46.4M prior year, driven by working-capital changes; capex outlays increased to $149.6M (supportive long-term, near-term cash consumption).
• Energy Services margin normalization: ES NFE was flat YoY ($7.8M); management deferred specifics on January cold-snap impact until next quarter, suggesting limited immediate upside disclosure.

Transcript

Operator (participant)

Thank you for standing by. My name is Prilla, and I will be your conference operator today. At this time, I would like to welcome everyone to the New Jersey Resources Fiscal 2025 First Quarter Conference Call. For those of you listening on the live call, all participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. Thank you. I would now like to introduce your speaker for today, Adam Prior, Director of Investor Relations. You may begin.

Adam Prior (Director of Investor Relations)

Thank you. Welcome to New Jersey Resources Fiscal 2025 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 2. These items can also be found in the forward-looking statements section of yesterday'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 particular forward-looking statement referenced herein in light of future events. We'll also be referencing certain non-GAAP financial measures, such as net financial earnings, or NFE. We believe that NFE, net financial earnings, 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 4, 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.

Steve Westhoven (President and CEO)

Thanks, Adam, and good morning, everyone. Fiscal 2025 is off to a strong start. During the first quarter, we continue to execute on our strategic initiatives, driving growth across our business segments. At New Jersey Natural Gas, we achieved a significant milestone with the implementation of new rates following the approval of our base rate case. This was supportive of our ability to recover the $850 million of investments made since our last rate case and results in a rate base of $3.2 billion. We launched the next iteration of SAVEGREEN, our $386 million energy efficiency program, which is the largest in New Jersey Natural Gas's history and runs through June of 2027. Investments in SAVEGREEN are incremental to our rate base and earn a near real-time return through a rider that is updated annually. Clean Energy Ventures continues to advance its commercial solar strategy.

With a project pipeline of over one gigawatt, we remain well-positioned to drive growth. At Storage and Transportation, we continue to move forward on our capacity recovery project at Leaf River. And at Adelphia Gateway, Section 4 rate case is progressing with an expected resolution later this year. And finally, at Energy Services, we continue to derive significant value from our portfolio of strategically located storage and transportation assets, as well as continued contribution from the asset management agreements announced in 2020. These achievements reinforce our commitment to delivering shareholder value through disciplined capital allocation. As we review our strong first quarter performance, it's clear that NJR is not only delivering on its commitments, but it's strategically positioned to capitalize on emerging growth opportunities. Now let's turn to our guidance for Fiscal 2025 on Slide 5.

This reflects the strength of our diversified portfolio and our ability to navigate current opportunities and long-term objectives. Our Fiscal 2025 NFEPS guidance is $3.05-$3.20 per share, which exceeds our long-term growth rate of 7%-9% and incorporates the one-time gain from our sale of our residential solar portfolio. We are encouraged by the recent operating performance across all of our businesses, and we will carefully monitor and assess our financial outlook as we move forward through the winter season. On Slide 6, we break out our Fiscal Year 2025 NFEPS by segment. We slightly narrowed the contribution ranges of our business units in the first quarter and will continue to do so as the year progresses. The majority of our NFEPS is expected to come from our utility operations. Now let's discuss our complementary business units, starting with New Jersey Natural Gas on Slide 7.

During the quarter, we invested $127 million at New Jersey Natural Gas, with 43% of that CapEx providing near real-time returns. We are leveraging investments to enhance reliability and drive consistent customer growth through our new construction and conversions, as well as expansion into new locations. Moving to Slide 8, at Clean Energy Ventures, we successfully placed approximately 11 megawatts of commercial solar projects into service during the period, with an additional 63 megawatts currently under construction. Looking ahead, we are well-positioned to continue growing our capacity by leveraging a robust and steadily expanding project pipeline of over one gigawatt. Furthermore, the sale of our residential solar portfolio enhances our balance sheet and recycles capital to support the future growth opportunities. Moving to Slide 9, our storage and transportation business continues to deliver stable returns through fee-based revenues.

Our infrastructure investments, including pipelines and storage facilities, are strategically positioned to serve constrained energy markets. The Adelphia Gateway continues to work through its first rate case, which reflects the investments made to enhance and modernize our pipeline system. We anticipate a conclusion to the process later in 2025. We are also actively advancing our capacity recovery project at Leaf River, focusing on restoring and enhancing storage capabilities to meet growing energy demand. Overall, we have made excellent progress throughout the quarter on several fronts. With that, I'll turn the call over to Roberto for review of the financial results. Roberto.

Roberto Bel (CFO)

Thank you, Steve, and good morning, everyone. As noted earlier, Fiscal 2025 is off to a good start. In the first quarter, we reported an NFEPS of $1.29 per share, compared with an NFEPS of $0.74 per share last year. NJNG reported higher NFE as a result of new rates being in place on November 21, following the successful completion of our rate case, and Clean Energy Ventures reported higher NFE as a result of the sale of our residential solar portfolio. Our storage and transportation and energy services businesses also delivered higher NFE compared to the prior year period. Now let's move to Slide 12, where we will discuss NJR's capital plan. For Fiscal 2025 and Fiscal 2026, we're planning capital expenditures ranging from $1.3-$1.6 billion, which aligns with our long-term NFEPS growth target of 7-9%.

We did not make any changes to our capital plan compared to our prior disclosure and continue to expect spending between $610 and $719 million in capital investments during Fiscal 2025. Over the next several years, we expect to deploy capital to enhance our utility infrastructure, expand our clean energy portfolio, and optimize our storage and transportation assets. As highlighted on Slide 13, our strong balance sheet and liquidity position enable us to execute on our strategic priorities while maintaining financial flexibility. Our adjusted funds from operations to adjusted debt ratio is projected to range 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.

We expect our cash flow from operations to be between $460 and $500 million in Fiscal 2025, providing a solid foundation for our capital plan, dividends, and other corporate needs. In summary, our first quarter performance reflects the strength of our diversified portfolio and disciplined financial strategy. We remain on track to deliver on our long-term growth objectives, supported by a solid balance sheet and steady cash flows. With that, I'll turn the call back to Steve for a discussion on our decarbonization initiatives on Slide 14.

Steve Westhoven (President and CEO)

Thanks, Roberto. Last month, we issued NJR's Fiscal 2024 Corporate Sustainability Report. This reflects our commitment to transparency with our stakeholders in the evolving energy landscape. In the report, we detailed our leadership and accomplishments in emissions reduction and renewable energy, as well as our long-term vision for the role of existing pipeline infrastructure. Our sustainability initiatives remain business-driven, as highlighted by notable achievements such as record investments in energy efficiency and the advancement of new innovations such as carbon capture. During the year, New Jersey Natural Gas became the first natural gas utility in New Jersey to install and operate distributed carbon capture technology at our headquarters, and we are also fueling a portion of our fleet operations with renewable diesel. This work underscores our leadership in driving a more sustainable energy future and our commitment to pursuing innovative, reliable, clean energy solutions.

To conclude, NJR is well-positioned for sustained long-term growth across our diversified businesses, as we highlight on the next slide. NJR's diversified business model supports an industry-leading long-term NFEPS growth rate of 79%. Key drivers include continued customer growth at New Jersey Natural Gas, solar investments at CEV, and enhanced asset utilization at Leaf River and at Adelphia Gateway. As we progress through the winter season, we are pleased with the strong operating performance across all of our businesses. Our results highlight the resilience of our physical infrastructure and, equally important, the talent and dedication of our team. I'd like to recognize and thank our employees for all their hard work, and with that, let's open up the call for questions.

Operator (participant)

All right, thank you. And we will now begin the question and answer session. If you have dialed in and would like to ask a question, simply press the star, followed by the number one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press the star one again. One moment, please, for your first question. And our first question comes from the line of Shar Pourreza with Guggenheim Securities. Please go ahead.

Shar Pourreza (Senior Managing Director and Sector Head for Energy, Power, and UtilitiesSenior Managing Director and Sector Head for Energy, Power, and Utilities)

Hey, guys. Good morning.

Hey, Shar. I'm Shar.

Morning. I just want to get a sense on how you feel about the guide for 2025, the $2.83 that's out there. If we strip out that gain from the residential sale, add back a couple of pennies from lost earnings, we get to about $0.92 for Q1 on a more recurring basis, which is slightly below expectations. I guess, how are you trending within the EPS range you have out there for 2025? I know winter matters a lot, and you highlighted you're going to be monitoring it, but just curious how you're trending for 2025. Thanks.

Roberto Bel (CFO)

Shar, this is Roberto. So we have our guidance out there, 3.05-320. We're not changing that at this point in time.

Shar Pourreza (Senior Managing Director and Sector Head for Energy, Power, and UtilitiesSenior Managing Director and Sector Head for Energy, Power, and Utilities)

Understood. But any sense on how you're trending within that range?

Roberto Bel (CFO)

We're well in our range. That's all I can tell you right now.

Shar Pourreza (Senior Managing Director and Sector Head for Energy, Power, and UtilitiesSenior Managing Director and Sector Head for Energy, Power, and Utilities)

Okay. That's perfect. And then just on CEV, I mean, obviously good growth. You're seeing slightly larger opportunities outside your footprint versus a year ago. I guess, what's driving that? Should we assume more of that mix will continue to shift outside of New Jersey? And any sense on whether any of the uncertainties around maybe IRA are impacting the discussions, especially as we think about the pull forward of demand? Thanks.

Steve Westhoven (President and CEO)

Yeah. Shar, we've purposely diversified that portfolio, and that strategy has been in place for many years and really focused on jurisdictions that are friendly towards solar and supportive in the solar landscape. So that has basically, when you look at the portfolio, we've got 11 megawatts that are in service. You've got 63 megawatts that are under construction. You've got about a gigawatt in our project pipeline. So robust and certainly quite a bit of investment, more than we need for what we projected as CapEx over the next few years. As far as kind of the IRA, currently, based on our Safe Harbor provisions, we don't see any impacts in the near-term project pipeline as we move forward. So it's really business as usual and all the metrics that you referenced supporting the business. So we're in a good place.

Shar Pourreza (Senior Managing Director and Sector Head for Energy, Power, and UtilitiesSenior Managing Director and Sector Head for Energy, Power, and Utilities)

Fantastic. Thanks, guys. Appreciate it and see you soon. Appreciate it.

Steve Westhoven (President and CEO)

All right. Thanks, Shar.

Operator (participant)

Your next question comes from the line of Richard Sunderland with J.P. Morgan. Please go ahead.

Richard Sunderland III (Equity Research Analyst)

Hi, good morning. Thank you for the time today.

Steve Westhoven (President and CEO)

Hey, Rich.

Richard Sunderland III (Equity Research Analyst)

Maybe starting on winter and energy services, any color on the market opportunities for energy services upside during last month's cold snaps? I don't know if there's any way to frame this on an order of magnitude basis versus what you're able to realize last year. Just any thoughts there? Thank you.

Steve Westhoven (President and CEO)

Yeah. The weather was constructive across all of our businesses, not only energy services, but just all of our infrastructure business. It really shows the value of existing infrastructure in these peak periods of need. As the market grows, we just see our infrastructure becoming more valuable, and certainly the ability to organically expand that is a key driver for our business. As far as how to think about that in reference to the event that happened, we've got quite a bit of winter left. And as we look forward to the next quarter, we'll update the market as appropriate. And that's about all that we'll say at this point in time.

Richard Sunderland III (Equity Research Analyst)

Understood. Well, thank you for the color there. And then turning to the Adelphia rate case process, I realize it's early, but are there any key dates in the procedural schedule we should watch for? I guess I'm curious what the typical settlement window is.

Steve Westhoven (President and CEO)

Yeah. It's a typical rate case. It's really just verifying quite a bit of the money that we spent during the initial construction, which was several years ago. So a regular Section 4 rate case. And we said we expect this to proceed forward and be settled sometime in 2025. So we haven't changed from any of that. So that's about all the color that we can give right now since we're in the regulatory proceeding.

Richard Sunderland III (Equity Research Analyst)

Great. Thank you. I'll leave it there.

Steve Westhoven (President and CEO)

All right. Thanks, Rich.

Operator (participant)

Your next question comes from the line of Gabriel Moreen with Mizuho. Please go ahead.

Gabriel Moreen (Managing Director)

Morning, everyone. If I could just ask a question on CEV CapEx relative to what you spent year to date and the target range. Was this kind of what you intended, I guess, to spend, and we should expect maybe a potential acceleration to kind of get you to the midpoint of the range? Or is there still just, I guess, uncertainty around the timing and spend as to whether you're going to get to that midpoint of the CapEx range for CEV this year?

Roberto Bel (CFO)

Yeah. So this is Roberto. So for this year, you see what our guidance range for CapEx for CEV is out there. It is higher than what we did last year. So from that perspective, yeah, you can consider that an acceleration, but we expect to be well within our guidance range for the year as stated in our presentation.

Gabriel Moreen (Managing Director)

Thanks, Roberto. And I think we asked about this last quarter about a potential follow-on to the IIP. Any additional thoughts as far as renewing the IIP now that the rate case is in the review?

Patrick Migliaccio (COO)

Again, it's Pat Migliaccio. Thanks for the question. Just as a reminder, we do have the current IIP that has spending forecasted through fiscal year 2025. That'll close out with rates effective in 2026. We had a really constructive energy efficiency filing, record level of approved investment of $386 million. That ramps up over time. As far as a successor or follow-on IIP, we'll evaluate that and update you when we have something to report.

Gabriel Moreen (Managing Director)

Thanks, Pat. Appreciate it.

Steve Westhoven (President and CEO)

All right. Thanks, Gabe.

Operator (participant)

Thank you. And once again, if you would like to ask a question, simply press the star, followed by the number one on your telephone keypad. Your next question comes from the line of Travis Miller with Morningstar. Please go ahead.

Travis Miller (Senior Equity Analyst and Energy and Utilities Strategist)

Good morning. Thank you.

Steve Westhoven (President and CEO)

Hey, Travis.

Travis Miller (Senior Equity Analyst and Energy and Utilities Strategist)

I think Richard asked my question on the January operations of your midstream business. So look forward to hearing about that next quarter. But, SAVEGREEN, wondering if you could remind us of the regulatory treatment. Was any of that included in the rate case? And then if not, what's the recovery of the capital side of that program?

Patrick Migliaccio (COO)

Hey, Travis. It's Pat Migliaccio. So SAVEGREEN's spend is not included in our base rate case filings. It is a separate filing that operates a little like our infrastructure riders. So we recover annual investment each year as we make that investment. So when we consider our composition of our capital investment, that's as near real-time recovery as we can possibly get.

Travis Miller (Senior Equity Analyst and Energy and Utilities Strategist)

Okay. Perfect. And then a broader question. Someone asked, do you have tariffs? Is that going to have any impact either on getting the equipment that you need to execute the capital investment program or even more directly, possibly on the solar build-up?

Steve Westhoven (President and CEO)

Hey, Travis. This is Steve. We talked about just general impacts from before. At this point in time, due to the construct of our business and safe harbor provisions and things like that, we don't expect any impacts from what's going on out in the, I guess, the regulatory world.

Travis Miller (Senior Equity Analyst and Energy and Utilities Strategist)

Okay, and no impact on just your regular need for equipment or supplies and stuff like that for your utility operations aside from the solar stuff?

Steve Westhoven (President and CEO)

No. I don't think there's anything that is significant at this point in time. When you look at our overall makeup, especially if you look at the utility, most of it's labor. So materials is a smaller portion of it. And I would expect that any issues we'd have would be kind of quickly worked through. So. Not seeing it as a big issue. It's going to be fluid. We'll monitor this as it moves forward, but we have no expectation of any impacts at this point in time.

Travis Miller (Senior Equity Analyst and Energy and Utilities Strategist)

Okay. Great. Thanks so much.

Steve Westhoven (President and CEO)

All right. Thanks, Travis.

Operator (participant)

All right. Thank you. I'm sure no further questions at this time. I would like to turn it back to Adam Prior for closing remarks.

Adam Prior (Director of Investor Relations)

Thanks so much. And thanks to all of you for joining us. As always, we appreciate your investment and interest in NJR, and have a good rest of your day. Thanks again.

Operator (participant)

Thank you. And this concludes today's conference call. You may now disconnect.