New Jersey Resources - Earnings Call - Q2 2025

Executive Summary

• Beat and raise quarter: NFEPS of $1.78, GAAP EPS of $2.04 and revenue of $0.913B all exceeded expectations; FY2025 NFEPS guidance raised to $3.15–$3.30 from $3.05–$3.20 on Energy Services’ winter outperformance and the residential solar sale gain.
• Utility strength: NJNG’s utility gross margin and earnings improved on new base rates; NJNG contributed $144.5M NFE in Q2 vs $107.1M YoY, with total customers reaching ~588K.
• Balance sheet and cash flows: CFO reiterated adjusted FFO/adjusted debt of 19%–21% and FY2025 cash from operations of $460–$500M, supporting $1.3–$1.6B capex over FY2025–FY2026 without block equity.
• Catalysts: “Beat-and-raise” and visible utility-led growth, optionality on Leaf River fourth cavern (indicative $175–$200M) and tariff insulation in domestic operations; management emphasized strong execution and disciplined capital deployment.

What Went Well and What Went Wrong

What Went Well

• NJR raised FY2025 NFEPS guidance to $3.15–$3.30, exceeding its 7%–9% long-term growth target; CEO: “Our second-quarter performance exceeded expectations… [we] are raising our fiscal 2025 NFEPS guidance by $0.10”.
• Utility momentum: NJNG delivered higher NFE on new rates; CFO: “higher utility gross margin as a result of our recent base rate case settlement”.
• Energy Services: Strong winter performance leveraging long option strategy; CEO: “capitalizing on periods of pricing volatility”.

What Went Wrong

• Energy Services NFE declined YoY for the quarter due to lower AMA revenues despite strong financial margin (Q2 NFE $35.3M vs $37.6M YoY).
• BGSS incentives contributed less YTD ($10.6M vs $13.3M YoY), mainly from decreased storage margins, tempering utility gross margin upside.
• Clean Energy Ventures posted a Q2 net financial loss of $(4.0)M on lower residential revenue post-portfolio sale, partially offset by higher solar electricity sales and lower D&A.

Transcript

Operator (participant)

Good morning, everyone. The New Jersey Resources fiscal conference call will begin in approximately 10 minutes at 10:00 A.M. Eastern Time. In advance of the call, we want to provide a general set of instructions, which will be repeated at the start of the 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 will be recorded. The conference call will begin at 10:00 A.M. Eastern Time. Thank you. Hello, everyone. My name is Karen. I'll be your conference operator today. At this time, I would like to welcome everyone to the New Jersey Resources fiscal 2025 second quarter and first half financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question-and-answer session.

If you'd like to ask a question during this time, simply press star followed by the number one on your keypad. If you'd like to withdraw your question, just press star once again. Thank you. I would now like to turn the call over to Adam Prior, Director of Investor Relations. Please go ahead.

Adam Prior (Director of Investor Relations)

Thank you. Welcome to New Jersey Resources fiscal 2025 second 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 in slide two. 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 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 seven 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 Roberto, who will review our financial results. We will open the call for your questions.

With that, 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. At NJR, we recognize that affordability and reliability remain the foundation of our value proposition to our customers, and our long-term strategy reflects that. In today's environment, delivering safe, affordable, and reliable energy is more critical than ever. That's why we are focused on disciplined capital deployment, operational excellence, and strategic innovation across all of our business segments. Our results this quarter once again demonstrate the strength of this approach. Fiscal 2025 continues to be a strong year for NJR. In the second quarter, we delivered solid results across all of our business segments. These results reflect the strength of our integrated portfolio and consistent execution by our team to drive long-term sustainable growth. In particular, our wholesale gas marketing business, NJR Energy Services, reported strong performance during the winter by capitalizing on periods of pricing volatility through its long options strategy.

As a result of this outperformance, we are raising our fiscal 2025 NFEPS guidance by $0.10 a share to a revised range of $3.15-$3.30 per share. Looking at our other subsidiaries, we saw solid execution in the quarter from our entire portfolio of complementary businesses. At New Jersey Natural Gas, we completed the first full quarter of new rates following our base rate case settlement. We also initiated investments under the expanded Save Green program, our largest energy efficiency filing to date, which earns near real-time returns. At Clean Energy Ventures, we are advancing our solar portfolio with new projects coming online and building a growing diversified project pipeline. We continue to prioritize disciplined capital deployment and strategic expansion across multiple states. Our storage and transportation business also continued to make progress.

We continued the capacity recovery project at Leaf River and remain engaged in the settlement process for Adelphia Gateway's section four rate case, which is proceeding as expected. Turning to slide five for more details on our guidance, we are raising our fiscal 2025 NFEPS guidance range to $3.15-$3.30 per share, an increase of $0.10 from our prior range. This new outlook reflects our strong operating performance through the winter season for Energy Services and includes the gain from the sale of our residential solar portfolio at Clean Energy Ventures. Importantly, this revised guidance exceeds our long-term NFEPS growth target of 7%-9%. On slide six, we present our updated NFEPS guidance by segment. New Jersey Natural Gas remains the largest contributor, followed by Clean Energy Ventures and Energy Services.

In the second quarter, we slightly narrowed the range of contributions across our business lines, consistent with our practice as the year progresses. These updates reflect outperformance in energy services and a modest change in the relative contributions from New Jersey Natural Gas and Clean Energy Ventures. Now let's discuss our complementary business units, starting with New Jersey Natural Gas on slide seven. New Jersey Natural Gas continues to deliver consistent customer growth quarter after quarter, driven by a healthy mix of new construction activity, system expansions, and steady conversions across our service territory. This underscores the ongoing demand for reliable, affordable natural gas service and supports long-term investment in our utility infrastructure. We also remain proactive in strengthening the relationship with all of our customers.

Throughout the winter season, we regularly shared information on utility assistance programs and focused on maintaining our reputation as a responsive and dependable service provider. We continue to leverage mechanisms that help manage energy affordability, most notably our BGSS incentive programs, which allow us to temporarily release excess capacity or supply when it's not needed. The resulting margin benefits are largely credited to customers, helping to mitigate the impact of higher energy prices. In the last 10 years, New Jersey Natural Gas has saved customers nearly $800 million as a result of this program. Alongside these efforts, we remain focused on long-term investments that support system reliability, customer growth, and New Jersey's clean energy goals. We have invested $254 million at New Jersey Natural Gas this year, with 46% of that CapEx providing near real-time returns.

As I noted earlier, we began making investments under the latest iteration of our Save Green program. These investments assist our customers with affordability, helping them lower their energy usage, reduce emissions, and manage bills more effectively, all while delivering timely returns to NJR through a proven regulatory construct. Moving to slide eight, we are consistently placing new projects into service at Clean Energy Ventures, adding 31 MW of solar capacity into service this fiscal year. In addition, we are moving projects through our pipeline with 60 MW currently under construction. Our project pipeline stands at over one GW, with the majority of those investment opportunities located outside of New Jersey. The CEV team was deliberate in their efforts to diversify the project pipeline, seeking to avoid an over-reliance on any one market or policy regime.

This strategy is proving more valuable as the renewable energy industry continues to navigate interconnection and policy-related complexities. Our robust pipeline of capital deployment opportunities, combined with the disciplined SREC hedging strategy, positions us to continue generating stable, predictable cash flows from our solar investments. Moving to slide nine, Storage and Transportation continues to deliver steady fee-based revenues. At Leaf River, we continued our capacity recovery project, restoring capacity that had been impacted by salt creep over time. Separately, we are exploring the potential development of a fourth cavern and recently completed a non-binding open season, with encouraging interest as we evaluate the economics and design optimization. At Adelphia Gateway, we continue to advance through the FERC rate case process, with settlement discussions ongoing as we move towards achieving resolution and recovering the significant investments we've made to the system.

These assets represent a strong long-term value proposition, particularly as system constraints highlight the critical role of existing natural gas infrastructure. With that, I'll turn the call over to Roberto for a review of our financial results.

Roberto Bel (SVP and CFO)

Thank you, Steve, and good morning, everyone. Slide 11 shows the main drivers of our NFE for the second quarter and year-to-date period of fiscal 2025. In the second quarter, we reported NFEPS of $1.78 per share, compared with NFEPS of $1.41 per share last year. We saw higher NFE at New Jersey Natural Gas driven by higher utility gross margin as a result of our recent base rate case settlement, and Storage and Transportation reported improved performance versus a prior year driven by higher revenues at Leaf River. At Clean Energy Ventures, we reported higher NFE for the year-to-date period, primarily driven by the sale of our residential solar portfolio during our fiscal first quarter.

For fiscal 2025, we expect that the sale of our residential solar assets will generate a net benefit of approximately $0.30 per share, reflecting both the gain on sale and the lack of earnings contribution from that business for the remainder of the year. Now let's move to slide 12, where we will discuss in year's capital plan. For fiscal 2025 and fiscal 2026, we're planning capital expenditures ranging from $1.3 billion-$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 expect spending between $610 million and $790 million in capital investments during fiscal 2025. 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 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 19% and 21% 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 million and $500 million in fiscal 2025, providing a solid foundation for our capital plan, dividends, and other corporate needs. With that, I'll turn the call back to Steve for concluding remarks on slide 14.

Steve Westhoven (President and CEO)

Thanks, Roberto. Before we move to Q&A, I'd like to briefly address NJR's positioning in light of the evolving macroeconomic environment, specifically in relation to tariffs. As many of you know, the situation remains fluid. New Jersey Natural Gas is our largest business unit, and because our business activities are domestic, we are largely insulated from the impact of imported goods and materials. Almost all of our gas supply comes from domestic suppliers, including many of the nation's largest interstate pipelines. Additionally, New Jersey Natural Gas's capital program uses domestically sourced materials, such as plastic pipe and infrastructure components, minimizing exposure to current tariffs. At Clean Energy Ventures, we are proactive when it comes to project cost containment. Most of our contracts incorporate structured provisions that preserve returns in the event of cost increases.

As a result, we do not expect the uncertainty around tariffs will materially impact our near-term investments. Our solar investment pipeline remains broad and diverse, giving us meaningful flexibility in how and when we deploy capital. It's also important to emphasize that NJR's strong balance sheet continues to support our strategy and is well-positioned in any short-term market dislocation. We are not reliant on equity issuances to fund our capital plan. We have substantial liquidity and healthy cash flows, and our debt maturity profile is staggered, with no term debt due at the holdco level in fiscal 2025. To conclude, NJR is poised for sustained long-term growth across our diverse portfolio of businesses. Our balanced mix of regulated and non-regulated investments continues to support peer-leading performance.

We raised our initial NFEPS guidance for the fifth consecutive year and our revised range of $3.15-$3.30 per share reflects the strength of our business model and our ability to navigate dynamic market conditions. With that, let's open up the line for questions.

Operator (participant)

At this time, I'd like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment while we compile that Q&A roster. Your first question comes from the line of Richard Sunderland of JP Morgan. Please go ahead.

Richard Sunderland (Analyst)

Hi, good morning, and thank you for the time today.

Steve Westhoven (President and CEO)

Hey, Richard.

Richard Sunderland (Analyst)

Starting with the Leaf River expansion, what is the timing of a potential decision to advance that project? Also curious how much capital would that require and what sort of returns you're targeting.

Steve Westhoven (President and CEO)

We just concluded the open season and evaluating those bids and doing that at the same exact time as the costs associated with expansion to really put together the entire transaction. We do not have a finite timeline set right now. We do not have a determined point in which this would actually go because you do not know whether you are going to complete the contracts or not. As far as total capital costs, I am going to estimate it somewhere between, I do not know, $175 million-$200 million total costs. Do not hold me to that, but it would probably be somewhere in that area. As far as returns go, they would be in line with what you would expect for a midstream invest. I think that is as far as we will probably go with that right now. From the positive side, it is great.

The market's very supportive down in that region. It's a great asset. I think we're in a good position to move forward. We just need to put all these pieces together to make that capital investment.

Richard Sunderland (Analyst)

Understood. That is very helpful. I just wanted to drill in a little bit more for CEV. At the sort of project level, do you see cost exposure to tariffs, which is then covered by the contractual protections you referenced? I guess I am just trying to think, how do you see development pace if costs do increase, even if your returns are protected?

Steve Westhoven (President and CEO)

You know what? It's really too early to say. I mean, it's such a fluid situation. We put that commentary in place just to kind of give a view of how we're thinking about it and also that we've already thought about changes to this market. If you remember, we've had tariffs on solar panels. We've had changes in IPT. We've had a number of issues over the past, what, 15 years that we've been in this market, developing this market. Safe harboring provisions certainly offer us some protection. As you can imagine, if you look at our capital plan, the construction for many of these facilities is already happening, even though their commercial operation isn't going to happen until fiscal year 2026 or 2027. These things are done well in advance, and we're just trying to convey to the market that we've thought about this.

We've got some protections in place. Given the fact that from a state perspective, very high clearance goals, solar's been is one place where it's been a successful program, driving down costs. We've been able to develop. We've been able to deploy capital. We feel for all those reasons, it's a good place to be. I think with the tariffs and all the other things that could happen, we're trying to prepare ahead of them, but we don't really see any impacts over the next 12-24 months or so.

Richard Sunderland (Analyst)

Understood. Thank you for the time today. I'll leave it there.

Operator (participant)

Your next question comes from the line of Richard Sunderland. Excuse me. Richard, do we have another Richard Sunderland of JP Morgan? Did you have another question, Richard?

Richard Sunderland (Analyst)

No, I'm all set. Thank you.

Operator (participant)

Okay. I was not sure why that popped in. Thank you very much. Sorry about that, ladies and gentlemen. Your next question comes from the line of Jamieson Ward of Jefferies. Please go ahead.

Jamieson Ward (Analyst)

Good morning.

Steve Westhoven (President and CEO)

Good.

Jamieson Ward (Analyst)

Hey.

It was great hosting you guys recently in Texas, and nicely done on the beat and raise. If I could just expand on Richard's Leaf River question here, how should we think about the expected economics in terms of how they compare to your existing caverns and also just given current storage market dynamics?

Steve Westhoven (President and CEO)

Yeah. I think the way to think about that, this is something that we're only going to build if we get the returns that are appropriate for the investments that we're making, right? What I'm trying to say there is that we've got to get the contracts in place. We've got to be able to lock in a significant portion of materials and have clear line of sight on what our construction costs are and then have a little bit of an extra in order to have safety factor through probably a multi-year cycle of developing out that cavern. Hopefully that gives you a flavor for how we're thinking about this and the types of returns that we would have to have in order to make all that happen. I don't know if it's comparable to our initial investment because that investment was up and running.

It was already contracted. It was already done. It was largely de-risked. This is a little bit [audio distortion].

Jamieson Ward (Analyst)

Gotcha. Okay. Thank you for the color there. Appreciated your comments in the prepared remarks around affordability. Just wanted to also expand on that. Just with your core utility business now contributing about 65%-68% of our earnings after a successful November 2024 rate case settlement, just given the affordability concerns and legislative initiatives highlighted recently in the state, how do you view the regulatory environment over the next 12-24 months and then maybe heading into your next rate case? Are there any specific regulatory mechanisms you're pursuing to further reduce lag between investment and recovery beyond Save Green and IIP? Thank you.

Steve Westhoven (President and CEO)

Yeah, Jamieson, we're in a good spot from a regulatory calendar perspective. Having completed our rate case and having completed our energy efficiency filing and having that done really gives us some clear air for the next 12, 24, 36 months depending on when our next rate case would come about. There's a lot of legislation that's being put forth right now around affordability. I'd say that in any year, there's about 10,000 pieces of legislation that are submitted. What's going to make it through and what's not, it's hard to say right now. I can tell you from our perspective as a company, we've been very focused on affordability. We're focused on making certain that the way that we invest money has a minimal impact on our customers.

Everything that we do, from hedging programs to BGSS to deploying capital at times, is really, really conscious around affordability for our customers. Natural gas is still the cheapest way to heat your home in the state of New Jersey, and we do not want to give up that position willingly. We are going to work on making certain that we still maintain that position going forward.

Jamieson Ward (Analyst)

Got it. Thank you very much.

Operator (participant)

Your next question comes from the line of Travis Miller of Morningstar. Please go ahead.

Travis Miller (Analyst)

Hi, everyone. Thank you. Two more quick ones on Leaf River. One, is there any equipment or supplies that you need to order to complete that project if you decide to go forward?

Steve Westhoven (President and CEO)

Yeah. I mean, we certainly have to order compressors. There's a piping associated with it. A big chunk of the dollars is just [audio distortion].

Travis Miller (Analyst)

Yeah. You broke up a little bit there. Anyway, you do have to order this. Is there risk then? The implication there, is there risk in terms of supply chain or tariffs or anything else in terms of getting what you need to build that?

Steve Westhoven (President and CEO)

I think it's really on that right now. We're still working through preliminary designs and things like that, trying to line those up with contracts. For even an optimistic time frame, those ordering would be out multiple months or maybe even a year. I think it would take a while to determine whether this is going to be impactful because the environment's so fluid. It's a brownfield site, so we don't have to order as much, and we don't have to put as much infrastructure in place as somebody that's building a greenfield site. That's certainly positive to our point. Given the fact that we've already had the wells in place for water and we've got the brining facilities in place, which is a big part of the construction, it puts us at an advantage.

We're in a good place from that perspective, but too early to tell on equipment and things of that nature at this point.

Travis Miller (Analyst)

Okay. Perfect. Then higher level question, the utility. You continue to see customer growth over and over and over. What's going on there, right? What are some of the fundamentals where we don't necessarily see that at some other utilities? Is there a business mix change in terms of residential to business or business to residential? What are some of the fundamental shifts you're seeing here in terms of still continuing to get customer growth?

Pat Migliaccio (SVP and COO)

Hi, Travis. Pat Migliaccio. To answer your question, there's been no change in the mix. We are predominantly residential service directory, so 92% residential, 7% commercial. I would say that we have a really attractive service territory, principally Monmouth, Ocean, and Morris counties, ample room for development, great demographics in terms of some of the highest per capita income brackets in the state of New Jersey, and just a great place to live. [audio distortion] live by the shore traps. On the flip side, though, we are also constantly advocating for ways we can save customers money, and that's through our Save Green or energy efficiency program, largest ever in the state. That really provides customers an opportunity to conduct their energy out of their home and figure out a way to make them more energy efficient for those homes that have already been constructed.

Hope that answers your question, but we do believe that we continue to see fantastic customer growth.

Travis Miller (Analyst)

Yeah. Okay. Very good. We'll see all of you soon. Thanks.

Steve Westhoven (President and CEO)

[audio distortion]

Operator (participant)

As a reminder to ask a question, please press star followed by the number one. Our next question comes from Robert Mosca of Mizuho Securities. Please go ahead.

Robert Mosca (Analyst)

Hi. Morning, everyone. Just one from me. I think there was maybe an updated draft to the proposed energy master plan a little bit after your 1Q update. Just wondering if there's anything in particular you're focused on during the comment period and anything that might change just given some of the recent affordability legislation proposed in New Jersey. Kind of open-ended question, but curious to get your thoughts there.

Steve Westhoven (President and CEO)

Thanks, Rob. There was a presentation that was put forth on the energy master plan, but there was not a whole draft document of the energy master plan issued. They did allow for a comment period, which we did submit comments on. I'm not sure what the follow-up will be on that. Just as a reminder, we are going to go through a gubernatorial election this November, so you're going to change the administration. I fully expect that a new administration this fall will be drafting probably a new energy master plan. I think as far as you're concerned, it's a stay-tune moment to see how this plays out over the next year or so and see what a new administration's focus and goals are.

Robert Mosca (Analyst)

Got it. Appreciate the time.

Steve Westhoven (President and CEO)

All right. Thanks.

Operator (participant)

This concludes our Q&A section. I will now turn the call back over to Adam Prior for closing remarks. Please go ahead.

Steve Westhoven (President and CEO)

[audio distortion] I'd like to thank you all for joining us.

Adam Prior (Director of Investor Relations)

We look forward to seeing many of you at AGA later this month. As always, we appreciate your interest and investment in NJR. Have a great day.