Q4 2019 Earnings Call
<unk> by pressing the Starkey followed by zero.
After todays presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad.
To withdraw your question. Please press Star then too.
Please note this event is being recorded.
I'd now like to turn the conference over to Dennis Puma Director of Investor Relations. Please go ahead.
Well, thank you Sarah and good morning, everyone welcome to New Jersey resources, you're in fiscal 2019 conference call with that.
I'm joined here today, Boise Westerlund, our president and CEO , Pat Migliaccio, or senior Vice President and Chief Financial Officer is was other members of our senior management team.
You know 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 on this call that the current expectations assumptions and beliefs, forming the basis for forward. Looking statements include many factors beyond our ability to control or estimate precisely this could cause results to materially differ from our expectations as found in slide one.
These items can be found in the forward looking statements section of today's earnings release first on form 8-K and in our most recent forms 10-K into as filed with SEC.
We do not by including this statement assume any obligation to review or revise any particular forward looking statement reference here and in light of future events.
We will also be referring to certain non-GAAP measures such as net financial earnings are NFC.
We believe that NFC provides a more complete understanding of our of our financial performance.
However, NFC is not intended to be a substitute for gap, our non-GAAP financial measures or discuss more fully an item seven of our 10-K.
Turning to slide to our agenda can be found.
Steve will begin todays call the highlights from a year and outlook for fiscal 2020, followed by Pat was a preview of our review of our financial results. We'll then open the call up to your questions. I'd also like to point out that there are slides accompanying today's presentation, which are available on our website also furnished on form 8-K filed this morning with.
That said I'd like to turn the call over to our CEO , Steve Westhoven Steve.
Thanks, Dennis and good morning, everyone I'd like to begin on slide four we reported net financial earnings of $1.96 per share for fiscal 2019 compared to 274 per share. The prior year. There are two main reasons for the difference versus the onetime positive effects of tax reform in 2018, and second to contrast between energy services for.
Formats in 2019 compared to its outstanding performance in 2018.
If we compare to 19 results against those from 2016 or NFI increased at a compounded annual growth rate of 6.8% meeting, our 6% to 8% long term expected growth rate.
Highlighting our commitment to shareholders, we increased our dividend for the 24th consecutive year.
Turning to slide five I'll walk you through the accomplishments from New Jersey natural gas.
First we reached settlement with the New Jersey Board of public utilities on a rate case with the $62.2 million increase to rates that went into effect on November 15.
We appreciate the productive relationship we have with our regulators and the continued commitment to investing in our energy infrastructure.
Second we met our annual customer growth target of 1.8% in fiscal 2019.
The current demographics and fuel pricing dynamics in our service territory will continue to drive new residential construction and conversions.
Third the southern reliability link received its last remaining permits for the final phase of construction.
We currently expect an in service date of 2021 recovery for Srl will come in a future rate case proceeding.
We also replaced 72 miles of bare steel main through safe and continued the hardening in reinforcement of our system through NJ rise.
And finally during 2019, we filed with the BPU for our new infrastructure investment program, we expect to conclude the regulatory process during 2020.
On slide six I will update you on several of New Jersey natural gas is growth drivers.
Our utility earnings growth is primarily driven by its ability to expand its rate basing customers.
As you can see any upper left we expect continued customer growth driven by new construction and conversions.
On the top right, we expect rate base growth to exceed 10% per year through 2020 to.
Given our future capital investments.
On the bottom left to see the breakdown of our capital projects in 2019, our capital investment increased by more than 40%, mostly driven by Srl.
In 2020, we expect our capital spending to increased 28% as we upgrader system construct srl and invest in necessary technology improvements and finally shown in the bottom right, 35% of our capital for expected capital spend in 2020 or earned near immediate returns through customer growth in annual recovery mechanisms.
Moving to slide seven I'd like to highlight our environmental record.
We have the lowest number of leaks per mile. If any natural gas utility New Jersey and in fact, we have reduced methane emissions by more than 900 metric 900 metric ton since 2015.
In 2019, we were the first company in New Jersey to join one future in organization dedicated to voluntary voluntarily achieving meaningful reductions in methane emissions.
We were also the first utility in the country to purchase a portion of our natural gas supply through the trust well responsible program, which evaluates in verifies responsibly source natural gas for customers.
We remain committed to meeting our customers' expectations for safety and reliability and environmentally responsible way this will always be a top priority for our company.
Moving to slide eight the strategy for NJ, our midstream is to invest in pipeline and storage facilities that benefit from our extensive experience in the natural gas marketplace.
With long term objective generated stable earnings and cash flows we target investments in natural gas storage in the transportation that serve constrained or growing markets.
Let me walk you through the highlights first we acquired the leaf River Energy Center I will provide more details in the next slide but we are excited about the opportunities that holds frankly are.
Second in 2019, Steckman Ridge, our storage asset in Marcellus shale contributed nine cents per share of NFC.
Moving to our pipeline assets, although Penn East has experienced some recent challenges we remain committed to the project. It's an important role in our energy future. Penn East is currently pursuing its appellate rights and continues to evaluate development options to proceed with construction.
In 2019 pennies contributed four cents of NFI per share and AFUDC and we expect a similar minimal contribution in 2020.
For Adelphi Gateway, we're still waiting FERC certificate of public convenience and necessity.
Once we received approval we expect to assume operations immediately begin the conversion of the southern end to the pipeline.
Moving to slide nine our acquisition of leaf River is significant for several reasons.
First since 1995, our energy services business unit has cultivated strong customer relationships and effectively managed a portfolio of natural gas storage assets across the U.S, including region served by leaf River.
This experience in our relationships will help drive future opportunities for this investment.
Second leaf river, which is connected to six Interstate pipelines is located near the Gulf coast, the fastest growing market for natural gas the United States forces driving this demand include the expansion of industrial activity in the region the growth of LNG exports and an increase in natural gas fired generation.
Over 80% of leaf rivers revenues is contracted with creditworthy counterparties with an average contract life of approximately five years and leap River has the potential for expansion. It's three storage caverns are amongst the newest in North America and the facility was designed to accommodate a possible for the cap.
Turning to slide 10 for an update on clean energy ventures.
At the top to slide you'll note that we placed seven commercials solar projects into service in 2019, having about 52 megawatts.
In 2020 capital expenditures will range from $130 million to $140 million, adding between 40 752 megawatts of capacity.
In generating 38% to $42 million in Itcs.
Finally at the bottom right you can see that the solar portfolio is expected to generate between 79 in $81 million in Aesrx revenues in 2020.
On slide 11 are the results for energy services.
Over the over the past few years, we've experienced a broad range of performance.
In 2018, we saw what can happen when weather conditions pricing spreads and volatility are working in our favor to.
To contrast that in 2019, we experienced milder milder weather narrow pricing spreads and decrease volatility.
Despite these factors energy services continued to generate positive NFI, which supports our long option strategy.
In our past history, we expect to energy services results to be within 5% to 15% and a fee guidance range.
Moving to slide 12. This morning, we announced fiscal 2020 NFC per share guidance of two five to 215.
Per share, which represents a 7.1% annual growth from fiscal 2019 results from the midpoint of the 2020 range.
I will take you through the drive reserve of our NFI growth. It's important to note that 65% to 75% of our NFI will come from our regulated businesses with New Jersey natural gas accounting for 55% to 60%.
I'll now turn the call over to Pat for more detail on our financial performance and outlook.
Thanks, Steve Good morning, everyone.
Slide 14 shows the main drivers by the end a few changes for fiscal 2018 to fiscal 2019.
Between 19 reported NFI of $175 million $1.96 per share compared to 240.5 million to 74 per share in 2018.
Excluding the $60 million tax benefit and dress consolidated NFI in 2019 declined by 5.9 million with approximately 4 million of decline coming from our unregulated businesses and roughly 2 million coming from our regulated businesses.
The regulated side Ngs utility gross margin increased in 2019, but was primarily offset by higher onto expenses and reduced contributions from BGSS incentives.
Partially offsetting this decline into our midstream saw a decrease known him expenses.
Turning to our unregulated businesses CV performed exceptionally well in 2019 reporting a $63 million NFI improvement due to higher historic sales and an increase investment tax credits as a reminder, in 2018 most of our solar projects refinance was generally spectrums actions, which is not the case in 2019.
Offsetting these positive and a fee contributions and the new services had a challenging year when compared with outstanding 2018 performance.
Turning to slide 15, and speed mention reached to settle with the Jersey Board a public utilities on Energy's rate case, the BPU approved a 62 million dollar increase that became effective on November 15th and equates to an annualized and the fee increase of approximately 37 million.
Under the terms of the settlement our overall allowed rate of return is 6.95%, which includes the return on equity of 9.6% with a 54% equity later.
Our depreciation rate increased to 2.78% compared to the prior rate of 2.4%.
Importantly, the approved rate base is 1.8 billion, we expected to grow in annualized rate of approximately 10% over the next three years.
Synergy ventures generates a significant portion of its revenues from sale of Aesrx from hedge as part of what's expected production of Aesrx futures contracts.
The status of our current MSR hedging program as highlighted on slide 16.
Grinage years, 2020, and 2021, where 91% and 86% hedged at these ratios our asset revenues would be largely unaffected by future changes in essar prices.
Furniture 2022, we have 50% of restaurant revenues hedged, we'll continue to monitor the market to add to our hedge position.
In addition, I'd like to take this opportunity to discuss the solar market in New Jersey.
As many of you know the state New Jersey has passed the BP with closing existing solar market imbalance and creating successor programs in 2020 to support industry growth for the next decade.
And Joe is working closely with the beep you to help with the successful transition.
While this is ongoing market fundamentals remain strong current energy or 2020, and 20 or 21 Aesrx are trading in the $225 to tour to $35 range for 89% of the SEC.
And then as your 2022, aesrx or price at about $200 or 84% of NCC fee.
On slide 17, particularly some of the characteristics underpinning the strength of our balance sheet.
On the top left you can see that as of September Thirtyth 2019 were $640 million of available liquidity.
Both NPR and Ngs credit facilities were almost fully available.
On the top right, we sure long term debt maturity schedule, you can see is well balanced and with no more than 150 million maturing at any fiscal year note that the leave for bridge facility is not reflected in the schedule. We have until October of 2020 to repair.
On the bottom left we show that our debt to total capitalization ratio was 51% at the end of 2019.
That is expected to reach 54% a bit of 2020.
The increase mostly reflects the investments, we expect to make and Srl Adelphi gateway.
Finally at the bottom right you can see the maintains strong investment grade credit ratings that reflects the strength of our balance sheet.
Slide 18 outlines our capital plan for fiscal 2020 and for the three year period through 2022 in.
In general our capital expenditures are expected peaked in 2020, mainly driven by our Duffy Gateway project and thus our ROE.
For the three year period between 2020, and 2022, we expect to allocate more than 80% of our total capex to our regulated businesses with 54% dedicated to engine Angie.
The details of our capital plan can be found on page 32 in the appendix.
Moving to slide 19, you can see an update on our cash flows and financing projections.
Shortly after the end of fiscal 2019, we acquired lever for $367.5 million, which is financed through a bridge facility.
During the remainder of 2020 will access to debt equity markets to fund the repayment of the facility.
This equity issuance will satisfy our currently planned equity needs for fiscal 2020 and 2021.
Importantly, we expect to achieve our long term industry growth rate of 68% after taking into account any dilution associated with the plan equity issuance.
On slide 20, I'd like to point out that the driving factors and made assumptions behind our guidance.
We expect our regulated businesses to contribute between 65% to 75% of total NFC.
Due to natural gas will contribute 55% to 60% of NFI with the recent rate case settlement, adding approximately 34 cents per share when compared to 2019.
For midstream resuming the we know contribution from Adelphia and a minimal FTC contribution for Penn East nearly identical to that as 2018.
We expect our unregulated businesses decryption between 25 and 42% of total in the feed.
Let me services is expected to returned to its normal 5% to 50% contribution which provide about a 10 cents per share uplift in fiscal 2020.
We expect CE to contribute 20% to 25% fulfillment of fee. This will be reduction compared to 2018 due to lower itcs, partially offsetting the NFI improvements we are seeing in the other segments with that I'll turn over to Steve for his closing remarks.
Thanks, Pat we expect NJ are to continue delivering long term value for its shareholders anchored by our regulated utility in the infrastructure investment opportunities provided by our other business segments to summarize we offer investors and attracted 8% to 11% expected total return based on our dividend yield of 2% to 3% and our long term.
And as EPS growth of 6% to 8%.
We appreciate that you took the time today to join us and I'd like to recognize and thank our employees for all their hard work and dedication that drives our performance.
I'd like now to open the call for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If you are using of speakerphone. Please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then Tam.
At this time, we'll pause momentarily to assemble our roster.
Our first question comes from Travis Miller with Morningstar. Please go ahead.
Good morning, Thank you.
Turning trends.
I would just questions on the leaf River here you mentioned accretive is there anyway that you can give us kind of a range it's embedded in your guidance for that.
The Travis this is Pat Migliaccio, we've indicated its nominally accretive in fiscal year 2020 after take into consideration the dilutive impacts of our equity issuance I think if you think about this from a long term perspective. The guidance. We provided is being about this in terms of a double digit.
Our OE, but on the lower side.
Okay. Okay.
And then what and when we think about strategically was this just an opportunity that you saw come up but a good price growth potential. Good return or is this something that you see is more strategic for the nonregulated segment, perhaps expanding more projects down there in the Gulf coast or other LNG type related infrastructure.
Hey, Travis this is Steve I think we've shared with you before that we've been in this market for quite some time looking at midstream assets.
Especially in certain areas that provide for growth and where we think there is some significant future opportunity leaf river fit that on all counts. So we're able to make the investment able to meet it at a price that we thought area. We think is good for for us and our shareholders and we're going to continue to pursue the.
These types of assets in the market.
It's just a matter of it's hard to predict on when we'll be able to achieve the next acquisition or when the next one will come in but certainly we're going to pursue this in future.
Sure. Okay, and then just one real quick will inherit the contracts you mentioned that 80% contract good.
What's within those contractors in terms of variability as their price exposure volume exposure.
And what kind of a sensitivity around those contracts and then also on the on correct on contracted part.
Travis their traditional contracts were in a majority the dollars coming in or are fixed demand charges and then the portion that is in contracted uptake into the shorter term market. So I would imagine deal.
One year, maybe less type timeframe park and loan type transactions I think it's a typical mix for storage facility, but but really the attractive part of this our majority of the revenues are fixed demand charges coming from customers.
And the longer contract period.
Got it thanks, so much.
Our next question comes from shopper at sat with Guggenheim Partners. Please go ahead.
Hey, good morning, guys.
Good morning show up.
So just just one question.
The incremental equity that you guys announced for 2020 I think some of that shifted from 21 have you provided any kind of is there any sort of question. If we get a pennies gets further delayed says we could sort of think about your projected balance sheet metrics like episode of debt has the incremental equity raised.
Provided some sort of a question should we get any sort of potential cash flow implications from further delays I guess, where do we stand around your balance sheet capacity.
Sure. This is Pat Migliaccio, So I think it's fair to say that the equity issuance contemplates.
The pennies in it and should that result into delay that would provide us a little bit of cushion.
In the future.
Okay. That's farmer to confirm is the equity was not solely.
Attributed to that Leif acquisition that part of it is building a cushion if there is a pending stellite, yes. So if you think about this from the purchase price.
We've ever purchase price was $367 million.
If you looked at roughly a 50 50.
Debt equity mix.
You break that down 140 million and so the balance would be what I'll call regular way equity needs that would would satisfy capital expenditures for pennies to end or Adelphi gateway and other items that we haven't our capital plan.
Can I just ask Pat what's the what's the level of question right. So can you just give me a little bit of a sensitivity towards sort of what your balance sheet capacity is especially when you look your credit metrics sort of debt assuming that the let's say the pennies project gets a further delay so like I guess, what do you view accounted for as far as the delays in the prior.
Checks.
As far as you can appreciate there are a number of variables that go into that not the least a which is energy services performance.
Your next can impact our equity so I don't I know that I could Raj anymore specific guidance that we already have today.
Alright, great. Thanks, guys appreciate those.
Thanks. Thanks.
But then if you'd like to ask a question. Please press Star then one.
[noise].
At this time there are no further questions I would like to turn the conference back over to Dennis Pell not for any closing remarks.
Alright, Thank you Sarah I want to thank everybody for joining us. This morning as a reminder, a recording of this call available on our website and as always we appreciate your interest in investment in New Jersey resources Goodbye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.