Q1 2022 New Jersey Resources Corp Earnings Call
All lines have been placed on mute to prevent any background noise. After the speakers' 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 telephone keypad, if you'd like to withdraw your question. Please press Star then two.
I would now like to turn the conference over to Mr. Dennis Puma. Please begin.
Thank you good morning, everyone welcome to New Jersey, Resources' first quarter fiscal 'twenty two conference call and webcast I'm joined here today by Steve Western Illinois, President and CEO .
Hurtle Bell, our senior Vice President and Chief Financial Officer, as well as other members of our senior management team.
As 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 of this call current expectations assumptions and beliefs, forming the basis for our forward. Looking statements include many factors that are beyond our ability to control or estimate precisely which could cause results to materially differ from our expectations as found on slide one.
These items can also be found in the forward looking statements section of today's earnings release furnished on form 8-K and in our most recent forms 10-K and Q.
Q as filed with the SEC.
We do not by including the 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 NFC.
We believe that NFC net financial loss of utility gross margin and financial margin provides a more complete understanding of our financial performance.
Ever.
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.
Our agenda for today is found on slide two Steve will begin today's call with this quarter's highlights followed by Roberto will review our financial results. Then we will open the call to your questions.
The slides accompanying today's presentation are available on our website and were furnished on form 8-K filed this morning with that said I'll turn the call over to our president and CEO , Steve West of Steve.
Thanks, Dennis and good morning, everyone.
Before we get into the quarterly results I'd like to begin with our update on our sustainability efforts the carbonization goals on slide three.
Last week, we issued our fiscal 2021 corporate sustainability report, our 13th consecutive report going back to 2008.
The report details our goals progress accomplishments in sustainability and other ESG related areas.
Let me talk about a few of the highlights.
First as you know last quarter, we announced a goal of net zero greenhouse gas emissions by 2054, New Jersey operations.
As we detailed in this year's report we have already made significant progress towards this goal.
Jr has already reduce these emissions by over 50% from 2006 levels.
Second we've made a commitment to transparency even stronger this year by adopting disclosure based on the recommendations of the task force for climate related financial disclosure or Tc ft.
Importantly, the report reinforces our fundamental beliefs around de carbonization, and our broader sustainability strategy, which focuses on achieving climate and emissions reduction goals in the most affordable and reliable way for customers.
It does this by leveraging our existing already paid for energy infrastructure to deliver de carbonization fuels like R&D and hydrogen.
Furthering our energy efficiency efforts and advancing our already robust clean energy portfolio through additional investments in solar.
This approach and our company's ongoing leadership in the clean energy transition.
Clearly articulated in this year's report.
Which is available on our website I.
I Hope you all have an opportunity to review it.
Turning to slide four our fiscal 2022 is off to a good start and we delivered a strong performance in the first quarter.
We executed on our business strategy and delivered net financial earnings of $6 nine per share a 50% increase from the same period a year ago.
Interesting natural Gaslog proved results driven primarily by the settlement of its base rate case.
Clean energy ventures would place the project into service and are actively constructing a $150 million of additional projects that we expect to be operational by the end of the fiscal year.
In our storage and transportation business construction continues to progress on our Adelphia Gateway project, which I'll discuss further in a moment.
At Energy services, we received our first payment of $87 million from our asset management agreements announced in December of 2020 does.
Delivering on our commitment to generate more stable fee based revenue at that business unit.
These results reflect the strength of our complimentary portfolio of businesses and are consistent with our overall strategy to derisk results and provide more predictable net financial earnings.
Turning to slide five this morning, we reaffirmed our fiscal 2022 and EPS guidance range of $2 20 to $2 30 per share.
We expect that most of our net financial earnings will come from our utility business also as we've said in the past our fiscal 2022 energy services segment guidance only includes margin contributions from its fee based revenue streams.
And importantly, we are maintaining our expected long term NSE EPS growth range of 7% to 9%.
As I mentioned in my opening remarks, New Jersey natural gas had a strong quarter and on slide six I'll take you through some of the operational highlights.
At the top left we invested $73 million at New Jersey natural gas during the first quarter with over 40% of that Capex, providing near real time returns.
Despite the ongoing pandemic, we added over 1700, new customers in the first quarter and are focused on achieving our pre pandemic customer growth rate of one 7%.
Going forward, you should expect New Jersey natural gas to further de carbonization efforts with an emphasis on energy efficiency and Decarbonize fuels.
On the energy efficiency front, our largest ever safe Green program furthers, our commitment to sustainability by helping customers lower their energy usage save money and reduce their carbon footprint.
In terms of expanding our use of Decarbonize fuels. We are currently assessing future hydrogen in R&D opportunities that are expected to add additional low and zero carbon fuels to our system, we will update our capital plan as we get more visibility into the potential projects.
Slide seven provides operational highlights and our other core business clean energy ventures.
The top left shows our Q1 revenue broken down by revenue type along with total expected revenue for fiscal 2022.
As a reminder, substantially all of our <unk> revenues for the year are secured through our <unk> hedging program.
Total invested capital achieved this quarter was $32 million with 30 million spent on commercial projects and $2 million through our residential program.
As indicated on the chart to the right we have $150 million of projects currently under construction. In addition, almost $30 million and 104 million currently under contract have moved into late stage development with construction anticipated to commence shortly.
While CEB continues to advance its project pipeline in the in service dates of projects currently under contract and under evaluation can move beyond this fiscal year as a result of potential supply chain constraints or the timing impacts of the regulatory approval process.
It is important to remember that we have dramatically reduced our dependence on investment tax credits to achieve our earnings guidance. This means that even if these risks materialize, we do not expect a negative impact to our fiscal 2022 NSE guidance.
Turning to slide eight I am pleased to announce that we achieved another milestone in our ongoing Derisking strategy is adelphia placed two projects into service.
One of these facilities, but deliberate point, serving new customers at Delphi is northern zone.
It presents our first organic expansion of existing pipeline generating additional fee based revenues for the project.
Construction on this project is about 85% complete and we expect full commercial operation by the end of the year.
Finally, this marks our first quarterly conference call since the announcement of a series of executive and senior leadership promotions on December eight.
Which include Pat Migliaccio being named Senior Vice President and Chief operating Officer of New Jersey, Natural gas and Roberto Bell being promoted to senior Vice President Chief Financial Officer, Dan Jr.
I'd like to congratulate Robert on his promotion to CFO and now I'll turn the call over to him for a financial review Roberta.
Thank you, Steve and good morning, everyone Slide 10 shows the main drivers of our NFC for the first quarter of fiscal 2022.
We reported <unk> $65 $8 million or <unk> 69 per share compared with $44 7 million or 46 cents per share last year.
So and then if improvement of $1 6 million lower due primarily to the impact of new base rates that went into effect on December one and.
The hurdle of pinpoint to $1 million of pandemic related costs as a regulatory asset.
Partially offset by higher depreciation expense higher income taxes and by lower.
<unk> improved by $3 $5 million, primarily due to increased revenue from the halo of Ettrick and higher electricity prices in the first quarter of fiscal 2000.
Transportation was modestly down during the quarter due primarily to lower earnings from equity affiliates.
Energy services improved to $8 $1 million, primarily due to the recognition of revenue from the asset management agreement.
We entered into during fiscal 2021.
On slide 11, we have highlighted that details our FX hedging program.
Hello, FX remains a large portion of CPUC filings.
These cash flows by taking our expected transactional FX.
As you can see we're almost fully hedged for energy year 2024.
For energy years, 2025, and 2006, we now have 49% and 27% of our expected FERC generation hedged right at or above 87% for alternative compliance payment or ACP.
Turning to our capital plan on Slide 12, I'll take you through some highlights starting with and Yankee.
With this our revenue service and the base rate case behind us our capital spending.
<unk> is projected to moderate somewhat over the next few years and May change as we continue to assess new potential investments in hydrogen and R&D.
At Seabee, our estimated spend has not changed from last quarter.
We have a large new therapies for our Capex target for this year and as Steve noted the timing of this span could be affected by future supply chain constraints.
Regulatory related.
Moving to source and transportation that construction of Adelphia Gateway continues to move forward a represent our largest capital expenditure for the segment.
Turning to our cash flows on slide 13, you can see that we continue to project very strong cash flow from operations for fiscal year, 2022 and 'twenty three.
Finally, as a reminder.
Last year, we were a few more anti dilution share repurchases under our existing program. Therefore for the full year, we expect will roughly offset equity issuance is generated by our dividend reinvestment plan.
With that said I'll turn it back to Steve for some closing remarks.
Thanks, Roberta before I open the call to questions I would like to close with a few thoughts.
We are on track to meet our NFC EPS guidance for this fiscal year due to the strength and contributions from our diversified complementary portfolio of businesses and more broadly I'd like to note. The tremendous progress <unk> made executing the strategy, we outlined just 14 months ago.
The updates we provided on today's call are a clear illustration of that.
At New Jersey natural gas our base rate case filing was successfully settlement and new rates are in effect move.
Moving forward, we are focused on achieving our goals for customer growth and continue on a path towards de carbonization with strategic investments like our current Pal Green hydrogen facility CV continues to grow its asset base within our home state as well as outside of New Jersey.
While we are closely tracking macroeconomic factors impacting solar we have a number of significant projects going into service this year and a growing pipeline of new potential investments.
Our strategy at energy services continues to deliver results with the MAA in place we have significantly increased our fee based revenues, while our long option strategy continues to offer potential upside.
And the progress we've noted on Adelphia Gateway, we are moving closer to bringing that project fully into service.
We expect these efforts will drive our NFC guidance and produced strong cash flows that will support our dividend growth of 7% to 9% per year.
Finally, I want to thank all of our employees for the hard work over the last quarter, especially through the latest challenges brought on by the pandemic.
And with that I'll now open the call for questions.
At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.
We'll pause for just a moment to compile the Q&A roster.
Our first question comes from Richard Sunderland from J P. Morgan. Please go ahead.
Hi, good morning, and thanks for taking my questions, maybe just starting on the solar side curious if you could speak to the recent development activity and how its tracking your 2020 expectations. I know you mentioned potential supply chain constraints and regulatory delays also curious here and this is consistent across both.
New Jersey, not New Jersey activity.
Hey, Richard this is Steve.
Our projects at the Solar group you saw the numbers, we've got $150 million under construction.
We've got a 104 million I believe under contract. So those are all moving forward certainly some regulatory and permitting need.
It needs to happen to make those second tranche of projects come to place, but I think the key takeaway is that we've got a robust pipeline for these projects and and certainly our ability to see some.
Where our development is going forward is pretty clear.
So we were optimistic we should be able to execute may slip a little bit but.
Because we've changed the accounting for how we book our income and revenue from these assets less critically important but that's not to say that we're not focused on it and making sure that we execute and are able to bring these projects into service on its much of a timely basis as possible.
Understood and then pivoting to energy services.
Can you speak a little bit some of the recent weather and just the overall segment positioning to capture upside with the Ami. It's in place you know any way to think about the magnitude of the earnings benefit that you noted anything in guidance.
So we reaffirmed guidance. This morning, so we're certainly not going to change that at this time.
The <unk> did take a tranche of capacity out of that book.
About 90000 Deco <unk>, they still have significant book in existence. So certainly you know as you guys. All know volatility is good for that business and certainly January has been volatile and we've got this storm thats moving across the U S. Now thats, bringing some volatility, especially in mid continent South.
That's good for the business as well, but I want to reaffirm we're sticking to our guidance and we'll wait to see how these recent weather events play out as we get deeper into the winter.
Understood and just a brief follow up there you know some of the quarterly assumptions around the margin contributions moved from <unk> to this quarter.
Speaking again, just the energy services, what are the drivers saves anything against that backdrop, maybe changes.
So certainly we received a large tranche of cash on the first phase of that.
But I'm going to ask Roberto to talk to the specifics on essentially the.
The way that that margin will be recognized in nations tight should look at this.
Yeah, Hey, rich good morning, Roberto so in terms of <unk>.
Revenue for the EMEA, you should expect and you'll have that in that presentation towards the end that we're going to recognize for the year about $52 million.
<unk> revenues of which we have recognized already $22 million and the difference is going to recognize is going to be recognized pro rata over the next three quarters or.
So that's roughly how you should think about it for this year.
Great. Thanks for the color.
Again, if you have a question. Please press Star then one.
Our next question comes from Gabe Moreen from Mizuho. Please go ahead.
Good morning, everyone.
Steve based on your comments on kind of the RMG additional R&D investments here and looking at it seems like you are.
Mostly sticking potentially getting stuff onto your regulated system can you can you talk about where you're headed a little bit more with R&D and <unk>.
Kind of the size of the things you are looking at them, where they're going to be a great base order rate base et cetera.
Hey, Gabe so so I think.
The way, we're looking at it putting decarbonize fuel into our system is really important to us and it's the way that we can get to our clean energy future. We have got a hydrogen plant that's been up in operation now for a few months proof of concept there that that works and we're able to do that with minimal impact on our customers and the technology works, our renewable natural gas.
Certainly very low carbon profile as well pursuing essentially.
Systems and sources that are within our in our footprint is certainly the top priority of how we're moving forward and I expect that.
We don't have anything to announce yet certainly there is some of that in our capital plan, but we're looking at it as a way to essentially deliver decarbonize fuel to our customers. So it's an important path forward certainly we're going to bring all stakeholders involved as we as we connect these sources into our system our regulators customer.
Customers were going to be sensitive to price. The administration, so certainly going to do so in a very thoughtful way, but the way that we're looking at <unk> and hydrogen as to generally increase that decarbonize fuel delivery to our customers. So we can be part of the clean energy future and really prove out the long term value of our assets.
Thanks, Steve So is it fair to say that you know just in terms of.
<unk> steps these deliberations in discussions it sounds like the back half of the year award concrete steps and announcements.
Like I said, we don't have a deal to announce but you know that we're really working on.
Okay. Thanks, and then second question for me is I think Roberto talked you gave a little bit of update on.
The deferred costs for Covid I was wonder if you could just walk through that again and to what extent you are or not is still recognizing extraordinary costs from COVID-19 cover.
We processed that potentially.
Yes. He gave these roberto.
We announced this morning, we've FERC pinpoint to $1 million.
Related to <unk> expenses and.
So the question is are we going to be fair anymore.
We and all new Jersey's leaders have the ability to be far more access globally.
Expenses until the end of this calendar year.
<unk> you are there.
We're not planning on that but having said that we don't know what they spend they may bring.
Got it thanks for that Oh.
Thanks Kipp.
Again, if you have a question. Please press Star then one.
Our next question comes from Matt Davis from Cowen Capital. Please go ahead.
Hey, guys can you hear me.
Can you hear you how are you doing Matt good I just wanted to get a little clarification on on.
On the a M. A timing I know you talked about for the rest of the year, but I was just curious if you can walk through what the change was since the fourth quarter.
Given that I think that there was an expectation for more of the revenue to come in in the first quarter of this year versus over the balance of the year.
Yeah, Hey.
Hey, Matt This is Robert again.
Youre right. It did so yes, do we clear media may became effective this first quarter right and if you remember our prior remarks that cash recognition for the year. All came in all the cash came in in Q1 it came in.
Early in the quarter about $87 million and that's why we've got all of that in terms of the revenue recognition youre right in the revenue recognition is broken into two pieces.
Whenever we have a permanent.
A release of capacity that recognizes usually higher value, we had a little bit of that in Q1, that's why we recognized about $22 million in Q1.
Whenever you have temporary relief is the value of that would be something we could list and thats what were going to happen in the remainder of the year. So that's why for every quarter going forward, we will recognize about $10 million.
So your initial assumption was correct.
Okay. Thank you that was it thanks guys I appreciate it.
Thanks, Matt.
There are no further questions at this time, Mr. Dennis Puma I turn the call back over to you.
Okay. Thank you everyone I'd like to thank everybody for joining us this morning.
As a reminder, a recording of this call is available for replay on our website as always we appreciate your interest and investment in New Jersey resources Goodbye.
Okay.
This concludes today's conference call you may now disconnect.
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