Q4 2022 New Jersey Resources Corp Earnings Call
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Hello, everyone and welcome to the New Jersey resources fiscal 2000, <unk> fourth quarter and year end conference call. My name is M&A and I'll be your conference Cooperator today at the end of the presentation. You will have the opportunity to ask a question refreshing star followed by the number one on your telephone keypad I'll now turn the call over to our host Adam Prior at New Jersey resources.
Please go ahead Adam.
Thank you welcome to New Jersey resources fiscal 2022 fourth quarter and year end conference call and webcast I'm joined here today by Steve <unk>, Our President and CEO Liberty Bell, 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 for 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 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-Q and 10-K as filed with the SEC.
We do not by including this statement assume any obligation to review or revise any particular forward looking statements referenced herein in light of future events.
We'll also be referring to certain non-GAAP financial measures such as net financial earnings or an entity. We believe that NFC net financial loss of utility gross margin adjusted funds from operation and financial margin provide a more complete understanding of our financial performance.
However, these non-GAAP measures are not intended to be a substitute for GAAP.
non-GAAP financial measures are discussed more fully in item seven of our 10-K.
Our agenda today is found on slide two Steve will begin with this quarter's highlights followed by Roberto who will review our financial results and then we will open the call for your questions.
Accompanying today's presentation are available on our website and were furnished on our form 8-K filed this morning, we will begin with an overview on slide three.
That said I will turn the call over to our President and CEO , Steve West Open. Please go ahead.
Thanks, Adam and good morning, everyone our.
Our performance this past year speaks to the strength of our diversified business model and our ability to adapt to challenges in ways that benefit our customers and investors.
At our core <unk> as an energy infrastructure company with a portfolio of complementary businesses positioned to leverage our utility experience, while also investing for a cleaner energy future.
This morning, we reported fiscal 2022 net financial earnings per share or EPS of $2.
This represents a 16% increase compared to last year and is at the top of our guidance range.
At New Jersey natural gas, we reported solid results driven by new base rates, our hedging policy of Bgs incentive programs have helped to mitigate the impact of rising natural gas prices to customers. This reflects our commitment to delivering safe reliable energy at a reasonable cost.
Clean energy ventures, now has our largest ever project pipeline during the fourth quarter replaced our first New York projects into service consistent with Cvs geographic diversification strategy.
At energy services, the asset management agreements are signed in December 2020 became effective this year.
<unk> predictable fee based revenues to this business the significant uptick in natural gas price volatility through the summer allowed the energy services and to generate additional value from our remaining physical assets. Finally, I want to thank the entire S&P team as we were able to place adelphia gateway fully into service prior to the end of the fiscal year adult.
He is an 84 mile pipeline converted from oil to gas that runs from Martin's Creek, Pennsylvania, just south of Philadelphia.
Its completion is a major accomplishment for our company Adelphi is now delivering reliable energy to a capacity constraint region fueling further economic growth and helping downstream customers achieve emissions reductions by replacing coal and oil.
Moving to slide four we are introducing fiscal 2023, and if EPS guidance of $2 42, a share to $2 52 per share.
We expect that most of our financial guidance for the year will come from our utility business. We are also maintaining our 79% long term EPS growth rate.
In addition, net energy services this will be the second year in which our expected NFC contribution will come primarily from the fixed payments associated with the <unk>.
Moving to the next slide for fiscal year 2023, we have raised our dividend to an annualized rate of $1 56 per share a seven 6% increase compared to fiscal 2022.
With this increase we have now raised our dividend every year for the last 27 years and to provide contact Sanjay ours. One of only 57 other publicly traded companies that have raised their dividend throughout this period. This reflects our long term commitment to building shareholder value.
With that I'll turn to the discussion of our business units, which begin on slide six.
New Jersey natural gas during fiscal year, 2022, we invested more than $335 million of capital across a variety of programs with over 42% of that capital providing near real time returns. We added over 7800, new customers in 2022 through a combination of new construction and conversions and notably we were.
To help customers lower their energy usage with successful capital deployment through our save Green program, we spent over $53 million to help our customers save money and reduce their carbon footprint, which is usually natural gases largest ever annual investment in the program.
We plan to file our next base rate case in fiscal 2024, consistent with the expected in service dates of some of our major technology investments.
Moving to a discussion of our solar business on slide seven <unk> reported a 35% increase in revenues for fiscal 2022 benefiting from elevated electricity prices that contributed to <unk> overall strong financial performance.
During the fourth quarter CEB advanced its regional diversification strategy with the Airport Road project.
A $4 nine megawatt solar installation in Orange County in New York.
Including this project <unk> now has a portfolio of approximately 387 megawatts of assets in service.
On slide eight you can see the continued to grow its project pipeline, which includes ongoing expansion outside of the state of New Jersey, CV now have exclusivity of contractual rights on approximately 700 megawatts of capital deployment options. In addition to another 63 megawatts of projects under construction.
Our current pipeline of regionally diverse projects with nearly tripled the present size of Cds clean energy portfolio.
Moving to our storage and transportation segment on slide nine in Ngls proud to announce the completion of our Adelphia Gateway project placement Adelphia fully into service was an important milestone for our company and we appreciate the collaboration with municipalities regulatory agencies and local residents Adelphia Gateway will play an important role in meeting the region's energy needs.
Well into the future one of our larger customers Kimberly Clark replace coal fired plant in Chester, Pennsylvania, natural gas, which is expected to reduce greenhouse gas emissions at the facility by 50% and supports Kimberly Clark's goal of cutting its carbon footprint and half by 2030.
From a financial perspective, our S&P segment had an excellent year driven by higher revenues at both leaf River and gateway.
And finally before I turn the call over to Roberto for our financial review I want to briefly discuss the performance and stability of our energy services segment, which we highlight on slide 10.
Energy services owns a portfolio of physical gas assets with pipeline and storage operators, the geographic diversity and strategic location of these physical assets creates the ability to generate significant returns during periods of increased market volatility.
Notwithstanding the tremendous success that we've had with our one option strategy at energy services. A key objective has been to provide more predictable fee based earnings we made progress towards that goal through the A&H secured in December of 2020 that became effective in fiscal year 2022 and in fact.
The majority of energy services projected financial margins in fiscal years 2023, and 24 is expected to come from these fee based revenues far exceeding our fixed costs.
With that I'll turn the call over to our Chief Financial Officer of Roberta Belt for review of our financial results. Thank.
Thank you, Steve and good morning, everyone as usual I'll highlight a few of the operational and financial metrics for the year.
Slide 12 shows the main driver of our net financial earnings oriented fee for fiscal 'twenty two.
We reported $243 million or $2 50 per share.
Within if you have $277 million.
Our theater from <unk> 63 per share last year.
New Jersey natural gas an improvement of $42 million from the prior year.
An increase of more than 30%, primarily due to the positive impact of new base rates that went into effect December one.
Turning to our utility businesses.
In energy banks, who are increasingly likely to $6 million.
More than twice last year is going to be.
Due to higher electricity sales and how you recognize revenue.
But curiously transportation reported anything of nine.
$9 $4 million.
Driven by increased revenues and leaf river and higher.
We're contracted capacity from the fulfill if it went into service I think they'll take it with you in the year.
Partially offset by higher depreciation expenses.
Finally energy services reported $91 million compared to $71 1 million in the prior year.
As a reminder, <unk> was higher due to natural gas type of activity from the extreme weather getting rated by winter storm here.
The decrease in any fee was partially offset by the contribution of the Ami.
Turning to slide 13 during the recent increase in natural gas prices I want to take a moment to discuss how all of our utility mine again that growth of natural gas.
As you know the cost of our natural gas supply is a pass through to our customers.
To mitigate the risk of feathering in dramatic price changes.
New Jersey natural gas has a robust hedging program in place.
Mike policy at least 75% of our estimate the weaker thinned out for recreation with more commercial customers.
We hedge prior to November one.
We currently have our own 90% of our estimated with relief already.
Already storms at prices that were hedged more than a year ago.
As a result, while natural gas prices fluctuate throughout the year.
We're able to secure an average hedge price that would be significantly lower spot prices.
I think you are in a cost effective supply and leveraging our BSS incentive program.
New Jersey natural gas has been able to mitigate the rising cost of natural gas on behalf of our customers.
On slide 14, we have highlighted the details of Phoebe if rates hedging program.
The sale of faith remains a large portion of <unk> revenue.
And we look in these cash flows by hedging of our expected production with matrix.
You can see our expected differently in the ratio is almost fully hedged for energy year 2025 significantly derisked the TV revenue.
I will now turn to our capital projections on slide 15.
Over the next two years, we expect to invest between one one and one 4 billion.
The company.
Supporting growth I thought where utility and our non utility businesses consistent with our long term EPS growth of 7% to 9%.
And New Jersey natural gas, we anticipate spending between 808 hundred $70 million in the next two years.
We expect to spend between 240 and $490 million over the same period.
Cvs what range is a consequence of uncertainty in the implementation timelines of New Jersey, New regulatory program and PJM interconnection reform as we have outlined in prior calls.
We will tighten our predictions for fiscal 'twenty to be three and plenty plenty for us so and become more clear.
Finally note that adelphia gateway will leave therapy.
We expect capital spending to moderate that S&P. However.
Rental organic growth opportunities may arise and we will update you when they become more visible.
Turning to slide 16, we're now predicting slightly stronger operating cash flow and those communicated during our last earnings for that three year period of the fiscal year and utility industry.
This is mainly due to better than expected operating cash generation across all our businesses last summer.
In addition to the overall improvement you will notice a shift in operating cash flow between fiscal years, two uniquely to implement the new <unk> III.
This was due to working capital timing considerations in particular multi vendor services storage injections.
Ladies and during Q1 fiscal 'twenty, three and not at the end of fiscal 'twenty. Please.
And for fiscal 'twenty 'twenty, four we expect even stronger operating cash generation.
Our operating cash flows frankly into strong credit metrics with anecdotal to that ratio in the high teens that supports a healthy investment grade credit rating equivalent and our long term dividend growth rate of seven 9%.
Given the strength of our operating cash flows and our strong credit metrics. We have no plan to issue I need to look at would be in the near future.
I'd like to close with a few comments addressing the impact of the current interest rate environment on slide 17, our <unk> guidance for fiscal clinically III, where long term elicited growth guidance incorporate interest rate predictions consistent with current market expectations.
Furthermore, since most of our debt is fixed and we don't have significant maturities in any particular year, we expect the potential impact of <unk> being higher interest rate to be limited.
And our long term guide.
Guidance range.
With that I'll turn the call back to Steve.
Thanks Roberto.
Sustainability is not new to NCR over the last several years, we've invested in our distribution network, making it the tightest in the state with nearly 100% of our system either plastic unprotected steel.
We are safely and affordably delivering energy through 7700 miles of high quality infrastructure that is already been permitted built and paid for it.
The value of our energy delivery network will only continue to grow as we start to transport increasing percentage of low and zero carbon energy, helping the state to reach its clinical from the most affordable and resilient way possible.
At CVR portfolio of clean energy infrastructure continues to perform well delivering 100% renewable energy to homes businesses and the grid we.
We are working to navigate near term state policy and regional interconnection delays, but with the support of a proactive federal policy corporate ESG goals and the strongest project pipeline. We've ever had CD is well positioned to drive growth and be a mechanism for sustainable investment for years to come.
Let's turn to slide 21 of our key priorities is to ensure that our environmental strategy aligns with that of public policy and in August inflation reduction Act of 2022 was signed into law.
This legislation represents an unprecedented investment in addressing U S energy security clean energy infrastructure and climate change.
Expansion of solar tax credits and incentives and renewable fuels such as green hydrogen RMG has the potential to help accelerate our existing efforts to decarbonize.
While we are incorporating the extension of the 30% ITC out multiple years and our growth plans. We feel that there are additional opportunities in which we can take advantage of incentives included in the IRI. These would be incremental to our growth expectations. So we understand that these will take some time to develop.
To conclude on slide 21 for more than seven decades, we have successfully built acquired and operated energy assets to meet market needs and policy demands a reputation for acting responsibly with our regulator to suppliers and customers along with a proven ability to execute allows us to deliver value for our shareholders.
We reported strong financial performance, surpassing our initial targets and raised our guidance twice during the fiscal year. These results reflect the great work of our team and combined strength of our businesses and Jr. Currently offers investors an attractive 11% to 13% total return based on our current dividend yield and long term EPS expected growth rate.
79%.
We appreciate that you took the time to join us today and with that I'll open the call for questions.
Yeah.
Thank you.
To ask a question. Please do so now by pressing star followed by the number one on your telephone keypad. If you change your mind I would like to be remained from the queue. Please press star and maintain when preparing to ask a question. Please ensure that your device and your microphone on mute lately.
Our first question today comes from the line of guideline with Mizuho. Please go ahead Gabe.
Hey, good morning, everyone.
Yeah.
Two part question for me.
Just first of all I guess with Adelphia now back online should we take the fourth quarter run rate for that segment is kind of a run rate the quarterly run rate going forward at this point.
Or is there something else in there and then secondly, Roberto you referenced the potential for.
Some organic growth capex could potentially arise in this segment I'm wondering if that somebody is alluding to leaf river or if theres a theres other opportunities you guys might be looking up.
Yes, I gave before we're so good morning, so regarding your first question.
I would say no because as you know.
I mean, we're just ramping up adelphia and there are still.
In new customers without we're bringing so I wouldn't say that that run rate. We have right now with a run rate that we're going to have in the future. So we expect that to improve over the next I would say year or so in.
Regarding your second question.
Yes, so potential organic opportunities are coming from potentially actually both adelphia and leaf I mean, we're not ready to discuss what those are but there are potential opportunities that may arise.
Great. Thanks, Roberto and then maybe if I can ask kind of on CEB in the range of Capex.
Can you talk about kind of the next milestones are expecting either sort of in the new Jersey regs or the interconnection bottlenecks, just sort of what youre looking for and maybe the timing on.
It's actually getting some more visibility there.
Hey, David Steve, Yes, I mean, we're expecting new Jersey to continue to work on their new program and certainly I guess over that over the coming months Theres. Some commitments that will finally bring the program to bear.
Also PJM should be resolving relatively soon but we don't we don't know certainly for certainty when thats going to take place. That's why it's got a little bit of a wide range there but.
The thought that I want to leave you with is that.
<unk> well supported certainly in new Jersey, and many of the surrounding states in which we're making investments.
So we feel pretty good about our project pipeline and the growth prospects in that business going forward.
Thanks, Stephen if I could just squeeze one more in on bad debt expense.
Where does that stand kind of I guess moratoriums no moratoriums.
That's factored into your guidance for this upcoming year, particularly what might be some appreciating that you are in a better position than many of your peers as far as gas Costco.
But what might be some higher bills because thats next winter.
Yes. This is Robert again gave.
Yes, so that the moratorium related to Covid have been leaf that of course were weaker we cannot shut off customers.
But in terms of bad debt in general is actually trending well.
Yeah.
A lot of the.
I look of the deferrals that we had during the Covid period.
Actually coming down so its actually trending in a good direction right now.
Gotcha. Thanks, Chris.
Alright, Thanks Gabe.
Our next question comes from Richard Sunderland with Jpmorgan. Please go ahead.
Hi, good morning, and thank you for your time today.
Circling back to the inflation reduction act impacts you outlined could you speak a little bit more to CEB substantial upside from the IRS and.
And how much of the pipeline could take advantage of it.
Curious if this also impacts your return assumptions.
Yes, certainly it's a positive impact rate, but we've got to wait for how exactly its going to be implemented we said during the call. There that we've embedded a 30% ITC, but there's certainly upside again on the way. It's described but we've got to wait for implementation.
How that's going to play out also there is subsidy from the IRS hydrogen development.
Development as well, which is positive for our business and we've talked about de carbonized fuel delivery for.
Utility for quite some time and with our hydrogen plant, bringing those costs down are productive.
These for battery storage. So all these things are trending very positively for our business and specifically how it aligns with our strategy, but we've got to wait for this details to really come through to put those into our presentation or put some numbers to them.
But maybe just from a financial perspective.
In all we have in our numbers right now is the assumption that Nike vehicles to 30% in the others. We may get on top of that with any of our new projects will be incremental.
Understood that's very clear.
Sticking with CEB here, if you look at the Capex relative to your 2020 analyst day plan.
We're still certainly a spread I know you spoke just a minute ago about new Jersey, and PJM and some of the timing there, but I guess at a high level thinking about your post 2020 for growth when do you need those two plants to start converging I guess when do you need to see CEB.
I'll return to that kind of initially contemplated run rate.
So the way I'd answer that question is that we reaffirmed our 7% to 9% growth rate. This morning. So we've got a strong portfolio of businesses, we're able to make investments and we feel confident that we'll be able to do so.
We're we're in we're in a good position and we've got a lot of tailwind associated with IRA and other things that are taking place.
So not to get in queue.
Specific capex numbers in 2025, which we certainly don't project out that far but generally speaking in our planning we.
We feel confident that we'll be able to hit your numbers.
Fair enough and then if I could slip one more in here.
On the <unk>.
<unk> side, you've spoken a little bit about the R&D efforts in the past just curious within the plan right now and how this might change going forward.
So I've got a patent <unk> here is a blast from the past coming back to the investor.
I'm going to turn it over to Pat at the utility.
So we're pursuing opportunities on both the RMG supply on the investment side and we've reflected some modest assumptions in our capital plan for the 'twenty three 'twenty four.
And any sense on if there might be an acceleration there.
So on that over the next 12 months.
Okay.
When and if we have no information we will update you at that time with you.
Great. Thank you very much of a client today.
All right. Thanks rich.
So we take our next question as a reminder, if you would like to ask a question today you do so now by pressing star followed by the number one on your telephone keypad.
Our next question comes from the line of Julien Dumoulin Smith with Bank of America. Please go ahead Damian.
Hey, guys. This is Sam Clark on for Julien Good morning.
Hey, I was wondering if you could just kind of walk us through the latest you're seeing on supply chain availability for your solar projects.
Do you have the panels on site to meet your 23 projects and just broadly speaking how much of the capital.
Procured for 'twenty, three and 'twenty four.
So I've got any chronic cough and she's Seo over 90 utility businesses and she's going to take that question.
We're in a good position for the capital projects that we have moving forward from a solar panel perspective, we're not seeing any we don't have any risks or concerns in the near term. We will continue to monitor the supply chain situation that we're in.
In a good spot.
Yeah.
Excellent. Thank you and then just on interest rates could you provide some color on what's embedded in your plan and what kind of offset your.
Kind of expecting in 'twenty three and beyond.
Yes, our.
These were worth again, our guidance incorporates already the current interest rate environment. So these hirings.
Right now in the current projections from the market.
Amit.
Our embedded in our plan so.
So thats already we don't see any risk with that right now.
Yes.
Very good thank you.
Thanks, Tim.
Our next question comes from Michael Gaugler with Janney Montgomery. Please go ahead Michael.
Good morning, everyone.
Seems like to get your thoughts.
On the new England gas supply situation and how that could play out for.
So the energy services segment.
Don't know.
Resource.
Writing the Whitehouse asking for relief in terms of the Jones Act to get more gas.
In the new England.
Possible.
Yeah, Hey, Mike I think certainly it's.
It's a constrained market up there and all evidence points to it not only the letter that was written but the pricing associated ahead of the winter period I guess.
The way I would address that we're not in new England.
Participate in that market from the utility perspective, and from a trading perspective.
Couldn't comment on how much of the book is up there, but overall I.
I think the general direction is that the gas industry has some constraints in these assets that we own not only our utility there's sort of transportation assets are extremely valuable.
Certainly the contractual assets that we hold in energy services as well.
So.
It's up nicely for our infrastructure businesses and being able to take advantage of that and you saw that last year.
Provides for outsized outsized returns as well so.
We're looking forward to the winter we're prepared for it we understand the risks associated with it and we like the infrastructure that we have.
Okay.
As a follow up to.
To that I'm.
I'm wondering.
How are you thinking about it this year versus last year are there better opportunities this year versus last year.
Given what we're seeing.
We look we look at our businesses and certainly.
How to quantify those opportunities and the risks and how they are embedded in our earnings projections going forward, we try to take a baseline and put that as a projection.
To speculate on how big this opportunity sorry, that's extremely difficult.
We look at our our earnings and the performance and really try to stay in the fairway of a certain risk profile that I think would be acceptable to our investors. So we can provide a nice base of earnings and it gave them a potential upside and we've proven that year on year again.
Sometimes the upside comes sometimes it doesn't but we've got a very strong base of earnings.
And that's what we project going forward.
Okay.
Actually where I was going with the question, maybe I can rephrase it.
As you look at the market.
Does it appear more constrained this year versus last year.
That's probably the way I should've asked the question.
That's hard to say without going into like.
A very detailed supply and demand.
Out of the market, but it certainly is the natural gas markets in all these markets continue to grow and you have got a slowdown of some infrastructure being put in place.
You could say that whether it's a big variability exports are a big variability there's a lot of heritage variability when it comes to this market.
Okay. Thank you Sir.
Thanks, Mike.
As a final reminder, if you would like to ask a question. Please data now by pressing star followed by the number one on your telephone keypad.
Got you.
At this time, we have no further questions I will pass the call back to management for any closing remarks.
Thank you Emily I'd like to thank all of you for joining US. This morning as a reminder, a recording of this call is available for replay on our website and as always we appreciate your interest and investment in J R. Thank you everyone.
Thank you everyone for joining us today. This concludes our call you may now disconnect your lines.
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