Q1 2023 New Jersey Resources Corp Earnings Call
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 10-Q as filed with the SEC.
We do not by including this statement assume any obligation to review or revise any 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 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.
Our agenda for today is found on slide two Steve will begin with this quarter's highlights followed by Roberto who will review our financial results. Then we will open the call for your questions. The slides accompanying today's presentation are available on our website and were furnished on our form 8-K filed this morning.
But that said I will turn the call over to our President and CEO , Steve <unk>. Please go ahead Steve.
Thanks, Adam and good morning, everyone. We delivered strong results in the first quarter. This included exceptional performance during a unique weather events over the Christmas weekend.
This speaks to the resiliency of our physical infrastructure and also to the talent and termination of our people.
As a result of NJ our successful operation. During this event, we are raising our fiscal 2023 guidance by <unk> <unk>.
To $2 62 to $2 72 per share.
Before we move to the quarterly results and our forecast for the year I'd like to begin with an update on our sustainability and de carbonization efforts on slide three.
Last week, we issued a N Jr. 's fiscal 2022, corporate sustainability report, our 14th consecutive annual report dating back to 2008 there.
The report details our goals and accomplishments and sustainability and other ESG related areas as well as our approach to innovation low carbon fuels energy efficiency and environmental stewardship.
I'd like to cover just a few of the reports highlights with you.
We believe the fastest and most cost effective tool to reduce emissions this through energy efficiency initiatives.
Last year, we invested more than $53 million in New Jersey natural gas is energy efficiency programs. The highest single year investment of this type in our company's history.
Growing these programs is a central element to our de Carbonization strategy and New Jersey natural gas has long been a leader in this area.
On solar we continue to advance our leadership in clean energy ventures by placing into service two milestone projects of national significance.
<unk> one of the largest cap landfilled solar rays, and the largest floating solar installation in the United States.
And finally, our $20 million down and supports our charitable foundation work. These resources enable our foundation to focus on medium and long term partnerships that drive the outcomes that make a difference for local communities and the environment.
We hope that all of you have an opportunity to review the report.
Turning to slide four we reported net financial earnings of $1 14 per share in the first quarter, 65% increase from the same period a year ago.
As I noted earlier, we are especially proud of our company's performance during winter storm Elliot, which was a historic event that impacted the entire country.
In our service territory, we saw temperatures fall as much as 50 degrees in just under 12 hours the impact of these record low temperatures limited gas supply in certain locations in the U S.
New Jersey natural gas our customers, we're able to enjoy their holiday without curtailments. This speaks to the resiliency of our gas supply network as well as the dedication of our team which worked throughout the holiday. We can ensure that we met our obligations to our customers.
In our storage and transportation business, we reported exceptional operating performance from Adelphia Gateway and leaf river throughout the winter event.
Energy services are long option strategy generated significant value during the volatile conditions created by the winter storm, which led to higher than expected and a fee during the period.
We also continued to deliver on our commitment to generate more stable fee based revenue at that business unit as we received a $73 $5 million cash payment associated with the asset management agreements announced in December 2020.
Finally, clean energy ventures, we placed four commercial solar projects into service since the end of the fiscal year growing our installed capacity by approximately 43 megawatts or over 11%.
Turning to slide five as a result of this outperformance we are raising our fiscal 2023 and EPS guidance range by 20 to $2 62 to $2 72 per share.
We are also maintaining our expected long term EPS growth range of 7% to 9% from our original 2022 guidance, which is among the highest in our peer group.
And as communicated last quarter, we expect to be at the higher end of the range for fiscal 2024.
As I mentioned in my opening remarks, New Jersey natural gas had a strong quarter of execution as highlighted on slide six.
We invested $91 million at New Jersey natural gas during the first quarter with over 36% of that Capex, providing near real time returns.
We reported strong customer growth, adding over 'twenty 100, new customers in the first quarter compared to approximately 1700 in the first quarter last year.
We still expect to file our next rate case in fiscal 2024, consistent with the completion of our major technology investments.
Moving to slide seven we continue to see positive momentum that clean energy ventures.
Since the end of fiscal 2022, we have placed over 43 megawatts of new solar projects into service and maintain a robust pipeline of future solar investments.
We are encouraged with recent progress at PJM, Q reform and New Jersey Solar policy.
In late November FERC approved Pjm's Q reform proposal, although we are still navigating near term delays this process should create efficiencies and greater predictability for solar development.
In December the New Jersey Board of public utilities approved the state's solar successor program for projects that are five megawatts. The goal of incentivizing at least 300 megawatts of annual solar capacity should help to broaden development opportunities in the state.
And with that I'll turn the call to revert up for review of the financial statements Roberta.
Thank you, Steve and good morning, everyone Slide nine shows the main driver of our NFC for the first quarter fiscal 'twenty from Macquarie.
We reported any fee of $110 3 million.
Whereas all of our <unk> 14 per share.
If I may.
Or <unk> 69 per share last year.
New Jersey natural gas, so and then if improvement of $3 $6 million, primarily due to the impact of new base rates that went into effect on December one we won a higher contribution.
<unk> utility gross margin from our bgs incentive programs and new customer growth.
Have you seen if he improved by $3 $2 million, primarily due to higher African electricity sales.
There is some transportation increased by $3 $3 million largely view adelphia gateway, becoming fully operational in the fourth quarter fiscal 2022, and the excellent operational performance at both Adelphia and leaf river during the quarter.
And finally <unk>.
Energy services improved by $35 million.
Due to the execution from our team during winter Storm Elliot.
Turning to our capital plan on slide 10.
Projections for 23, 3% and 2024 are unchanged from the last conference call.
Over the next two years, we expect to invest between one one and $1 4 billion across our company.
We expect to tighten our capex projections in future quarters, particularly in the case of CV at New Jersey regulatory program approval and PJM interconnection timelines will become more clear.
These capital deployment is expected to support growth throughout our business unit and is consistent with our long term <unk>.
Growth target of 7% to 9%.
Finally on slide 11, most of our debt is fixed and we don't have significant maturities in any particular year.
As mentioned in our prior call.
Our <unk> guidance for fiscal 'twenty, three and our long term growth.
Growth guidance.
Incorporating assumption of high interest rate for the foreseeable future.
With that I'll turn the call back to Steve.
Thanks Roberto.
Overall these results reflect the strength of our complimentary portfolio of businesses and the value of our high integrity infrastructure.
We are delivering on our strategy of Derisking results, providing a more predictable base of net financial earnings with a growth rate that it's the top end of our peer group.
In addition, we've been able to take advantage of opportunities in the energy markets that have resulted in considerable upside to our growth targets in recent years.
Finally, I want to thank all of our employees for their hard work and contribution. We expect these efforts will drive our NFC and produce strong cash flows that will support our dividend growth of 7% to 9% per year.
And with that I'll now open the call for questions.
Ladies and gentlemen, if you would like to ask a question. Please press star followed by one on the telephone keypad now.
If you'd like to cancel the question press the star followed by two.
I'm pleased to also remember to looking until microphones.
Our first question.
Chris.
From cyber Williams.
Chris Your line is now open. Please go ahead.
Hey, good morning, everybody.
Thanks for the good quarter this morning.
A lot of things have happened at like EPA and with the IRS.
There's some very attractive markets out there in renewables thinking about landfill gas generation RMG, if any of these things changed your strategic.
Strategic outlook for renewable investments.
So good morning, Chris. Thanks for the question I think we've been talking for a long time about the evolving clean energy market and the opportunities that will present to a company like ours that has capabilities developing infrastructure, bringing into service and certainly earning returns so.
IRA is in support of that.
We've got our solar division, we're developing solar it's been supportive in that part of the part of the world.
We felt the hydrogen plant and they are certainly in the IRI significant subsidies towards hydrogen.
And we're certainly looking at RMG as well nothing to announce there, but when you put this all together.
We're well positioned to take a look and see where it makes sense for us to make investments and grow in this part of the market. So long winded way of saying, yes, we do see opportunities and we continue to search them out.
And certainly as we.
<unk> become more firm in the Capex that will dedicate to that we will share that with investors.
Okay great.
There were a couple of things in the quarter that maybe were.
Slightly surprising beyond.
Elliott's impact.
At Cvs sort of noted in the press release and reduced operating costs.
Can you give us a little color on that.
<unk>.
On the storage and transportation side, obviously storm Elliott provides some opportunity there, but also you have adelphia gateway increase.
Incrementally can you give us any color between.
Sort of the northern and southern assets for the quarter.
Yes, I think broadly it just points to the value of infrastructure and energy infrastructure Energy services company and as you get more demand for energy.
We're able to.
Profit from that energy services was certainly the headline and their ability to take advantage of that volatility, but you also had outsized gains in the utility and their incentive programs.
We saw new customers that adelphia gateway sign up for Us short term services.
Beef river as well was able to make profits in that electric prices bumped up in CEB. So certainly all contributing towards.
The increases that we announced today.
And then can you give us any color on.
The higher electric revenues was that more on.
Increased megawatt side or was that more on the commodity electric side do you think.
I'd say the commodity electric side.
Okay, great. Thanks for the color I appreciate it alright.
Alright, Thanks, Chris.
Our next question is from Richard Sunderland from J P. Morgan.
Richard Your line is now open. Please go ahead.
Hey, good morning, and thanks for the time today I know you hit this a little bit already but I just want to unpack the guidance raised a little bit more.
The <unk> is at the full amount of the outperformance you saw I guess across <unk> storage and transportation and energy services or are there any either offsets to that versus your original plan or kind of Cushing for the remainder of the year that youre, leaving outside of guidance.
Right now.
Hey, rich good morning, Roberto how are you.
No.
On your question the.
Performance that you saw was primarily coming from energy services.
Not only coming from energy services right. It came also from the utility with higher incentives.
And also from our first in transportation. So it was really broad based once again.
Coming from most of our businesses, but as indicated in our remarks.
The biggest part came from from our marketing business.
Okay, Okay understood.
And then turning to CV here, just I guess the first part.
I see the 43 megawatts placement services I know you referenced a landmark projects there.
I think there was a 100 megawatt change if I'm reading this correctly on 'twenty three 'twenty four contracted exclusivity is that is that a timing shift across the years laid out here or are there other changes on the project front in light of those PJM in New Jersey developments you referenced earlier.
So rich I think the way to look at that is that when you look at.
Slide seven and you look at the total of about one gigawatt.
Potential investments the way that we describe them that that number or at least on a yearly basis are the periods that we say, it's going to go up and down as projects come in they get completed.
More and.
More projects.
Exclusivity or some sort of a firmer commitment that we can put them part of this.
Part of this chart that these numbers will go up and down but I think the big numbers to look at our we've got a very robust pipeline of investment at CEB for our solar investments and then also the other big numbers, Yes, 43 megawatts that were able to put in service. So.
And money, we're completing projects, we're putting them into service and then we're continuing to develop the pipeline moving forward in this business unit.
Got it that's helpful color and maybe just a quick follow up there. So you referenced some positive progress in PJM and for New Jersey, as well just curious kind of milestones going forward from here or high level of timing expectations. What are you watching for this front for that.
That incremental clarity into the outlook said that both the PJM level and the state level.
Anything you can offer there on how that might unfold over this year or what else you are looking for from each.
Yes, im going to ask any traffic to answer that question and she manages our non utility businesses in <unk> and she can speak to some of the details associated with the PJM.
<unk> certainly in process at the state, Yes, I would say that the PJM key requirement the btu competitive solicitation, they're both very positive, but our capex projection. There is they're not fully dependent on those who were still waiting for other state policy.
Programs to rollout I'll give you a few examples with T rack approvals, we've spoken about in the past with some of our projects.
Use virtual net metering, so we'll continue to watch that.
The progress out of that are positive and we see additional optionality and opportunity for our pipeline.
Got it.
Understood.
Thanks Rich.
Sure.
Our next question is from Gabe Moreen from Mizuho.
Gabe Your line is now open. Please go ahead.
Thank you good morning.
Can you talk about I think the leaf river expansion potential I think some midstream names out there have talked about some customer interest now and I think the value of stores has clearly proven itself out time and again over the last call. It 24 months. So I'm just curious latest thoughts on what the obese expansion.
Looking like.
So Gabe we have nothing to announce there, but certainly the market dynamics and with the development of LNG along the Gulf Coast.
The amount of volatility in balancing that's needed down to that area as evidenced by the price movements that have taken place. It is certainly a very constructive and supportive market. So we're certainly looking where we can make expansion and provided that we've got a customer that can support the capital investment that's there.
Always talked about it in that fashion, but again nothing to announce but it's certainly a very supportive market at this point in time.
Thanks, Steve and maybe if I can ask a little bit of a multifaceted question here on gas prices Havent come down so significantly can you just talk about <unk>.
The impacts to the business whether.
Bad debt expense less inflationary pressures and also just.
The strategy on kind of hedging gas prices going forward, because I know that you guys were fairly insulated coming into the winter anyway.
Yes.
Just to talk about the hedging strategy going forward, we've got a pretty rigid hedging strategy that aligns itself well to being able to put fixed price gas in the storage well ahead of when volatility would really impact the markets and thats still in place now so I would expect that that would be helpful for us as well.
Roll into our next hedging season.
So to speak.
Then ultimately gas.
Gas goes up and down and that volatility.
It can be beneficial to us through prices certainly through energy services and such.
But it just shows that the market is resilient.
And our customers will enjoy hopefully lower pricing if it continues in this direction.
Going forward and certainly supportive of our overall businesses.
An economic way to heat your house and provide energy.
Got it thanks to you and if I could just squeeze one more in sort of on the <unk> outperformance is it fair to say that if S&P outperformance kind of holds that.
So it is really into <unk> that you accrue I guess some.
Expense, our G&A, rather around additional comp and stuff like that so that that may be an offset to some of the <unk> outperformance here.
Yes, so yes, youre right our.
Our our expenses related to labor are seasonal and exactly as you pointed out Q4 tends to be the highest.
Thanks, Laura.
Thanks Kipp.
Our next question is from Sam <unk> from Bank of America. Sam. Your line is now open. Please go ahead.
Hey, guys good morning.
Just a quick question on your on your financing projections here.
Just just given Q1's outperformance.
Is there any reason why you are financing activity projections haven't really changed and also within that why you're sort of thinking more towards increasing equity issuances over that.
Relative to your previous update.
Yes.
You were talking about what we're showing in terms of our predictions for our cash flows. So even though we have increased our guidance. We feel we're still within the range that we showed there. So that's why we haven't changed that.
Number one and then on your question regarding debt versus equity.
As we have stated before we have no plans to issue any relocate within the near future.
And that remains true today.
Got it thanks for BARDA.
As a reminder, ladies and gentlemen, if you would like to ask a question press star one on your telephone keypad.
Our next question is from Shar.
Corissa from Guggenheim partners.
Your line is now open. Please go ahead.
Hi, guys, it's Jamie at the non Vishal, thanks for taking our questions.
Hey, Jason.
Hey, So just wanted to thank you for that response, so far and.
Wanted to expand and clarify a bit on a couple of the prior answers you provided.
First off I guess.
Seasonal aspect with the fourth quarter.
But again just wanted to expand and clarify so at the gas utility.
Despite the stronger customer growth and higher earnings year over year for the first quarter. It looks like you lowered guidance for the segment on an actual EPS base.
Despite the 24.
For the year for the entire company.
But for the segment it looks like it's about six to eight lower based on the new weightings and the higher guidance.
Could you just remind us of your expectations for inflationary pressures on O&M for the year or any other potential drags that you now expect versus the November original guidance.
What was baked into that.
Just a follow up.
Good morning, Robert.
I think what you're referring is.
So the breakdown the percentage breakdown of our <unk> that we show in our presentation and for the Eagle Youre right Thats, lower but that reason that lower because the whole business for much higher right. So on an absolute basis, we do not expect that you feel you could be lower.
Okay.
But.
Okay.
The.
242.
Two original and then backed by 55% and also by 60 took those numbers and then took the.
Our revised $2 62 to 272 and that by the 48, and then separately by the 53, and then compared the bottom or the.
On top of it and that's where I came up with the six to eight lower.
So im not going up mid points of our average us or anything.
Is there a different way to look at it.
Yes.
We can take that offline too.
To explain no problems if you will.
Luke.
The guidance range at four equally based on the original guidance range of 42 to $2 52, and what we're showing today.
See that on an absolute basis really no changes.
Okay.
Take it offline.
But yes, we're just coming up with <unk>.
Based on lower in absolute changes.
From one to the next but that's okay.
So just moving on.
As a follow up but not on the EPS.
After backing out the $20 million contribution.
This order and.
Roughly $22 million contribution in the same quarter a year ago.
It looks like you had an almost 40% improvement year over year, mostly driven by winter storm Eliot Spitzer.
Specifically looking here just at energy services, but other parts of the business also.
Contributed to performance, but just narrowing in there.
Given that you only use that to raise guidance by.
It seems like you've got a very very nice buffer to start the year something that I'm sure a lot of your peers NB given a lot of inflationary pressure.
Other cost pressures that everyone's encountering.
Could you walk us through the top couple of potential earnings drags that you had been worried about back in November when you gave guidance.
And that you are now less so since youre, presumably still have another 20 or so a buffer for the year.
Yes, so maybe maybe the first thing to address is.
<unk>, you're talking about right.
The way to think about that if you have.
Youll have timing changes, especially coming from energy services, you think of how do I remind target happening.
Tend to happen so for the most part in the second part of the year. What are the are lower revenue. So there is a timing change affecting.
These lockers that you are discussing and then we're getting generally cautious about what could happen right now, especially with electricity prices, yes, I think just to add to that.
<unk>.
To describe it as a buffer I think there is seasonality to the number this year.
In agreement that there is a buffer there associated with the with our guidance or the way that you've put the numbers together.
Okay Fair enough, we can follow up offline either way it seems like you're in a good way.
Good thing about the euro.
So that's why I was asking.
Yes.
Ed.
Yeah absolutely.
Just a final question.
Clean energy ventures, you mentioned in the prepared remarks that youre looking to tighten the range in the quarters ahead.
Another question on it already but just to.
And then final question.
What are the gating items that you're currently waiting on just the we have a better sense of timing. When you expect to have the level of visibility that you require in order to be able to narrow the range for the next.
A year and the year thereafter.
So so what Amy answered the question before us she talked about Q reforms PJM and certainly some of the programs in the state of New Jersey, but mentioned that.
For the project pipeline that we've shown there.
Not solely dependent on those being.
I guess resolved so.
We've got a capital program that we feel confident that we'll be able to execute and certainly it would be positive developments to get those other programs in the queue reformed completed.
But again not solely dependent on at least new programs, taking place at the state in order to.
Get our capital invested.
If that answers your question if not.
Please clarify.
Gotcha.
Trying to get a sense of whether it's sort of a next quarter or.
Two quarters from now or that sort of thing.
But.
I think that covers it further offline.
Okay.
Thank you very much and good start to the year guys. Congrats alright. Thank you.
Yeah.
Our next question is from <unk>.
Travis Miller from Morningstar.
Travis Your line is now open. Please go ahead.
Good morning, everyone and thank you.
Hey, Travis.
Sure.
Apologize if you touched on this earlier, but I'm wondering if you could talk about how the MMA.
Performed.
During the quarter.
How much of that contributed to that energy services was there volatility in there.
The Knicks back just wondering on how that performed in the quarter.
Yes.
These are all vertical so.
EMEA, we said before that for the year do you think that revenues are going to be similar to those of last year.
For Q1, those revenues were $20 million and we received all the cash corresponding to our rate in Q1 that was about $73 million.
The answer to your question in a nutshell.
It performed exactly as we expected.
Okay.
Do you have in place during the year or any kind of optionality.
Around those.
Where you could get any kind of.
Vendor vendor detriment.
On this specific EMEA as we have discussed this is Steve you basically have pretty much fixed price contract.
Okay.
That's what I thought okay. Thank.
Thank you very much.
Sure. Thanks Travis.
We currently have no further questions I will now hand back to the management team.
Thank you 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 N Jr. Goodbye and have a good morning.
Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines have a good day.