Q4 2024 New Jersey Resources Corp Earnings Call
Regina: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the New Jersey Resources Fiscal 2024 Fourth Quarter and Year-End Conference Call.
Regina: All lines have been placed on mute to prevent any background noise.
Speaker Change: After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, press star one again. I would now like to turn the conference over to Adam Prior, Director of Investor Relations. Please go ahead.
Adam Prior: Thank you. Welcome to New Jersey Resources fiscal 2024 fourth quarter and year-end conference call and webcast. I am joined here today by Steve Westhoven, our president and CEO, Roberto Bel, our senior vice president and chief financial officer, as well as other members of our senior management team.
Adam Prior: Certain statements in today's call contain estimates and other forward-looking statements within the meaning of the securities law. We wish to caution listeners of this call that the current expectations, assumptions, and beliefs forming the basis of our forward-looking statements include many factors that are beyond our ability to control or estimate precisely.
These items can also be found in the forward-looking statements.
Adam Prior: section of yesterday's earnings release furnished on Form 8K, and in our most recent Forms 10K and 10Q 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.
Adam Prior: We will also be referring to certain non-GAAP financial measures such as Net Financial Earnings or NSE. We believe that NSE, Net Financial Loss, Utility Gross Margin, Financial Margin, Adjusted Funds from Operations, and Adjusted Debt provide a more complete understanding of our financial performance.
Adam Prior: 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 7 of our 10-K.
Adam Prior: The slides accompanying today's presentation are available on our website and were furnished on our Form 8K filed yesterday. Steve will begin with this year's highlights beginning on slide 4, followed by Roberto who will review our financial results, then we will open the call for your questions.
Speaker Change: With that said, I'll turn the call over to our President and CEO, Steve Westhoven. Please go ahead, Steve.
Thanks, Adam, and good morning, everyone.
Steve Westhoven: This was an excellent year for NJR, driven by strong financial performance across all of our business segments.
Steve Westhoven: In addition, we successfully completed a number of pending items, most notably the successful resolution of NJNG's base rate case and energy efficiency programs.
Steve Westhoven: This provides greater certainty as we enter fiscal 2025, which along with strategic investments throughout our businesses, leaves NJR positioned for success well into the future.
Steve Westhoven: In fiscal 2024, we exceeded the high end of the NFBPS guidance range that we raised earlier this year. This is our fourth consecutive year of surpassing initial guidance, demonstrating the strength of our diversified business model and our ability to deliver shareholder value.
Steve Westhoven: We have an industry-leading, stated NFBPS long-term growth rate of 7-9%, and more importantly, our actual performance consistently exceeds that target.
Steve Westhoven: At New Jersey Natural Gas, we grew our customer base and reported a record level of energy efficiency investments through our SAVE Green program.
Steve Westhoven: Clean Energy Ventures commissioned our first community solar project built on a capped landfill in New Jersey, which will provide clean energy to low and moderate income customers.
Steve Westhoven: It was a busy year for CEB with nearly 70 megawatts of projects either placed in service or under construction.
Speaker Change: S&T continued to drive organic growth with Leap River completing a booster compression project and initiating a new capacity recovery project.
Speaker Change: These will contribute to higher revenues over time through the enhanced storage services and operational efficiency.
Speaker Change: Energy Services benefited from an outsized contribution from the asset management agreements announced in 2020 while delivering significant value from its long option strategy during the January weather event.
Speaker Change: And finally, our Home Services Division completed approximately 80,000 service calls with a near 5-star Google rating and was recognized as a Rood Top 20 Pro Partner for the 8th consecutive year.
Speaker Change: Overall, this was a great year with many accomplishments from our team.
Speaker Change: As we look ahead, NJR is well-positioned for future growth as we outline on slide 5.
Speaker Change: The New Jersey Board of Public Utilities approved a settlement to New Jersey Natural Gas's base rate case last week, securing recovery for investments that ensure safe and reliable service for our roughly 583,000 customers.
Speaker Change: Roberto will go through the details shortly, but overall we were very pleased to reach a fair and equitable resolution with all parties.
Speaker Change: I want to thank the Board of Public Utilities and their staff and the Division of Rate Council for their hard work. We have a constructive working relationship with them that ensures the interests of both customers and shareholders are fairly balanced.
Speaker Change: Last month, we also received approval from the BPU for New Jersey Natural Gas to expand its energy efficiency offerings available through Save Green through 2027.
Speaker Change: At CEV, we continue to focus on commercial solar with over 1 gigawatt in our project pipeline, the largest in our company's history.
Speaker Change: In line with this strategy, we just completed the sale of our Sunlight Advantage residential solar portfolio. This transaction not only strengthens our balance sheet, but also sharpens our focus on commercial solar growth.
Speaker Change: We are well positioned to capitalize on commercial projects with high single-digit unlevered returns, reinforcing our commitment to clean energy and sustainable growth.
Speaker Change: At S&T, Adelphia Gateway filed a rate case with FERC to reflect the investments made in its pipeline system, and we are moving forward with our capacity recovery project at Leaf River.
Speaker Change: With a focused strategy and momentum across all segments, NJR is well positioned to deliver on its long-term growth objectives, as reflected in our fiscal 2025 NFEPS guidance outlined on the next slide.
Speaker Change: NJR is maintaining its long-term NFEPS growth target of 7 to 9 percent, and after multiple years of outperformance, we are rebasing to $2.83 per share as of this current fiscal year. This is consistent with our previously stated long-term NFEPS guidance.
Speaker Change: For Fiscal 2025, our initial NFVPS share. This exceeds our long-term growth rate at 79% and reflects the one-time gain from the Sunlight Advantage transaction.
Speaker Change: We feel that our complementary portfolio of businesses provides a solid foundation that supports this leading growth rate, which we outlined on slide 7.
Speaker Change: Looking ahead, key drivers to achieve our seven to nine percent growth target include continued rate-based investments, customer growth, and an expansion of our energy efficiency investments through Save Green at New Jersey Natural Gas.
Speaker Change: Additional capital deployment at CEV providing stable revenues from commercial solar investments that operate at high operational availability.
Speaker Change: At Leap River, strong demand for storage capacity that improves our recontracting rates and allows us to further expand our total working capacity.
Speaker Change: At Adelphia, the expected recovery of investments through our rate case.
Speaker Change: and at Energy Services we continue to benefit from the long-term asset management agreements and stable cash flows.
Speaker Change: Finally, NJR's diversified business model has mechanisms in place that provide additional upside potential driven by market opportunities and operational performance.
Speaker Change: Together, these drivers offer strong visibility into our long-term growth trajectory.
Speaker Change: On slide 8, we break out our fiscal 2025 NFEPS by segment, with approximately 70% of our NFEPS expected to come from utility operations.
Speaker Change: We have a strong foundation to provide reliable returns and long-term stability for our shareholders.
Speaker Change: Now, let's discuss our complementary business units, starting with New Jersey Natural Gas on slide 9.
Speaker Change: At New Jersey Natural Gas, we invested $503 million in fiscal 2024 with 42% of that capex providing near real-time returns.
Speaker Change: Customer growth remains steady all year, driven by a combination of both new construction and conversions.
Speaker Change: CEV has over a gigawatt of commercial solar projects as potential investment options.
Speaker Change: Additionally, the sale of sunlight advantage strengthens our balance sheet while allowing us to prudently recycle capital.
Speaker Change: Moving to slide 11, our storage and transportation business continues to deliver stable returns through fee-based revenues. In fiscal 2024, we completed the booster compression project and initiated our 4BCF capacity recovery project at Leaf River, supporting incremental firm capacity sales.
Speaker Change: Additionally, we filed a rate case with PERC for Adelphi Gateway to reflect the investments made in our pipeline system, which will further enhance the long-term value of this critical infrastructure.
Speaker Change: While we're still in the early stages of the rate case process, we hope to reach a resolution in calendar year 2025.
Speaker Change: With that, I'll turn the call over to Roberto for a review of the financial results. Roberto?
Thank you, Eve, and good morning, everyone.
Roberto Bel: Fiscal 2024 was a strong year for NJR. We reported NFPPS on the higher end of our increased guidance range, finishing the year at $2.95 per share, compared with NFPPS of $2.70 per share last year.
Our business segments perform better than initially expected.
Roberto Bel: with strong contributions that allowed us to raise guidance during the year.
Roberto Bel: In the fourth quarter, Energy Services recognized a significant portion of the Asset Management Agreement's total revenues, contributing to a notable year-over-year NFE increase.
Speaker Change: As Steve mentioned earlier, the VPU approved a settlement of NJ&G's rate case with an annual revenue increase of $157 million.
that became effective on November 21st.
Speaker Change: We provided details last week in our 8K and are also summarizing it on slide 14.
Speaker Change: Under the terms of the settlement, our overall allowed rate of return is 7.08%, which includes a return on equity of 9.6%, with a 54% equity layer.
Speaker Change: Overall, we reached a fair and equitable settlement with a rate base of $3.2 billion, a 29% increase compared to our last settlement.
Speaker Change: Now, let's move to slide 15, where we'll discuss the New Year's Capital Plan. Over the next several years, we expect to deploy capital to enhance our utility infrastructure, expand our clean energy portfolio, and grow our storage and transportation assets.
Speaker Change: For fiscal 2025 and fiscal 2026, we're planning capital expenditures ranging from 1.3 to 1.6 billion dollars, which aligns with our long-term NFP growth target of 7 to 9 percent.
Speaker Change: Breaking it down by segment, as shown in the slide, NGNG will remain our largest area of investment, with $430 to $490 million planned for fiscal 2025.
This includes critical infrastructure upgrades and customer growth projects.
Speaker Change: And we will continue to invest in our safe green energy efficiency program with approximately 65 to 75 million projected for the year.
Speaker Change: Moving to CD, we have planned between $160 million and $265 million for fiscal 2025.
Speaker Change: This reflects our continued commitment to growing our commercial solar portfolio.
Speaker Change: While we left the CD range largely the same from our previous disclosure, this only reflects our expected commercial solar investments following the sale of the Sunlight Advantage residential portfolio.
Speaker Change: Finally, our storage and transportation will see investments between $20 and $35 million in fiscal 2025.
Speaker Change: This includes ongoing projects at Lee's River and at L.C. Gateway, which are expected to generate stable fee-based revenue and support organic growth.
Speaker Change: As highlighted on slide 16, our strong credit metrics allow us to invest in our businesses while delivering consistent returns for our shareholders.
Speaker Change: Our adjusted funds from operations to adjusted debt ratio was 20.6% for fiscal 2024 and is projected to remain strong, ranging between 18% and 20% for fiscal 2025.
Speaker Change: which reflect our ability to generate total operating cash flows and manage that effectively.
Speaker Change: These levels are consistent with maintaining our investment-grade credit rating at NGNG and strong balance sheet at NGR.
Speaker Change: Our long-term debt is well staggered, with no significant maturities in any particular year.
Speaker Change: This provides us with financial flexibility and reduced risk, especially in an evolving interest rate environment.
Speaker Change: Additionally, we have $825 million in grant facilities available for fiscal 2029, ensuring we have substantial liquidity to support future growth.
Speaker Change: We expect our cash software operations to be between $460 million and $500 million in fiscal 2025, providing a solid foundation for funding our capital plan, dividends, and other corporate needs.
Speaker Change: Consequently, we also have no need for block equity issuances and only use our Revenue Reinvestment Program as an opportunistic method of raising equity.
Speaker Change: In summary, our strong balance sheet, stable cash flows, and superior credit metrics place NGR in an excellent position to continue executing our strategic priorities while maintaining financial flexibility and delivering long-term shareholder value.
Steve Westhoven: With that, I'll turn the call back to Steve for concluding statements on slide 13.
Steve Westhoven: Thanks, Roberto. As we execute our strategic plan, NJR is positioned for sustained long-term growth across our diverse businesses.
Steve Westhoven: With a strong focus on core business expansion, clean energy investments, and maximizing the value of our existing assets, we expect to continue creating significant value for our shareholders.
Steve Westhoven: We offer a 4% dividend yield and combined with our industry-leading long-term NFVPS growth rate, we are targeting a total shareholder return of 11 to 13 percent.
Steve Westhoven: To sum up, we are driving growth in a sustainable and disciplined way while continuing to deliver superior returns and position NJR as a leader in energy infrastructure.
Steve Westhoven: And with New Jersey natural gas's base rate case settled and its energy efficiency program approved, NJR has significantly de-risked its financial outlook and positioned itself for additional growth.
Steve Westhoven: We appreciate that you took the time to join us today, and I'd like to recognize and thank our employees for their hard work during an excellent year for the company.
Steve Westhoven: Their dedication only serves to drive our performance into the future.
With that, let's open up the call for questions.
Speaker Change: At this time, I'd like to remind everyone, in order to ask a question, simply press star followed by the number one on your telephone keypad. Once again, that is star one for any questions. And our first question will come from the line of Robert Mosca with Mizuho Securities. Please go ahead.
Robert Mosca: Hi, good morning everyone, and congratulations on another year in the books here.
Robert Mosca: Just maybe if you guys could touch on the economics of the residential solar sale Implied PE seems like it could be north of 10, maybe even mid-teens So any color there would be helpful and does this affect the capacity you would have for electricity sales in the future? Or is that really derived from the commercial portfolio that you have?
Steve Westhoven: Hey Rob, it's Steve. Hey, thanks for the questions. So as far as the commercial, you know, portfolio and our electric sales, those will not change into the wholesale market. We'll continue to sell the same amount of electric in the wholesale market. The residential market was primarily a lease market, so you expect that to be the same going forward, and Roberto will take the key question you asked.
Speaker Change: And then finally, what you see on slide 6 is that we estimate that the net after-tax gain on this is going to be around 30 cents. That's why our guidance is higher than our long-term implied guidance range.
Thank you. Thank you.
Got it. Thanks, Roberto. That's really helpful.
Speaker Change: And maybe a follow-up question, you know, could you maybe provide some initial thoughts on
Speaker Change: A 2025 IIP ask, and maybe more broadly, could that program look different, and is there a possibility it's not extended by the NJBPU? I understand you just got the EE order, but just wondering about the IIP program.
Speaker Change: Hey Rob, it's Pat Migliaccio. Thanks for the question and appreciate it acknowledging, yeah, we've had a busy regulatory calendar, so not only we now settled the base rate case, which we thought was very constructive and a fair outcome, as you noted, that CMU program is a large stepper in our history, and you can see from our
Projected CapEx, and that will ramp up over time.
Speaker Change: Let's not forget that the IIP program, we will continue to have capital spend in our fiscal year 2025.
Speaker Change: that was always intended to sunset around this time with a discrete set of projects, and so we'll have an opportunity to evaluate what programs of the future might make sense for us and our key stakeholders.
Thank you.
Understood. Thanks, Pat, and thanks for the time, everyone.
Thank you all.
Speaker Change: Again for any questions please press star followed by the number one on your telephone keypad. Our next question will come from the line of Chris Ellinghoff with Seabird Williams Schenck. Please go ahead.
Chris, your line might be on mute.
Sorry about that, guys. Good morning.
Speaker Change: What your thoughts are there in terms of the range and and why bigger this year and you know that sort of stuff
Speaker Change: Are you talking about the earnings guidance range? It is 15 cents, 305 to 320, and it was 15 cents wide last year as well, so there's no real change there.
Speaker Change: In absolute dollar terms, it looks a little wider to me, maybe not in terms of percentage. It just appears a little bit bigger than normal in dollar terms.
Thank you.
Speaker Change: No, no, sorry, you're talking about our earnest guidance, right? Yes. So maybe, Grace, just as a reminder, starting in 2024, we widened the range of our guidance from 10 cents to 15 cents, but this is the second year we're doing this.
Speaker Change: Okay, can you give us any thoughts in terms of the, you know, pluses and minuses on the accretion dilution from the sunlight advantage divestiture?
Speaker Change: Yeah, so for fiscal 2025, once you take into account that one-time gain and you net that from dilution and taxes, we expect that's going to be about 30 cents. That's why we're increasing our guidance this year by that.
Speaker Change: For the future year, there is some dilution, but that dilution decreases over time in an over
Three or four years, it goes basically to zero. Okay.
Speaker Change: Can you give us any thoughts in terms of, you've got a pretty big, I'll call it backlog of CEV projects under construction at year end. Can you give us any thoughts in terms of how those completions play out through 2025?
Speaker Change: So with the SEED project that we have in place, you know, we're continuing to construct and, you know, we feel good about, you know, our CAPEX schedule, you know, not only for the year that we just completed but also going forward and, you know, with the support of the states that we're operating in, you know, our CAPEX schedule, you know, stands.
Thank you.
Okay.
And lastly, as far as the Leaf River...
Speaker Change: expansion goes can you give us any color in terms of you know contracting or the you know the increase in the size proportionately or any of those kind of color
Speaker Change: Yeah, you know we've stated that the increase in that cavern is about 4 BCF and That's going to be staged in as we you know kind of deep grind that facility to make it larger And as that becomes larger over the term of construction, then we're going to you know match the contracting associated with that So you know long and short, you know over the period you're going to be able to increase it by 4 BCF And you should expect you know the same as part of the contract standpoint
Okay, great. Appreciate the caller. Thanks, guys.
Thank you, Chris.
Speaker Change: Again, if you'd like to ask a question, press star followed by the number one on your telephone keypad, and we'll take our next question from the line of Travis Miller with Morningstar. Please go ahead.
Good morning, everyone. Thank you.
Speaker Change: Hey John, I just wonder strategically on the Sunline Advantage sale, could you talk a little bit more about why deciding to do that now? Why deciding to do it at all? Was it something where...
Speaker Change: If someone came to you with a price you liked, or was it something where you saw better returns?
Speaker Change: somewhere else in the portfolio. I just wonder if you could talk strategically about that decision.
Speaker Change: and an opportunity that you know is good for the company.
Speaker Change: Okay, I know the dollar goes anywhere right but your thought here is that you put a lot of those proceeds to support the growth of the solar pipeline more so than the commercial solar more so than transferring it to NJNG.
Speaker Change: And then on the step up in the system integrity, CapEx in 2026, how much of that is approved? How much of that is in a program?
Speaker Change: What's the sensitivity in terms of regulatory approval around that $200 million or so in 2026?
Speaker Change: Hey Travis, this is Pat Migliaccio. So everything that's in the system integrity line item will be subject to rate case filing and rate case review But I think, you know, I'll call it a plain vanilla system integrity investment. If you look at our last rate case, there were no issues related to getting that type of investment approved by our regulators.
Speaker Change: Okay, so counting on some good read through from the settlement and the support for system integrity. Yes.
Okay, that's all I had. Thanks so much.
All right, thanks, Travis.
Speaker Change: once again for any questions simply press star followed by the number one on your telephone keypad that is star one for any questions
Speaker Change: We have no further questions at this time. I'll hand the call back to Adam Prior for any closing comments.
Adam Prior: Thank you everyone for joining us this morning. As always, we appreciate your interest and investment in NJR and have a great day. Thanks.
Adam Prior: That will conclude today's meeting. Thank you all for joining. You may now disconnect.