New Jersey Resources (NJR) Q2 2026 earnings call transcript

Hello and thank you for standing by. My name is Tiffany and I will be your conference operator today. At this time I would like to welcome everyone to the New Jersey Resources Fiscal 2026 Second Quarter Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question and answer session.

If you would like to ask a question on today's call, simply press star, then the number one on your telephone keypad.

I would now like to turn the call over to Adam Pryor, Director of Investor Relations. Adam, please go ahead.

Thank you. Welcome to New Jersey Resources Fiscal 2026 Second Quarter and First Half Conference Call on Webcast. I'm joined here today by Steve Westau and our President and CEO, Roberto Vell, 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 security law. 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 the rest of me precisely.

This could cause results that materially differ from our expectations as balanced line two. These items can also be found in the forward-looking statement 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 statement referenced herein in light of future events.

We will also be referring to certain non-gap financial measures, such as net financial earnings or NFE. We believe that NFE, net financial loss, utility gross margin, financial margin, adjusted funds from operations and adjusted debt provide a more complete understanding of our financial performance. However, these non-gap measures are not intended to be a substitute for GAP. Our non-gap financial measures are discussed more fully in item 7 of our 10k. The slides for today's presentation are available on our website and were furnished on our form 8k filed yesterday. Steve will start with his quarters' highlights and a business unit overview beginning on slide 5. Revertible then review our financial results.

Then he'll open it up for your questions. But that said, I'll turn the call over to our president, CEO Steve West-Hogan. Please go ahead, Steve. Thanks, Adam. NGR reported excellent second quarter results during one of the most demanding winter periods in recent years. January and February brought sustained freezing temperatures in the northeast region of the country. You're using extra gas experience the highest sendout days in its history, in our infrastructure planning and operations delivered. Our teams provided safe, reliable service to homes, schools, hospitals and critical services across our communities.

Our system operates exactly as designed when customers need us most. This reflects years of disciplined investment in our infrastructure and a continued focus on safety and reliability.

At S&T, Adelty Gateway had multiple days of operating at maximum capacity, and the Lee River had withdrawals that exceeded winter storm year of 2021.

Finally, our energy services team delivered exceptional results. As a result of energy services outperformance, we were able to raise our fiscal 2026 NFVPS guidance for the second time this year.

Rivera will provide additional details on our financial projections later in the call. With that, I'll turn to New Jersey National Gas and walk through how our efforts directly benefited customers on the next slide. Natural gas remains by far the most cost-effective option for home heating, particularly during periods of sustained cold. Affordability and reliability go hand-in-hand. The same planning and operational discipline that allows us to meet record demand this winter also helps customers manage costs during periods of higher usage.

That's why we take a proactive approach to managing gas costs. Each year, we secure a significant portion of winter gas supply well in advance, limiting our customers' exposure to sharp commodity price increases. As we noted last quarter, going into this winter, the projected gas supply requirements at New Jersey Natural Gas were over 87% hedged, securing cost-effective supply to serve our customers. The average hedge price used for our customers was approximately $2.27 per deck of them for storage and LNG, compared to a citygate price, which we avoided that traded in excess of $135 per deck of them. This winter, New Jersey Natural Gas also delivered meaningful savings to our customers under the state-approved basic gas supply service incentive program.

This helps to further manage gas costs during the periods of high usage and elevated commodity prices, which we highlighted on the slide. Under this program, we generated over $93 million in gross customer savings over the winter season. Over the life of the program, we have generated over $1.6 billion in gross customer savings by optimizing our gas supply, while also creating value for our shareholders. In parallel, we continue to invest in energy efficiency through our save-free program. More than 115,000 customers have taken part in our programs to date, with those utilizing our whole home offerings, realizing bill savings of up to 30%.

Finally, we provide payment flexibility and offer targeted assistance that helps customers manage usage in bills over time. Turning to slide 7, the cost advantage of Natural Gas continues to support steady customer growth across our service territory. That growth reflects the combination of new construction, conversions, and targeted infrastructure expansion, all driven by customer demand. A reason example is Chester Township in Morris County, which is now formally included in New Jersey Natural Gas's regulated service territory. This reflects our ability to partner with communities and regulators to thoughtfully expand our footprint while continuing to deliver safe, reliable service.

Now, turning to our storage and transportation business on the next slide, as we discuss on our year-end earnings call, we expect net financial earnings from this segment to more than double over the next two years, and we remain on track to achieve or surpass that goal. Over the next two years, our growth is driven by strongly contracting activity at both Adelthia and Leaf River. These are fixed price fee-based agreements with high quality credit-worthy counter-parties, providing a high degree of predictability in earnings.

Moving to longer-term growth, at Leaf River, we continue to make steady progress on our expansion plans. During the first quarter, we filed a FERC application in which we proposed increasing working gas capacities by more than 70% over the next few years. We recently received the Environmental Assessment from FERC, which represents another important step in the review process, and the filing is progressing as expected. We've also secured a long-term contract supporting the initial expansion at our existing caverns, with the remaining phases to be underpinned by long-term debased contracts as well. Overall, this project remains on track with regulatory review proceeding in line with our expectations, and will continue to provide updates as we move through the process.

Moving to clean energy ventures on slide 9, during fiscal 2025, CEV increases in solid capacity by almost 25%, and this momentum has continued with 33 megawatts of new capacity brought into service this year. We expect to increase in solid capacity by an additional 50% through the end of fiscal 2027, supported by a pipeline of safe-harvard investment options in markets with supported policy and strong demand growth. This is the first project pipeline that grants us the right but not the obligation to invest, is over 1.2 gigawatts, well in excess of our capital deployment targets. DLFO has been strong in this segment, a result of broad industry relationships and steps taken last year to preserve investment tax credits.

CEV's division to be increasingly selected with our investment decisions, with strong investment returns in the high single to low double-digit unlevered after-tax range. In addition, New Jersey and PJM required incremental electric capacity to be rising demand, and solar offers the most expedient path to adding new supply to the grid in the near term. CEV stands ready to be part of the solution. The team at CEV's in the early stages of exploring ways to leverage our portfolio of operational assets and existing PJM interconnections to add more supply to the grid in the near term.

Technologies like linear generators, fuel cells and batteries offers CEV a potential opportunity to optimize existing solar sites and benefit from investment tax credits into the 2030s. Moving to financing, we've historically utilized sale leasebacks as the main mechanism to efficiently monetize the tax attributes of our solar investments. In the future, this may include the use of tax credit transferability as an additional tool. We will continue to evaluate the most economically advantageous structures available to support long-term shareholder value.

Finally, last month, we reached an important milestone at CEV, surpassing 500 megawatts of in-service capacity. I want to thank the entire CEV team for their strong execution. With that, I'll turn the call over to Roberta for a financial review, and then I'll return for a few closing remarks. Roberta?

Thanks, Steve. Turning to select 11, the second quarter reflects strong execution across the portfolio and continues momentum into the second half of the year. We delivered solid net financial earnings across both our regulated and non-regulated businesses with continued performance at energy services. As a result, we're raising fiscal 26 guidance for the second time this year. We'll continue to fund our capital plan and maintain a strong balance sheet.

Moving to a brief walk for the court from slide 12, fiscal 26 second quarter consolidated net financial earnings was $221.5 million or $2.20 per share. A significant increase over the $128.3 million or $1.20 per share reported in the second quarter of fiscal 2025.

Net financial earnings reflect solid performance across the portfolio, with a notably higher contribution from energy services. For the year to date period, the higher net loss at CV simply reflect last year's one-time gain resulting from the sale of our residential solar business. Overall, the mix of results and risk scores are the value of our diversified model.

With that, let's turn to our capital plan on the next slide. We deployed approximately $400 million of capital across our businesses year to date. New Jersey national gas represented roughly two-thirds of total capital spending, with investments focused on strengthening court infrastructure, enhancing safety and reliability, and supporting continued customer growth. We do not have any change to our estimates for fiscal 26 and fiscal 27, and are reaffirming our five-year capital outlook of $4.8 to $5.2 million through fiscal 2030.

More than 60% of this capital is expected to be invested at a utility, with clean energy ventures and historic transportation comparing the balance. Collectively, these investments support our 7% to 9% long-term NFPS growth targets, while remaining well within our long-term credit parameters, which I'll cover in the next slide. On slide 14, we highlighted the strength of our balance sheet, which continues to improve during periods of strong performance, like this window. We erased our guess that they fall to a guess that they've raised expectations for fiscal 2026, and are projected to remain around 20% for the next five years.

Energy services, incremental cash flow disorder enhances our ability to find capital investment, support credit metrics, and reinforces that we see no need for block equity in the foreseeable future. In addition, on top liquidity and a well-lathered debt maturity profile limit near-term refinancing risk and preserve financial flexibility.

And finally, as shown with slide 15, we're again raising our NFPS guidance range for fiscal 2026. During our prior conference call, we erased our guidance by 25 cents per share, driven by energy services of performance in January 2026. With favorable results, itinerary services continuing through February and March, or increasing our NFPS guidance by an additional 20 cents to a higher range of $3.00 and 48 cents to $3.66 per share. We're also revising our expected NFPS contributions by segment. With energy services percentage rising, as a result of its performance and all viewer businesses adjusting accordingly, New Jersey national gas would represent approximately 60% of the company's NFPS or fiscal 2026.

With that, I'll turn it to Steve for a complete remarks on Select 16.

Thanks, Roberto. NJR once again delivered exceptional results through a demanding winter period, reinforcing the reliability of our system and the durability of our business model.

Our long-term growth continues to be anchored by our regulated utility, with clear visibility into capital investment in New Jersey natural gas, and a continued focus on operating safely and reliably when customers need us most. Storage and transportation remains well positioned with clear earnings visibility in the near term and additional upside over time as capacity expansion opportunities progress. High clean energy ventures are portfolio continues to scale as expected, supported by a secure development pipeline and disciplined capital deployment.

Taking together, execution across our complementary businesses provides momentum into the remainder of the year and reinforces our confidence in the path ahead. Finally, I want to thank our employees across NJR, your dedication, professionalism, and commitment, especially through another challenging winter, or the foundation for our success.

With that, let's open up the line for questions.

At this time, if you would like to ask a question, press star, then the number one on your telephone keypad. To withdraw your question, simply press star one again. We will pause for just a moment to compile the Q&A roster.

Your first question comes from the line of Gabe Maureen with Mizuho. Please go ahead.

If you guys could provide some more color on what you're seeing, say, as a solar project opportunity. It's an outreach from the PGM and the state, particularly as New Jersey looks for the generation gap.

Yeah, really it's been playing out just like we said all along. We say Harvard in a number of projects. We've got a 1.2 gigawatt number of projects available to us, and the state has been certainly encouraging solar development with the capacity shortfalls in PGM to put this way to bring new capacity market is through solar. We're continuing to make investments, and we've got a number of really attractive choices in that space, and we're continuing to help solar. All things ago, and certainly playing out just like we've said over the past few calls.

I mean, we're not changing our capex guidance, so we're still continuing to move forward to hit those numbers. So really, the things that I was talking about, the pressure on the market develop and bring more capacity to electric customers in New Jersey is moving forward, and certainly an important part of the Cheryl administration's goals of China low electric.

Again, to ask a question, it is store one on your telephone keypad. Your next question comes from the line of Travis Miller with Morningstar. Please go ahead.

Hey, Travis.

Yeah, the raising guidance, yeah, relative to what you talked about in February, obviously, less winter in March and April.

So much the winter hadn't transpired to that point. And through February and March, you know, that book continued to increase in value and add value. And when, you know, conclusion of the winter, we're able to close the books and look at those numbers and certainly the earnings guidance raised that you see here. It's reflective of that energy services continues to be a business that performs, you know, just good things for us long term, you know, lowers our debt and equity needs by the cash that they're able to bring in. And, you know, all at, you know, a low risk profile. So, you know, we hope it continues going forward. But really, the whole reason for the, you know, raised for an hour, raised now was really just timing and adding what are concluded.

Is that right? Yeah, that's right.

And then, Lee Ferver, when does that expansion cut back start to come into the plan and related to that? At what point do you need some extra financing above and beyond your plan, either equity or debt, to support the Lee Ferver expansion? So, we won't need any additional financing, you know, for the, for, but, you know, capital expenditures, you know, we're starting now, you know, we've started to make commitments on equipment and, you know, arrange for, you know, contractors and other things that begin that, begin that process of construction.

You saw that we received the environmental assessment for not too long ago. So, everything's moving along as it, as it should, according to schedule. And of course, we've got that all backed by a long chart contract. So, we're moving over that project, you know, expect to have that into service in fiscal year 2027, 28.

Thanks, Jess.

That concludes our question and answer session. I will now turn the call back over to Adam prior for closing remarks.

Thanks so much. And I'd like to thank everybody for joining us this morning. As always, we appreciate your interest in investment in NGR. We'll see many of you in Scottsdale at AGA in May. And have a good rest of your day. Appreciate it.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.