New Jersey Resources (NJR) Q3 2025 earnings call transcript

Please go ahead Adam Thank you.

Welcome to New Jersey resources fiscal 2025 third quarter conference call and webcast I'm joined here today by steve west hovin our president and ceo Pat nigliaccio our senior vice president and chief operating officer of New Jersey natural gas Roberto bell our senior vice president 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 of our forward-looking statements Include many factors that are beyond our ability to control or estimate precisely That it could cause results to materially differ from our expectations as found on slide two These items can also be found and the forward-looking statement section of yesterday's earnings released furnished on form a K And in our most recent forms 10k and 10q is filed with the SEC We do not by including this statement assume any obligation to review or revise any particular forward-looking statement referenced here in in light of future events We will also be referring to certain non-gap 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 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 seven of our 10k The slides accompanying today's presentation are available on our website and we're furnished on our form 8k filed yesterday Steve will begin with this quarter's highlights beginning on slide four followed by Pat who will discuss New Jersey natural gas highlights Roberta who will review our financial results and then we will open the call for your questions But that said I will turn the call over to our president and CEO Steve left open.

Steve Thanks, Adam. Good morning everyone fiscal 2025 continues to be an excellent year for njr marked by disciplined execution and consistent performance across all segments Discorder was no exception ngr raised the lower end of its full year guidance increased capbacks projections driven by utility investments Advanced projects through the sev pipeline and made regulatory progress while identifying multiple expansion opportunities at s&t We reported robust investment at New Jersey natural gas under our save green program Investments that are delivering near real-time returns while helping customers manage their energy use Sev plays 63 megawatts into service so far this year and will likely finish the year with close to a record amount of capacity placed in the service While also maintaining a project pipeline of investment options that remains diverse and flexible in storage and transportation We have reached a settlement in principle at the Adelphi gateway ratecase and expect resolution by the end of the year At least forever we continue to evaluate expansion opportunities that support future growth Energy services provides stability through fee-based performance from our asset management agreements And finally njr home services was named a top rude pro partner for the ninth consecutive year This recognition is a testament to our entire team's dedication to service excellence and meeting our customers home comfort needs with the installation of high quality and reliable equipment Turn you to slide five for more details on our guidance for the year We are raising the lower end of our fiscal 2025 NFEPS guidance range by five cents to 320 to 330 per share This reflects strong operating performance across our businesses and greater visibility into full-year results The revised range which is above our long-term seven and nine percent growth target demonstrates our ability to execute through dynamic environments On slide six we present our updated NFEPS guidance by segment New Jersey National gas remains the strongest contributor to NFEPS Benefiting from our recent rate case settlement and customer growth CED is expected to contribute over 20 percent of our NFEPS this year based on high performing operating assets and the monetization of the residential solar portfolio We are slightly narrowing the range of contributions across our business lines consistent with our practice as the year progresses These updates reflect our performance and energy services and the modest change in the relative contributions from New Jersey National gas and CEV Roughly 65 percent of our full year NFEPS is expected to come from utility operations Rising to over 70 percent when excluding the CEV gain related to the sale of our residential solar business This shows how our platform is anchored in stable reoccurring earnings With that i'll turn the call over to pat to discuss New Jersey National Gas on slide seven Pat thanks Steve at the jersey natural gas customer growth continues to be consistent and reliable contributor to our performance We now serve approximately five hundred eighty thousand customers With over 90 percent of these customers being residential and the vast majority being located in our core counties mama ocean and morris These counties are experiencing solid population growth steady housing starts and new commercial development Or service territories remain among the most economically vibrant in New Jersey the stable trends And high demand for affordable reliable energy As these customers are integrated into our system they drive a current margin that compounds over time that supports continued capital investment I want to take a moment to highlight the importance of save green as part of our future investment So you can remain one of the most impactful and unique utility energy efficient programs in the country Services a model for how regular utilities can simultaneously deliver benefits to customers and shareholders This quarter.

We are raising our 2025 capital projections for save green by over 30 Bringing the expected range up to 90 to 95 million Which represents another year of record investment This increase is driven by Greg adoption the more efficient h3c systems installation and weatherization for both residential and commercial customers From a financial standpoint Save green investment benefits from an accelerated cost recovery mechanism This allows us to begin recovering our investment in real time eliminating regulatory lag and improving capital efficiency Strategically saving lives like decarbonization goals It reduces customer bills lowers emissions and positions enging as a for looking utility committed to sustainability It's an example of how policy alignment customer service and investor returns can coexist with a single program We expect save green to remain a core element of enging these capital strategy in the years ahead As a third quarter enging has invested approximately $383 million in capital projects which we highlight on slide nine More than 47 or 70 investments are earning near real time returns through mechanisms such as save green These programs provide timely recovery and reduced earnings lag traditionally associated with utility capbacks Our capital allocation of enging is designed to support our three strategic pillars Safe and reliable service Customer focus growth and clean energy leadership We maintain clear visibility to our capital plan supported by a multi-year pipeline of planned work Strong regulatory relationships and predictable customer demand Looking ahead.

We expect enging to continue driving value through targeted capital employment The lines with the liability safety decarbonization goals are providing an appropriate return to our shareholders With that i'll turn it back to Steve Thanks pat A move to a discussion of our other operating businesses beginning on slide 10 with clean energy ventures CD continues to demonstrate the value of a diversified and flexible development model Year to date we placed approximately 63 megawatts into service Including adding over 30 megawatts since our last conference call We've been closely monitoring the implications of the big beautiful bill on the renewable sector our development pipeline is advancing projects Through construction and we are identifying attractive opportunities that align with our investment criteria Our current pipeline includes approximately 131 megawatts of solar projects scheduled to be brought into service in the next two years Representing approximately 350 million dollars of investment with over 800 megawatts of additional investment opportunities in the future Our project pipeline includes a range of opportunities varying in size location and timeline And our agreements with developer partners are scheduled to preserve returns These contracts give and they are the right but not the obligation to move forward with individual projects at our discretion This approach gives cED the flexibility to advance only those projects that are aligned with our long-term capital plan and offer the most attractive risk adjusted returns It also allows us to scale investment based on market dynamics and our connection time in return profiles Ensuring disciplined capital deployment and a focus on value creation cED plays a strategic role in njr's portfolio through disciplined return focused investments aligning with a broader capital plan that remains anchored in our core utility and infrastructure businesses The sale of our residential solar portfolio earlier this year not only unlocked value But demonstrated the strength of our execution and the underlying quality of our assets Solar remains one of the fastest and most efficient ways to answer the need for new generating capacity With a robust pipeline flexible capital approach and strong operational capabilities We believe cED is well positioned to address this need while contributing to njr's long-term growth Now let's turn to our storage and transportation segment Our portfolio of midstream assets the delphi gateway and leaf river Physicians us to serve growing energy demand and constrained markets with highly reliable infrastructure At a delphi we reached a settlement in principle with the FERC staff and the customers participating in our section four ratecase We expect to file an offer of settlement with FERC in the coming weeks and remain optimistic about reaching a resolution this year Adley forever we're advancing our capacity enhancement efforts and evaluating multiple expansion opportunities for both existing and new caverns aimed at delivering attractive long-term returns As noted our last call we recently completed a non-binding open season for a potential fourth cavern which drew encouraging interest As we assess the economics and refine the design criteria at the site our due diligence has identified several organic growth opportunities We expect to advance the subset of these projects and begin the regulatory process at FERC in the coming months Market conditions for storage remain favorable and the site structural and geographic advantages reinforce its long-term value As part of njr's broader strategy our S&T business complements both our utility and clean energy platforms Contributing stable fee-based cash flows and offering a creative reinvestment potential With that i'll turn the call over to riberto for review of our financial results riberto Thank you Steve and good morning everyone Slide 13 shows the main drivers of our NFE for that third quarter and year-to-date period of fiscal 2025 In the third quarter we reported an FFS of six cents per share compare with an net financial loss of nine cents per share last year Year-to-date NFE 313.4 million dollars or three dollars and 13 cents per share An increase of nearly 55 percent year over year drivers include higher utility margins at New Year's national gas post-rate case An net benefit of approximately 30 cents per share for the sale of our residential solar portfolio during our fiscal first quarter improved performance in our source and transportation business And some results from energy services during the winter period These results show the resiliency and balance of our business model Now, let's move to slide 14 or we will discuss in your capital plan For fiscal 2025 and fiscal 2026 Our planning capital expenditures ranging from 1.3 to 1.6 billion dollars Which aligns with our long-term and FFS growth target of 79 percent We increase the lower end of our capital plan from our prior disclosures driven by better than expected saving deployment at the utility We now expect spending between 650 and 770 million dollars in capital investments during fiscal 2025 We plan to update our fiscal 2026 capital plan in November Consistent with our typical timeline This update may include several areas of potential incremental upside including safe green These investments aligned with our long-term strategy to enhance utility infrastructure Expand clean energy investments and optimize our storage and transportation capabilities As highlighted on slide 15 or strong balance sheet and discipline financial management Remains foundational to end your long-term strategy and our ability to invest through various economic or market conditions We're projecting an adjusted effort adjusted at ratio of 19 to 21 percent Reflecting our conservative approach to balance sheet management and ensuring ongoing access to low cost capital For fiscal 2025 we project cash flow from operations between 460 and 500 million dollars This robust cash generation is supported by stable utility earnings and contributions from CV SMT and energy services In terms of liquidity we have 825 million of credit capacity across our great facilities This flexibility positions us to fund our capital plan and manage working capital needs Our then maturity profile is well gathered with no outside refinancing risk in the near term limiting interest rate exposure Our cash flow strength liquidity position and prudent financial policy support in your ability to fund growth Maintain flexibility and preserve shareholder value across a variety of market conditions With that i'll turn the call back to Steve for concluding remarks on slide 16 Thanks, Roberto fiscal 2025 has been an excellent year for ndr and third quarter we delivered solid operational and financial results Raise the lower end of our full-year earnings guidance and advanced key strategic investments across all of our core business lines These businesses work together to form a well-balanced enterprise that generates predictable earnings and appear leading long-term growth rate Supports consistent capital deployment With the ability for incremental upside and creates meaningful value for customers and shareholders alike Just as important our success this year has been supported by a healthy balance sheet ample liquidity and disciplined capital allocation That financial strength allows us to maintain flexibility and how we fund growth manage risk and respond to changing market conditions And at the core of all this is a team of dedicated employees to show up Every day to serve our customers and communities I want to give a special thank you to our employees out in the field working through 95 degree heat this summer to ensure our customers are safe and comfortable Your hard work does not go unnoticed To conclude we believe that our as well positioned to deliver attractive long-term risk adjusted returns Our track record flex not only the ability to navigate changing environments But also to allocate capital to where it matters most serving the evolving needs of our customers So with that we'll now open the line for questions We will now begin the question and answer session If you would like to ask a question see the press star followed by the number one on your telephone keypad And your first question comes from the lineup featured Thunderland with jp morgan Richard.

Rich so right now we're still in the I guess the middle of the the settlement and none of those details have been made public at this time So, you know negotiations been constructed and we're nearing an end But we're not going to divulge any more information around that this point.

And then I guess similarly has obbb change your expectations at all around sev So i'll take that in a few different parts um one, you know We're trying to improve the way that we report the you know future capital that we're going to invest in sev So, you know 131 megawatts It's really, you know, what's under construction or really near construction at this point in time So we've got some good visibility on the investments that will make you know there You know over the next few years and you'll see those you know come into service um You know addressing, you know ob um obb Uh, and all the other questions that are around that Um, you know, we just talked about you know our capital plans and you know the clarity of that over the next few years um We've got high confidence in the projections that we're sharing with you and that really drives your 79% growth rate um So when you look at obb and you look at its potential impact, you know on our total capex You know, you'll notice the majority of our infrastructure our assets that deliver natural gas are natural gas related Um and that's reflected in our needs mix, you know In fact over 80 percent of our capex in the past five years has come from natural gas business And we expect the majority of our growth, you know still to continue in that space um So, you know your pat talked today about the energy efficiency program and the growth is there Um, we talked a little bit about the potential expansion at leaf river and the organic growth of our core businesses Um, and we feel that this is going to drive the value across all of njr's assets Um, so you know to put it in the context, you know majority of the dollars that we're going to spend You know, we're going to be in our gas related businesses Um, so regardless of how vb, you know, uh, vbb Uh, uh, you know, uh turns out You know, we remain confident that we're going to hit our capital targets over the next few years You know through our portfolio and businesses and through the examples that I just had shared with you Um, so, you know, obviously that flexibility and our ability to invest in multiple platforms Um, it's going to drive, you know, our growth going forward And of course that's driven by the fact that you've got some really, you know Some very real growth coming in the electric side of the market that you know We've all talked about all this time So all of our infrastructure, you know, it's going to be able to participate in that You know, we still think solar is important, you know, it's the quickest, you know capacity that you can bridge the market But you know overall, you know, just putting in context Um, you know, we feel good about, you know, our businesses moving forward and our ability to uh, invest and grow For the thoughts there.

I'll leave it there.

So You know, to me, you know, this is something that, you know, hopefully will take place over the next, you know Few months, you know, depending on, you know, how these processes turn out It's already Incremental color you can add on snt's relative strength this quarter You know, I think he's just a strong natural gas market, you know, he's all the weather Um, certainly has uh, has contributed, you know, quite a bit You know, if you look at, you know transportation demands and storage demands, you know, balancing, you know, you know, extremely hot days You know, to think that we talked about all the time This is real growth in the energy markets and you need infrastructure to be able to supply that And, uh, you know, natural gas is flexible, you know, fuel that's able to supply You know, those needs, um, when it's called upon Um Going back to the deltia case, it's certainly a really big catalyst for 2026 When you make your filing, do you anticipate you'll do a release for that?

When we, you say when we complete the, uh, uh, you know, I guess to settle in the rate case and everything goes into effect Yeah, I mean, they'll be, they'll definitely be a, you know, public, uh, disclosure at that point in time, you know, we'll update tariffs There'll be a number of things that will be required, you know, to do, um, but certainly we'll talk about it um Roberta the the utility gross margin for the quarter was a little bit bigger than I was expecting Um, I'm guessing that that just has to do with some Variants and my seasonality expectations for the rate case, but can you break out at all that 25 million?

Um case versus sort of organic growth Yeah, maybe we made what I would say on that price is do you have anything certainly from that new rate case But in also we have been making a lot of progress on your website.

So, um, you know, instead of these is that That uh, you know, we've been talking about for a while And we continue to make investments and grow the company basically beating into that real market demand So, you know, one way good way of saying yes, you know, you know, the demands of the market Um, you know, the price you have to support new investment and and that's occurring real time Okay, great.

Appreciate it All right.

Yeah, I mean really, you know, we'll get that customers lined up and you know What services that they need, you know, run through your feed studies to see what equipment and what construction needs to take place That's all, you know, in motion right now And then there'll be a FERC filing, you know, that approval and then they'll set in motion to construction to be able to build the services And then go into commercial operations. They will, um, meet the customer's needs Okay, I had at what point in that process would you know, you know, around the capex?

Yeah, I think that's you know, that'll be in the coming months, but you know, I hope to have it done You know, we normally update our capex schedule, you know, in November and I don't expect you know, that we we take place that If everything lies up the way that we're expecting at this point Okay, great then different topic the dividends traditionally the boards considered a dividend increase here in the next couple months Given the epf that you've had over the last few years.

So, you know in years of outperformance that payout ratio would become you know a little bit less um I think history is a good guide for the future in this case, you know, we we typically Stay pretty tight to you know, how we're growing the company You know longer term and they didn't follow that and even seeing you know, we've increased the dividend You know for the past 23.4 years and we expect to continue to do so. So I think uh, you know historical Um performance, um with indicate, you know, how we'd act in the future Okay, great.

Hey, Rob. Good morning. Uh, yeah, so the general mark the start of the new, uh, triane as we refer to it in the energy officials program. That's a combination of both Strong demand for the market on the residential side for more efficient HAC systems But also on the commercial side a directed stall program, which is a newer feature of the savior program And combined with Kindly our team's really strong execution of the program led to the guidance through this year Um, and as we've already became we typically update capex guidance in 2026. So, um, we'll make any indications about any student future, uh, seed reading groups at that point in time Uh, but didn't just more broadly as we think about The strategic advantage of the program and at the risk of repeating my remarks It really is a win win win, right?

We're able to lower customers bills, which is particularly important and appear more focused on affordability Um, while at the same time reducing emissions, it is a strong decarbonization tool. We have a tool kit Uh, and, uh, you know, as we pointed out a couple different times, this is one of the Real-time recovery mechanisms that we have out of disposal Gas infrastructure in the northeast might be easing a little bit Is there anything NGR would be interested in via growth projects or trying to secure System or supply redundancy to support, uh, some of the customer growth you guys are experiencing and maybe improve reliability I mean, you know, those are programs that where you, you know, have continued to make investments, you know, uh, reliability Expanding the system, you know, making sure you hit customer growth numbers, you know, that have been uh, that have been great You know, over the past few years So I would expect, you know, kind of more of the same item permitting and and, you know, conversations around it Um, um, you know, at times have been difficult in the past, but we've always been able to achieve, you know, that investment in the building infrastructure that we need Um, so I'm just expecting to continue Got it.

Adam Thank you and thank you all of you for joining us this morning. So always we appreciate your interest and investment in J. R And have a good rest of your day