New Jersey Resources CorporationNJRNYSE
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Operator: Ladies and gentlemen, thank you for standing by. My name is Abby, and I'll be your conference operator today. At this time, I would like to welcome everyone to the New Jersey Resources Fiscal 2025 Fourth Quarter and Year-End Financial Results Conference Call. [Operator Instructions]. Thank you. And I would now like to turn the conference over to Adam Prior, Director of Investor Relations. You may begin.
Adam Prior: Thank you. Welcome to New Jersey Resources Fiscal 2025 Fourth Quarter and Year-End Conference Call and Webcast. I'm 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. 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. This could cause results to materially differ from our expectations as found on Slide 2. These items can also be found in the forward-looking statements section of yesterday'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 particular forward-looking statement referenced herein in light of future events. We'll also be referring to certain non-GAAP 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-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. The plan for today's presentation are available on our website and were furnished on our Form 8-K filed yesterday. Steve will start with this year's highlights and a business unit overview beginning on Slide 5. Roberto will then review our financial results. Then we will open it up for your questions. With that said, I will turn the call over to our President and CEO, Steve Westhoven. Please go ahead, Steve.
Stephen D. Westhoven: Thanks, Adam, and good morning, everyone. I hope you all had a chance to review our earnings materials, which include detailed disclosures on our growth prospects. I wanted to start by discussing a few highlights. We delivered excellent results in fiscal 2025, driven by strong execution and performance. For the fifth year in a row, we exceeded initial earnings guidance and long-term growth targets. After a successful 2025, there are a few key themes as we look ahead for fiscal 2026 and beyond. First, consistency and execution. We're guiding to NFEPS of $3.03 to $3.18 per share in fiscal 2026. The range is consistent with our long-term 7% to 9% growth rate, while leaving additional room for upside. Second, targeted capital deployment. We expect to invest roughly $5 billion over the next 5 years across the whole company with roughly 60% allocated to our utility New Jersey Natural Gas. To put the $5 billion in the context, this represents a 40% increase compared to the CapEx spend over the last 5 years. Third, a healthy balance sheet anchored and disciplined financial management. We expect credit metrics to remain strong with healthy cash flows, ample liquidity and a balanced debt maturity profile that supports long-term stability. Importantly, NJR requires no block equity issuance to execute on its capital plan. On the next slide, we highlight a few of the key drivers of our business segments. To begin, New Jersey Natural Gas is positioned for high single-digit rate base growth through 2030. S&T is expected to more than double net financial earnings by 2027, driven by favorable recontracting of both Adelphia and Leaf River. Looking ahead, we recently filed with FERC, a plan to increase working gas capacity by over 70% at Leaf River. And in Clean Energy Ventures, we expect to expand capacity by more than 50% over the next 2 years with a robust pipeline of safe harbor projects. In short, through a disciplined capital investment strategy, we have visibility to deliver sustainable growth well into the future, supported by a solid balance sheet. And we are able to achieve all this with minimal dilution to shareholders. Let me turn to a brief discussion of each business units, starting with the New Jersey Natural Gas on Slide 7. Our planned investments at New Jersey Natural Gas are expected to drive high single-digit rate base growth through 2030. The New Jersey Natural Gas operates within a constructive utility framework and continues to make responsible investments in safety and reliability while prioritizing affordability for our customers. Natural gas is by far the cheapest option for customers to eat their home. Energy efficiency programs such as SAVEGREEN further reduce usage and costs while aligning with environmental goals. For example, residential customers who fully participate in say agreeing a whole home offerings see a reduction of up to 30% in their energy usage, saving hundreds of dollars in utility costs every year. Moving to the next slide. Storage & Transportation is emerging as a key earnings growth driver for NJR. Over the next 2 years, we expect NFE to more than double at S&T, and this is largely driven by strong recontracting in both the Adelphia and Leaf River. These are fixed-price contracts with quality and creditworthy counterparties. When we recently reached a settlement in our FERC rate case Philadelphia, this constructive outcome enables recovery of the substantial investments and operational improvements made in recent years. While near-term earnings are set to double, we are actively pursuing organic growth opportunities for additional upside of Leaf River, which we outlined on the next slide. When we acquired Leaf River in 2019, we positioned NJR as a leading service provider in the Gulf Coast, one of the highest growing energy demand centers in the United States. In addition to the prime location, the long-term value of the asset was enhanced by expansion options beyond the three existing operating taverns. Since our purchase of the asset, market demand has strengthened. Throughout fiscal 2025, we conducted a number of nonbinding open seasons, which confirmed the high level of commercial interest and capacity expansion. Following this favorable response we filed a FERC application at the end of October that included several complementary investments to increase Leaf River's working gas capacity by over 70%. They include the expansion of our existing caverns to working gas capacity of 43 Bcf by 2028, and the development of an additional for cabin that will bring total capacity to 55 Bcf. Each phase of the investment is expected to be backed by long-term fee-based contracts, building on our already strong entity growth. This phased approach has an inherent speed to market advantage that positions NJR ahead of greenfield development options. To conclude, we see considerable upside in both the near and long term as S&T becomes a greater contributor to NJR's earnings profile. Moving to Clean Energy Ventures on Slide 10, we expect to grow in service capacity by more than 50% over the next 2 years. Looking ahead, we have a strong project pipeline designed to maintain investment tax credits through strategic safe harboring. This position CEV to deliver continued growth in high single-digit unlevered returns. So with that, I'll turn the call over to Roberto for a financial review. Roberto?
Roberto Bel: Thanks, Steve. Fiscal 2025 was an excellent year with strong even growth, a solid balance sheet and continued investment across our businesses. Slide 12 highlights a few fiscal 2025 accomplishments. New Jersey Natural Gas achieved a constructive outcome in its recent rate case and deliver record investments for Leaf Green. Clean Energy Ventures added record new capacity. In fiscal 2025, CV placed 93 megawatts of new commercial solar capacity into service, expanding our portfolio to 479 megawatts. In addition, CD secured investment options for years to come through effective safe harboring. In Storage & Transportation, Adelphia received approval settlement on its third rate case we levering our advanced expansion initiatives. Energy Services achieved strong cash flow generation and our Home Services business was named a road top 20 ProPartner for the ninth consecutive year. We also marked an important milestone, 30 consecutive years of dividend increases and reporting confidence in our long-term plan. On the next slide, we finished the year at the top end of our guidance range, which was raised earlier this year. We deliver financial results ahead of expectations, roughly 2/3 of total EPS came from the utility. And when you exclude the net impact of the sale of our residential solar assets, that figure raises over 70% underscoring the stability of our earnings. Drivers of our performance include the completion of our rate case and a record year of saving investment. Additional drivers include approximately $0.30 per share from the sale of our initial solar portfolio, improved performance from our storage and transportation business and a solid winter results from Energy Services. Moving to a discussion of CapEx on Slide 14. We deployed $850 million across our businesses, which I'll highlight in the next few slides. On Slide 15, New Jersey Natural Gas represented approximately 64% of total CapEx with investments directed towards strengthening core infrastructure, enhancing system safety and reliability and supporting customer growth. Almost half of these investments are recovered with minimal lag. As shown on Slide 16, fiscal 2025 CapEx for CV came in well above expectations, reflecting accelerated progress. Importantly, our capital deployment target is fully safe harbor securing tax benefit for future capital expenditures. Building on this from 2025, I wanted to shift our CapEx outlook on Slide 17. We're sharing a 5-year CapEx outlook of $4.8 billion to $5.2 billion through fiscal 2030. This represents a 40% increase over the previous 5 years of capital spending across our businesses. We expect that more than 60% of our total projected CapEx will be dedicated to the utility with CV and S&P representing the balance. Together, these investments support our 7% to 9% long-term NFEPS growth target while maintaining a solid balance sheet as discussed in the next slide. Strong cash generation across our businesses translate into an adjusted FFO to adjusted debt ratio that is projected to remain at around 20% for the next 5 years with no block equity needed. Additionally, ample liquidity and a well laser debt maturity profile minimize near-term refinancing risk and preserve financial flexibility. And finally, we're initiating fiscal 2026 and EPS guidance with a range of $3.03 to $3.18 per share. The range is consistent with our long-term 7% to 9% growth rate, while leaving additional room for upside. The utility is expected to contribute approximately 70% of fiscal 2026 in the CPS complemented by earnings growth from CB and S&P and a baseline outlook for Energy Services. With that, I'll turn it back to Steve for concluding remarks on Slide 21.
Stephen D. Westhoven: Thanks, Roberto. Over the last 25 years, we've delivered industry-leading returns, reflecting both the quality of our utility investments and disciplined contributions from our nonutility businesses. While our infrastructure investments have been the foundation of this performance energy services that complement that strength, enhancing consolidated returns and providing flexibility to reinvest in our infrastructure businesses. To recap fiscal 2025 was another year of solid execution, marking 5 consecutive years of exceeding initial earnings expectations. Our long-term growth remains anchored by our regulated utility with clear visibility into capital spending at New Jersey Natural Gas. Storage and Transportation is set for accelerated growth with earnings expected to more than double in the near term before we even begin to factor in those capacity expansions we highlighted earlier. Over the next 2 years, Clean Energy Ventures expects a 50% increase in installed capacity, and our project pipeline is secured into the future through proactive safe harboring. As they are today stands as a balanced diversified energy infrastructure company built for long-term stability and value creation. The outlook for fiscal 2026 and beyond is clear, well-funded and utility anchored. As we all know, New Jersey recently had a gubernatorial election electricity prices and affordability issues were front and center. We understand the challenges this data is facing today, and we look forward to working with you coming governor to meet your call for swift deployment of clean energy solutions and to continue providing affordable natural gas service to families and businesses. And finally, a sincere thank you to all NJR employees for your dedication and hard work throughout the past year. Your commitment is the foundation for our continued success. So with that, let's open the line for questions.
Operator: [Operator Instructions]. And our first question comes from the line of Gabe Moreen with Mizuho.
Gabriel Moreen: Good morning, everyone. Just a question maybe to start off on S&T here and Leaf River. It seems like a lot of positive developments. One, can you just talk about contract renegotiations and the extent to which, at this point, maybe all the original contracts have rolled over on a remarketed or resigned at market rates at this point? Or is there still more to go on that front in the years ahead? And then secondly, around the FID of some of the bigger expansions that you may be looking at, can you just talk about potential timing for FID-ing those projects given the customer interest that you've seen in some of the nonbinding open seasons?
Stephen D. Westhoven: Yes, sure. So talking about the contracts the contract tenure at Leaf River, they've got various terms. So we've always got contracts that are coming on and off. I would say there's probably a bias towards the longer-term contracts currently. And certainly, the way the market is moving, any contract that you're signed enough for in the future is higher than ones in the past. Remember, when we purchased that deal, the average contract rate was probably about $0.09 a dekatherm per month. We're now up to almost $0.20 dekatherm per month on average. So big contract upgrade there. And that's really driving the doubling of the net from S&T over the next few years. And then moving forward, further constructive story, the open season provided for about 3x the amount of capacity that we had available. And if you look at the first filing we've got a few stages or phases of investment and expansion at that facility. I would say that before we make any investment, we've got contracts to back it. That's something we've talked about for a long time and we're not going to deviate from that. So we've got signed contracts in certain really quite a bit of clarity on where the revenues are coming to support those investments. So you can make that assumption moving forward. So as we make these investments, first two, we've got a expansion of the compressor station. We've got the enlargement of some of the existing facilities those -- we're starting to spend money and put this in motion. You can see this in our capital plan moving forward. Those are going to lead really nicely into a fourth cavern expansion in the out years, we'll make that idea as we get closer to that. But like we said, the open season certainly supports it, and it's very instructive for that business moving forward.
Gabriel Moreen: And maybe if I can turn to CV, and I think a little bit more confidence in terms of the growth outlook there. Can you just talk about has anything shifted on the ground in terms of your ability to start construction, how much of the 50% increase here has actually started construction or waiting on interconnects and why you think you may be past some of the delays, I think that you may have seen in the past at this segment?
Stephen D. Westhoven: Yes, we certainly have spent quite a bit of money. As you can imagine, the construction cycles are a little bit longer and they go across fiscal years. So we're spending money now for products that are going to be coming into service in the next fiscal year and then the fiscal year afterwards. When we talked about in the last call, we've safe harbor a little bit of projects, a large amount of megawatts. So we've got great options moving forward. I think the other thing to consider as well is that the capacity electric capacity shortfall, the State of New Jersey and PJM the quickest way to bring capacity to the market? Are those projects that are shovel-ready and we have a number of those. So we feel well positioned going forward. That combined with the fact that we've got mature positions within the PJM as well. So everything is moving forward. We've got a good position, a great number of options. And you can see by our capital plan and the extension of that capital plan out 5 years, the confidence that we have in our investments moving forward.
Operator: And our next question comes from the line of Jamieson Ward with Jefferies.
Jamieson Ward: Congrats on another strong result, and thanks for the extra visibility with the 5-year look on CapEx and on CEV, which I'll maybe build on Gabe's question here. With the favorable treasury guidelines and then, of course, all the planned investment in safe harbor, what's the realistic deployment time line. It's probably the most common inbound question we get. But as we think about that pipeline, how should we model the earnings cadence?
Stephen D. Westhoven: So for the investments, we've got the capital plan that we put out there. Certainly, I just talked about it with Gabe from a policy perspective, we believe that there's going to be a lot of pressure to add as much capacity as great as possible, and that's favorable for our business. If you look at the amount of safe harbor projects we have especially over the next 2 years, we've got projects that are safe harbor that are far in excess of what we need in our capital plan. So you've got some ability to accelerate that. But the capital plan that we have is the most accurate picture of what we're going to be able to achieve. And I think looking at that, you can take your guidance from there.
Jamieson Ward: That's terrific. I'll skip S&P because it was a very thorough answer before. I'll just ask one more quick one on CEV and then on the overall plan. So as we think about SREs, TREs, et cetera, what's the weighted average contract life? How should we be thinking about the time frame. That's the second most common question we get and it's CEV related. I think you're going to find a lot less questions after this deck. So thanks for all the information. But I'll just ask that one.
Stephen D. Westhoven: So you say from a time-related perspective, the amount of time allotted into kind of TREs and SREs and how long they live? What's the -- I'm trying to get to the specifics of what you're asking.
Jamieson Ward: Yes. So just at a high level, so we modeled like roll off over the next few years. And the question that we get is just how confident are you in basically the numbers that you've got there. So just looking for a very high level, just a weighted average life remaining, right? Because, of course, the strike sort of trimmed down or tailored down over the last few years, and you're going to have SMT, which you were speaking to earlier. Obviously doubling and picking up a lot of that lag there. So just a quick question on that and then one on the overall 2030 CapEx plan.
Stephen D. Westhoven: So I'll talk about solar just from a kind of a broader perspective. We just talked about it was the quickest way to bring capacity to the market, and you can see the capital that we're able to deploy over the next 2 years being significant and potentially maybe be able to accelerate with certain policy adjustments. The process that we have, we've got the schedule for TRECs, SRECs, everybody knows the longevity of those I would also add that as infrastructure becomes harder to build in each of these facilities you've got the ability to repower or put in battery. You've already got an interconnect that's there as well. You've got kind of increases in Class 1 RECs that have been having over time. So speaking to just the long-term value of these facilities. As we need more capacity, it's not going to be constructive to retire capacity. So there's going to be some expectation that you continue to operate these facilities and moving forward? And then how do you make improvements in them as well. So we really view this as a long-term business, one that's supportive of the growing energy need that is certainly in the east, but over the entire U.S. as well. And you're going to see us looking to enhance whatever we can do with these facilities move forward, just like you'd expect, organic growth is important to us and how do we organically improve and grow those facilities as well. So hopefully, that answers your kind of long-term view of how we're how we're thinking about these assets.
Jamieson Ward: Actually, that's terrific. I think actually, I'm good on the 4.8% to 5.2% through 2030 as well as I go through here. I was going to ask one on affordability, but saw your slides towards the end of the deck in the appendix there. You want to throw it down because that's the other -- as a final question. It's the other one we get, of course, just given everything in New Jersey, you spoke to it in the prepared remarks, you've got some great slides here, but anything else you'd want to add as we think about the next rate case. Of course, we just got new rates November of '24. But as we look ahead, how should we think about your affordability efforts in New Jersey specifically. And that's it for me.
Stephen D. Westhoven: Thanks, Jamieson. So natural gas is the cheapest way that you can keep your home in business. So we like our position when the affordability conversation comes up. And like I said in the presentation, we've got energy efficiency programs and SAVEGREEN, we're able to save customers' money as well. And we look forward to working with the new administration and seeing ways that we can keep the affordability story going from our company and helping our customers reduce costs as much as possible.
Operator: And our next question comes from the line of Eli Jossen with JPMorgan.
Elias Jossen: Just wanted to start on the EPS growth outlook. Seeing some kind of drivers within the Leaf River storage capacity and overall S&T earnings upside. Are there any kind of headwinds elsewhere in the business to keep the growth rate largely the same possible decline in CEV contributions? Or can you just kind of frame tailwinds and headwinds for the overall range?
Stephen D. Westhoven: Yes. I'd say that we're an energy infrastructure energy services company, and this country needs more energy. So we're going to make investments in order to grow that. And you can see that reflected in our capital. So it's all positive at this point. And we're at this point, just looking to execute on that plan in order to increase our earnings going forward. So confident in all those things.
Elias Jossen: Got it. Maybe just to frame it differently. Is there sort of material upside from this S&T business within the growth range should you execute on some of the projects that you outlined?
Stephen D. Westhoven: I mean there's always upside in our business. We're the same business that we were last year and the year before, and we've always been able to grab some upside in these markets. We certainly kind of normalize our expectations on basis, there's an ability to accelerate any of these infrastructure projects given the right policy initiatives. So there's always an ability to upside, but we put together a plan that we believe is executable. And we hope for the best. So hopefully, some of those things will come through, and we'll be able to execute maybe more quickly.
Operator: [Operator Instructions]. The next question comes from the line of Travis Miller with Morningstar.
Travis Miller: Kind of a combined question here on Slides 8 and 9. How much of that increase from fiscal 2025 to '27 on 8? Is the Adelphia rate case versus the recontracting and leaf River and then going to Slide 9, is that capacity expansion trajectory also earnings trajectory I guess the crux in both of those is the recontracting element. So first, that split between Adelphia rate case and the recontracting. And then is the recontracting and extra above that capacity addition. That makes sense?
Stephen D. Westhoven: But there's probably more coming on Leaf River recontracting at sectors numbers. But the bottom line is that for existing assets and no capital investment we've been able to double the earnings coming from those assets, and that's really driven by better contracts, higher contracts coming from the customers. So great story. As far as looking at your forward growth opportunities, you're stating the beginning of expansion at Leaf River. We didn't talk about it, but you still got the ability to expand a little bit at Adelphia Gateway and add more customers in that pipeline as well. So depending on how far this market goes, and I believe it is going to go forward is going to need more and more energy and expansion of organic infrastructure. It's hard to determine where it will stop, right. But certainly, because we've got existing assets, we're able to expand that, and we're also able to make the investments that you see, at least in the short term. And then I would guess it is going to continue in the longer term as well.
Travis Miller: Okay. Is that recontracting assumption based on today's rate at $0.27 -- at $0.20 dekatherm that you mentioned? Or is there another assumption you're making on the recontract?
Stephen D. Westhoven: Yes. It's not assumption, Travis. These are contracts that we have in hand. So these aren't estimates of what forward value are. These are contracts that we've got signed in our hands and are driving our earnings over the next 2 years in that business unit.
Travis Miller: The one high-level question. With all the CapEx you have and obviously the Leaf River, et cetera, how much capacity might you have to do more M&A in organic growth, either logistical, operational or financial.
Stephen D. Westhoven: Yes. I mean we're always looking to kind of bolt-on acquisitions and things in happen or assets that are available. we're building these businesses. So if something comes along and it happens to fit and fits organically, we would take a look at it. So we've got the capacity on our balance sheet, and we like these businesses, the infrastructure business. So we'll continue to pursue it like we have in the past.
Operator: And ladies and gentlemen, that concludes our question-and-answer session. I will now turn the conference back over to Adam Prior for closing remarks.
Adam Prior: Thanks, Abby, and I'd like to thank all of you for joining us. As always, we appreciate your interest and investment in NJR and we look forward to talking to all of you at Utility Week in a couple of weeks, and thanks so much. Have a good rest of your day
Operator: And this concludes today's call, and we thank you for your participation. You may now disconnect.