Earnings Call Transcript - NJR Q1 FY2026

Operator

Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin and I will be your conference operator today. At this time, I would like to welcome everyone to the New Jersey Resources fiscal 2026 first quarter conference call. All lines have been placed on me 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 during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Thank you. I would now like to turn the call over to Adam Pryor, Director of Investor Relations. Please go ahead.

Adam Pryor, Head of Investor Relations

Thank you. Welcome to New Jersey Resources Fiscal 2026 First Quarter Conference Call and Webcast. I am joined here today by Steve Westhoven, our President and CEO, Roberto Bell, our Senior Vice President and Chief Financial Officer, as well as other members of our Senior Management 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 for 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 two. These items can also be found in the forward-looking statements 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 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 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 this quarter's highlights and a business unit overview, beginning on Slide 5. Roberto will then review our financial results. Then we'll open it up for your questions. With that said, I'll turn the call over to our President and CEO, Steve Westhoven. Please go ahead, Steve.

Steve Westhoven, CEO

Thanks, Adam, and good morning, everyone. The natural gas industry just navigated an extraordinary weather event with record-setting demand. And once again, NJR's diversified businesses responded with extraordinary performance. I'll start today's call by acknowledging our team's execution during this prolonged period of extreme cold weather, which hasn't been seen in decades. I want to say thank you to all of our employees for your collective efforts on behalf of our customers. Our assets were operated safely and successfully across our entire natural gas portfolio. Looking at this event and at recent major winter storms, we consistently demonstrate that our systems and our people are prepared, resilient, and able to execute under pressure. At New Jersey Natural Gas, these past few weeks highlighted how critical our lifeline services are to our customers. The utility kept homes and businesses warm and supported emergency providers without interruption. Our non-utility businesses held true to the same level of performance. Both the Delphi and Leaf River experienced high utilization and continuously delivered despite regional disruptions. And the energy services team once again expertly executed. Our strategically located assets generated significant value from the volatility created by the prolonged cold temperatures. As a result of Energy Services' performance, we were able to increase our fiscal 2026 NFEPS guidance by $0.25 to a range of $3.28 to $3.43 per share. This represents the sixth consecutive year of raising guidance as a result of the strength of our complementary portfolio of businesses. As I started, this was an extraordinary weather event met with NJR's extraordinary performance. I'll turn next to how New Jersey Natural Gas took steps to help protect customers against high natural gas prices during the recent cold weather. Over a seven-day stretch, New Jersey Natural Gas delivered the highest send-out in its history. This demand underscores how all aspects of our local economy rely on natural gas, even more so under extreme conditions when our customers need us most. Sustained low temperatures likely will result in higher gas use by our customers, which will have an impact on bills. With a supportive regulatory framework approved by the New Jersey Board of Public Utilities, New Jersey Natural Gas is proactive in helping to protect customers against these high-use increases. Each year, the utility purchased natural gas well in advance of the heating season, when commodity prices are more likely to increase and spike during winter weather events. As a matter of policy, a minimum of 75% of the upcoming winter season's projected gas needs are secured in advance. Going into this winter, New Jersey natural gas was over 87% hedged. This is impactful. Our average hedge price was approximately $2.27 per decatherm for storage and LNG, compared to CityGate pricing that traded in excess of $135 per decatherm during the event. This disciplined approach prioritizes affordability as it allows us to secure a cost-effective supply to serve our customers. In addition, throughout the year, our energy efficiency programs, namely Save Green, help customers reduce usage and lower bills. More than 110,000 customers have taken part in our programs to date, with those utilizing our whole-home offerings realizing bill savings of roughly 30%. In addition to managing usage, we also provide support through financial assistance programs. These efforts help connect customers with more than $16.5 million in energy assistance funding. Now let's turn to customer growth. Natural gas remains the cheapest option to heat your home or business, supporting New Jersey natural gas's strong customer growth. This growth also reflects favorable trends in new construction and conversions across our service territory. In our slide deck, we've included a photo of a new housing development in Monmouth County that will add roughly 350 new customers once completed. It's a clear example of the meaningful customer-driven opportunity ahead. Now switching to a discussion of storage and transportation on slide 8, as we noted on our year-end earnings call, we expect to double NFE over the next two years at S&T. This is driven by strong recontracting to both Adelphi and Leaf River. These are fixed-price contracts with quality, credit-worthy counterparties. During the first quarter, we filed a FERC application that includes several complementary investments that would increase Leaf River's working gas capacity by more than 70 percent over the next few years. Today we're announcing that we've already secured a long-term contract that covers the initial capacity expansion at our existing caverns. The remaining phases of the project will also be supported by long-term fee-based contracts. We are currently active in the FERC process with a likely authorization decision coming by the end of the fiscal year. This is on track with our expectations, and we will provide updates as the project progresses. Moving to Clean Energy Ventures on slide 9, we added approximately 10 megawatts of capacity during the quarter. ahead, we expect to grow in service capacity by more than 50% over the next two years. And our proactive safe harboring initiatives to preserve federal tax incentives further strengthens our leading position in the marketplace. In a region where energy affordability concerns are driven in large part by supply shortages, CEV's speed-to-market capability is a competitive advantage. Specifically, CEV is advancing significant wholesale PJM solar assets as PJM demand projections are trending upward. We expect these operating assets to continue to increase in value. At the same time, the market shortages are opening up additional organic growth opportunities, including new technologies to optimize our existing interconnections. These technologies have the potential to unlock incremental value and add new supply to the grid at a time when New Jersey and PJM needed most. With that, I'll turn the call over to Roberto for a financial

Roberto Bel, CFO

review. Thanks, Steve. I'll start with a brief walk for the quarter on slide 11. We reported NFE of $118.2 million, or $1.17 per share for the quarter, reflecting disciplined execution and solid performance across our businesses. We saw higher contribution from the utility this period, largely due to new base rates being in place for the entire quarter in fiscal 2026. This was offset by a lower CV contribution, given the gain on the sale of our residential solar assets in the prior year period. Let's move to the discussion of our capital plan on the next slide. We deployed approximately $190 million across our businesses during the quarter. New Jersey National Gas represented approximately 70% of total CAPEX for the period, with investments directed towards strengthening core infrastructure, enhancing system safety and reliability, and supporting continued customer growth. We are reaffirming our five-year CAPEX outlook of $4.8 to $5.2 billion through fiscal 2013. We expect that more than 60% of our total projected CAPEX will be dedicated to the utility, with CEV and S&T representing the balance. At CEV, our capital deployment target is fully safe harbor, securing its future tax benefits. Together, these investments support our 7% to 9% long-term NFPS growth target, while maintaining a solid balance sheet, as discussed in the next slide. On slide 13, we highlight the strength of our balance sheet. Strong cash generation across our businesses translates into an adjusted FFO to adjusted debt ratio that is projected to remain around 20% for the next five years. Energy services of performance this quarter provides meaningful additional cash flow, enhances our ability to manage capital spending and maintain strong credit metrics, and reinforces that we have no need for block equity in the foreseeable future. Additionally, ample liquidity and a well-laddered debt maturity profile minimize the near-term refinancing risk and preserve financial flexibility. And finally, as a result of the outperformance from energy services during the winter to date, we're raising our NFPS guidance range by $0.25 to a range of $3.28 to $3.43 per share. We're also revising our expected segment NFAPS contribution percentages as a result of this outperformance. The utility will remain the majority of the company's NFAPS for fiscal 2026, with energy services percentage rising as a result of capturing additional financial margin during this period of volatility. With that, I'll turn it back to Steve for concluding remarks on slide 15.

Steve Westhoven, CEO

Thanks, Roberto. Last month, we issued NJR's Fiscal 2025 Corporate Sustainability Report, which reflects our commitment to transparency with our stakeholders. The focus of this year's report is appropriately on affordability. The report gives greater detail around our energy efficiency and customer assistance efforts. Lower natural gas prices are effectively helping to reduce overall household energy costs, an important factor when addressing affordability. As many of you know, New Jersey welcomed a new governor last month. Governor Sherrill moved quickly to outline her priorities, signing two executive orders aimed at addressing rising electric utility costs and New Jersey's broader energy supply challenges. These actions are consistent with what she emphasized during the campaign, focusing on affordability for customers. These discussions are an important issue for the state, and we look forward to continuing our dialogue and working with the new administration to help drive solutions forward while growing our business. To conclude, our long-term growth remains anchored by our regulated utility, with clear visibility into capital spending at New Jersey Natural Gas. Our top priority is making sure our system operates reliably when it's needed most. 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 the capacity expansions at Leaf River. Over the next two years, Clean Energy Ventures expects a 50% increase in installed capacity, and our project pipeline is secured into the future through proactive safe harboring. Overall, the momentum across all of our businesses reinforces our confidence in the path ahead. And finally, I want to again thank all NJR employees for your dedication and hard work. So with that, let's open the line for questions.

Operator

Ladies and gentlemen, we will now begin the question and answer session. As a reminder, to ask a question, please press the star button followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. One moment, please, for your first question. Your first question comes from the line of Gabe Marine of Nizuho. Please go ahead.

Gabe Marine, Analyst — Nizuho

Hey, good morning, everybody. I guess the story was so good, you have to tell it twice. So I wanted to start off on energy services. Clearly outstanding performance here. It's supposed to be single-digit weather again up and down the eastern seaboard this upcoming weekend for a couple of days. can you just talk about the extent your revision here may capture weather events for the rest of the quarter or there's the potential for further upside should volatility continue to materialize?

Steve Westhoven, CEO

Yeah, thanks, Dave. Thanks for the question. Yeah, sorry about the double repeat there. The Energy Services Group and our guidance that we issued last night, based on results to date or kind of our estimates through uh the end of january so obviously we've got a lot of fiscal year that's left and uh you know not able to incorporate events that haven't happened yet um so uh you know we'll see how those uh you know continue to play out um but certainly you know january was uh obviously very constructive you know for our results here at njr thanks steve

Gabe Marine, Analyst — Nizuho

and maybe if i can follow up on snt um you know the capacity going from 43 to 55 i just want to to confirm you've got contracts for that portion of the expansion. And then also, but maybe if you'd also speak to some of the blue sky opportunities around expanding beyond the 55, are you getting reverse customer inquiries? Is there potential for that capacity growth to accelerate either in size or timeline? And then also are the economics there, you talked last quarter about some of the economics behind your contracts and how that's stepped up, but are those supportive is now in your mind of full greenfield development around your around leaf river yeah so you know the

Steve Westhoven, CEO

whole story at leaf river you know we're going to double earnings and that's largely through you know conch um contract upgrades at a delphi gateway in leaf river through 27 you know through 2027 uh the first filing you know shows um you know compression expansion existing cavern expansion and then a fourth cavern expansion which is what you're referring to from the you know approximately 43 to the to the 55 you know bcf so what we have contracted for now and what we were talking about on today's call is that um compression expansion and existing capacity expansion uh that fourth cavern we do not have contracts for yet but as you can imagine you know the the market has been very constructive but we're still you know working through that we held an open season and certainly like I said, constructive to that point of expanding going forward. There is additional expansion, you know, both at Adelphia Gateway and at Lieber Group, but on what we talked about here today, you know, we'll continue to work, you know, you know, the markets and see what they're willing to pay for. Remember, you know, we get signed contracts and then those will essentially drive, you know, our investment at those facilities. So we'll back and back those. And as those come in, You know, we'll certainly share it, you know, with our investors. But, you know, good news to date, and certainly the market, and even recent conditions, you know, drive for the need for more storage and capacity in the Northeast, Southeast, you know, really all over the U.S.

Gabe Marine, Analyst — Nizuho

Thanks, Steve. Appreciate it.

Operator

Your next question comes from the line of Eli Yosin of JPMorgan. Please go ahead.

Eli Yosin, Analyst — JPMorgan

Hey, good morning, everyone. I just want to start on the evolving regulatory backdrop. So how do we think about the New Jersey affordability efforts that you highlighted in the release, particularly as it pertains to future rate case filings and the overall regulatory strategy at the utility?

Steve Westhoven, CEO

Thanks, Eli. Yeah, affordability has always been important for us at NJR. You know, we talked in our narrative about, you know, the way that we've hedged our gas, you know, driving energy efficiency, you know, reducing customer usage in order to lower their bills, you know, energy assistance, you know, for those that need it. So that's not a new narrative for us. You know, we'll continue, you know, to drive that forward. Remember, you know, we completed a rate case which went into effect about 14 months ago or so, 15 months ago or so. So we don't have any pressing needs to jump into the regulatory process. We're going to continue to work with the administration, take advantage of the opportunities that will present themselves. We do have capacity needs that are clearly stated in the state of New Jersey, and we're going to work proactively with the administration to achieve our shared goals. So that's the way that we're looking at it.

Eli Yosin, Analyst — JPMorgan

Awesome. But then, you know, maybe just pivoting more towards the second executive order, EO2, and the opportunity set that it offers you at CEV. Can you just talk about the, you know, the plan for that business moving forward, thinking about, you know, the backlog of installs that you guys have and, you know, the safe harboring? I know you're kind of substantially through that, but just the outlook for that segment and whether or not there's any impact from recent regulation or legislation. Thanks.

Steve Westhoven, CEO

yeah it's encouraging you know thanks for asking the question you know permit reform you know ways to accelerate interconnects um ways to accelerate uh weight um our ability to develop you know our safe harbored assets in the state of new jersey are are the quickest you know capacity that can be brought to market so all those things are encouraging you know we're going to work with the administration you know they've got some work to do in order to effectuate all that um but you You know, those tailwinds are clearly in the making in order to develop more. And, you know, when we are able to achieve, you know, some, you know, evidence that we're able to move forward, then we'll certainly share that with the investing community.

Eli Yosin, Analyst — JPMorgan

Awesome.

Operator

Your next question comes from the line of Julian DeMollin-Smith of Jefferies. Please go ahead.

James Ward, Analyst — Jefferies

Hi, guys. we've actually got uh James Ward on here for Julian how are you hey uh great color uh that you're giving on affordability the executive orders um so I really appreciate that uh as well on the fourth cavern heading to 55 BCF you mentioned not having contracts yet but can you characterize the level of commercial interest you're seeing give us a sense of the expected actual intensity relative to the existing expansion, maybe help us think about the timing of any associated earnings contributions, kind of helps give clarity on the longer term run right into 29, 30 and so on. Thank you.

Steve Westhoven, CEO

Yeah, I think the, you know, the open seasons that we've had to date have been, you know, constructive, you know, the things that we need to do or to be able to turn, you know, open seasons and the pricing and the terms into an agreement that that we can then you know turn it and build upon um you know right now you know the timing is perfect you know we're able to put in the compression we can expand our existing facilities you know that uh obviously that more brownfield expansion uh a little bit um cheaper to come the market than a greenfield but the pricing we're seeing um you know gives us confidence that being able to you know develop this fourth cabin you know is uh is certainly uh you know possible in the future and we're working towards that um you know as far as timelines go you know we've already said you know we're going to double earnings through 2027. um then you know we're working you know after we get our first certificate construction through the facility so then you see you know um the existing cavern expansion and capacity you know come to market with that matching contract in like a 2028 time frame And then fourth cavern expansion as this market develops, you know, like I said, you know, certainly recent events are supportive. Looks like, you know, 2029 timeframe, you know, starting construction, obviously, sometime prior to that. So we'll have to, you know, we'll see how that ends up playing out. But like I said, the open seasons, recent market, you know, volatility all points towards the need for more storage in that area. and know that we're pursuing that aggressively.

James Ward, Analyst — Jefferies

That's great. Thank you very much. Another really strong start to the year, guys. Thanks, Matt. Back in the case.

Operator

Your next question comes from the line of Chris Ellinghaus of Seabird Williams-Shank. Please go ahead.

Chris Ellinghaus, Analyst — Seabird Williams-Shank

Hey, good morning, everybody. Another great quarter. Thanks. um steve can you talk about sort of this what you're seeing in the solar pipeline outside of new jersey and and sort of given the eos you know has that changed your thought process

Steve Westhoven, CEO

at this point no i mean we're still moving forward you know we've got about i guess 50 of our forward-looking projects are outside the state of new jersey 50 obviously inside the state in New Jersey, you know, we're continuing to pursue projects that, you know, meet our rate of return and, you know, build in, you know, an area that it's friendly from a regulatory perspective. And there's a number of states that are around us that are friendly from a regulatory perspective. So, you know, we see those markets continuing. And remember, PJM's big, right? And, you know, certainly any power grid isn't independent from those adjacent to it you got a capacity shortage in one it usually means there's capacity shortage in others so you know this trend and the ability to quickly bring um you know solar capacity to market um you know more quickly than than you know other forms you know nuclear you know some larger gas fire generations and uh and instances like that you know is important so all these are are constructive. You couple on, you know, the EO and potential permitting reform and things like that, you know, hopefully we see some acceleration, you know, in the near future trying to solve this

Chris Ellinghaus, Analyst — Seabird Williams-Shank

problem of being short capacity. Growth is great. Outside of the Adelphia gateway, you know, can you sort of give us any color vis-a-vis the sort of the of the recontracting price improvement versus say the capacity I think it's slide 8 you know what how do how should we think about the timing of the growth to the new target versus

Steve Westhoven, CEO

volume yeah I you know it's hard to kind of differentiate that but I think it's you know pretty clear if you go back to what our historical earnings are we're going to double earnings from that segment by 2027 and you know in that is is, you know, quite a bit of recontracting, you know, when purchasing Leaf River, you know, part of our investment thesis that, you know, storage rates were going to go up and you see that being executed. The Delta Gateway, you know, like a normal interstate pipeline going through rate cases, being able to, you know, raise rates to reflect capital that was invested on the pipeline in the future, you know, certainly being reflected as well. You know, I think, you know, this recent weather event, our region is, and we're already talking about that from an electric perspective, you know, for quite some time. So this infrastructure is very needed out there that will give you what we're having some technology opportunities for upside.

Chris Ellinghaus, Analyst — Seabird Williams-Shank

Can you elaborate on that a little bit?

Steve Westhoven, CEO

Yeah. You know, we own, you know, a number of grid connected facilities. You know, those interconnections are very valuable. being able to use those at a much higher load factor through distributed generation, battery power, those all bring capacity to the grid, and you can bring capacity to the grid in that way, you know, very quickly, and, you know, being able to deploy capacity quickly is exactly what the market needs, so now it's just a matter of, you know, how do we put together the regulatory constructs aligned with the economics of being able to make the investments to make all this work, but we think we've got a leg up because we have brownfield um uh you know infrastructure right infrastructure that's already in place the ability to expand um without the need to build um gives us that advantage and uh it should make us and for exactly what we know is going to you know make the investments on are the things that we're talking about here you know forward vision and uh and what we're trying to drive as a management

Chris Ellinghaus, Analyst — Seabird Williams-Shank

team to execute that sort of suggests some storage opportunities uh which are certainly high ticket items so you know that you sort of alluded to that pot processes yeah yeah exactly it exactly it okay one one last question obviously your your your hedging strategy has really paid off uh handsomely in the first quarter um you know do regulators fully appreciate the benefit that you bring there and and or how do you uh reinforcing the value

Steve Westhoven, CEO

properly yeah i mean the regulators were part of the construct and putting that together so they certainly are aware of it we talk about it and you know we file our pgss you know that can be recognized um you know certainly they see you know our rates in the ground you know having a average price of uh storage of two dollars and 27 cents when you know you know city gate prices were over a hundred dollars you know even if you look at some of the supplier pricing 30 40 you know dollars down in those areas being able to avoid those purchases you know has a has you know just a huge benefit to our customers um not having to pay spot prices for uh for that natural gas so yeah they're certainly aware of it you know we talk about it and uh you know those programs are in place for a reason they work and uh and mitigate you know cost to our customers longer

Operator

term all right thanks i appreciate it thank you your next question comes from the line of travis miller of morning star please go ahead good morning everyone thank you thanks uh just a quick

Travis Miller, Analyst — Morningstar

clarification on the guidance raised at 25 cents was that all from what you're anticipating in q2 or was there some of that in outperformance in Q1 relative to what you were expecting?

Steve Westhoven, CEO

Yeah, Travis, you know, we looked at our book and we saw the performance in January and decided that it was significant enough to warrant a raise during this call. So really, this is an estimate, you know, through the end of January at this point. Okay, okay, that's clear.

Travis Miller, Analyst — Morningstar

And then in terms of CapEx for the contracted compression and existing expansion, when are we going to see that flow through? I'm assuming that's not in your CapEx guidance right now. So would we see that in the coming quarters?

Steve Westhoven, CEO

Yeah, it actually is in our CapEx guidance right now. So you'll see that on the schedule. There's an appendix schedule to what we posted last night, and you can go through that. And so that is part of our capital schedule right now.

Travis Miller, Analyst — Morningstar

Okay. For the Leaf River line. That's right. In 2027, I assume, right? Yes. 2026 and 2027. 2027, probably. Okay. Makes sense. And then a higher level question in New Jersey, positive, et cetera. would you be interested in rate-based solar or rate-based any kind of generation or energy

Steve Westhoven, CEO

other than natural gas distribution you know you know we would certainly work with the administration and do you know anything to be able to you know lower customer costs um improve you know the amount of capacity within the state of new jersey you know to lower um you know cost consumers so there's a number of you know items that are on the table um you know we're not part of any kind of rate-based generation discussions at this point um but you know if it made sense had the right risk profile and we're able to deploy capital you know in the energy infrastructure space then certainly we would consider it okay great i appreciate the thoughts all right thanks

Operator

travis there are no further questions at this time and with that i will now turn the call back over over to Adam Pryor, Director of Investor Relations, for closing remarks. Please go ahead.

Adam Pryor, Head of Investor Relations

Thanks so much. I'd like to thank all of you for your patience and for joining us this morning. We appreciate your interest and investment in NJR, and have a good day and the rest of your

Operator

journey. Thank you so much. Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect your lines.