New Jersey Resources Corporation — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2023; comparative periods ended June 30, 2022. The company provides regulated natural gas distribution and operates clean-energy, energy-services, storage and transportation, and home-services businesses. Results are seasonal and interim results are not necessarily indicative of the full fiscal year.
Financial performance
- Quarter: Revenue was $264.1 million, down from $552.3 million. Operating income was $4.7 million versus $29.8 million; net income was $1.5 million versus $13.1 million. Diluted EPS was $0.02 versus $0.14.
- Nine months: Revenue was $1.632 billion, down from $2.140 billion. Operating income increased to $342.7 million from $325.6 million; net income was $227.7 million versus $220.4 million. Diluted EPS was $2.33 versus $2.28.
- Revenue drivers: Lower natural-gas prices drove much of the revenue decline, particularly at Energy Services, where quarterly revenue fell to $70.2 million from $307.8 million. Revenue changes also reflect commodity costs passed through to utility customers.
- Margins and non-GAAP measures: NJNG Utility Gross Margin was $468.2 million for nine months, up from $439.9 million. Energy Services Financial Margin was $114.9 million, up from $72.6 million. Consolidated Net Financial Earnings (NFE), a company-defined non-GAAP measure, were $232.3 million versus $192.4 million; quarterly NFE was $9.7 million versus a $3.6 million loss. These measures should be considered alongside GAAP results.
- Cash flow and investment: Nine-month operating cash flow was $387.9 million, compared with $235.9 million. Investing used $378.2 million, including $380.2 million of segment capital expenditures; financing used $10.2 million. Cash, cash equivalents and restricted cash ended at $1.0 million.
- Debt and liquidity: At June 30, long-term debt was $2.729 billion, current maturities were $162.3 million, and short-term debt was $145.2 million. NJR reported $510.3 million available under its $650 million revolving facility and NJNG reported $238.6 million available under its $250 million facility. Management said it expected available borrowing capacity, equity proceeds and operating cash flows to meet needs for at least 12 months and reported compliance with debt covenants.
Material changes and management commentary
- Quarterly net income declined primarily because Energy Services operating results weakened amid lower natural-gas prices; a Clean Energy Ventures tax benefit partly offset the decline. Nine-month net income increased mainly due to that tax benefit.
- Clean Energy Ventures recorded a $15.8 million income-tax benefit after reversing a valuation allowance on certain deferred tax assets. Its quarterly net income was $7.3 million, while its nine-month net loss narrowed to $5.7 million from $18.4 million.
- Energy Services reported a quarterly net loss of $9.3 million, compared with net income of $7.5 million a year earlier. Its nine-month net income rose to $74.3 million from $70.2 million, with management citing stronger Financial Margin, partly offset by higher interest expense.
- Storage and Transportation nine-month net income declined to $11.3 million from $14.1 million. Higher revenue was offset by greater depreciation and interest expense; the southern Adelphia Gateway pipeline portion entered service in September 2022.
- Operating cash flow improved largely because lower natural-gas prices reduced working-capital requirements. Utility-plant investment increased, while storage and transportation investment declined as the Adelphia Gateway conversion was completed.
Outlook, risks and contingencies
- The filing provides no clear consolidated full-year earnings or EPS guidance. Fiscal 2023 capital-spending estimates include $362–$388 million for NJNG and $100–$150 million for solar projects; management said estimates may change with regulatory, construction, permitting, interconnection, financing and other conditions.
- NJNG expects annual customer growth of approximately 1.7%. It added 5,892 customers in the first nine months and estimated annualized incremental Utility Gross Margin of about $5.0 million from additions and expanded services.
- Natural-gas market prices and volatility, weather, derivative valuation and settlement timing, counterparty credit, financing costs, regulatory approvals and recovery of costs are key risks. NJR cautioned that Energy Services results can be volatile and depend on market conditions and liquidity.
- NJNG’s former manufactured-gas-plant remediation estimate is $110.8–$167.1 million; the recorded liability and corresponding regulatory asset were $123.1 million. Recovery depends on regulatory approval, and actual costs may differ.
- The company said pending litigation, taken together, was not expected to have a material adverse effect, while noting actual outcomes could exceed accrued amounts. No new reportable legal proceedings or material risk-factor changes were disclosed.
- Clean Energy Ventures received $163.6 million in solar sale-leaseback proceeds during the nine months, recorded as financing obligations. The company retains operation and project revenues but transfers applicable tax benefits under these arrangements.
Important facts for investors to verify
- How much of nine-month earnings growth reflects the $15.8 million deferred-tax-valuation-allowance reversal versus recurring operating performance.
- Whether Energy Services can sustain Financial Margin as natural-gas prices and market volatility change, and how derivative timing affects reported GAAP earnings.
- Progress and final approval of NJNG’s pending rate and tariff filings, including the proposed changes effective October 1, 2023.
- Actual fiscal 2023 capital spending, project completion and financing needs, including solar sale-leaseback obligations and Adelphia Gateway costs.
- Updates to MGP remediation estimates and regulatory recovery, and the effect of higher debt costs, seasonal liquidity needs and counterparty credit exposure.