New Jersey Resources Corporation (NJR) — Q1 FY2022 Form 10-Q
Reporting period: Three months ended December 31, 2021; comparisons are with the three months ended December 31, 2020, unless noted. NJR operates a regulated New Jersey gas utility and businesses in clean energy, energy services, storage and transportation, and home services. Results are seasonal, and the company cautions that interim results are not indicative of full-year performance. Dollar amounts below are in millions unless stated otherwise.
Financial performance and position
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Operating revenue | $675.8 | $454.3 |
| Operating income | $156.9 | $111.5 |
| Net income | $111.3 | $81.0 |
| Diluted EPS | $1.16 | $0.84 |
| Net financial earnings (NFE, non-GAAP) | $65.8 | $44.7 |
| Basic NFE per share (non-GAAP) | $0.69 | $0.46 |
| Cash from operating activities | $(37.4) | $31.7 |
| Cash used in investing activities | $(164.1) | $(108.8) |
- Revenue growth was concentrated in nonutility operations, particularly Energy Services, whose revenue rose to $369.2 million from $229.5 million. Much of the reported revenue reflects commodity prices and derivative accounting; it should not be read as equivalent growth in underlying margin.
- Energy Services net income increased to $65.7 million from $38.9 million. Its financial margin, a non-GAAP measure, rose to $28.5 million from $9.3 million, mainly reflecting asset management agreements (AMAs) that began in November 2021.
- NJNG net income increased to $51.1 million from $49.5 million. Utility gross margin, a non-GAAP measure, was $133.5 million versus $125.7 million, primarily benefiting from the approved base-rate increase.
- Clean Energy Ventures’ net loss narrowed to $6.8 million from $10.3 million, mainly on higher SREC and electricity revenue. Storage and Transportation net income declined to $3.0 million from $3.5 million.
- Operating cash flow turned negative, primarily because of working-capital needs, including higher receivables and natural gas inventory; deferred revenue partly offset those uses. Capital expenditures were $164.3 million, including accrued amounts.
- At December 31, 2021, total assets were $6.0 billion. Long-term debt was $2.27 billion, current maturities were $74.5 million, and short-term debt was $488.0 million. Cash and restricted cash totaled $2.6 million. Available capacity was approximately $169.9 million under NJR’s facility and $71.9 million under NJNG’s facility.
Material changes and developments
- Revenue increased 48.8% and net income increased 37.3% year over year. Management attributed the earnings increase primarily to Energy Services, including the new AMAs and higher natural gas prices.
- The BPU approved a $79.0 million annual NJNG base-rate increase effective December 1, 2021. The approved rate case set a 6.84% overall rate of return on rate base and a 9.6% return on common equity.
- Energy Services’ AMAs may produce approximately $500 million in aggregate net proceeds through November 2030. NJR expects about $260 million of cash receipts in fiscal 2022–2024 and about $34 million annually in fiscal 2025–2031. NJR recognized $22.1 million of AMA revenue in the quarter; $64.7 million received in excess of recognized revenue was deferred.
- NJR issued $100 million of NJNG senior notes: $50 million at 2.97% due 2051 and $50 million at 3.07% due 2061.
- PennEast development ceased in fiscal 2021, following a $92.0 million pretax impairment. In December 2021, FERC dismissed pending applications and vacated the project certificate, subject to ongoing court review.
Outlook, risks and contingencies
- No consolidated annual earnings guidance is stated in the provided filing text. Management expects 28,000–30,000 NJNG customer additions over fiscal 2022–2024 and estimates approximately $6.2 million of annual utility gross-margin contribution from that growth. NJNG expects fiscal 2022 capital expenditures of $330–$370 million; solar-related capital expenditures are estimated at $235–$301 million; Adelphia Gateway spending is estimated at $90–$110 million.
- Management said NJR and NJNG had sufficient liquidity for current obligations and expected financing needs over the next 12 months to be met through operating cash flow, debt, credit facilities, and meter or solar sale-leasebacks. It reported compliance with debt covenants.
- Key exposures include natural gas price volatility, weather and seasonality, derivative valuation and timing effects, wholesale counterparty credit, access to capital, regulatory cost recovery, project permitting and construction, clean-energy incentives, and COVID-19-related operating or supply-chain disruption. Management reported no material adverse COVID-19 impact on results as of December 31, 2021.
- NJNG recorded $126.9 million for manufactured-gas-plant remediation, with a corresponding regulatory asset. Estimated total future site expenditures range from $115.7 million to $178.7 million; actual costs and recovery depend on remediation decisions, regulation, responsible parties and insurance.
- Operating cash flow and liquidity are affected by seasonal working capital and broker-margin requirements. The quarter’s reported earnings also include substantial unrealized derivative gains; NJR’s non-GAAP NFE adjusts for certain derivative and inventory timing effects and is not a substitute for GAAP net income.
Important facts for investors to verify
- Reconcile GAAP net income and revenue growth with NFE and Energy Services financial margin, including the impact of unrealized derivatives and commodity-price movements.
- Track working-capital recovery, seasonal borrowing, cash availability, and the use of short-term debt to fund inventory and capital spending.
- Monitor execution and cash receipts under the AMAs, including the timing of deferred revenue recognition and associated capacity commitments.
- Review whether planned utility, solar and Adelphia Gateway capital projects remain on schedule and within estimated budgets, and whether regulatory approvals and incentives are obtained.
- Assess the range and recoverability of MGP remediation costs and any further legal or regulatory developments concerning PennEast.