New Jersey Resources Corporation — Form 10-Q
Reporting period: Fiscal second quarter and six months ended March 31, 2023. Amounts below are in millions of dollars unless noted. The filing cautions that interim results are seasonal and are not necessarily indicative of full-year results.
Business context and financial results
NJR operates regulated natural gas distribution through NJNG, alongside clean energy, wholesale energy services, gas storage and transportation, and home services businesses. NJNG served approximately 574,500 customers.
| Metric | Three months ended March 31, 2023 | Prior year | Six months ended March 31, 2023 | Prior year |
|---|---|---|---|---|
| Operating revenue | $644.0 | $912.3 | $1,367.6 | $1,588.2 |
| Operating income | $165.2 | $138.9 | $338.0 | $295.8 |
| Net income | $110.2 | $96.0 | $226.2 | $207.3 |
| Diluted EPS | $1.13 | $1.00 | $2.32 | $2.15 |
| Net financial earnings (NFE, non-GAAP) | $112.3 | $130.2 | $222.6 | $196.0 |
Revenue fell 29% in the quarter and 14% year to date, principally reflecting lower Energy Services revenue associated with natural gas market prices and derivative activity. Operating income and GAAP net income increased in both comparisons. NFE, which adjusts for derivative and inventory-hedge timing effects, declined in the quarter but increased year to date. Investors should distinguish this non-GAAP measure from reported GAAP earnings.
For the six months, operating cash flow was $343.1 million, versus $330.5 million a year earlier; investing cash outflow was $261.7 million, versus $296.8 million; and financing cash outflow was $55.3 million, versus $24.5 million. Capital expenditures spent or accrued totaled $263.1 million. Cash and cash equivalents were $27.1 million at March 31.
Total debt was approximately $3.0 billion, including current maturities and short-term debt, broadly unchanged from September 30, 2022. NJR had $187.7 million of short-term borrowings and $457.2 million available on its $650 million revolving facility; NJNG had no period-end commercial paper borrowings and $249.3 million available on its $250 million facility. Management said the companies were in compliance with debt covenants and expected available borrowing capacity, equity proceeds, and operating cash flow to meet needs for at least 12 months.
Material changes and segment trends
- Natural Gas Distribution: Six-month net income rose to $155.4 million from $153.9 million, while quarterly net income declined to $100.7 million from $102.8 million. Six-month Utility Gross Margin, a non-GAAP measure, increased to $373.7 million from $351.2 million. Customer growth and higher base rates supported results; warmer weather and lower quarterly BGSS incentives were offsets.
- Energy Services: Six-month net income increased to $83.6 million from $62.7 million, supported by higher natural gas price volatility in December 2022. Quarterly net income was $19.0 million versus a $3.0 million loss, although quarterly NFE fell to $21.1 million from $29.9 million as volatility eased in warmer weather.
- Clean Energy Ventures: Six-month net loss was $13.0 million, similar to the prior-year $13.3 million loss. Revenue grew, but the quarterly loss widened to $9.4 million from $6.5 million, reflecting higher operating and interest costs.
- Storage and Transportation: Six-month net income increased to $8.8 million from $7.6 million; quarterly income declined to $2.6 million from $4.6 million. Higher Adelphia Gateway and Leaf River revenue was partly offset by increased depreciation and interest expense.
Outlook, risks and unusual items
- Fiscal 2023 projected capital spending: NJNG $352–$378 million; solar $100–$200 million; Adelphia Gateway $12–$16 million; and Leaf River $8–$12 million. Energy Services anticipated no significant capital expenditures in fiscal 2023 or 2024.
- NJNG expects annual new-customer growth of approximately 1.7%. Management estimated growth and fuel conversions could add about $7.7 million of annual Utility Gross Margin under the CIP tariff.
- On March 1, 2023, NJNG implemented a bill credit and lower BGSS rates expected to reduce recoveries by approximately $29.9 million; the BPU approved the action on a final basis in April. NJNG also requested a $3.5 million annual revenue increase under its IIP, proposed for October 1, 2023.
- Clean Energy Ventures received $61.8 million from solar sale-leaseback financing in the first six months and a further $89.9 million in April 2023. These arrangements are recorded as financing obligations, rather than sales, and NJR continues operating the assets.
- NJNG’s former manufactured-gas-plant remediation estimate ranges from $110.8 million to $167.1 million; the recorded liability was $124.5 million, with a corresponding regulatory asset. Recovery depends on regulatory approval, and actual costs may differ.
- Key exposures include weather and natural gas price volatility, derivative-related earnings timing, counterparty credit and collateral requirements, regulatory cost recovery, environmental remediation, project permitting and construction, interest rates, and access to capital. NJR stated that no material risk-factor changes or reportable legal-proceeding developments occurred during the quarter.
Important facts for investors to verify
- Track Energy Services’ underlying margins and distinguish recurring economics from GAAP derivative and inventory timing effects and NFE adjustments.
- Review NJNG’s BPU rate and rider decisions, including the BGSS bill credit, IIP request, and recovery of environmental and other regulatory assets.
- Monitor the pace and funding of planned utility and solar capital expenditures, including the obligations and economics of sale-leaseback financing.
- Assess the MGP remediation range, regulatory recoverability, and any changes to the recorded $124.5 million liability.
- Check debt maturities, borrowing costs, facility availability, covenant compliance, and exposure to seasonal working-capital and broker-margin needs.