Business context and reporting period
New Jersey Resources Corporation (NJR) filed this unaudited Form 10-Q for its fiscal third quarter ended June 30, 2022, covering the three and nine months ended June 30. NJR operates regulated natural gas distribution, clean energy, energy services, storage and transportation, and home services businesses. NJNG serves approximately 568,600 customers in New Jersey. Results are seasonal and interim results are not necessarily indicative of full-year performance.
Financial performance and position
Unless otherwise noted, amounts are in millions of dollars. Comparisons are with the corresponding 2021 period.
| Metric | Three months | Nine months |
|---|---|---|
| Operating revenue | $552.3, up from $367.6 | $2,140.5, up from $1,624.1 |
| Operating income | $29.8, versus a $27.5 loss | $325.6, versus $285.2 |
| Net income (loss) | $13.1, versus a $111.8 loss | $220.4, versus $119.0 |
| Diluted EPS | $0.14, versus $(1.16) | $2.28, versus $1.23 |
| Net financial earnings (NFE, non-GAAP) | $(3.6), versus $(14.1) | $192.4, versus $201.1 |
- Revenue growth reflected higher natural gas prices and related trading activity, as well as NJNG rate increases and Energy Services asset management agreements (AMAs). Higher commodity-related revenues also bring corresponding gas costs and should not be read as equivalent growth in underlying margins.
- Nine-month NJNG utility gross margin, a non-GAAP measure, rose to $439.9 from $377.1. Energy Services financial margin, also non-GAAP, fell to $72.6 from $153.6, largely because the exceptional market conditions of February 2021 did not recur to the same extent.
- Operating cash flow was $235.9, down from $341.8; investing cash outflow was $434.9, compared with $429.9; financing cash inflow was $221.0, versus an outflow of $25.3. Cash, cash equivalents and restricted cash ended at $28.0.
- At June 30, total assets were $6.16 billion; long-term debt was $2.52 billion and short-term debt was $370.4 million. Capital structure was 38% common equity, 54% long-term debt and 8% short-term debt.
- NJR had $264.3 million available under its $500 million revolving facility; NJNG had $249.3 million available under its $250 million facility. Management reported compliance with debt covenants and said liquidity was sufficient for current obligations.
Material changes versus the prior period
- The prior-year quarter and nine-month results included a $92 million pretax impairment of the PennEast equity investment. Its absence materially boosted reported 2022 net income comparisons; NJR also recorded a $4.0 million gain in 2022 related to PennEast distributions exceeding the remaining carrying value.
- NJNG earnings benefited from a $79 million annual base-rate increase effective December 1, 2021. Nine-month NJNG net income rose to $156.5 million from $131.6 million.
- Energy Services reported quarterly net income of $7.5 million versus a $30.8 million loss, but nine-month net income declined to $70.2 million from $83.7 million. Management attributed the year-to-date decline principally to the nonrecurrence of February 2021’s unusually favorable volatility and market conditions.
- Cash from operations declined with increased working-capital needs amid higher energy prices and the absence of the prior-year Energy Services windfall. Capital spending and financing needs remained substantial.
Outlook, commentary, risks and contingencies
- NJR did not provide consolidated earnings guidance in the supplied filing text. Management expects fiscal 2022 capital expenditures of $285–$335 million for NJNG, $139–$157 million for solar projects, $115–$130 million for Adelphia Gateway and $12–$14 million for Leaf River. Estimates may change with regulatory, construction, permitting, supply-chain and financing conditions.
- NJNG expects 28,000–30,000 customer additions over fiscal 2022–2024, which management estimates could add approximately $19.1 million of annual utility gross margin. The company added 5,274 customers during the nine months ended June 30, 2022.
- Energy Services’ AMAs are expected to produce approximately $260 million of cash receipts from fiscal 2022–2024 and $34 million annually from fiscal 2025–2031. The agreements provide aggregate net proceeds of approximately $500 million through 2030; $42.7 million of revenue was recognized in the nine-month period, with $44.1 million of receipts in excess of recognized revenue deferred at June 30.
- Key risks include inflation and rising natural gas costs, which may raise NJNG working-capital borrowing needs, slow customer collections and increase bad-debt expense; natural gas price and weather volatility; regulatory recovery and approval; clean-energy project execution and incentives; counterparty credit risk; and access to capital. The filing identifies inflation and increased gas costs as an additional risk factor.
- NJNG’s estimated future manufactured gas plant remediation costs range from $115.9 million to $178.8 million; a $120.6 million liability is recorded, with recovery pursued through regulatory mechanisms. Actual costs depend on remediation requirements, regulatory decisions, responsible-party contributions and insurance recoveries.
- The filing reports no newly reportable legal proceedings or material changes to previously disclosed proceedings during the quarter. Management stated that pending litigation, taken together, is not expected to materially adversely affect the company, while noting actual outcomes could differ.
Most important facts for investors to verify
- How much of revenue and reported earnings growth reflects commodity price movements, derivative accounting and pass-through costs, versus durable operating margin growth; compare GAAP results with NFE and other non-GAAP measures.
- Whether Energy Services can sustain margin and cash generation after the exceptional February 2021 market conditions, and how the AMAs affect future revenue recognition and deferred revenue.
- Progress, spending, approvals and expected returns for Adelphia Gateway and solar investments, including whether fiscal 2022 capital expenditure estimates remain achievable.
- Funding needs, refinancing and borrowing costs, particularly the $370.4 million of short-term debt, the $150 million term loan due February 2023, and scheduled note maturities.
- Whether NJNG’s regulatory recovery keeps pace with inflation, gas costs and remediation spending, and whether higher customer bills affect collections and bad debt.
- Updates to the MGP remediation range and PennEast-related distributions, litigation and regulatory matters.