NEW JERSEY RESOURCES CORP quarterly report, Q2 FY2024

New Jersey Resources Corporation — Q2 FY2024 Form 10-Q

Business context and reporting period. The filing covers the quarter and six months ended March 31, 2024; NJR’s fiscal second quarter is the three months ended on that date. NJR operates a regulated New Jersey natural gas utility, clean-energy projects, energy services, storage and transportation assets, and home services. Results are unaudited and affected by seasonality.

Financial performance and liquidity

Amounts below are in U.S. dollars; millions except per-share amounts. Comparisons are with the corresponding prior-year periods.

Metric	Three months	Six months
Operating revenue	$657.9M, up 2.2%	$1,125.1M, down 17.7%
Operating income	$170.2M, up 3.0%	$306.0M, down 9.4%
Net income	$120.8M, up 9.6%	$210.2M, down 7.1%
Diluted EPS	$1.22, versus $1.13	$2.13, versus $2.32
Operating cash flow	Not separately presented	$338.6M, versus $343.1M
Cash used in investing	Not separately presented	$235.0M, versus $261.7M

• GAAP operating margin was approximately 25.9% for the quarter and 27.2% year to date, compared with 25.6% and 24.7%, respectively. Utility Gross Margin, a non-GAAP measure, was $227.3M for the quarter and $383.1M year to date, up 3.8% and 2.5%.
• Net Financial Earnings (NFE), a non-GAAP measure that adjusts for derivative and hedge timing effects, was $138.6M for the quarter versus $112.3M, and $211.0M year to date versus $222.6M.
• At March 31, total debt was approximately $3.071B, including $2.726B long-term debt, $148.4M current maturities and $196.2M short-term debt; total debt was approximately $3.136B at September 30, 2023. Cash and cash equivalents were $5.0M.
• Unused capacity was approximately $494.5M under NJR’s $650M facility and $199.3M under NJNG’s $250M facility. The company said it expected available borrowing capacity, equity proceeds and operating cash flows to cover working capital, capital spending and dividends for at least 12 months. It reported compliance with debt covenants.

Material changes and management commentary

• Quarterly net income increased mainly from NJNG’s higher customer-related and incentive-program earnings and CEV’s recognition of investment tax credits (ITCs) tied to solar sale-leaseback financings. Year-to-date net income declined chiefly because Energy Services (ES) did not repeat the prior-year natural-gas-market volatility associated with Winter Storm Elliott.
• ES reported lower GAAP revenue year to date as natural gas prices fell 47% and prior-year volatility did not recur. Its financial margin and NFE were lower year to date, but both increased in the quarter amid cold-weather volatility in January 2024. Management cautions that ES earnings depend on weather, market volatility, counterparties and trading-market liquidity.
• NJNG served approximately 581,600 customers, up from 574,500 a year earlier. Six-month weather was 10.8% warmer than the 20-year average, versus 13.1% warmer a year earlier; the utility’s Conservation Incentive Program helps mitigate some usage variability.
• CEV’s six-month net income improved to $4.9M from a $13.0M loss, reflecting higher SREC/TREC sales and ITC recognition. CEV had approximately 473.5 MW of solar capacity in service. Its quarterly revenue declined, primarily due to lower SREC sales.
• Six-month operating cash flow was nearly flat year over year. Capital expenditures were approximately $237.3M spent or accrued; investing cash use was lower year over year, mainly due to reduced solar and storage-and-transportation spending. Dividends paid were $82.2M.

Outlook, risks and contingencies

• NJNG filed a base-rate case seeking a $222.6M natural-gas revenue increase, a 7.57% overall rate of return on rate base and a 10.42% return on common equity; the filing does not report an outcome. NJNG also requested a $5.6M annual revenue increase through its infrastructure investment filing, proposed for October 1, 2024.
• Fiscal 2024 projected capital expenditures: NJNG $387M–$440M; CEV solar $140M–$204M; Adelphia $8M–$12M; and Leaf River $36M–$46M. Estimates may change with regulatory conditions, permitting, construction, interconnection, capital access and other factors.
• NJNG’s estimated future manufactured-gas-plant remediation costs range from $137.3M to $201.5M; $157.8M is accrued with a corresponding regulatory asset. Recovery is subject to regulatory processes, and actual costs could differ based on cleanup requirements, responsible parties and insurance recoveries. Management said pending litigation, in aggregate, was not expected to materially adversely affect the company, while noting outcomes could exceed amounts accrued.
• In January 2024, NJR amended retiree medical benefits for certain eligible participants beginning in 2025. The plan remeasurement reduced the reported postemployment benefit liability from $96.6M at September 30, 2023 to $33.6M at January 1, 2024; the amendment’s effect is to be amortized over approximately eight years.
• Key risks include commodity-price and derivative volatility, warmer or otherwise adverse weather, counterparty credit and liquidity, regulatory approvals and cost recovery, clean-energy project execution and incentive availability, environmental obligations, inflation, interest rates and access to capital. The filing reports no material changes to the risk factors in the 2023 Form 10-K and no newly reportable legal proceedings during the quarter.
• No consolidated earnings guidance is provided in the supplied filing text. NJR states that interim results are not necessarily indicative of full-year results because of seasonal operations and other factors.

Important facts for investors to verify

1. Track the NJNG base-rate case and the timing and amount of any approved recovery, including the separate infrastructure filing.
2. Assess ES’s underlying performance using both GAAP results and non-GAAP NFE/Financial Margin, including the effect of weather and derivative timing adjustments.
3. Monitor CEV project execution, REC markets and ITC-related sale-leaseback income, which contributed materially to the year-over-year earnings improvement.
4. Review funding needs against projected capital expenditures, available credit, debt maturities and interest costs; NJR has $100M of senior notes due in November 2024.
5. Follow MGP remediation estimates and regulatory recoverability, as well as the effect and accounting treatment of the retiree medical plan amendment.