New Jersey Resources Corporation (NJR) — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2021. The filing is unaudited. NJR operates a regulated New Jersey gas utility and unregulated energy services, solar, storage and transportation, and home services businesses. Results are seasonal and interim results are not necessarily indicative of full-year performance.
Key financial results
| Metric | Three months ended June 30, 2021 | Nine months ended June 30, 2021 | Prior-year comparable |
|---|---|---|---|
| Operating revenue | $367.6 million | $1,624.1 million | $299.0 million; $1,553.6 million |
| Operating income (loss) | $(27.5) million | $285.2 million | $(16.8) million; $186.3 million |
| Net income (loss) | $(111.8) million | $119.0 million | $(19.3) million; $130.3 million |
| Diluted EPS | $(1.16) | $1.23 | $(0.20); $1.38 |
| Operating cash flow | Not reported separately for the quarter | $341.8 million | $182.8 million |
- Quarterly results included a $92.0 million pretax, noncash impairment of NJR’s PennEast equity investment, approximately $72.7 million after tax. Nine-month net income also includes this charge.
- NJR’s non-GAAP net financial earnings (NFE) were a loss of $14.1 million for the quarter versus earnings of $2.7 million a year earlier, and earnings of $201.1 million for nine months versus $121.9 million. NFE excludes derivative timing effects and the PennEast impairment; it is not a GAAP measure.
- Natural Gas Distribution utility gross margin, a company-defined non-GAAP measure, was $78.1 million for the quarter and $377.1 million for nine months, compared with $75.0 million and $354.6 million. Energy Services financial margin was $153.6 million for nine months versus $3.1 million, principally reflecting extreme February 2021 weather and market volatility.
Balance sheet, debt and liquidity
- At June 30, 2021, total assets were $5.41 billion; cash and cash equivalents were $4.7 million. Cash, cash equivalents and restricted cash totaled $6.0 million.
- Long-term debt was $2.22 billion, current maturities were $23.0 million, and short-term debt was $176.3 million. NJR reported $289.6 million available under its $425 million credit facility and NJNG reported $197.8 million available under its $250 million facility. Both facilities expire in December 2023.
- Nine-month capital expenditures and other investing outflows contributed to $429.9 million of cash used in investing activities. Cash from financing activities was a net outflow of $25.3 million, versus $749.4 million of inflows in the prior-year period, which included acquisition and financing activity.
- Management stated that available borrowing capacity, equity proceeds and operating cash flow should cover working capital, capital expenditures and dividends for the next 12 months; it also reported compliance with debt covenants.
Changes versus the prior comparable period
- Quarterly revenue increased 23% and nine-month revenue increased 5%. Energy Services accounted for much of the growth, with revenue affected by higher natural gas prices and volumes; its results are exposed to derivative fair-value and settlement timing volatility.
- Quarterly net loss widened to $111.8 million, primarily because of the PennEast impairment and higher operating and maintenance costs. Nine-month net income declined to $119.0 million from $130.3 million, despite stronger Energy Services results.
- Operating cash flow rose to $341.8 million from $182.8 million, primarily due to higher Energy Services earnings. Cash used in investing fell year over year because prior-year acquisitions did not recur, partly offset by increased utility and storage/transportation investment.
- NJR retrospectively changed its accounting for investment tax credits from the flow-through to the deferral method. This materially altered prior-period reported results, including reducing 2020 nine-month net income by $20.3 million versus the previously reported amount; reported comparisons reflect the revised presentation.
Outlook, commentary and risks
- NJR requested a $163.9 million annual natural gas revenue increase in its New Jersey base rate case update; the request remained subject to BPU review. The SRL pipeline was expected to enter service in August 2021.
- NJNG expected fiscal 2021 capital expenditures of $424–$454 million. Clean Energy Ventures estimated $50–$65 million of solar-related capital expenditures; Storage and Transportation expected $110–$130 million for Adelphia Gateway and $10–$13 million for Leaf River.
- NJNG continued to expect 28,000–30,000 customer additions over fiscal 2021–2023. The company reported approximately 562,700 customers at June 30, 2021.
- PennEast remained subject to regulatory and legal challenges despite a favorable June 2021 Supreme Court ruling on eminent-domain authority. Further delays, permit outcomes, project costs or revenue assumptions could lead to additional impairment.
- NJNG’s manufactured-gas-plant remediation liability was $136.9 million, with a corresponding regulatory asset. Recovery depends on regulatory treatment; remediation costs and timing remain uncertain.
- Other risks include commodity-price and weather volatility, Energy Services counterparty credit and liquidity exposure, access to capital, regulatory approvals and cost recovery, construction execution, environmental obligations, and COVID-19-related uncertainty. Management said COVID-19 had not materially adversely affected results through June 30, 2021, while noting future effects were uncertain.
- No consolidated earnings guidance was stated in the provided filing text. A long-term Energy Services asset-management agreement was expected to generate approximately $260 million of cash from fiscal 2022–2024 and about $34 million annually thereafter through fiscal 2031.
Most important facts for investors to verify
- Whether PennEast secures remaining permits and advances toward construction, and whether further impairment is required.
- Progress and outcome of NJNG’s base rate case, including the requested $163.9 million annual increase and recovery of infrastructure investment.
- Cash conversion and liquidity needs, given low period-end cash, substantial capital spending, seasonal working capital, and short-term borrowing.
- Whether Energy Services’ unusually strong nine-month margin is repeatable; distinguish GAAP results from NFE and derivative timing effects.
- Execution, cost and regulatory recovery for SRL, Adelphia Gateway, solar projects and MGP remediation.