Hello, everyone, and welcome to the New Jersey Resources Fiscal 2023 First Quarter Conference Call and Webcast. My name is Bruno, and I will be operating your call today. [Operator Instructions] I will now hand over to the management team.

Thank you. Welcome to New Jersey Resources fiscal 2023 first quarter conference call and webcast. I'm joined here today by Steve Westhoven, our President and CEO; Roberto Bel, our Senior Vice President and Chief Financial Officer; as well as other members of our senior management team. Certain statements in today's call contain estimates and other forward-looking statements within the meaning of the securities laws. We wish to caution listeners of this call that the current expectations, assumptions and beliefs forming the basis of our forward-looking statements include many factors that are beyond our ability to control or estimate precisely. This could cause results to materially differ from our expectations as found on Slide 1. These items can also be found in the forward-looking statements section of today's earnings release furnished on Form 8-K and in our most recent Forms 10-K and 10-Q as filed with the SEC. We do not by including this statement assume any obligation to review or revise any forward-looking statements referenced herein in light of future events. We will also be referring to certain non-GAAP financial measures, such as net financial earnings or NFE. We believe that NFE, net financial loss, utility gross margin and financial margin provide a more complete understanding of our financial performance. However, these non-GAAP measures are not intended to be a substitute for GAAP. Our non-GAAP financial measures are discussed more fully in Item 7 of our 10-K. Our agenda for today is found on Slide 2. Steve will begin with this quarter's highlights, followed by Roberto, who will review our financial results. Then we will open the call for your questions. The slides accompanying today's presentation are available on our website and were furnished on our Form 8-K filed this morning. With that said, I will turn the call over to our President and CEO, Steve Westhoven. Please go ahead, Steve.

Thanks, Adam, and good morning, everyone. We delivered strong results in the first quarter. This included exceptional performance during the unique weather event over the Christmas weekend. This speaks to the resiliency of our physical infrastructure and also to the talent and termination of our people. As a result of NJR's successful operation during this event, we are raising our fiscal 2023 guidance by $0.20 to $2.62 to $2.72 per share. Before we move to the quarterly results and our forecast for the year, I'd like to begin with an update on our sustainability and decarbonization efforts on Slide 3. Last week, we issued NJR's fiscal 2022 Corporate Sustainability Report, our 14th consecutive annual report dating back to 2008. The report details our goals and accomplishments in sustainability and other ESG-related areas as well as our approach to innovation, low carbon fuels, energy efficiency and environmental stewardship. I'd like to cover just a few of the reports highlights with you. We believe the fastest and most cost-effective tool to reduce emissions is through energy efficiency initiatives. Last year, we invested more than $53 million in New Jersey Natural Gas' energy efficiency programs, the highest single year investment of this type in our company's history. Running these programs is a central element to our decarbonization strategy, and New Jersey Natural Gas has long been a leader in this area. On solar, we continue to advance our leadership at Clean Energy Ventures by placing into service two milestone projects of national significance, including one of the largest cap landfilled solar arrays and the largest floating solar installation in the United States. And finally, our $20 million endowment supports our charitable foundation work. These resources enable our foundation to focus on medium and long-term partnerships that drive outcomes that make a difference for…

Thank you, Steve, and good morning, everyone. Slide 9 shows the main drivers of our NFE for the first quarter of fiscal 2023. We reported NFE of $110.3 million, or $1.14 per share compared with $65.8 million or $0.69 per share last year. New Jersey Natural Gas saw an improvement of $3.6 million, primarily due to the impact of new base rates that went into effect on December 1, 2021, a higher contribution to utility gross margin from our BGSS incentive programs and new customer growth. CEV’s (ph) NFE improved by $3.2 million, primarily due to higher SREC and electricity sales. Storage & Transportation increased by $3.3 million largely due to Adelphia Gateway becoming fully operational in the fourth quarter of fiscal 2022 and the excellent operational performance at both Adelphia and Leaf River during the quarter. And finally, Energy Services improved by $35 million due to the execution from our team during Winter Storm Elliott. Turning to our capital plan on Slide 10. Our projections for 2023 and 2024 are unchanged from the last conference call. And over the next two years, we expect to invest between $1.1 billion and $1.4 billion across the company. We expect to tighten our CapEx projections in future quarters, particularly in the case of CEV, as New Jersey regulatory program approvals and PJM's interconnection time lines become more clear. This capital deployment is expected to support growth throughout our business units and is consistent with our long-term NFEPS growth target of 7% to 9%. Finally, on Slide 11, most of our debt is fixed, and we don't have significant maturities in any particular year. As mentioned in our prior call, our NFEPS guidance for fiscal 2023 and our long-term NFEPS growth guidance incorporate assumption of high interest rates for the foreseeable future. With that, I'll turn the call back to Steve.

Thanks, Roberto. Overall, these results reflect the strength of our complementary portfolio of businesses and the value of our high integrity infrastructure. We are delivering on our strategy of derisking results, providing a more predictable base of net financial earnings with a growth rate that is at the top end of our peer group. In addition, we've been able to take advantage of opportunities in energy markets that have resulted in considerable upside to our growth targets in recent years. And finally, I want to thank all of our employees for their hard work and contribution. We expect these efforts will drive our NFE and produce strong cash flows that will support our dividend growth of 7% to 9% per year. And with that, I'll now open the call for questions.

[Operator Instructions] Our first question is from Chris Ellinghaus from Siebert Williams Shank. Chris, your line is now open. Please go ahead.

Hey. Good morning, everybody. Thanks for the good quarter this morning. A lot of things have happened at like EPA and with the IRA. There's some very attractive markets out there in renewables. I'm thinking about landfill gas generation and RNG. Have any of these things changed your sort of strategic outlook for renewable investments?

So good morning, Chris. Thanks for the question. I think we've been talking for a long time about the evolving clean energy market and the opportunities that it will present to a company like ours that has capabilities of developing infrastructure, bringing into service and certainly earning returns. So IRA is in support of that. And we've got the solar division. We're developing solar. It's been supportive in that part of the world. We developed the hydrogen plant, and they're certainly in the IRA, significant subsidies towards hydrogen. And we're certainly looking at RNG as well, nothing to announce there. But when you put this all together, we're well positioned to take a look and see where it makes sense for us to make investments and grow in this part of the market. So long winded way of saying, yes, we do see opportunities and we continue to search them out. And certainly, as we become more firm in the CapEx that we'll dedicate to that, we'll share that with the investors.

Okay. Great. There were a couple of things in the quarter that maybe were slightly surprising beyond Elliott's impact. At CEV, you sort of noted in the press release some reduced operating costs. Can you give us a little color on that? And on the Storage & Transportation side, obviously, Storm Elliott provides some opportunity there. But also, you had Adelphia Gateway incrementally. Can you give us any color between sort of the northern and southern assets for the quarter?

Yeah. I think broadly, it just points to the value of infrastructure. We're an energy infrastructure, energy services company. And as you get more demand for energy, we're able to profit from that. Energy Services was certainly the headline and their ability to take advantage of that volatility. But you also had outsized gains the utility in their incentive programs. We saw new customers at Adelphia Gateway signing up for short-term services. Leaf River as well was able to make profits from that. Electric prices has bumped up in CEV, so certainly all contributing towards the increases that we announced today.

Can you give us any color on the higher CEV electric revenues? Is that more on the increased megawatt side or was that more on the commodity electric side, do you think?

I'd say in the commodity electric side.

Okay. Great. Thanks for the color. Appreciate it.

All right. Thanks, Chris.

Our next question is from Richard Sunderland from JPMorgan. Richard, your line is now open. Please go ahead.

Hey. Good morning and thanks for the time today. I know you hit this a little bit already, but if you just want to unpack the guidance raise a little bit more, the $0.20 raise, is that -- is it the full amount of the outperformance you saw, I guess, across NJNG, Storage & Transportation and Energy Services or are there any either offsets to that versus your original plan or kind of cushion for the remainder of the year that you're leaving outside of guidance right now?

Hey, Rich. Good morning. This is Roberto. How are you? So on your question, the performance that you saw was primarily coming from Energy Services, but it was not only coming from Energy Services, right? It came also from the utility with higher BGSS incentives and also from our Storage & Transportation. So it was really broad-based once again and coming from most of our businesses. But as indicated in our remarks, the biggest part came from our marketing business.

Okay. Understood. And then turning to CEV here. Just I guess the first part, I see the 43 megawatts place in service. I know you referenced the landmark projects there. I also think there was a 100 megawatt change and if I'm reading this correctly on '23, '24 contract and exclusivity. Is that a timing shift across the years laid out here or are there other changes on kind of the project front in light of those PJM and New Jersey developments you referenced earlier?

So Rich, I think the way to look at that is that when you look at Slide 7 and you look at the total of about 1 gigawatt of potential investments, the way that we describe them, that number -- or at least on a yearly basis or the periods that we say, it's going to go up and down. As projects come in, they get completed. As more projects come to exclusivity or some sort of a firmer commitment that we can put them part of this chart that these numbers will go up and down. But I think the big numbers to look at are we've got a very robust pipeline of investment at CEV for our solar investment. And then also, the other big number is, yeah, 43 megawatts that we're able to put in service. So we're investing money, we're completing projects, we're putting them into service and then we're continuing to develop the pipeline moving forward in this business unit.

Got it. That's helpful color. Maybe just a quick follow-up there. So you referenced the positive progress with PJM and from New Jersey as well. Just curious kind of milestones going forward from here or high level timing expectations. What are you watching for this front for, I guess, that incremental clarity into the outlook said both the PJM level and the state level? Anything you can offer there on how that might unfold over this year or what else you're looking for from each institute?

Yeah. I'm going to ask Amy Cradic to answer that question. And she manages our non-utility businesses and CEV, and she can speak to some of the details associated with the PJM process and certainly in the process of the state.

Yeah. I would say that the PJM Q reform and the BPU competitive solicitation, they're both very positive. But our CapEx production, they're not fully dependent on those. So we're still waiting for other state policy and programs to roll out. I'll give you a few examples with TREC approvals we've spoken about in the past for some of our projects do use virtual net metering. So we'll continue to watch the progress out of that, all positive, and we see additional optionality and opportunity for our pipeline.

Got it. Thank you for the time today.

Thanks, Rich.

Our next question is from Gabe Moreen from Mizuho. Gabe, your line is now open. Please go ahead.

Thank you. Good morning. Can you maybe talk about, I think, the Leaf River expansion potential? I think some midstream names out there have talked about some customer interest now, and I think the value of storage has clearly proven itself out time and again over the last, call it, 24 months. So just curious, latest thoughts on what the lease expansion is looking like?

So Gabe, we have nothing to announce there. But certainly, the market dynamics with the development of LNG along the Gulf Coast, the amount of volatility and balancing that's needed down in that area is evident by the price movements that have taken place. It's certainly a very constructive and supportive market. So we're certainly looking where we can make expansion. And provided that we've got a customer that can support the capital investment that's there, we've always talked about it in that fashion. But again, nothing to announce, but it's certainly a very supportive market at this point in time.

Thanks, Steve. And maybe if I can ask a little bit of a multi-faceted question here on gas prices having come down so significantly. Can you just talk about impacts to the business, whether bad debt expense, less inflationary pressures and also just the strategy on kind of hedging gas prices going forward? Because I know that you guys were fairly insulated coming into the winter anyway.

Yeah. I think just to talk about the hedging strategy going forward, we've got a pretty rigid hedging strategy. That aligns itself well to being able to put fixed price gas in the storage well ahead of when volatility would really impact the market. And that's still in place now. So I would expect that, that would be helpful for us as we roll into our next hedging season, so to speak. And then ultimately, gas goes up and down in that volatility, it can be beneficial to us through prices and certainly through Energy Services and such. But it just shows that the market is resilient. And our customers will enjoy, hopefully, lower pricing if it continues in this direction going forward and certainly unit (ph) supportive of our overall business as an economic way to heat your house and provide energy.

Got it. Thanks, Steve. And if I could just squeeze one more in sort of on the 1Q outperformance. Is it fair to say that if S&T outperformance kind of holds that is really in 4Q that you'll accrue, I guess, some O&M expense or G&A rather around additional comp and stuff like that so that may be an offset to some of the 1Q outperformance here?

Yeah. So -- yes, you're right. Our expenses related to labor are seasonal and exactly as you pointed out, Q4 tends to be the highest.

Thanks, Roberto.

Thanks, Gabe.

Our next question is from Sam Klau (ph) from Bank of America. Sam, your line is now open. Please go ahead.

Hey, guys. Good morning. Just a quick question on your financing projections here. Just given Q1's outperformance, is there any reason why your financing activity projections haven't really changed? And also within that, why you're sort of thinking more towards increasing equity issuances over debt relative to your previous update?

Yeah. So I remind you we're talking about what we're showing in terms of our projection for our cash flows. So even though we have increased our guidance, we feel we're still within the range that we show there. So that's why we haven't changed that. So that's number one. And then on your question regarding debt versus equity, as we have stated before, we have no plans to issue any block equity in the near future, and that remains true today.

Got it. Thanks, Roberto.

[Operator Instructions] Our next question is from Shar Pourreza from Guggenheim Partners. Shar, your line is now open. Please go ahead.

Hi, guys. It's Jamieson on for Shar. Thanks for taking our questions.

Hey, Jamieson.

Hey. So just wanted to thank you for the helpful responses so far and wanted to expand and clarify a bit on a couple of prior answers you provided. First off, and I guess the seasonal aspect of the fourth quarter, but again, just wanted to expand and clarify. So at the gas utility, despite the stronger customer growth and higher earnings year-over-year for the first quarter, it looks like you lowered guidance for the segment on an actual EPS basis despite the $0.20 raise for the year for the entire company. But for the segment, it looks like it's about $0.06 to $0.08 lower based on the new weightings and the higher guidance. Could you just remind us of your expectations for inflationary pressures on O&M for the year or any other potential drags that you now expect versus the November original guidance and what was baked into that? And then I have a follow-up.

Good morning. This is Roberto. I think what you are referring is to the breakdown -- the percent breakdown of our NFE by BU that we show in our presentation. And for the utility, you're right, that's lower, but the reason that's lower is because the whole business is so much higher, right? So on an absolute basis, we do not expect the utility to be lower.

But -- okay. Well, I just took the $2.42 to $2.52 original and then did that by 55% and also by 60%, took those numbers and then took the revised $2.62 to $2.72 and did that by the 48% and then separately by the 53% and then compared the bottom of each the -- top of each, and that's where I came up with a $0.06 to $0.08 lower. I'm not going off midpoints or averages or anything. So that's -- is there a different way to look at it?

Yeah. So we can take that off-line to explain that.

Sure. No problem.

If you were to look at the guidance range for equity based on the original guidance range of $2.42% to $2.52 and what we're showing today, you would see that on an absolute basis, there are really no changes.

Okay. Yeah. Let's kick it off-line then. But yeah -- no, I was just coming up with $0.06 to $0.08 lower in absolute changes from one to the next, but that's okay. So just moving on as a follow-up but not on the EPS side. After backing out the $20 million contribution from the AMA this quarter and the roughly $22 million contribution in the same quarter a year ago, looks like you had an almost $0.40 improvement year-over-year, mostly driven by Winter Storm Elliott. And I'm specifically looking here, just add Energy Services, I get that other parts of the business also contributed to the outperformance. But just narrowing in there, given that you only use half of that to raise guidance by, it seems like you've got a very, very nice buffer to start the year, something that I'm sure a lot of your peers envy given a lot of inflationary pressures and other cost pressures that everyone is encountering. Could you walk us through the top couple of potential earnings drags that you had been worried about back in November when you gave guidance and that you are now less so since you presumably still have another $0.20 or so of buffer left for the year?

Yeah. So maybe the first thing to address is the buffer you're talking about, right? It's -- so the way to think about that is you have timing changes, especially coming from Energy Services as you think at how their demand charges happen. They tend to happen. So for the most part in the second part of the year where there are lower revenue, so there is a timing change that are affecting the buffer that you're discussing. And then we're just generally cautious about what could happen right now, especially with electricity prices.

Yeah. I think just to add to that, I might -- to describe it as a buffer, I think there's seasonality to the number that's here. And I'm not in agreement that there's a buffer associated with our guidance or the way that you've put the numbers together.

Okay. Fair enough. We can follow up off-line. Either way, it seems like you're in a good place and it seems like a good thing to have to kick the year off with. So that's why I was asking.

That's what we told you.

Yeah. Absolutely. Just a final question on Clean Energy Ventures. You mentioned in the prepared remarks that you're looking to tighten the range in the quarters ahead. There's another question on it already. But just to hone in here as the final question, what are the gating items that you're currently waiting on just so we have a better sense of timing? When do you expect to have the level of visibility that you require in order to be able to narrow the range for the next fiscal year and the year thereafter?

So when Amy answered the question before, she talked about cube reform and PJM and certainly some of the programs in the state of New Jersey. But mentioned that for the project pipeline that we've shown there, they're not solely dependent on those being, I guess, resolved. So we've got a capital program that we feel confident that we'll be able to execute and certainly to be positive developments to get those other programs in the Q reform completed. But again, not solely dependent on at least new programs taking place at the state in order to get our capital invested. I hope that answers your question. If not, please clarify.

Got you. Yeah. No, just was trying to get a sense of whether it's sort of a next quarter or two quarters from now or that sort of thing. But I think that covers it, and I can follow up further off-line.

Okay.

Thank you very much and good start to the year, guys. Congrats.

All right. Thank you.

Our next question is from Travis Miller from Morningstar. Travis, your line is now open. Please go ahead.

Good morning, everyone. Thank you.

Hey, Travis.

I apologize if you touched on this earlier, but I wonder if you could talk about how the AMAs performed during the quarter. How much of that contributed to that Energy Services? Was there volatility in there like you expected or didn't expect? Just wondering on the AMAs, how that performed in the quarter.

Hey, Travis. This is Roberto. So the AMA, we said before that for the year, the expected revenues are going to be similar to those of last year. And for Q1, those revenues were $20 million. And we received all the cash corresponding to the AMA already in Q1. That was about $73 million. So it -- to answer your question in a nutshell, it performed exactly as we expected.

Okay. Do you have in place during the year any kind of optionality around those where you could get any kind of either or detriment?

On this specific AMA, as we have discussed, this is basically pretty much a fixed price contract, so no.

Okay. Thank you very much.

Sure.

Thanks, Travis.

We currently have no further questions. I will now hand back to the management team.

Thank you. I'd like to thank all of you for joining us this morning. As a reminder, a recording of this call is available for replay on our website. And as always, we appreciate your interest and investment in NJR. Goodbye. Have a good morning.

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines. Have a good day.