Dennis Puma - Director, IR Steve Westhoven - President and COO Pat Migliaccio - SVP and CFO.

Dennis Coleman - Bank of America Merrill Lynch Michael Gaugler - Janney Montgomery Scott.

Good morning, and welcome to the New Jersey Resources' Fourth Quarter Fiscal 2018 Earnings Conference Call. [Operator Instructions] Please note today's event is being recorded. I would now like to turn the conference over to Dennis Puma, Director of Investor Relations. Please go ahead sir..

Thank you, Rocco, and good morning, everyone. Welcome to New Jersey Resources' fourth quarter fiscal 2018 conference call and webcast. I am joined here today by Steve Westhoven, our President and COO; Pat Migliaccio, our Senior Vice President and CFO, as well as other members of our senior management team.

As you know 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 for forward-looking statements include many factors that are beyond our ability to control or estimate precisely, which could cause results to materially differ from our expectations as found in 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 Form 10-K and Q as filed with the SEC. We do not by including this statement assume any obligation to review or revise any particular forward-looking statement referenced herein, in light of future events.

Turning to Slide 2, we will be referring to certain non-GAAP measures such as net financial earnings or NFE. We believe that NFE provides a more complete understanding of our financial performance. However, NFE is not intended to be a substitute for GAAP. Our non-GAAP financial measures are discussed more fully in Item 7 of our 10-K.

I'd also like to point out that there are slides accompanying today's discussion, which are available on our website and were also furnished on Form 8-K this morning. With that said, I'd like to turn the call over to our President and COO, Steve Westhoven.

Steve?.

Thank you, Dennis, and good morning everyone. As you know from our earnings release we delivered another strong fiscal year. Looking at Slide 3, we reported net financial earnings of $2.74 per share for fiscal 2018 compared with $1.73 per share last year. Our higher results were primarily due to tax reform and increased performance by Energy Services.

We added nearly 9600 new customers at New Jersey Natural Gas which exceeded our expectations. As a result we increased our customer growth rate to 1.8% for 2019 through 2021. The safety and reliability of our system remains one of our top priorities.

Since the start of our infrastructure programs with the support of the New Jersey Board of Public Utilities, we have strengthened our system by replacing all of our cast iron removing over 400 miles of unprotected steel pipe and eliminating all low pressure main from our system.

Today we have the most environmentally sound natural gas system in New Jersey. In fiscal 2018, Clean Energy Ventures added three new commercial solar projects and 910 residential solar customers. We now have approximately 7300 residential solar customers across New Jersey.

Our combined commercial and residential installed solar capacity now totals 231 megawatts. These assets are equal to removing the emissions from over 46,000 cars from our roads annually. Our strong financial performance continues to provide an attractive total return to our shareholders.

This morning we also announced our fiscal 2019 net financial earnings guidance range of $1.95 to $2.05 per share. Slide 4 illustrates our NFE over the last four years. We target an NFE annual growth rate of 6% to 8% which compares favorably to our peers.

On Slide 5, you can see a breakdown of the expected future NFE contributions from each of our business segments. Our regulated businesses will continue to provide the majority of our total earnings.

Looking at the pie chart to the left, we expect New Jersey Natural Gas to contribute between 45% to 50% to NFE and the midstream business to contribute between 5% to 15% to NFE. Infrastructure investments and customer growth remain the principal drivers of our regulated businesses.

This year CEV is expected to contribute between 25% to 35% to NFE which is higher than prior year's. There are two reasons for this. First, to take advantage of the lower tax rate we were able to align the timing of some of our SREC sales to 2019.

Second, we expect to recognize the ITCs associated with our commercial solar projects placed into service this year. As indicated on the chart to the right, we expect CEV to return to more normalized range of 10% to 20% in fiscal 2020 and beyond. And lastly, we expect Energy Services to contribute between 5% to 15% to NFE going forward.

Moving to Slide 6, we increased our dividend by 7.3% representing the 25th increase in the last 23 years. Our dividend strategy targets an annual growth rate between 6% to 8% with the target payout ratio of 60% to 65%. However, this may be affected by Energy Services outperformance as we saw in 2018.

This approach allows for competitive return to shareholders while reinvesting earnings in the company to support future NFE growth. Turning to Slide 7, we continue to see strong customer growth at New Jersey Natural Gas. Expectations were exceeded by adding approximately 9600 customers this year, a 5% increase over 2017.

The strength of the residential construction market particularly in Ocean County remains a driving factor behind our growth. Today, we expect 65% of our customer growth to come from new construction. We've increased our forecast over the next three years to be between 28,000 to 30,000 new customers.

This is an increase of approximately 1,000 customers from our prior estimates. Based on current rates this will add cumulative utility gross margin of approximately $16.5 million over our three-year planning period. Moving to Slide 8, I’d like to provide an update on the Southern Reliability Link.

We are excited to report that we've completed the bidding process and will begin construction of Phase 1 of this project in the first quarter of fiscal 2019. We expect SRL to be in service in 2019 and plan to recover the capital costs associated with the project through a future rate case. I’d like to update you on Adelphia Gateway project on Slide 9.

As you know we signed an agreement to acquire the Pennsylvania pipeline for $166 million. We intend to convert the 50 miles southern sections to natural gas. We also plan to bring the entire project under FERC jurisdiction. On October 19, 2018 we received a notice of schedule for the environmental review from FERC.

This is an important step forward in the process. FERC schedule states that it expects to issue the environmental assessment for the project in January of 2019.

We are optimistic that Adelphia will move quickly through the FERC approval process since the project will have minimal environmental impacts as it relies on existing infrastructure, Brownfield locations and established rights-of-way.

We expect the Adelphia Gateway will be in service in fiscal 2019 and contribute materially to earnings in fiscal 2020. Turning to Slide 10, I'd like to take a moment to discuss the performance of Energy Services during the fiscal year. As you can see from the chart, Energy Services had an excellent year.

We substantially exceeded expectations due to extreme market volatility experienced in the first half of fiscal 2018. This allowed us to take advantage of favorable pricing spreads in the physical natural gas market.

We're forecasting Energy Services NFE contribution to return to a normal range of 5% to 15%, while there's an opportunity for additional earnings in the event of extreme market conditions we do not factor this into our earnings guidance. On Slide11, I’d like to update you on Clean Energy Ventures.

During fiscal 2018 we made a total capital investment of about $100 million for projects placed into service. This year we've already placed two projects into service and expect to complete another four projects before the end of the fiscal year, three of which are currently in the permitting process.

The fourth project has been identified and we expect to have it contracted in the first quarter of fiscal 2019. These six installations total over 50 megawatts of capacity and represent an investment of $131 million of ITC eligible capital for fiscal 2019.

We serve approximately 7300 residential customers through our Sunlight Advantage program and this year we plan to add another 1000 residential solar customers. As you know, New Jersey passed the Clean Energy Act in May of 2018 and the BPU has been tasked with developing and implementing incentive program for the new projects.

We continue to work closely with the BPU, the governor's office, and legislators to help ensure solar remains viable for future investment while contributing to the state’s clean energy goals. Finally I’d like to mention that we remain on track to close the sale of our remaining wind assets in the first quarter of fiscal 2019.

I’d like to turn the call over to Pat now for some details on the financials..

Thanks Steve, and good morning everyone. Building on Steve's comments, we actively hedge our SREC production to lock in revenue for future energy years result of which are shown on Slide 12.

As you can see about 90% of our SREC sales from facilities currently operational and those under construction are hedge for energy years 2019 and 2020 at average price of $192 per SREC. For energy year 2021 the hedged amount is 58% at $192 as well.

We will continue to hedge through fiscal 2019 with a focus on increasing our hedge ratios in the outer years. As we closed our fiscal 2018, I provided a breakdown of the changes from year-to-year in each of our principal subsidiaries.

You can see the tax reform had a major impact on all of our businesses but you can also clearly see the outperformance of Energy Services. On Slide 14, I'd like to highlight a couple of elements of our capital spending plan. For New Jersey Natural Gas, we expect to spend $475 million in fiscal 2019.

The increase in spending this year is attributed to SRL construction, meter exchanges, new facilities and information technology investments. For midstream, we expect to spend over 300 million in fiscal 2019 as we anticipate bringing the Adelphia Gateway project online.

As you can see on Slide 15, the majority of our financing in fiscal 2019 will come from long-term debt and the sale of our wind assets. We expect to raise about $60 million in incremental equity above our dividend reinvestment program. Strong cash flows in fiscal 2020 and 2021 support over $1 billion of investment with relatively small equity needs.

We believe our cash flows and financing plans will continue to support our strong financial profile now and in the future. I’ll now turn the call back to Steve for some final thoughts..

Thanks Pat. Before I open the call for questions, I want to summarize what’s ahead for fiscal 2019. For New Jersey Natural Gas we have an upcoming infrastructure filings in a rate case which is due by November 2019. We expect SRL to be in service this year and plan to add 9600 new customers from construction and conversions.

In our Midstream segment, we anticipate Adelphia Gateway will be in service in 2019, a significant milestone for our company. This will result in meaningful contribution to earnings in 2020 and increase our total regulated NFE.

At Clean Energy Ventures, we expect to place six commercial solar projects into service increasing our total solar capacity to more than 290 megawatts. We also expect to close in the sale of the remaining wind portfolio assets which helps reduce our external financing needs. I'm optimistic for the year ahead.

We have a great team of employees who are dedicated to executing our strategy and I want to recognize their hard work that drives our performance. Thank you for joining us today. And now I'd like to open up the call for questions..

[Operator Instructions] And today's first question comes from Dennis Coleman of Bank of America Merrill Lynch. Please go ahead..

I just had a couple quick ones from me. On SRL, so construction will start - is it already started.

I guess you’re saying it will start this quarter?.

It’s going to start this quarter, that's right..

So all the permits are in place, all the road opening, everything that we've been waiting for?.

We're still waiting for the Burlington County Road opening permit, that's moving forward in process and we expect to receive that soon..

So, I'm sorry just to press that, I guess then the construction this will be on the base is that - that's where the construction will start?.

That's correct..

And then just one quick one on the O&M expense in the Energy Services segment pretty volatile I guess with earnings, is that compensation related stuff, is that how we should think about that?.

Dennis this is Pat Migliaccio. Certainly a element of this compensation related, most of those accruals are incentive payments are accrued in the third and fourth quarters as we get line of sight on what the actual results going to be.

But also remember that Energy Services demand charges that they pay for both transportation and storage contracts are generally flat while we are in margin on a volatile basis more in the winter than in the summer. And so those are two contributing factors..

[Operator Instructions] And our next question comes from Michael Gaugler of Janney Montgomery Scott. Please go ahead..

Just looking at the weather forecast here in this quarter and your guidance, just wondering if you factor that into the quarterly outlook and the annual outlook given we're looking at some very cold weather here particularly as it pertains to Energy Services?.

Mike just to give a quick comment on that, it certainly been cold this fall but it's way too early in the fiscal year to start changing or making adjustments to our guidance range right now, but certainly the market has had some decent volatility and it’s been constructive..

I guess that's most I am going to get out of you..

Absolutely..

[Operator Instructions] And this concludes our question-and-answer session. I’d like to turn the conference back over to the management team for any final remarks..

All right Rocco, thank you very much. Thank you all for joining us this morning I just want to remind you that - a recording of this call is available on our website for replay. As always we appreciate your interest and investment in New Jersey Resources. Have a great Thanksgiving everyone. Good bye..

And thank you sir. This concludes today's conference. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day..