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South Jersey Industries, Inc. (SJI)

SJI 
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South Jersey Industries Inc. (SJI)

Q4 2017 Results Earnings Conference Call

February 23, 2018, 11:00 am ET

Executives

Marissa Travaline - Senior Director, Stakeholder Relations

Mike Renna - President, Chief Executive Officer

Steve Clark – EVP & Chief Financial Officer

Dave Robbins - SVP, President of South Jersey Gas

Greg Nuzzo - SVP, President & COO of South Jersey Energy Solutions

Analysts

Spencer Joyce - Hilliard Lyons

Chris Ellinghaus - Williams Capital

Michael Gaugler - Janney Montgomery

David Frank - Corso Capital

Presentation

Operator

Good day, ladies and gentlemen and welcome to the Q4 2017 South Jersey Industries earnings conference call. My name is Mark and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions].

I would now like to turn the conference over to your host for today, Marissa Travaline, Senior Director of Stakeholder Relations. Please proceed.

Marissa Travaline

Good morning. Thank you for joining us as we review SJI's fourth quarter and full-year results for fiscal year 2017. Joining me today to present on our call today are Mike Renna, President and CEO and Steve Clark, our CFO. We also have several additional members of our senior management team available to help address questions following our prepared comments. Our earnings release and the slide intended to accompany the call were issued yesterday after the close of the market and were posted on our website at www.sjindustries.com.

The release and the associated 10-K provides an in-depth review of earnings on both a GAAP and non-GAAP basis using our non-GAAP measure of economic earnings. Reconciliations of economic earnings to the comparable GAAP measures appear in both documents.

Let me note that throughout today's call, we will be making references to future expectations, plans and opportunities for SJI. Actual results may differ materially from those indicated by these statements as a result of various important factors including those discussed in the company's Forms 10-K and Q on file with the SEC.

With that said, I would like to turn the call over to our CEO, Mike Renna, to discuss both current performance and future initiatives in the context of our strategic plan.

Mike Renna

Thank you Marissa. Good morning everyone. 2017 marked another significant step forward in support of our long-term strategic objectives. Driven largely by strong performance in our utility and our wholesale businesses, we generated economic earnings per share of $1.23, which exceeded our guidance range of $1.14 to $1.20. South Jersey Gas' results reflect a combination of strong customer growth and our ongoing commitment to infrastructure modernization.

For the year, gross customer count grew by more than 8,600 with 71% the result of conversions and 29% from new construction. On a net basis, year-over-year customer growth was 1.6%, well above the national average. This growth combined with growing demand from our commercial customers was worth roughly $2.4 million in incremental income.

Over the past nine years, we have made substantial investments to modernize and reinforce our system under our proved infrastructure tracking programs. We are in the second year of our current accelerated infrastructure replacement program under which we will invest $302 million over a five-year period to replace the remaining bare steel and cast iron main in our system.

Late last year, we also filed a petition with the New Jersey Board of Public Utilities to extend our storm hardening and reliability program. This extension proposes investment totaling $110 million through 2021 to further upgrade the distribution system along the Barrier Islands. We are hopeful this critical program will be approved in the coming months.

Finally 2017 saw BPU approval of a base rate case filed earlier that year. The case resulted in annual revenues of $39.5 million, a return on equity of 9.6% and an equity ratio of 52.5%. It also brought our current rate base to $1.6 billion. The new rates are additive to our accelerated infrastructure programs and are expected to add nearly $15 million of net income in 2018.

In our midstream segment, the PennEast pipeline marked another milestone when FERC issued a certificate of public convenience and necessity in January. With FERC's environmental and economic review now complete, customers are one step closer to receiving the significant reliability and cost savings that the PennEast pipeline affords. Benefits that will help protect customers from spikes in natural gas prices that drove costs $300 million higher in our region during 10 days in December and January and prices in the areas that the PennEast pipeline could access.

Recently, NJDEP submitted a request for reconsideration with FERC citing the need for further environmental review. We expect that motion to be denied and remain committed to securing the state and bistate commission approvals needed to pursue construction of this vital project in late 2018.

Our pending acquisition of Elizabethtown and Elkton Gas continues to move forward. Integration activities are ongoing as we work toward obtaining the approval of both NJBPU and Maryland Public Service Commission. This transformative transaction supports our commitment to earnings growth and earnings quality, providing visibility into the long-term growth opportunities that exist far beyond our current five-year plan. The acquisition remains on track to close in mid-2018 and we have started to execute financing beginning with a $250 million private placement which we agreed to in January and closing occurring over the next several months. We continue approach our financing plans with a focus on responsible mix of debt and equity as well as a consideration for other sources of funding.

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