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South Jersey Industries, Inc. (SJI)

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South Jersey Industries Inc. (SJI)

Q1 2018 Earnings Conference Call

May 8, 2018 10:00 AM ET

Executives

Marissa Travaline - Vice President of Communications

Michael Renna - President, Chief Executive Officer

Stephen Clark - Executive Vice President and Chief Financial Officer

David Robbins - Senior Vice President, President of South Jersey Gas

Analysts

Tate Sullivan - Sidoti & Company

Christopher Turnure - JPMorgan

Presentation

Operator

Good day, ladies and gentlemen and welcome to the First Quarter 2018 South Jersey Industries’ Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host for today, Marissa Travaline, Vice President of Communications. Please proceed.

Marissa Travaline

Thank you. Good morning and welcome to South Jersey Industries’ first quarter 2018 conference and webcast. I am joined today by Mike Renna, our President and Chief Executive Officer; Steve Clark, our Executive Vice President and Chief Financial Officer; as well several additional members of our senior management team. Our earnings release and the slide intended to accompany our call today 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-Q provided 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 10-Q on file with the SEC.

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

Michael Renna

Thanks Marissa. Good morning, and thanks for being with us. I am pleased to report that we are off to a strong start in 2018; improved performance from both our regulated and non-regulated businesses drove economic earnings of a $1.26 per share in the first quarter, up significantly compared with $0.72 last year. In fact, our first quarter results were higher than our total reported results for 2017.

On the regulated side, improvement in our gas utility business, South Jersey Gas reflects positive impacts of the recent base rate case, solid customer growth, and continued infrastructure investment intended to enhance and improve service and reliability to our customers. On the non-regulated side, our wholesale marketing and fuel management businesses, posted strong gains as well, capitalizing on favorable weather, tax reform, and an additional fuel management contract.

Before I turn it over to Steve to discuss our first quarter earnings performance and guidance, I want to share with you an update on our business transformation efforts and the key priorities we are focused on for the remainder of the year. As you recall back in 2015, we began a planned shift into our future operating strategy toward a more regulated business mix.

Our plan was driven by a desire to increase the quality of our earnings by increasing investment in utility and FERC-regulated assets that provide highly-visible cash flows and earnings while at the same time reducing our earnings volatility and optimizing the value of our non-core, non-regulated businesses.

As our first quarter results show, we have made significant progress toward implementing our plan since that time. In 2016, we announced a cessation of new investment in solar projects, reduced our portfolio of on-site energy production businesses, and significantly strengthened our balance sheet through a successful equity offering. In 2017, we announced plans to acquire Elizabethtown Gas and Elkton Gas from solar company, assets ideally tailored to our strategy which I will discuss in a moment.

And in 2018, we already completed a successful equity raise to finance these acquisitions and announced a strategic review of our remaining non-core, non-regulated businesses. As you know, a big piece of our transition is our planned acquisitions of Elizabethtown and Elkton. The transaction involve assets we know well, improves our business risk profile, leverages our strong regulatory relationships in New Jersey, enhances our path to long-term, high-quality growth and earnings accretion and provides an opportunity for enhanced utility investment through the replacement of aging infrastructure.

The acquisition is progressing well, settlement discussions have commenced in New Jersey and Maryland and the transaction remains on track to close in mid-2018. Our recently completed equity financing marks an important milestone in the acquisition process through a highly successful offering of equity unit and common stock in April; we raised net proceeds of $447 million with an additional $200 million of potential equity from our forward sale.

The use of a forward-sale agreement enables us to match our capital needs with actual stock issuance and it would be adjusted to reflect any potential non-core asset sales. As previously disclosed, we are currently exploring strategic opportunities regarding our remaining non-regulated businesses that are non-core to our strategic plan. We expect to communicate additional progress on this process in the coming months.

With that, I will turn the call over to Steve to detail our first quarter results and guidance.

Stephen Clark

Thanks Mike, and good morning, everyone. As Marissa noted earlier, both the earnings release and the slide deck we made available provide you with detailed information regarding GAAP earnings and I would encourage you to review that information as well. For the purposes of this call, as we normally do, we will focus our discussion on our non-GAAP measure of economic earnings as management believes that this measure provides valuable insights into the performance of our business.

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