SJI Reports Fourth Quarter and 2021 Results Earnings Conference Call Cancelled Given Agreement to be Acquired by the Infrastructure Investments Fund

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FOLSOM, NJ (February 24, 2022) - SJI (NYSE: SJI) today reported operating results for the fourth quarter and full year periods ended December 31, 2021. Highlights include:

• 2021 GAAP earnings $0.80 per diluted share compared to $1.62 per diluted share in 2020 Economic Earnings* $1.62 per diluted share compared to $1.68 per diluted share in 2020 2020 results included $0.13 per diluted share in non-recurring gains
• Q4 2021 GAAP earnings $0.72 per diluted share compared to $0.69 per diluted share in 2020 Economic Earnings $0.58 per diluted share compared to $0.62 per diluted share in 2020
• 2021 economic earnings increased $15.0 million or 9.2%, despite ongoing challenge of pandemic, driven by increased profitability from core operating entities SJI Utilities and SJI Energy Enterprises
• 2021 highlights include continued strong customer growth and infrastructure modernization, advancement of key regulatory initiatives and clean energy investments, and significant balance sheet improvement
• Dividend increased to indicated annual $1.24 per share, reflecting 23 consecutive years of rising dividends
• Today announced definitive agreement under which the Infrastructure Investments Fund (IIF), an investment vehicle advised by J.P. Morgan Investment Management Inc. will purchase SJI for $36.00 per share in cash, reflecting an enterprise value of approximately $8.1 billion

"I'm pleased to report that 2021 results achieved the higher end of the expectations we outlined at our Investor Day last May, driven by solid growth across our core operating businesses," said Michael Renna, SJI President and Chief Executive Officer. “As energy markets across the U.S. and New Jersey accelerate the transition toward low carbon and renewable energy, the SJI Board determined that now is the opportune time to join forces with IIF, a trusted partner and long-term investor in utility and renewable energy companies. Together we will be well positioned to execute on our clean energy and decarbonization initiatives in support of the environmental goals of our State and region,” added Renna.

2021 Results

For the twelve-month period ended December 31, 2021, SJI reported consolidated GAAP earnings of $88.5 million compared to $157.3 million in the prior year period.

SJI uses the non-GAAP measure of economic earnings when discussing results. We believe this presentation provides clarity into the continuing earnings of our business. A full explanation and reconciliation of economic earnings is provided under “Explanation and Reconciliation of Non-GAAP Financial Measures” later in this report and in our 10-K for the year ending December 31, 2021.

For the twelve-month period ended December 31, 2021, economic earnings were $178.0 million compared to $163.0 million in the prior year period.

UTILITY

SJI's utility entities include the regulated operations of South Jersey Gas (SJG) and Elizabethtown Gas (ETG). 2021 GAAP earnings were $178.4 million compared with $156.1 million in 2020. Economic earnings were $170.5 million compared with $157.3 in 2020.

South Jersey Gas

Performance. 2021 GAAP earnings were $127.6 million compared to $108.1 million in 2020. Economic earnings were $127.6 million compared to $109.3 million. Utility margin increased $38.2 million, reflecting rate relief effective October 1, 2020, customer growth and the roll-in of investments from infrastructure replacement programs. SJI defines utility margin, a non-GAAP measure, as natural gas revenues plus depreciation and amortization expenses, less natural gas costs, regulatory rider expenses and related volumetric and revenue-based energy taxes. Total expenses increased $19.9 million, primarily reflecting higher depreciation and interest expenses.

Customer Growth. SJG added approximately 6,400 new customers over the last 12 months and now serves approximately 411,000 customers. SJG’s 1.6% customer growth rate compares favorably to the peer average and remains driven by gas conversions from alternate fuels such as oil and propane, and new construction.

Infrastructure Modernization. Through infrastructure replacement programs, SJG enhances the safety and reliability of our system while earning our authorized utility return on approved investments in a timely manner. SJG's Accelerated Infrastructure Replacement Program (AIRP II) authorized investment of $302.5 million from 2016-2021 for infrastructure replacement upgrades. Our investment of approximately $69 million from July 2020 through September 2021 was rolled into rates on January 1, 2022. SJG's Storm Hardening and Reliability Program (SHARP) authorized investment of $100 million from 2018-2021 for four projects to enhance the safety, redundancy and resiliency of the distribution system along our coastal communities. Our investment of approximately $23 million from July 2020 to June 2021 was rolled into rates on October 1, 2021.

IIP Proposal. SJG has filed a request with the New Jersey Board of Public Utilities (NJBPU) for approval of an Infrastructure Investment Program (IIP) that would accelerate planned capital expenditures to enhance the delivery of safe, reliable, affordable natural gas, create jobs, and support the State’s environmental goals. Under the proposed five-year program, SJG will invest approximately $742.5 million to replace 825 miles of aging steel mains and install excess flow valves on new service lines. These enhancements ensure the continued safety and reliability of SJG's system. The procedural schedule contemplates a resolution during Q2 2022.

Energy Efficiency. Through energy efficiency programs, SJG advances New Jersey’s clean energy goals in a manner that benefits customers, the environment and the State’s green economy while recovering our investments in a timely manner. SJG's energy efficiency program, as approved by the NJBPU in April 2021, authorizes investment of $133.2 million from July 1, 2021 to June 30, 2024. Our investment of approximately $40 million from July 2021 to June 2022 commenced recovery in July 2021.

Redundancy. In August 2021, the NJBPU approved SJG's engineering and route proposal to construct system upgrades in support of a planned 2.0+ Bcf liquefied natural gas (LNG) facility. This project is critically important to ensure service is not interrupted to our customers in the event of a significant outage, either behind our city gate, or on one of the two interstate pipelines that serve the SJG system. Pre-construction engineering and permitting of the project has commenced. We also continue to explore alternatives that will allow for a secondary supply of gas needed to create reliability and resiliency for ~140,000 customers in Atlantic and Cape May counties.

Elizabethtown Gas

Performance. 2021 GAAP earnings were $50.7 million compared with $47.7 million in 2020. Economic earnings were $42.9 million compared with $47.7 million in 2020. Utility margin, as previously defined, increased $1.6 million, reflecting customer growth and the roll-in of investments from infrastructure replacement programs. Total expenses increased $6.4 million, primarily reflecting higher O&M, depreciation and interest expenses.

Customer Growth. ETG added approximately 4,000 new customers over the last 12 months and now serves approximately 305,000 customers. ETG’s 1.3% customer growth rate has increased from its historic 0.9% rate, driven by increases in gas conversions from alternate fuels such as oil and propane, and new construction.

Infrastructure Modernization. ETG's Infrastructure Investment Plan (IIP) authorizes investment of $300 million from 2019-2024 for important infrastructure upgrades including the replacement of up to 250 miles of cast iron and bare steel mains. Our investment of approximately $64 million from July 2020 to June 2021 was rolled into rates on October 1, 2021.

Energy Efficiency. ETG's energy efficiency program, as approved by the NJBPU in April 2021, authorizes investment of $74.0 million from July 1, 2021 to June 30, 2024. Our investment of approximately $21 million from July 2021 to June 2022 commenced recovery in July 2021.
Base Rate Case. In December 2021, ETG filed a petition with the NJBPU requesting an increase of $76.6 million to its base rates. An update to this petition was filed in February 2022 updating the requested base rate revenue increase to $72.9 million. The request is based on a proposed after tax return on invested capital of 7.63%, with a capital structure that includes a common equity component of 54.89% and a return on common equity of 10.75%. The request is predominantly driven by the significant capital investments that ETG has made since its last base rate proceeding that was resolved in 2019. Since that time, ETG has invested approximately $215 million of capital investments that are not currently reflected in rates, with an additional $175 million of capital investment anticipated to be invested by September 30, 2022. These capital investments have been and will continue to be made to ensure the safety, reliability and resiliency of ETG's distribution system, allow ETG to continue to provide safe, reliable and best in class customer service, and facilitate the environmental goals of NJ and SJI's commitment to ensuring that it is part of New Jersey’s clean energy future. A resolution of the case is expected later this year.

NON-UTILITY

SJI's non-utility entities include Energy Management, Energy Production and Midstream. 2021 GAAP earnings were $(52.7) million compared to $45.9 million in 2020. Economic earnings were $44.3 million compared with $45.9 million in 2020.

Energy Management

Performance. Energy Management includes Wholesale Services (Fuel Management/Marketing) and Retail Services (Account Services/Energy Consulting). 2021 GAAP earnings were $40.1 million compared to $26.9 million in 2020. Economic earnings were $36.9 million compared with $26.0 million in 2020.

• Wholesale Services 2021 GAAP earnings were $37.3 million compared with $25.6 million in 2020. Economic earnings were $33.5 million compared with $25.1 million in 2020, primarily reflecting improved asset optimization opportunities. For comparative purposes, note that 2020 results included a one-time $2.9 million after-tax refund from a third-party supplier.
• Retail Services 2021 GAAP earnings were $2.8 million compared with $1.2 million in 2020. Economic earnings were $3.5 million compared with $0.9 million in 2020, reflecting improved contributions from consulting activities, meter reading and appliance service contract fees.

Energy Production

Performance. Energy Production includes renewable (fuel cell/solar) and decarbonization (REV/RNG development) investments. 2021 GAAP earnings were ($7.1) million compared with $14.9 million in 2020. Economic earnings were $5.8 million compared with $15.7 million in 2020.

• Renewables 2021 GAAP earnings were ($7.5) million compared to $14.9 million in 2020, reflecting an otherthan-temporary impairment charge taken on the Company's equity investment in Energenic. Economic earnings were $5.4 million compared to $15.7 million in 2020, primarily reflecting income associated with past fuel cell and solar investments and the timing of recognition of investment tax credits (ITC) from current investments. SJI invested $46.4 million net in renewable projects in 2021, recognizing approximately $3.9 million in ITC. Development of our 5.0 MW fuel cell project in Bronx, New York continues to advance and is expected to become operational in Q2 2022.
• Decarbonization 2021 GAAP/economic earnings were $0.4 million, reflecting contributions from SJI's 35% equity interest in REV partially offset by new business investment. RNG development activities at eight dairy farms is proceeding on track, with in-service anticipated later this year.

Midstream

Performance. Midstream includes SJI's 20% equity interest in the PennEast Pipeline. 2021 GAAP earnings were $(85.8) million compared with $4.2 million in 2020, reflecting an impairment charge of $87.4 million recorded during the quarterly period ended June 30, 2021. Economic earnings were $1.6 million compared to $4.2 million, reflecting allowance for funds used during construction (AFUDC) related to the project. As previously communicated, following extensive evaluation and discussion, the PennEast partners determined that further development of the project is no longer supported.

OTHER

Performance. Other includes interest on debt, including debt associated with past acquisitions. 2021 GAAP earnings were $(37.1) million compared to $(44.7) million in 2020. Economic earnings were $(36.8) million compared to $(40.3) million in 2020, reflecting lower outstanding debt partially offset by higher interest and bank fees.

Fourth Quarter 2021 Results

For the three month period ended December 31, 2021, SJI reported consolidated GAAP earnings of $82.2 million compared to $69.1 million in the prior year period.

Economic earnings were $66.0 million compared to $63.0 million in the prior year period.

UTILITY

Fourth quarter 2021 GAAP/economic earnings were $62.8 million compared with $63.8 million in 2020.

• SJG. Fourth Quarter GAAP/economic earnings were $45.4 million compared with $43.4 million in 2020. Utility margin increased $4.5 million, primarily reflecting customer growth and the roll-in of investments from infrastructure replacement programs. Total expenses increased $2.5 million, primarily reflecting higher depreciation and interest expenses.
• ETG. Fourth Quarter GAAP/economic earnings were $17.4 million compared with $20.4 million in 2020. Utility margin decreased $2.6 million, primarily reflecting timing associated with customer growth and the roll-in of investments from infrastructure replacement programs. Total expenses increased $0.4 million, primarily reflecting higher depreciation and interest expenses.

NON-UTILITY

Fourth quarter 2021 GAAP earnings were $28.4 million compared with $18.7 million in 2020. Economic earnings were $12.1 million compared with $12.9 million in 2020. 

• Energy Management. Fourth quarter 2021 GAAP earnings were $40.5 million compared with $13.2 million in 2020. Economic earnings were $11.5 million compared with $7.2 million in 2020.
  • Wholesale Services GAAP earnings were $39.7 million compared with $12.9 million in 2020. Economic earnings were $10.2 million compared with $6.8 million in 2020, primarily reflecting improved asset optimization opportunities.
  • Retail Services GAAP earnings were $0.7 million compared with $0.2 million in 2020. Economic earnings were $1.4 million compared with $0.3 million in 2020, primarily reflecting improved contributions from consulting activities.
• Energy Production. Fourth quarter 2021 GAAP earnings were $(11.7) million compared with $4.6 million in 2020. Economic earnings were $0.9 million compared with $4.8 million in 2020.
  • Renewables GAAP earnings were ($11.2) million compared with $4.6 million in 2020, reflecting an otherthan-temporary impairment charge taken on the Company's equity investment in Energenic. Economic earnings were $1.4 million compared with $4.8 million in 2020, reflecting income associated with past fuel cell and solar investments and the timing of recognition of ITC's from current investments.
  • Decarbonization GAAP/economic earnings were $(0.5) million, reflecting contributions from SJI's 35% equity interest in REV offset by initial operating costs and new business investments.
• Midstream. Fourth quarter 2021 GAAP/economic earnings were $(0.3) million compared with $0.9 million in 2020, reflecting the absence of AFUDC related to the project.

OTHER

Fourth quarter 2021 GAAP earnings were $(9.1) million compared with $(13.4) million in 2020. Economic earnings were $(9.0) million compared with $(13.8) million in 2020, reflecting lower outstanding debt partially offset by higher interest and bank fees.
 

Capital Expenditures and Cash Flow

For the twelve months ended December 31, 2021:

• Net cash provided by operating activities was $273.1 million compared with $311.6 million in the prior year period, primarily reflecting rate relief at SJG, improved wholesale marketing results and customer growth offset by increased utility remediation costs and a third-party gas supplier refund in 2020.
• Net cash used in investing activities was $645.5 million compared with $507.8 million in the prior year period, primarily reflecting $532.0 million in capital expenditures and $58.4 million in REV, fuel cell and solar investments.
• Net cash provided by financing activities was $360.0 million compared with $209.6 million in the prior year period, primarily reflecting debt and equity issuances partially offset by debt repayment and refinancing.

Balance Sheet

• Equity-to-total capitalization was 35.8% at December 31, 2021 compared with 32.2% at December 31, 2020, largely reflecting equity financing and repayment of debt.
• Assuming conversion of mandatory convertible equity units and equity credit from rating agencies for longduration debt, SJI's adjusted equity-to-total capitalization, a non-GAAP measure, was 43.6% at December 31, 2021 compared with 39.6% at December 31, 2020.
• At December 31, 2021, SJI had total credit facilities of $1.0 billion, with $653.3 million of available liquidity.

Acquisition

In a separate press release issued today, SJI announced that it has entered into a definitive agreement to be acquired by the Infrastructure Investments Fund, an investment vehicle advised by J.P. Morgan Investment Management Inc. (IIF). The per share purchase price of $36.00 represents a 46.3% premium to SJI’s 30-day volume weighted average price (VWAP) as of February 23, 2022, the last trading day prior to the announcement of the agreement. The transaction was unanimously approved by SJI’s Board of Directors and is expected to close in the fourth quarter of 2022, subject to the approval of SJI’s shareholders, the receipt of regulatory approvals, including by the New Jersey Board of Public Utilities, and other customary closing conditions. Dividends payable to SJI shareholders are expected to continue in the ordinary course until the closing, subject to approval by SJI’s Board of Directors. Upon completion of the transaction, SJI’s shares will no longer trade on the New York Stock Exchange, and SJI will become a private company.

Conference Call Cancelled

In light of the announced transaction with IIF, SJI’s previously planned conference call and webcast set for Thursday, February 24 at 11:00am ET to discuss 2021 financial results is cancelled. SJI will not be providing financial guidance for full year 2022 as a result of the pending transaction.

About SJI

SJI (NYSE: SJI), an energy infrastructure holding company based in Folsom, NJ, delivers energy services to customers through two primary subsidiaries: SJI Utilities (SJIU) and SJI Energy Enterprises (SJIEE). SJIU houses the company’s regulated natural gas utility operations, delivering safe, reliable and affordable natural gas to more than 700,000 residential, commercial and industrial customers across New Jersey via its South Jersey Gas and Elizabethtown Gas subsidiaries. SJIEE houses the company’s non-utility operations primarily focused on clean energy development and decarbonization via renewable energy production and energy management activities. Visit sjindustries.com for more information about SJI and its subsidiaries.

Forward-Looking Statements and Risk Factors

This news release, including information incorporated by reference, contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, including statements regarding guidance, industry prospects, future results of operations or financial position, expected sources of incremental margin, strategy, financing needs, future capital expenditures and the outcome or effect of ongoing litigation, should be considered forward-looking statements made in good faith by SJI, as applicable, and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. When used in this release, or any other documents, words such as “anticipate,” “believe,” "estimate," “expect,” “forecast,” “goal,” “intend,” “objective,” “plan,” “project,” “seek,” “strategy,” "target," "will" and similar expressions are intended to identify forward-looking statements. These forward-looking statements are based on the beliefs and assumptions of management at the time that these statements were prepared and are inherently uncertain. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forwardlooking statements. These risks and uncertainties, as well as other risks and uncertainties that could cause our actual results to differ materially from those expressed in the forward-looking statements, are described in greater detail under the heading “Item 1A. Risk Factors” on Form 10-K for the year ended December 31, 2021 and in any other SEC filings made by SJI or SJG during 2020 and 2021 and prior to the filing of this earnings release.

Explanation of Non-GAAP Financial Measures

Management uses the non-GAAP financial measures of Economic Earnings and Economic Earnings Per Share when evaluating its results of operations. These non-GAAP financial measures should not be considered as an alternative to GAAP measures, such as net income, operating income, earnings per share from continuing operations or any other GAAP measure of financial performance. We define Economic Earnings as: Income from Continuing Operations, (i) less the change in unrealized gains and plus the change in unrealized losses on non-utility derivative transactions; (ii) less income and plus losses attributable to noncontrolling interests; and (iii) less the impact of transactions, contractual arrangements or other events where management believes period to period comparisons of SJI's and SJG's operations could be difficult or potentially confusing. With respect to part (iii) of the definition of Economic Earnings, items excluded from Economic Earnings for 2021, 2020 and 2019 are described in (A)-(G) in the table below. Economic Earnings is a significant financial measure used by our management to indicate the amount and timing of income from continuing operations that we expect to earn after taking into account the impact of the items described above. Management uses Economic Earnings to manage its business and to determine such items as incentive/compensation arrangements and allocation of resources. Specifically regarding derivatives, we believe that this financial measure indicates to investors the profitability of the entire derivative-related transaction and not just the portion that is subject to mark-to-market valuation under GAAP. We believe that considering only the change in market value on the derivative side of the transaction can produce a false sense as to the ultimate profitability of the total transaction as no change in value is reflected for the nonderivative portion of the transaction.

Reconciliation of Non-GAAP Financial Measures

The following table presents a reconciliation of our income from continuing operations and earnings per share from continuing operations to Economic Earnings and Economic Earnings per share (in thousands, except per share data):

(A) Represents other-than-temporary impairment charges on the Company’s equity method investments in PennEast and Energenic, as well as an other-than-temporary impairment charge recognized by Marina related to the realizability of the outstanding notes receivable, including accrued interest, related to Energenic.
(B) Represents impairment charges taken in 2019 on solar generating facilities along with the agreement to sell MTF and ACB, which were both driven by the expected purchase prices being less than the carrying value of the assets.
(C) Represents net losses, including interest, legal fees and the realized difference in the market value of the commodity (including financial hedges), resulting from a ruling in a legal proceeding related to a pricing dispute between SJI and a gas supplier that began in October 2014.
(D) Represents the following:

• Costs incurred in 2021 to finalize the transactions related to acquiring Bronx Midco and solar projects
• The final working capital payment on the sale of ELK, which was finalized during the first quarter of 2021
• Costs incurred in 2020 to acquire EnerConnex, Annadale, and four solar LLCs
• Gain recorded in 2020 on the step-acquisition of EnerConnex
• Costs incurred and gains/losses recognized in 2020 on the sales of MTF/ACB and ELK
• Costs incurred and gains recognized in 2020 and 2019 on the sale of certain solar assets. The gains pertain to those projects that were not impaired in previous periods.

(E) For 2021, includes a gain recognized by ETG from a UTUA settlement agreement. For 2021, 2020 and 2019, represents severance and other employee separation costs, along with costs incurred to cease operations at landfill gas-to-energy production facilities, including ACLE in 2021.
(F) The income taxes on (A) through (E) above are determined using a combined average statutory tax rate applicable to each period presented.
(G) Represents additional tax adjustments, primarily including

• In 2021, a federal deferred tax asset valuation allowance at SJI related to the impairment charge described in (A)
• In 2020, a state deferred tax valuation allowance at SJI
• In 2020, a one-time tax expense resulting from SJG's stipulation of settlement with the BPU.

Summary of Utility Margin

The following tables summarize Utility Margin for SJG and ETG (in thousands):