Chesapeake Utilities Corporation

Welcome to Chesapeake Utilities Corp's second quarter 2020 earnings conference call. During the presentation, all participants will be in a listening mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. As a reminder, this conference is being recorded Thursday, August 6, 2020. I would now like to turn the conference over to Beth Cooper, EVP and CFO. Please go ahead.

Thank you and good afternoon, everyone. It is great to be with all of you today. We appreciate you joining us today to review our second quarter and year-to-date results. We trust that you and your families are doing well and staying safe. As shown on slide two, participating with me on the call today are Jeff Householder, President and CEO, and Jim Moriarty, Executive Vice President, General Counsel, Corporate Secretary, and Chief Risk and Compliance Officer. We also have other members of our management team joining us virtually. Today's presentation can be accessed on our website under the Investor section and Events and Webcast subsection or via our IR app. After our prepared remarks, we will be happy to take your questions. Our focus for the call is to provide insight into our second quarter and year-to-date results, the expected impact of COVID-19 on our business to date, our progress on numerous key strategic initiatives, and our outlook for the future. Moving to slide three, I would like to remind you that matters discussed in this conference call may include forward-looking statements that involve risks and uncertainties. Forward-looking statements and projections could differ materially from our actual results. The Safe Harbor for Forward-Looking Statements section of the company's 2019 annual report on Form 10-K and our 2020 quarterly reports on Form 10-Q provide further information on the factors, including the risks and uncertainties related to the COVID-19 pandemic that could cause such statements to differ from our actual results. Now I'll turn the call over to Jeff to provide opening remarks on our second quarter performance, more details on our COVID-19 response, and some insights, again, on our outlook going forward.

Jeff? Thank you, Beth. Good afternoon, and thank all of you for joining our call for the second quarter of 2020. We achieved solid second quarter results with gap earnings per share of 66 cents. 16 cents above our 2019 second quarter results. As you'll hear later in the call, we didn't escape the impacts of weather or COVID-19 over the first half of the year. But we did find ways to overcome those impacts. Our entire team of employees has worked hard to not only keep meeting customer expectations for reliable service, but also to keep growing our energy delivery businesses. It's remarkable and a testament to the dedication and drive of our employees, contractors, and suppliers that in the face of the COVID-19 pandemic, our results remain strong and we continue on target with growth projects that will contribute to future earnings. Let me spend a couple of minutes updating you on our company's COVID-19 experience as highlighted on slide four. You may recall from our Q1 call, we began pandemic preparations in late February. with full activation of our response actions in March. By the end of March, we had about 500 of our 1,000 employees working remotely with adjusted technology, procedures, and controls supporting our virtual office processes. We were also working hard to secure PPE for our field personnel and refining the protocols for various field service functions, such as how we would enter an occupied building where the occupants might be sick. We did not see significant expense increases or margin reductions in March as the virus began to spread. Our first quarter results were impacted more by the lack of weather than COVID-19. That has not been the case in the second quarter. Our coronavirus related expenses have increased and as businesses closed during the lockdown period, our margins have been negatively impacted. That's been especially true in our Florida gas distribution businesses, which serve numerous hotel, restaurant, and other hospitality industry customers that were for the most part closed during the second quarter. We saw it coming and responded accordingly. Given the weather impacts in the first quarter, we were already looking at more aggressive management of our expenses. COVID-19, excuse me, elevated those cost reduction initiatives. And while we've achieved significant cost reductions, I assure you we have not cut $1 out of our safety and operational compliance programs. All of our inspection, maintenance, and replacement activities remain unchanged. In fact, we've been able to accelerate many of these activities along with the construction of our new safety town gas operations training center in Dover. As I reflect on this quarter, I'm truly thankful for the contributions and the positive can-do attitude of our team. to keep Chesapeake utilities moving forward in these unprecedented times. I also want to acknowledge our employees' families who provided unconditional support for the Chesapeake team as we continue to deliver essential energy services. We all know that this pandemic has not been easy, especially for parents or grandparents. In addition to a daytime job and the usual stress of running a home, we're also a teacher, a daycare worker, recreational coordinator, and all the other childcare functions required. when normal activities are suspended. As our economy begins to reopen and school districts contemplate what education looks like going forward, we're working to structure flexible work schedules for our employees with children to better accommodate their educational and childcare needs. I'm often asked, when will this end and when will we get back to normal? We've been sending the message to our team that Chesapeake's normal has always been a little different than many of our peers. A little more entrepreneurial, more interested in digging harder to find the opportunities that many overlook, more focused on starting with the customer's interest in mind, solving the customer's problem, and then finding a way to turn a profit on the deal. I speak frequently to our employees about applying this same perspective to our pandemic response. So I don't know when this will end. We're planning on continuing our current work environment at least through the end of this year. and that will likely extend into 2021. I am fairly certain that Chesapeake will emerge from this pandemic as a stronger company operationally than we were before we ever heard of COVID-19. In fact, before the pandemic began, we had a business transformation initiative underway to consider the organizational structure of the process, standardization needed, and business simplification required for us to continue to grow and pace with our historic rates and consistent with our recently updated capital and earnings guidance. In many ways, the COVID-19 pandemic has accelerated this process. We're moving forward on many fronts to improve our technology, our communications with employees, the collaboration across our business units, employee training and development, and working toward greater standardization of business and operational processes. We've also continued our enhanced focus on safety. and are in the process of developing a formal safety management system across the company. And a couple of years ago, we began a concerted effort to address gender diversity at Chesapeake. Our women and energy chapter is very active, and we have numerous female team members that have moved into leadership positions. We've expanded that effort to provide greater focus on addressing diversity of race and other issues that affect inclusion and equality in the workplace. We've also continued to support the communities where we live and work. Chesapeake Utilities was one of the first energy delivery companies to suspend customer service disconnects and late fees. We continue to work with customers to offer delayed payment options and budget payment plans as a result of their financial situation. And we'll continue to work with our state regulatory commissions on the timing and process to reinstitute more traditional disconnect procedures. We're also continuing to address the needs of our communities through philanthropy and volunteerism. We've made over $250,000 in contributions to local organizations to aid in the fight against the COVID-19 impact. And Chesapeake has also established a matching program for employee donations to local community organizations. And these contributions are above and beyond our normal giving levels. As I noted earlier, in the midst of the pandemic, we've continued to execute our growth strategy, including pipeline and distribution system expansion projects, as well as our business development activities. Slide five highlights several of the accomplishments that are contributing to both solid quarterly earnings and future growth. We recently completed the acquisition of Elkton Gas from South Jersey Industry, adding about 7,000 new customers and expanding the Chesapeake footprint in Cecil County, Maryland. Our Eastern Shore Natural Gas Pipeline Construction Project in Maryland is underway, and we recently placed our Florida Callahan Pipeline in service a month ahead of schedule. Our gas distribution systems continue to add customers at a rate that's significantly above the average growth rate across the country. We announced two new renewable natural gas projects, that will support local communities in resolving the long-term challenge of poultry waste disposal and the impact on local waterways in Delmarva. Despite the unique operating circumstance created by COVID-19, all of our business units remain focused on growth and at the same time are working to manage expenses as a partial offset to COVID-19 impacts. All of these initiatives enabled us to generate strong second quarter performance and to reaffirm our commitment to our 2022 capital and EPS guidance. Later in our presentation, we'll discuss our major project margin contributions table, which now estimates $38 million in 2020 and $52 million in 2021, given our announced projects today. Turning to slide six, second quarter earnings per share, as I mentioned, 66 cents per share. a 16-cent increase compared to the same period last year. On a year-to-date basis, EPS increased 17 cents a share. Despite COVID-19, we've grown the company while managing costs associated with COVID-19 and seeking cost efficiencies on an ongoing basis. Further, because of COVID-19 and the Federal CARES Act, Chesapeake was able to generate a favorable $1.7 million net income tax benefit due to the carryback of tax NOLs to years pre-TCGIA. Before the CARES Act, all tax NOLs generated primarily from bonus depreciation and tax versus book timing differences were required to be carried forward. As my colleague Beth Cooper likes to say, we are pushing buttons and pulling levers, by which she means we are working to manage our costs, taking advantage of favorable tax and regulatory opportunities, restructuring debt to find lower interest rates, closing sales on unneeded property, driving margins where possible, and taking many other actions to continue to deliver both short and long-term shareholder value. Let me turn the call back to Beth now to discuss in more detail our second quarter results. Beth?