Chesapeake Utilities Corporation

Greetings and welcome to the Chesapeake Utilities Corp fourth quarter and annual 2020 financial results. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct a question and answer session. At that time, if you have a question, you may press 1-4 on your telephone. If at any time during the conference you need to reach an operator, please press star zero. As a reminder, this conference is being recorded Thursday, February 25th, 2021. I would now like to turn the conference over to Beth Cooper, Executive Vice President and Chief Financial Officer. Please go ahead.

Beth Cooper Thank you and good afternoon everyone. We appreciate you joining us today to review our fourth quarter and annual 2020 results. We at Chesapeake Utilities continue to operate effectively in this new normal, serving our customers and keeping employees as safe as possible. as we await the full availability of the COVID-19 vaccination in the coming months. As shown on slide two, participating with me on the call today are Jeff Householder, President and Chief Executive Officer, 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. After our prepared remarks, we will open the call up for questions. Our objective today is to provide insight into our fourth quarter and annual 2020 results, review the estimated impact of COVID-19 on our business in 2020, as well as update you on our progress on key strategic initiatives and our outlook for the future in regards to new opportunities. 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 2020 annual report on Form 10-K provides further information on the factors 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 the company's 2020 performance and the key contributing drivers to our results. Jeff?

Good afternoon, and thank you for joining our year-end 2020 earnings call. We had a very strong year in 2020. As shown on slide four, earnings growth from continuing operations increased 13.2 percent, resulting in our 14th year in a row of record earnings. We also achieved a consolidated return on equity above 11 percent, which is something we've done each year since 2005. Our consistent earnings track record is a significant accomplishment and represents top quartile performance among our peer group over an extended period. I note that we achieved these financial results in a year where our total capital investments once again approached $200 million, representing 18% of total capitalization. This has been an extraordinary year. It's a testament to the dedication of our employee team that we were able to identify safety and operating procedures that enabled us to continue throughout the year uninterrupted delivery of the essential energy services Chesapeake provides. One of the significant concerns I had as the pandemic intensified was the potential loss of momentum in the completion of our capital growth projects. That didn't happen. Our team was able to find ways to safely keep projects on schedule. and our investments in 2020 will deliver strong margin and earnings growth for years to come. Our stock also proved to be resilient during the pandemic-related market downturn. We maintained significant value relative to the losses in the broader utility market. Toward the end of the year, subsequent to our inclusion in the S&P 600 Small Cap Index, And reflecting our strong, consistent financial performance, the Chesapeake stock price increased above pre-COVID-19 levels. A key part of our total shareholder return is our strong dividend. Chesapeake Board followed our longstanding practice of closely correlating annualized dividend growth to our earnings growth and declared an annualized dividend of $1.76 per share, an 8.6% increase, and the 17th consecutive year of increased dividends. We've now doubled our annualized dividend per share over the past 10 years. At the same time, we've been able to reinvest a significant portion of our earnings back into the business to propel future earnings through additional capital investments. As shown on slide five, a year in, the Chesapeake Utility's total shareholder return exceeded 15%. the top level of performance among all gas utilities for the year. While our total shareholder return was strong for 2020, I believe it is equally important to consider the longer-term value creation as well. Including 2020, our total shareholder return compound annual growth rate over 1, 3, 5, 10, and 20-year historic periods has exceeded 13 percent for each period. representing long-term upper quartile performance compared to our peer group. In fact, we're at the 100th percentile among our peers for all periods. Slide six highlights the significant growth experienced by the company over the past decade. We doubled our market capitalization twice over the past 10 years, and 2020 was another step down the path to continue growing our business. We ended the year with Chesapeake Utilities' market capitalization at $1.9 billion, more than doubling from 2015. Net income for 2020 was $71.5 million, or $4.28 per share, compared to $65.2 million and $3.96 per share for 2019. Shown on slide seven, the company's net income from continuing operations for 2020 was $70.6 million, or $4.21 diluted earnings per share. This represents an increase of $9.5 million, or 49 cents a share, above 2019 results. We had significant margin growth in 2020, totaling over $25 million. Our margin results would have been even higher, but they were partially offset by $4.3 million in lower gross margins due to a decline in customer consumption driven primarily by weather and the unfavorable net impact of the COVID-19 pandemic. A significant margin impact resulted from our policy to provide assistance to customers during the pandemic and stop non-pay service disconnects. We now have received authorization in each of our regulated jurisdictions to create regulatory assets to defer COVID-19 related net expenses. In 2020, we deferred a total of $1.9 million in distribution utility expenses. The after-tax impact of COVID-19 in 2020 was approximately $1 million, or six cents per share. We're continuing to review the various cost impacts associated with COVID, and we'll adjust as necessary these estimates in the future. Our growth strategy is fairly straightforward. We manage our regulated businesses to provide stable, predictable earnings. or a foundation, as we like to say internally, over the long term and continually seek opportunities to expand our footprint. We look for non-regulated investments that can augment these utility results and which meet three fundamental criteria. Investments that are, one, related to our core energy businesses, two, meet our higher than utility return targets, and three, exhibit risk profiles consistent with our existing non-regulated businesses. We seek to provide total shareholder return in the upper quartile of our peers in both short- and long-term performance, a product of earnings and dividend growth driven by capital projects that can achieve an adequate return on investment under prescribed targets. On slide eight, we've identified the primary drivers of growth that we have been constantly pursuing, and we had significant noteworthy activity in almost all of these areas in 2020. Slide 9 outlines some of our key business accomplishments last year, and let me highlight a few of those accomplishments. We have continued to make progress on our business transformation initiative. At the beginning of 2019, with a market capitalization of approximately $1.3 billion, we set an aggressive internal goal to double the size of our company in five years. That may seem ambitious, but we had already achieved that level of growth twice over the previous 10 years. To do it again, we need to make sure our organizational structure, our processes, our employee skills, diversity, technology, we're able to keep pace with our growth objectives. We've taken significant actions toward this goal, simplifying our organization and business unit management structure and achieving greater process standardization across our units. I don't think you can underestimate the impact of COVID-19 on our business. The pandemic has been a tragic and painful experience across the planet. However, responding to the challenges has forced us to identify and address weaknesses in our safety practices, our processes, our technology, our training, and our organizational structure. COVID-19 has significantly accelerated our business transformation process and introduced several new elements, such as remote work, facility design, into our planning. While we're strengthening our operational and business practices, we know that it's important to hold on to the culture and traditions that are at the core of our success and that made this company a special place for all of us to work. Chesapeake Utilities was once again recognized as a top workplace in Delaware and Florida and earned the inaugural 2021 Top Workplaces USA Award from Hitsize Companies. We appreciated this national recognition awarded by a third party based on feedback and survey results from our employees. We saw solid earnings contributions from all of our business units last year. Our results reflect increased earnings from the Hurricane Michael regulatory settlement, new pipeline expansion projects, the acquisitions of Bolden, Western Natural Propane Operations, and the Elkton Gas natural gas distribution system. Organic growth in our natural gas distribution operations, continued pipeline replacement, increased margin for Marlin gas services, higher retail propane margins, increased rates for Aspire Energy. We also had gains on two property sales that helped offset some of the pandemic cost increases. As I mentioned earlier, we continued our strong record of investment growth in 2020. Capital expenditures totaled $196 million. We advanced multiple pipeline expansion projects, most notably the Callahan Pipeline in Florida, went into service early and under budget, producing $3.9 million in incremental margin in 2020. Customers in our service territories continue to prefer natural gas as their energy of choice, and our regulated natural gas customer growth in both Florida and the Delmarva Peninsula, as a result, continues to be more than twice the national average. We also completed the acquisitions of the two propane companies I mentioned earlier, Boland Propane in Delaware and Western Natural Gas in Florida, and the Elkton Natural Gas System in Maryland. The integrations of these acquisitions were completed seamlessly, and they all contributed to our bottom line in 2020. We worked hard last year to rebalance our capital structure and achieve our 50% equity target. We obtained $89.7 million of new equity from our ATM program and various stock plans, which was certainly helpful on Chesapeake Utilities during the S&P 600 small cap index in September. We also retained $42.4 million of earnings in 2020, increasing stockholders' equity to $697.1 million and achieving the 50 percent of total capitalization. I'll turn the call back to Beth to discuss our 2020 results in more detail. Beth?