Chesapeake Utilities Corporation

Hi and welcome to the Chesapeake Utilities Corporation results for fourth quarter and full year 2021. During presentation, all participants will be in a listen-only 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. The conference is being recorded Thursday, February 24th, 2022. And now I would like to turn the conference over to Alex Whitman, Head of the Investor Relations. Please go ahead.

Thank you, Scott, and good afternoon, everyone. We know it's late in the day, and we appreciate you joining us. We're excited to present TechSpeak Utilities' results for the fourth quarter and full year of 2021. As you saw in the press release issued yesterday, the company reported record financial performance for the year, demonstrating our continued ability to deliver long-term sustainable growth for our stakeholders. As shown on slide two, participating with me on the call today are Jeff Householder, President and Chief Executive Officer, Beth Cooper, Executive Vice President, Chief Financial Officer, and Assistant Corporate Secretary, and Jim Moriarty, Executive Vice President, General Counsel, Corporate Secretary, and Chief Policy and Risk Officer. We also have other members of our management team joining us virtually. Today's presentation can be accessed on our website under the Investors page and the Events and Presentations subsection. After our prepared remarks, we'll open the call-up for questions. Moving to slide three, I'd 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 2021 Form 10-K provides further information on the factors that could cause such statements to differ from our actual results. Additionally, the company has refined its disclosures to report adjusted gross margin in accordance with the SEC's Regulation G. A reconciliation of GAAP gross margin to a projected gross margin is provided in the appendix of this presentation and in our earnings release. Now we'll turn the call over to Jeff to provide some opening remarks on the company's results and the key drivers of our performance. Jeff?

Thank you, Alex. Good afternoon, and thank you all for joining our call today. Let me start out by thanking all of my colleagues across the company for their hard work and dedication. Despite another rollercoaster year with multiple COVID variants, supply chain disruptions, and other challenges in the marketplace, our team came together and once again delivered record financial results. Our performance speaks for the strong and unique culture we have at Chesapeake, a culture that I'm very proud to be part of. I want to also recognize the newest members of the Chesapeake family, the employees working in our recently acquired diversified energy propane distribution operation in the Carolinas and up in Pennsylvania. As usual, Beth will provide a more detailed overview of our financial results in just a moment. But on slide four, I wanted to highlight a few of the key accomplishments our team achieved this year. Compared to 2020, diluted earnings per share from continuing operations increased by an impressive 12.4% to $4.73. This marked our 15th consecutive year with earnings growth. And in fact, in just the last six years, we've doubled our net income to $83 million in 2021. And our business earnings growth is driven primarily by the ability to prudently invest capital and marketing producing projects. 2021 continued our long history of growth investments. We deployed $228 million in capital last year, our largest annual capital investment of all other than 2018, which included the electric system rebuild after Hurricane Michael. Over the last 10 years, we've invested approximately $1.75 billion to expand and improve our systems. These investments have consistently produced incremental margins that support attractive returns. In 2021, our adjusted gross margin increased by more than $33 million. A significant percentage of our investments support upgrades and expansions in our regulated transmission and distribution operations. As Jim Moriarty likes to say, we are the beneficiaries of our geography. Our service areas continue to experience above national average customer growth. In our natural gas distribution businesses, we saw year-over-year average customer growth increase by more than 4%. The growth in distribution customers has also contributed to expansions of our upstream gas transmission businesses. Our Delmarva and Florida service territories are in highly desirable locations, and our capital investments are supporting the infrastructure to meet the continued customer demand for natural gas. We've also added more than 20,000 customers to our propane operations through the diversified energy acquisition and the organic growth of our propane business. We produced solid results for our shareholders in 2021. In January, we achieved our 61st consecutive year of paying a dividend. We're proud of this long track record. and we're excited with the runway we have to continue increasing dividends given our current payout level and our earnings performance. 2021 was the 18th consecutive year we've increased our dividends, and for the past five years, we've been growing the dividend an average of 9.5% per year. We've also achieved significant returns for our investors. In 2021, total shareholder return was 37%. We've been in the top quartile in our industry for shareholder returns for the past 1, 3, 5, 10, and 20-year period. And in fact, we've been at the 90% plus level over that entire period. I mentioned before in these calls that our investments extend beyond pipes and wire and tanks to ensure that we can continue to support our growing energy delivery businesses Over the past several years, we've been investing in our people, processes, and technology. We continue to enhance our safety culture. The Dover Safety Town Training Facility opened last year, and we're budgeted to build a Florida operational training facility starting this year. Our pipeline safety management system implementation continues on track. We've initiated a comprehensive employee engagement process to strengthen the connection between each employee and our long-term strategy and objectives. We improved our employee communications capabilities with new technology. We expanded our equity, diversity, and inclusion initiatives. I hold the belief that our EDI actions are not only the right moral choice, but ensuring diverse thinking in an inclusive environment produces better overall business results. Given the magnitude of our capital investments, we're progressively improving our project assessment and project management practices. And we took a big step last year in establishing a roadmap that will guide our technology replacements and upgrades over the next several years. Our business transformation process is a series of intentional, considered steps that prepare us now for the company we will become over the next several years. All in all, a number of impressive achievements for the year by our team. On slide five, I want to touch on our five growth pillars and recent accomplishments for each. First, as I just mentioned, the organic growth in our existing businesses continues to drive investment opportunities. Our teams are working hard to extend our transmission and distribution systems, partner with developers, and attract new customers to our systems. We're closely watching inflation, interest rate, and energy price impacts to the building construction industry. At this point, we are not observing significant development changes in either of our Delmarva or Florida distribution service areas. Second, we continue to invest in our transmission pipelines, primarily to support customer growth in our gas distribution systems. In the fourth quarter, the Delmar Energy Pathway pipeline was put into service, bringing natural gas to underserved communities in Somerset County, Maryland, for the first time. With the completion of this project, we see numerous opportunities to reduce the use of more carbon-intensive fuels, such as fuel oil and wood chips. We also completed our first transmission project in Ohio, bringing gas to the Guernsey Power Station, a state-of-the-art, highly efficient generating facility. In 2021, we also announced significant transmission expansion projects, including the Winter Haven, Beachside, and Southern expansions. Our propane distribution business continues to grow through strategic acquisitions. As I mentioned, and we'll discuss in more detail in just a moment, the diversified energy propane acquisition nicely complements our existing propane business and allowed us to expand our service territories into the Carolinas. With this acquisition, Chesapeake has closed a propane acquisition each year since 2017. Marlin Gas Services continues to provide growth opportunities through the expansion of our virtual pipeline services. As the renewable gas market matures and grows, we see significant opportunities to connect R&G production facilities to gas transmission and distribution facilities, providing an economic means to physically deliver renewable gas to market. Later this year, Marlin will also enter the carbon capture business. We will deploy large mobile compressors to support our C&G tanker fleet capable of collecting natural gas from pipelines when the pipe is out of service for maintenance. We'll capture the methane and transport it for reinjection into another segment of a pipeline system, avoiding its release into the atmosphere. Marlin was also instrumental in transporting hydrogen to our eight-flag combined heat and power facility to support our hydrogen-natural gas-bunded fuel sets. We also continue to develop our sustainable energy investment business, On slide six, take a deeper look into some of the current sustainable energy and expansion projects. In September, our Aspire energy business completed a 33-mile pipeline, which is now transporting RNG generated at the Noble Road landfill in Shiloh, Ohio, to Aspire's existing infrastructure in the region. The RNG is displacing conventionally produced natural gas to serve both residential and commercial customers, along with fueling CNG vehicles. The Noble Road landfill RNG project is expected to capture and transport quantities of RNG that are equivalent to 6.9 million gasoline gas equivalents per year and generate numerous economic benefits in the region. The $37.5 million acquisition of Diversified Energy's propane assets allowed us to strategically expand our operating footprint in the North and South Carolina. while also increasing our market share in Virginia and Pennsylvania. With this acquisition, we added more than 19,000 customers and approximately 10 million additional gallons of propane distribution. Diversified is expected to generate $11.3 million in adjusted gross margin annually. Through this expansion, we're excited to offer more school districts, municipalities, and commercial customers our propane autogas service, providing fleet vehicles a cleaner fuel solution. In Georgia, we're in the final stages of opening our CNG fueling station at the Port of Savannah. With this station, we are ideally positioned to support the increasing demand for CNG fuel vehicles at the port and the cargo transport trucking fleets that service the port and travel along the I-95 corridor. The station was also built to provide a logistics center location for Marlin Gas Services to support Marlin's expansion in the Georgia and Carolina areas. We will also be able to deliver RNG to the station, which is becoming an increasingly attractive fuel choice for long-haul trucks and port service vehicles. And in January, we successfully completed our first hydrogen test at the Eight Flags Combined Heat and Power Plant on Amelia Island, Florida. This was an important first step in demonstrating that hydrogen can play a significant role in providing lower carbon energy options to industrial customers. To support the effort, Marlin Gas Services converted existing C&G transport trailers to carry hydrogen to the Eight Flags site. We constructed an interconnect point on our existing dedicated gas distribution station that serves Eight Flags. We blended 4% conventionally produced hydrogen into the natural gas stream and delivered it to our gas turbine. The test was operationally successful, and we recorded a reduction in measured emissions from the turbine. Looking forward, we have a regularly scheduled replacement of our gas turbine later this year. The new turbine design will accommodate greater hydrogen percentages, up to approximately 20%. We will continue our testing and ultimately introduce green hydrogen for this biorenewable electricity. Our intention is to provide an opportunity for large volume commercial industrial gas users to observe an operational hydrogen blend fuel in use. We believe there are numerous opportunities to provide hydrogen to assist customers in their emission reduction efforts. Turning to slide seven, over the last several months, we've taken numerous steps to establish internal processes and improve disclosure around the work our teams are doing across the organization when it comes to environmental, social, and governance initiatives. Today, we made two important announcements that support these efforts. First, we published our inaugural sustainability report. Our team worked tirelessly to bring this support together and deliver what I believe is a great story, providing meaningful data for our stakeholders to measure our success. At Chesapeake, we're committed to being a leader in the transition to a lower-carbon future. We're also committed to doing the right thing for our employees, stakeholders, and the communities we serve. I encourage you to read our report at cpk.com backslash sustainability report, and we would welcome your feedback. While we're proud to publish this first report, our work is far from over. On this front, we also announced today that we've established an environmental sustainability office led by Vice President Shane Brakey and a cross-functional ESG committee led by Amanda Chai and Alex within our investor relations team. Together, this committee will drive our ESG strategy and further reduce our internal vendor and customer emissions. Slide 8 provides a historic look at our capital investment over the past several years. We've made approximately $1.75 billion in capital investments over the last 10 years alone and approximately $2 billion since the acquisition of Florida Public Utilities. Our capital investments are not only enhancing our earnings, but they're also helping to reduce our internal emissions. Investments in pipeline system replacements, CNG and propane vehicles, energy-efficient buildings, and numerous other modernization efforts across our systems is helping drive our sustainable growth. Slide 9 summarizes our historical earnings and associated dividend growth over a sustained period of time. Since 2016, we've delivered compound annual growth rates for earnings per share and dividends per share at 11.3% and 9.5% respectively. For 2021 alone, we achieved 12.4% EPS growth and 9.1% dividend growth. Our track record is proven, and we are steadfast in our approach to continue this level of earnings and dividend growth. Earnings growth is also driving sustained levels of industry-leading returns. On slide 10, you'll see that 2021 marked the 17th year with a return on equity at or above 11%, well above our peer group. A solid foundation of regulated utilities supplemented by our complimentary set of unregulated businesses is poised to continue delivering significant returns for investors well into the future. With that, I'll turn it over to Beth to discuss our results and more depth. Beth?