Chesapeake Utilities Corporation

Good day, everyone, and welcome to the Chesapeake Utilities fourth quarter and four-year 2022 earnings conference call. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. so others can hear your questions clearly, we ask that you pick up your handset for best sound quality. Lastly, if you should require operator assistance, please press star zero. I would now like to turn the call over to Alex Whiteland, Head of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. We appreciate you joining today as we highlight Chesapeake Utilities' fourth quarter and four-year results for 2022. As we saw in our press release issued yesterday, the company finished the year with strong financial results, despite the sweeping changes in the macroeconomic environment. Given our 2022 results and positive outlook, we increased our EPS and capital expenditures guidance, which continues our long proven track record of delivering top level performance. 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, Treasurer, 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 Invest in Presentation subsection. After our prepared remarks, we will 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 2022 Form 10-K provides further information on the factors that could cause such statements to differ from our actual results. Additionally, the company evaluates its performance based on non-GAAP suggested gross margin and has provided the appropriate disclosures in accordance with the SBT Regulation G. A reconciliation of GAAP gross margin to non-GAAP adjusted gross margin is provided in the appendix of this presentation and in our earnings release. Now I'll turn the call over to Jeff to provide some opening remarks on the company's financial results, including the key drivers of our record performance. Jeff?

Thank you, Alex. Good morning, and thank you for joining our call today. We'll start on slide four. I'd like to thank and congratulate all of my colleagues for another record year at Chesapeake Utilities. The dedication and hard work of our employees is the backbone of our success. In 2022, we hit a number of important and impressive milestones, not the least of which was the achievement of our 16th consecutive year with increased earnings, an achievement that very few companies were fortunate enough to accomplish. For the year, we reported earnings per share of $5.04, which was an increase of 6.6% compared to 2021. This level of earnings growth was the result of more than 37 million of incremental adjusted gross margin and continued expense management throughout the year. Our margin growth was largely driven by our recent acquisitions, transmission service expansions, pipeline replacement programs, and strong natural gas distribution customer growth in both our Delmarva and Florida service territories. We also benefited from increased margins and demand for services in our unregulated businesses. We took important steps throughout the year to mitigate higher costs associated with increased interest rates and the inflationary environment. Beth will talk about this in a bit, but I'd like to again thank all our colleagues who worked hard to generate a record level of margin growth while managing expenses across our businesses. A great job by all. 2022 is our 62nd consecutive year of paying quarterly dividends. Our track record of paying increased dividends annually now stands at 19 consecutive years. Our strong conviction to support dividend growth through earnings growth continues to provide long-term return upside for our investors. Our 2022 capital investment level was lower than originally anticipated. For the year, we deployed $141 million in capital expenditures. As we mentioned in our second quarter call, regulatory and supply chain delays impacted our ability to complete projects during the year. That said, and let me reiterate this point, our project delays were simply timing issues. The delayed projects we expected to complete in 2022 are now scheduled for completion in 2023. And approximately $40 million of capital expenditures that were planned for last year will shift to 2023. As an example of one of these projects, we recently received FERC approval to install an additional compressor on our Eastern Shore natural gas transmission system in Delaware. The project was originally slated to go in service late in 2022. The final first approval was delayed until December of last year. The compressor will support additional base and peak load capacity to meet the growing customer base on our Delmarva gas distribution systems. And we expect to have the compressor in service by the end of this year. The Eastern Shore Compression Project is just one example of the investments we're making to serve customer growth across our service territory. I'll dig into the customer demand for gas service a bit more in a minute, but I'll note that for the year we saw residential natural gas customers increase by 8,400, a 5% increase over 2021. Our propane business continues to grow with the addition of over 20,000 new customers acquired in two propane acquisitions during the year in North Carolina and Florida. We also continue to advance our interest in sustainable energy through investments in renewable natural gas and the testing of a natural gas and hydrogen fuel blend in our Eight Flags CHP facility. We have a second phase hydrogen test at Eight Flags scheduled for May of this year. So as we look out over 2023, we have significant confidence in our ability to deploy growth capital. As Alex mentioned, we have increased our earnings and capital expenditure guidance, which speaks to the confidence we have in Chesapeake's growth over the long term. We'll talk about this in greater detail later in the presentation. With that, let me turn to slide five to cover some of our recently announced sustainable energy projects. Across our service territory, we continue to identify opportunities to increase our sustainable energy footprint, which is one of our five platforms for growth. Let me highlight a few of our recent projects. As we announced in our last call, we recently acquired PlanetFound Energy Development. PlanetFound provides an operable, poultry-based waste-to-energy test facility on Maryland's eastern shore. The employees' technology patents and operating expertise will prove valuable to Chesapeake as we continue to assess opportunities to invest in poultry waste RNG projects. We also acquired the opportunity to continue development of an RNG facility in Maryland, partially supported by a $2 million grant from the state of Maryland. In Davenport, Florida, we're in the process of constructing a 2.2 mile pipeline that will connect our natural gas distribution system to a compressed natural gas vehicle fueling station owned and operated by Clean Energy Fuel. As a cleaner burning fuel, utilization of CNG-fueled fleet vehicles is helping customers achieve their sustainability goals. And this station also has the ability to receive renewable natural gas. In Uleaf Bar, not far from the office where we're sitting this morning, we recently completed construction of an alternative fuel ingestion point. It's the first interconnection point to accept RNG into our Florida distribution system and one of the first in the state. We now have the ability to efficiently receive C&G, LNG, and RNG into our Northeast Florida system. Turning to slide six, we were excited to announce this week the commencement of construction on our first full-scale RNG production facility at the Full Circle Dairy Farm in Madison County, Florida. The Full Circle Dairy Project is an important component of our growing set of solutions to bring renewable natural gas to market. Located in the Swanee River drainage basin in north central Florida, we'll build our facility adjacent to Full Circle Dairy's farm, which is home to more than 5,000 dairy cows. Manure from the farm will be transported to our anaerobic digester and converted to more than 100,000 decatherms of pipeline-quality renewable natural gas per year. Initially, our Marlin gas service compressed natural gas trailer will transport the RNG to our UE Florida RNG injection point, and we're evaluating several offtake options to market the green attributes of the dairy-produced RNG. The project is anticipated to capture and redirect more than 1,100 metric tons of methane per year, which is the equivalent of 27,900 metric tons of CO2 equivalent. Another way to look at it is the emission reduction is equivalent to powering 3,500 homes per year. As we've said in the past, these types of projects take quite a bit to get off the ground. And our team has done an excellent job developing expertise in both RNG production and marketing. We're pleased with the current progress on the dairy project, the acquisition of PlanetFound, as well as our first RNG pipeline project in Ohio. And we have a number of additional R&D projects in the pipeline. We're excited for what lies ahead for our sustainable energy platform. Beyond these sustainability initiatives, we have four other platforms for growth. And let me touch briefly on the other four as shown on slide seven. As we've stated all throughout the year, we continue to experience significant organic growth in our natural gas distribution businesses across both our Delmarva and Florida service territories. This high level of organic growth continued in the fourth quarter, where we saw an increase of 5.7% on Delmarva and 4.2% in Florida. These levels continue to be well above the national average. The consistency of our growth, despite rising mortgage rates, is a testament to the highly attractive nature of our service territory, especially along the Delaware beaches and across much of Florida. as well as our longstanding relationships with key developers. Our mortgage rates have settled a bit as of late. We remain cognizant that customer behavior could fluctuate in the future given the dynamic state of the housing market. That said, we see sustained demand over the long term as our builders continue to report strong backlogs. Additionally, we are constantly reassured that natural gas and propane, remain the energy sources of choice for homebuyers throughout our service area. As we've discussed, the high levels of customer growth we're experiencing in our distribution business also drives the need for additional capacity in our transmission systems. I mentioned earlier that we recently made headway with a number of projects, including the FERC approval for the Eastern Shore Southern Expansion Compressor Edition. We also recently announced the expansion of our Peninsula Pipeline Transmission System to support new phases of development in the wildlife community in Yulee, Florida. These projects and others will deliver significant market growth for 2023 and beyond. We'll also continue to drive significant growth in our propane business. During the quarter, we completed the acquisition of Hernando Gas, which expands our service territory in the Tampa, Florida area. Hernando was the sixth propane acquisition we've completed in the last five years. Propane continues to drive strong performance for the company and remains a core component of our growth strategy. We serve thousands of customers on propane that are beyond the reach of natural gas systems. In 2022, our recent acquisitions have diversified Davenport Energy's Fire City Propane Division and Hernando Gas, contributed more than $10 million in incremental adjusted gross margin. By expanding our service territory, we're also able to expand the use of autogas, a cleaner burning fuel used for local schools, public transportation, and commercial customers to achieve lower emissions and cost savings. Propane is a highly desirable energy source in the communities we serve. Marlin Gas Services also continues to drive solid performance for Chesapeake. 2022 is another record year of margin production at Marlin. Despite market challenges, including increased transportation costs and difficulties recruiting the additional school transport drivers and operators needed to serve our growing business, we increased adjusted gross margin for the year by $2.8 million at Marlin. We remain pleased with the opportunities we have on the horizon to expand Marlin's services, especially as it relates to supporting the sustainable energy market. With that, I'll turn the call over to Beth to discuss our results in more detail. Beth?