Chesapeake Utilities Corporation

Welcome to the Chesapeake Utilities First Quarter 2023 Earnings Conference Call. At this time, all participants have been placed on 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 Whitelum, head of investor relations.

Thank you and good morning, everyone. We appreciate you joining today for Chesapeake Utilities' first quarter earnings call. As you saw in our press release issued yesterday, the company delivered solid performance in the quarter, despite extraordinarily warmer temperatures across our operating footprint. Chesapeake Utilities continues to execute on this growth strategy and is committed to driving long-term increased shareholder value. As shown on slide two, participating with me on the call today are Jeff Altholder, Chairman of the Board, 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 in Events and Presentations subsection. After our prepared remarks, we will open the call-out for questions. 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 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 adjusted gross margin and has provided the appropriate disclosure in accordance with the FCC's Regulation G. A reconciliation of GAAP gross margin and 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 first quarter results, including the key drivers of our continued growth. Jeff? Thank you, Alex.

Good morning, and thank you for joining our call today. I'd like to start by recognizing the entire Chesapeake Utilities team for their continued dedication to our mission. I am appreciative of their collective efforts as we managed well through what turned out to be a tricky quarter. I can't stress enough how impressed I am with the talent of our team and what we continue to accomplish together. Jim will touch on this in a moment, but we were recently recognized as a top workplace in the United States for the third year in a row. This award is one we're very proud of because it highlights the great work of our team and our special culture, which we remain focused on preserving as we continue to grow. Getting this recognition three years in a row is not something the team takes lightly. Now, onto our results beginning on slide four. In the first quarter, the company continued to realize incremental contributions from our expansion initiatives, organic growth, and regulatory actions. However, in the first quarter, we also experienced record mild temperatures, which reduced customer volumes and partially offset the meaningful contributions from growth and cost management. I'll touch on this in a moment, but temperatures relative to normal weather were 20% warmer or greater in all of our service territories. From an earnings perspective, weather had a 29 cent per share negative impact. But even with the exceptionally warm weather, adjusted gross margin increased by $3.8 million over last year's first quarter. The Chesapeake team continues to execute our long-term growth plan. We achieved first quarter earnings that overcame much of the weather impact on our volumetric sales. This performance reflects the diverse nature of our operations, our ability to manage costs, and regulatory actions to establish weather normalization mechanisms and increased fixed charges in our regulated distribution systems. We'll continue to drive growth and manage costs throughout the year to work back toward our internal earnings targets, but the weather certainly created a gap. Despite this challenge, we remain committed to our longstanding track record of delivering year-over-year EPS growth. During the quarter, we invested approximately $42 million in capital for system expansion organic customer growth, and technology improvements. With this level of investment and the larger projects planned over the balance of the year, we reiterate our 2023 capital expenditure guidance range of $200 million to $230 million. On the regulatory front, we completed our Florida natural gas base rate case with a fair and favorable outcome. Jim will provide more details on this in a few minutes, but I'd like to extend a special thank you to everyone who worked on the rate case. It was a significant effort and, in fact, the largest rate case in the company's history. In March, we issued $80 million in competitively priced long-term debt, which reduced our exposure to the continued rising interest rate environment. And finally, yesterday, the board announced a 10.3% increase to our annualized dividend rate, This marked the 20th year in a row with increased dividends. Our dividend strategy remains focused on aligning our earnings growth with dividend growth and working towards a 45% payout ratio. On slide five, we wanted to provide some additional color on weather, given its significant impact on volumes for the quarter. As you can see, each of our primary service territories experienced temperatures that were notably higher not just compared to last year, but were unseasonably warmer compared to the last 10 years. To put things into perspective, we looked at historical weather data over the last 30 years, and we found that January and February were some of the warmest months on record, both in Delmarva and Ohio. In our Delmarva and Ohio service areas, where heat load drives much of our consumption for the year, heating three days were 19% lower compared to the prior year's first quarter, and more than 20% lower compared to normal levels. And while we're not as dependent on heat load in Florida, heating degree days were down by over 30% in the year-over-year and 10-year normal comparisons. Again, the team did an excellent job to overcome significantly warmer temperature impacts by remaining focused on our growth initiatives and cost mitigation efforts. These efforts will continue through the remainder of the year. But it's important to note that this margin won't entirely be reclaimed without significantly colder temperatures later in the year. Turning to slide six, let me provide some updates on our five platforms for growth. First, we continue to experience organic growth in our natural gas distribution businesses that far outpaces the national average. Across both our Delmarva and Florida service territories, customers continue to select natural gas as their preferred energy choice. For the quarter, we saw a 5.8% increase for our Delmarva service territories and a 4.4% increase in Florida. This continues to highlight the attractive growth opportunities in our distribution system service territories. As we've discussed, the customer growth in our distribution businesses continues to drive the need for additional investment in our transmission systems. I'll provide additional detail on the next slide, but we were pleased to announce the completion of our beachside expansion project in the first quarter. This project was completed early and under budget. We also continue to make headway with other projects, including two peninsula pipeline expansions, the wildlife project in Florida, and we added the PPC Lake Wales pipeline project, also in Florida, to our major projects table this quarter. These projects and others will deliver significant margin growth. Our propane business is more weather sensitive than our regulated natural gas distribution and transmission systems. And while the warmer temperatures have a significant impact on our propane business, the SHARP team did an excellent job managing margins and service fees, especially in our northern service territories. We also continue to expand SHARP's pricing programs to customers added through our recent acquisitions, adding margin and delivering greater returns. As a highly desirable energy source for our customers where natural gas is not available, propane continues to drive strong performance for the company and remains a core component of our growth strategy. Marlin Gas Services continues to drive solid growth for the company as well, generating an incremental $1.2 million in adjusted gross margin during the quarter, As our virtual pipeline solution, Marlin serves our customers with gas transportation services that solve unique and complex challenges. As an example, and one we highlighted in our last call, Marlin is currently providing interim service for clean energy, delivering compressed natural gas to their fueling station in Florida. We continue to seek opportunities like these to leverage the integration of our businesses and play a more meaningful role in the nation's energy transition. Finally, our sustainable investments platform continues to mature nicely. Following our last call, we broke ground on our first full-scale renewable natural gas facility at the Full Circle Dairy Farm in Madison County, Florida. Construction is underway, and we remain on track for that unit to go in service in mid-2024. More recently, we participated with a group of commercial, governmental, and educational institutions that submitted a proposal to the U.S. Department of Energy seeking almost a billion dollars in funding support to develop a hydrogen hub in the Delaware, Philadelphia, and southern New Jersey region. We believe the Delaware-based hub offers many opportunities for Chesapeake to expand our hydrogen capabilities and identify multiple end-use applications. We will provide additional updates as decisions are made and more details come together. Before I turn it over to Beth, on slide 7, I wanted to provide some additional detail on the beachside pipeline expansion project, which we recently completed on time and within budget. The 11-mile pipeline connects from an existing Peninsula Pipeline interconnect and brings service to multiple communities in the growing Vero Beach area. Peninsula Pipeline invested approximately $10.5 million in the project. and it is expected to generate additional adjusted gross margin of $1.8 million in 2023 and $2.5 million in 2024 and going forward. This project highlights the growth and opportunity we continue to see in Florida. And with that, I'll turn the call over to Beth to discuss our results in more depth. Beth?