Chesapeake Utilities Corporation

Welcome to the Chesapeake Utilities 3rd 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 please pick up your handset for best sound quality. Lastly, if you should need operator assistance, please press star zero. I would now like to turn the call over to Beth Cooper, Executive Vice President, Chief Financial Officer, Treasurer, and Assistant Corporate Secretary. Please begin.

Thank you and good morning, everyone. We appreciate you joining us today for Chesapeake Utilities' third quarter 2023 earnings call. As you saw in our press release issued yesterday, the company delivered solid performance for the third quarter of 2023. Our performance on a year-to-date basis has offset consumption impacts from warmer temperatures in the first half of the year across our service territories. These items are detailed within the financial results that we will cover in just a few minutes. Also, we continue to be very excited about the acquisition of Florida City Gas that we announced in September. We will be providing more details on the status of the transaction later in the call, but it's important to note that current year results have been adjusted to exclude transaction related expenses that were incurred during the third quarter 2023 related to the transaction. A reconciliation between our adjusted results and the comparable GAAP metrics can be found in our earnings release and the appendix of the earnings call presentation. As shown on slide two, participating with me on the call today are Jeff Householder, Chairman, President, and Chief Executive Officer, 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 Events and Presentations subsection. After our prepared remarks, as we typically do, we will open the call up 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 uncertainty. 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 certain non-GAAP measures, including adjusted gross margin, adjusted net income, and adjusted earnings per share. And the accompanying information includes the appropriate disclosures in accordance with the SEC's Regulation G. A reconciliation of these non-GAAP measures to the related GAAP measures have been provided in the appendix of this presentation, our earnings release, and our quarterly report on Form 10-Q for the third quarter. Now I'll turn the call over to Jeff to provide some opening remarks, including on the company's third quarter results, the status of the Florida City Gas acquisition, and the key drivers of our performance. Jeff?

Thank you, Beth. Good morning, and thank you for joining our call today. As you saw in our earnings press release, we reported adjusted earnings per share of 69 cents and $3.63 on a quarter and year-to-date basis, respectively, for 2023. As we've noted, warmer weather had a significant impact on our results. particularly throughout the first half of the year, negatively impacting us at approximately 41 cents per share through the month of September. And we also dealt with continued pressure from a rising interest rate environment. However, our team remained focused on executing our growth initiatives, pursuing multiple strategic regulatory filings, identifying cost savings, and capturing opportunities to accelerate margins. Our team's efforts more than reversed the reduced earnings reported last quarter. As a result, we have overcome the negative weather impact of almost $10 million and achieved accretive third quarter results versus 2022. Our fundamental growth strategy and strong execution continue to deliver success. Our adjusted gross margin increased by $7.6 million over last year's third quarter. We've also initiated several new investment projects, to support the continued strong customer demand for our energy delivery services. In addition, we continue to make significant progress on several regulatory initiatives that will deliver incremental margins and provide a foundation for substantial system investment over the coming years. We also significantly advanced our growth strategy with our agreement to acquire Florida City Gas for $923 million. We're incredibly excited about this transaction and the opportunities for growth investment it will provide in the coming years. Turning now to slide five, Florida City Gas will substantially expand our presence in Florida, a premier utility jurisdiction and the second fastest growing state in the U.S. With the acquisition, we will immediately more than double our regulated natural gas distribution business in Florida. On a pro forma basis, we expect to have approximately 211,000 customers combined. As a result of the transaction, we foresee attractive growth opportunities across our five growth platforms, especially our conventional pipeline company. It's exciting to contemplate the increased opportunities to deploy capital to improve system reliability and meet the substantive customer demand for natural gas in underserved and unserved communities in Florida. A larger footprint in Florida also brings scale benefits, and we'll be able to leverage the core competencies, expertise, and community relationships that we've built throughout the state to operate more efficiently and effectively. We will be well positioned to generate meaningful earnings growth by applying our operational and regulatory expertise on a much broader scale, and with the addition of the Florida City Gas Team, our consolidated operation will be even stronger. This transaction also supports and extends our EPS growth rate expectation of at least 8% and should drive long-term dividend growth. As a result of the expanded investment opportunities available to us, both as a result of the Florida City Gas acquisition and the expanded opportunities in our legacy businesses, we increased our capital investment plan by approximately 65%. to $1.5 to $1.8 billion for the five years ending 2028. And as always, we remain focused on cost management opportunities and efficient growth. I'll touch on this guidance later in the presentation. We have a disciplined approach to M&A, and with Florida City Gas, we expect to build on our track record of success. We'll apply the same operating philosophy, rigor, and discipline that drove success with the Florida Public Utilities, Sand Poplar Energy, and Elton Gas acquisitions as we integrate Florida City Gas post-closing. Let me take a few minutes now to update you on our closing progress. As you can see on slide six, we continue to expect the transaction to close before year-end. Transition teams for both Chesapeake Utilities and Florida City Gas have been formed. We're actively planning to ensure a seamless transition for both employees and customers upon the approval and closing of the transaction. We plan to be able to provide more detail on the integration progress on our year-end call. From a regulatory approval standpoint, the Hart-Scott-Ravino waiting period expires on November the 6th. We received approval from the Delaware Public Service Commission on October 25th and from the Maryland Public Service Commission on November 1st. Finally, while the transaction does not require approval from the Florida Public Service Commission, we've been regularly communicating with them on this transaction and our progress. Turning now to financing. As you know, recent market dynamics have been, to say the least, somewhat challenging. As we develop our transaction financing plan, our top priority is to maintain a strong balance sheet. We are continuing to actively and closely evaluate the evolving market dynamics as part of our financial risk mitigation efforts. We have significant flexibility, both in terms of timing and forms of permanent capital. We remain steadfast that our long term financing plan will reflect an investment growing balance sheet for Chesapeake. In addition to the announced Florida city gas acquisition, there are several other notable accomplishments since our second quarter earnings call. Let me mention just a couple of these accomplishments. In October, we announced the Worcester Resiliency Upgrade Project, the approximate $80 million project consisting of a liquefied natural gas storage facility in Bishopville, Maryland, and will allow Eastern Shore Natural Gas to provide critical energy delivery service during the peak winter heating season, particularly to our growing distribution utilities on the Delmarva Peninsula. Also in October, we announced our role as a project partner in the Mach 2 Hydrogen Hub. The project is slated to receive a share of the $7 billion in Black Partisan Infrastructure Law funding, which will accelerate the market for hydrogen in the United States. We're proud to be a partner on this project, which will bring affordable and realistic environmentally responsible solutions to customers. These investment opportunities, coupled with the ongoing and recently completed expansions of our existing pipeline systems, demonstrate the growing demand for energy delivery services in our territories. With that, I'll turn the call back to Beth to discuss our results for the third quarter. Beth?