Chesapeake Utilities Corporation

Welcome to the Chesapeake Utilities Corporation's first quarter 2024 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. Though 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 Lucia Dempsey, Head of Investor Relations.

Thank you and good morning, everyone. My name is Lucia Dempsey and I'm thrilled to have joined Chesapeake Utilities Corporation last month as the new head of investor relations. I'm looking forward to meeting many of you at AGA next week or at other opportunities in the coming weeks and months. Today's presentation can be accessed on our website under the investors page and events and presentations subsection. After our prepared remarks, we will open up the call for questions. With me today are Jeff Householder, Chair 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. On slide three, we show our typical disclaimers, while I 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 our 2023 Annual Report on 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 in accordance with the SEC's Regulation G. A reconciliation of these non-GAAP measures to the related GAAP measures has been provided in the appendix of this presentation, our earnings release, and our first quarter Form 10-Q. Now, it is my distinct pleasure to turn the call over to Jeff.

Thank you, Lucia. Good morning, and thanks to all of you for joining our call today. I'll begin with slide four. This quarter, our team once again executed on our longstanding strategic growth plan. Over the past several years, we've been focused on three fundamental drivers to support earnings growth. First, we work hard to identify and prudently deploy investment capital that meets the service demands created by significant customer growth. Our geographic footprint is an advantage here. Our service territories continue to experience a customer growth rate that is more than double the industry average. Second, we proactively manage our regulatory agenda to support the approval and cost recovery of our capital projects. You'll hear us describe in a moment several projects currently in front of state and federal regulators with total investment well over $200 million. And the third and perhaps most important of our strategic growth drivers is the continued business transformation of our company, which is focused on our people, processes, technology, and organizational structure. Our continuous improvement initiatives enable us to manage an ever-expanding business. Turning to slide five, this morning you will hear us touch on service delivery to customers and other operational accomplishments, the FCG acquisition integration process, capital project execution, regulatory advances, and a number of efficiency improvements. I'm happy to report that two of the more significant concerns facing our company and our industry weather and interest rates have been, at least through the first quarter, far less impactful to earnings than what we experienced in 2023. While the 2024 winter was warmer than normal in our service areas, we've been able to manage through it. Customer consumption increased in the first quarter compared to Q1 of 2023. And as we all know, interest rates appear to have at least stabilized with no increase so far this year. Our regulated natural gas transmission and distribution businesses continue to grow. We will mention today several system expansions, which are in various stages of approval, permitting, or construction. In our non-regulated businesses, we realized contributions from increased propane consumption, as well as increased propane margin and service fees. This served to offset much of the warmer than normal weather impact. Our Florida City Gas Integration Plan is on track and on schedule. And importantly, our FCG business delivered incremental margin in line with our expectations. This quarter, we immediately recognized a positive impact from our integration efforts and didn't miss a beat with our accelerated capital investment plans across our larger footprint. We're now even more confident about our opportunities to propel future earnings growth in Florida, including through four projects and an expansion of the SAFE program which are all currently filed for approval with the Florida Public Service Commission. Across our enterprise, we are steadily advancing the capital investment projects, regulatory filings, and business transformation initiatives that will support future growth and optimize our operations within our larger footprint. We are particularly pleased to have just received approval from the Florida Public Service Commission on Tuesday for three new transmission expansion projects that support increased customer demand. We remain confident in our ability to achieve our 2024 adjusted EPS guidance of $5.33 to $5.45, and our longer-term outlook for 2025 and 28, as we continue to drive shareholder value by delivering on the attractive opportunities throughout our businesses. I will now turn to slide six, which covers results for the quarter. Adjusted earnings per share was $2.10 in the first quarter of this year. We also generated adjusted gross margin of $165 million, a $35 million increase over the first quarter of last year. FCG represented $25 million in adjusted gross margin in Q1. This was driven by an incremental contribution from the 2023 rate case as well as continued customer growth. Our legacy businesses contributed another $10 million of adjusted growth margin growth, driven by contributions from incremental transmission expansion projects and organic growth in our natural gas distribution businesses, contributions from our regulated infrastructure programs and Florida natural gas base rate proceeding, higher customer consumption, increases in Aspire energy gathering fees, and higher propane consumption, margins per gallon, and fees. Turning now to slide seven, we remain intently focused on achieving synergies, optimizing operations across the enterprise, and accelerating capital investment opportunities. We're taking a good look at our operations and processes, taking a best-of-both approach to things like customer care and project management. In places where our legacy business processes were stronger, We're bringing that strength to Florida City Gas and vice versa. Our work so far has been encouraging. There are a lot of commonalities to our approaches and cultures, and our teams have been really engaged to learn from each other. And while the integration work continues, we are now operating as one company, and our efforts to leverage our greater footprint, optimize efficiencies, and invest in growth are being applied across the whole enterprise. Slide 8 shows the major projects and initiatives that are driving approximately $16 million of incremental adjusted gross margin growth. We have submitted 11 pipeline projects to the Florida Public Service Commission representing approximately $152 million of capital investment. Seven of these have now been approved and four are under review with decisions expected this summer. This is a record number of project filings and approvals for us. It demonstrates our ability to accelerate investment as a combined business. It also speaks to the magnitude of future growth opportunities in Florida, one of the key reasons the FCG acquisition was important to our strategy. This quarter, we added two new Peninsula Pipeline Company transmission projects to the table, Boynton Beach and New Smyrna Beach. representing a combined $5 million in adjusted gross margin for 2025. These extension projects will support a few distribution systems in the Boynton and New Smyrna Beach communities. Those expansions are driven by the need for increased natural gas supply to coastal portions of the state that are experiencing significant population growth. On the infrastructure replacement side, we have a number of programs well underway including the Guard Safe and Storm Protection Programs in Florida and the Capital Surcharge Program on the Eastern Shore. These programs support our ability to maintain safe and reliable service for our customers and will contribute to margin growth over the next 10 years. As new projects are developed and receive approval, they'll be added to this table. As shown on slide nine, we've hit the ground running in 2024 with our capital investments. We've ramped up spending considerably to take advantage of both the magnitude of the growth opportunities before us and the scale benefits that bolster our ability to execute. I'd like to emphasize that with $70 million of CapEx spent in the first quarter, we're wasting no time executing on the opportunities to drive growth and margin that provided the basis for our Florida city gas acquisition and that are abundant throughout our larger organization. We're also delivering on business transformation projects that are bringing enterprise-wide efficiencies. Our investment projects are laying important groundwork for our long-term growth. We're bolstering the safety and reliability of our systems and investing in the pipelines and interconnects that are meeting customer demand while also creating and reinforcing our pathways to market. I'll now turn the call to Beth.