Chesapeake Utilities Corporation

Welcome to the Chesapeake Utilities Corporation's second quarter 2024 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 optimal 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. Please go ahead.

Thank you and good morning, everyone. This is Lucia Dempsey, Chesapeake's Head of Investor Relations, and I appreciate you joining us this morning. 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. On slide two, we show our typical disclaimers, while I remind you that matters discussed on 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 facts 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 information presented today 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 second quarter Form 10-Q. Here at Chesapeake Utilities, safety is our first priority. We start all meetings with a safety moment and we'll do so here with a safety moment on emergency preparedness as we are already in the midst of hurricane season. Our subsidiary, Florida Public Utilities, recently completed its annual hurricane preparation drill, during which our team practiced our emergency response procedures. Lessons learned in this drill have already been put to the test during Hurricane Debbie earlier this week. Our customers have experienced minimal disruptions in service, and we are grateful to team members across the organization who responded efficiently to keep us operating safely. SPU overall continues to show improved reliability metrics, which can be attributed to the system-strengthening work the team has done as part of the Storm Protection Plan. This work has improved the frequency and duration of electric outages by 11.3% and 9.7%, respectively, when compared with June 2023. On an individual level, whether you live in an area impacted by hurricanes or not, being prepared for emergencies is critical. In fact, putting together a disaster supplies kit is one of the safety challenges for Chesapeake team members this quarter. FEMA recommends a personal emergency kit with food, water, and supplies to last for at least 72 hours. Ready.gov has helpful guides and checklists that you can use to prepare for yourself and your loved ones. I'll now introduce our presenters today. Jeff Householder, Chair of the Board, President, and Chief Executive Officer will provide an update on our high-growth service areas, capital investment plan, and business transformation efforts, including the Florida City Gas integration. Beth Cooper, Executive Vice President, Chief Financial Officer, Treasurer, and Assistant Corporate Secretary will discuss our financial results, strong balance sheet, and dividend, as well as earnings growth trajectory. And Jim Moriarty. Executive Vice President, General Counsel, Corporate Secretary, and Chief Policy and Risk Officer will review our regulatory strategy, including key project approvals and recent company awards. With that, it's my 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 five. Adjusted earnings per share this quarter was 86 cents, bringing our year-to-date 2024 EPS to $2.96. Our results are well aligned with our expectations, with strong contributions from our Florida city gas and legacy operations offset by FCG operating expenses and financing costs. We generated an adjusted gross margin of approximately $127 million this quarter, a 27 percent increase over the second quarter of last year, and adjusted net income of approximately $19 million, up 19 percent from the same period last year. Our year-to-date earnings performance, combined with our growth expectations for the remainder of 2024, enable us to reaffirm our full-year 2024 adjusted earnings per share guidance of $5.33 to $5.45. Our progress with integrating FCG, coupled with our increased level of capital projects and regulatory initiatives, also enable us to reaffirm our 2025 and 2028 EPS guidance. As I'll discuss in more detail shortly, our 2024 capital growth plan remains on track, with $160 million invested in the first half of this year and $300 to $360 million expected for full year 2024. Turning to slide six, we operate in some of the fastest-growing areas of the country, which enable us to deploy sustainable capital investments to meet the needs of growing customer demand. Customer growth remains strong in both Delmarva and Florida, with each area seeing a 3.7 percent increase in residential customers in the second quarter of this year relative to the same period last year. We expect strong population growth to continue in our service areas. In spite of increased interest rates, we are regularly executing contracts with builders and developers for gas service to new residential developments. Customers are looking for gas service in their new homes, and we expect to continue to add customers at significantly higher rates than have been typical for our industry. Cecil County is one particular example of substantial growth in our Delmarva service area. In 2018, Chesapeake began constructing natural gas distribution infrastructure in a key commercial corridor in Cecil County, Maryland, which is strategically located between Baltimore and Philadelphia. The initial distribution capacity extending from our eastern shore pipeline attracted a number of key businesses and distribution centers to the area, including IKEA, FedEx, and Amazon, driving substantial demand for additional natural gas service and infrastructure. Since then, we've purchased the adjoining Elkton gas operation from SJI. They gave us a more local field operation and have installed at least 28 miles of gas distribution along I-95 to serve incremental demand growth. And we used a state energy grant to extend natural gas infrastructure to support the Cecil County Library as well. Cecil County is a great example of the growth we're seeing throughout our service areas. as well as the critical role that Chesapeake's natural gas infrastructure investments play in our communities to drive critical economic development and job creation. The opportunity to serve significant customer growth and demand is the basis for our overall growth strategy, which in turn drives sustainable earnings growth. Over the past several years, we have been consistently focused on three fundamental drivers to support earnings growth as shown on slide seven. First, we work hard to identify and prudently deploy capital investment in projects that align with customer demand and enable us to continue providing safe and reliable energy delivery services to support customer growth. Our capital investment plan is primarily comprised of system expansion investments to serve new customers. as well as capital to support our multiple infrastructure programs that contribute to the reliability of our systems and investments in technology that support enhanced operational efficiency and customer service. Second, we proactively manage our regulatory agenda to support cost recovery of our capital projects. As the majority of our capital plan is aimed at serving new and existing customers in our regulated businesses, We're working closely with governmental agencies to secure permitting for our capital construction projects and with federal and state regulators to ensure appropriate cost recovery for these investments, which bring safe, reliable, and affordable services to customers for years to come. And Jim will go into more detail on this shortly. The third and perhaps most important, given our recent overall enterprise growth, is continued business transformation, which focuses on our people, processes, systems, and organizational structure. Our continuous improvement initiatives enable us to ensure long-term success in an ever-changing environment. Not only do we need to be transforming the organization given our growth, but at the same time, considering and planning for where we're headed. Capital deployment is our primary growth driver. And on slide eight, you can see that we've already made significant progress toward identifying and initiating $1.3 billion of our five-year capital investment plan of $1.5 to $1.8 billion. This includes capital for a number of ongoing infrastructure initiatives and approved projects across our regulated businesses, as well as approximately $80 million in identified technology investments thus far. While we are fundamentally a regulated utility company, we look for opportunities to leverage our related businesses in ways that might not be possible for others. Our growth plan over the next several years includes multiple examples of our business units working together to meet the needs of customers. Our transmission businesses will continue to expand so our distribution companies can meet increased customer supply needs. Our propane unit will grow and hold customers until our natural gas systems reach new areas. Marlin Gas Services will increase the transport of CNG, RNG, or LNG to provide market area supply to our systems, helping to meet both base load and peaking customer needs. I would also note that all of the $1.3 billion of specifically identified projects on slide 8 are related to our regulated businesses. As we make additional progress achieving our five-year capital guidance, we will identify additional regulated and non-regulated investments. Slide 9 shows our progress toward our 2024 capital expenditure guidance of $300 to $360 million, with approximately 48 percent, or $160 million, invested in the first half of this year. Our team is focused on efficiently deploying the remaining capital in 2024 on growth opportunities and business transformation initiatives across the company, including advancing multiple growth projects that provide the basis for our FCG acquisition. Slide 10 provides additional detail on the major projects that are driving nearly $300 million of capital investment and over $36 million of additional adjusted gross margin in 2024 and 2025 combined. This table now includes projects within both our Delmarva and Florida footprints. Since last quarter, we've added seven new projects representing nearly $11 million of incremental adjusted gross margin in 2025. The first three new projects are St. Cloud, Lake Maddie, and Plant City, which received PSC approval in May of this year. These Florida natural gas expansion projects represent $42 million in capital expenditures and will support the significant population growth in these Central Florida communities, including the second St. Cloud expansion in less than a year. The next three new projects provide renewable natural gas, or RNG, transportation infrastructure in Florida's Indian River, Brevard, and Miami-Dade counties. Representing a combined $46 million of capital, these projects were approved by the Florida PSC last month and will benefit our customers by bringing RNG produced from local landfills into our system while also reinforcing system reliability and sustainability. The latest addition is the Warwick Extension, a transmission expansion project with an estimated capital cost of $9 million. This project will reinforce supply in the growing Middletown, Delaware area and enhance capacity in the southern portion of Cecil County, Maryland, to meet customer demand and support future growth. The margin of these major projects reinforces our existing 2024 and 2025 EPS guidance ranges, and I'm pleased with our team's continued execution on project development, including completing the necessary regulatory filings, obtaining regulatory approvals, and constructing projects on time and on budget. Turning to slide 11, our third fundamental growth driver is focused on continued business transformation. The FCG integration is critical here, and we remain on track with bringing the remaining transitional services in-house, optimizing operations, identifying and realizing synergies, and most importantly, accelerating capital investment opportunities to serve customers. We continue to implement ways to operate seamlessly as one company, and our efforts to leverage our greater footprint, optimize efficiencies, and invest in growth are benefiting the whole enterprise. We also are continuing our journey to transform our customer care and field services functions to achieve world-class performance. Our goal is to streamline processes and drive efficiency within many functional areas, including customer service, billing and invoicing, and operational field services in an effort to provide a better overall experience for our customers. Later this month, we will go live with our SAP system implementation. The technology system is a major step to support the operational transformation we've been working toward for the last few years. We've had a number of internal cross-functional teams highly engaged with SAP, IBM, and others to ensure a successful launch. We'll also continue to implement technology upgrades across the enterprise, including transitioning FCG onto the SAP system next spring. And with that, I'll turn to Beth to discuss our financial results in more detail.