Chesapeake Utilities Corporation

Welcome to Chesapeake Utilities Corporation's fourth quarter and full year 2025 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 Lucia Dempsey, Head of Investor Relations.

Thank you, and good morning, everyone. 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 the call up 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 2025 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 growth margin, adjusted net income, and adjusted earnings per share. And the information presented today includes the appropriate disclosures in accordance with the FEC'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 2025 annual report on Form 10-K. 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 moment on women's heart health, as highlighted on slide three. As February is American Heart Month, it's a good time to take care of ourselves and our loved ones by making small changes that can have a big impact on our heart health. Cardiovascular disease is the number one killer for women in particular, so it's important to understand the unique risk factors women face across various stages of life, including pregnancy and menopause. We're proud to be a longstanding supporter of the American Heart Association, which has in-depth resources for managing heart health risks and implementing changes that support long-term cardiovascular health. It's now my pleasure to introduce our presenters today. Jeff Householder, Chair of the Board, President and Chief Executive Officer, will summarize the highlights and accomplishments of 2025 and introduce our theme for 2026. Jim Moriarty, Executive Vice President, General Counsel, Corporate Secretary and Chief Policy and Risk Officer, will provide updates on our regulatory strategy, business transformation efforts, and stakeholder engagement. And Beth Cooper, Executive Vice President, Chief Financial Officer, Treasurer, and Assistant Corporate Secretary, will discuss our full-year financial results, financing updates, and investment highlights. I'll now turn the call over to Jeff.

Thank you, Lucia. Good morning. It's great to speak with you today. As shown on slide five, 2025 was a year of outstanding performance and growth. I'm proud of everything our team has done the last year to deliver with purpose. We have once again reached significant new heights across our entire enterprise. 2025 was our 19th consecutive year of earnings growth. We generated adjusted earnings of $6.01 per share, reflecting industry leading growth of 12% relative to full year 2024. Above average residential growth of 3% across our service areas continues to serve as the primary driver for our capital program. We invested $470 million through 2025, a 32% increase over our 2024 capital spend, and $20 million above our 2025 guidance range. a record of non-acquisition capital. 2025 was also a record year for incremental adjusted gross margin growth of $71 million. Included in that was transmission project margin of $19 million and incremental infrastructure margin of $14 million. Our proactive regulatory approach also contributed to our full-year results with completed rate cases in our Maryland, Delaware, and Florida electric jurisdictions driving an additional $13 million of gross margin in 2025. And lastly, we're pleased to end the year back at our target equity capitalization of 50%, exactly in line with the goal we laid out at the start of 2025 and ahead of the schedule we established at the time of the FCG acquisition. Slide six provides additional detail on our record levels of earnings growth for the fourth quarter and full year 2025 We generated double-digit growth and adjusted gross margin, adjusted net income, and adjusted earnings per share. These results demonstrate our commitment to providing high-quality, safe, and reliable service for all customers and driving value for all stakeholders. I'll now shift to slide seven, which highlights our above-average customer growth. We operate in some of the fastest-growing regions of the country. In 2025, we added nearly 11,000 residential, commercial, and industrial customers across our natural gas and electric distribution service areas. In Delmarva, residential customer growth was 4.1%. Florida Public Utilities was up 3.6%, and Florida City Gas recorded a 2.2% increase. Residential community expansion drives corresponding commercial infrastructure growth. our customer additions led to an incremental $7.4 million of adjusted gross margin in 2025. We also see additional growth opportunities in Ohio, which has quickly become a top spot for data center build-outs. In addition to starting construction this year on the Duncan Plains pipeline to support AEP's data center fuel cell, We've been providing temporary virtual pipeline service through Marlin for a data center construction project north of Columbus, Ohio. We continue to explore a number of gas transportation projects and look forward to further expansion in the Ohio market. Before I discuss our strategy and goals for the next year, I'd like to reflect on the significant progress we've made in just the first two years following our acquisition of Florida City Gas in late 2023 as detailed on slide eight. FCG has proved to be a strong strategic and cultural fit and immediately provided a wide range of investment, expansion, and improvement opportunities. We quickly got to work and have already invested approximately $250 million of CapEx, which is 50 percent of our five-year FCG-related investment goal. These projects are expanding and reinforcing FCG's ability to provide reliable and affordable energy, to meet customer demand. We've also fully integrated the FCG team into the Chesapeake family and aligned a number of functions and processes with our legacy operations under our one company approach. FCG is now active on our 1CX SAP customer billing platform, and we've consolidated all regulated customer service operations into one coordinated team. These integration and investment accomplishments are important for several reasons. One, we've done what we said we would do. We've also strengthened our track record of above average growth, and we're demonstrating our ability to finance, integrate, and capitalize on transformational opportunities that support consistent long-term growth. I'd now like to talk about our outlook, strategy, and goals for 2026 and beyond. Core to that discussion and to our record-breaking performance and growth over the last year are the three pillars of our growth strategy shown on slide nine. We remain committed to prudently deploying capital, proactively managing our regulatory agenda, and continually transforming our business operations, as we believe consistent and successful execution will continue to drive top quartile growth and total shareholder return. I'll now move to slide 10 to introduce our theme for this year, transforming for growth powered by people, which particularly resonates with where we are today. We're building on a well-established blueprint for top quartile performance. We're transforming the business to prepare for a new level of scale and growth, and we're powered by strong relationships across all stakeholders, teammates, customers, regulators, investors, and our communities. In this year of transformation, there are a few specific deliverables that we're focused on for 2026. Focused on investing $450 to $500 million of capex, including successful completion of a number of projects and initiating construction on a new set of opportunities that are presently under development. We're focused on reaching a successful outcome on our general rate case for Florida City Gas, which Jim will discuss shortly in more detail. As part of a whole host of business transformation initiatives across our organization, we're undertaking the largest technology system implementation in our history with our Multi-Year Enterprise Resource Plan, or ERP. I know I've said it before when we were embarking on the 1CX project, but this ERP implementation, which we're calling One Core, is going to be bigger and even more transformational than anything we've done thus far. And Jim will discuss more on that shortly. And finally, we're focused on maintaining a strong balance sheet and investment-grade credit ratings as we fund our significant capital investment program and continue to drive strong earnings and dividend growth in support of top quartile shareholder return. I'll now turn to slide 11, which provides a detailed look into our 2026 capital plan. Following a record-breaking $470 million of capital invested in 2025, we're initiating full-year 2026 capital expenditure guidance of $450 million to $500 million. This plan assumes levels of transmission, distribution, and infrastructure investment similar to last year alongside an increase in technology capex for the ERP. I will note that approximately 20 to 30 percent of this capital will drive margin growth in 2027 or later. given regulatory recovery timelines and expected project completion dates. Slide 12 provides an update on our major capital projects. Nearly all are generating margin through interim or full service, driving $22.8 million of adjusted gross margin in full year 2025. We forecast these projects to contribute approximately $47 million of gross margin in 2026 and an additional $9 million in 2027. Turning to slide 13, I'd like to highlight two projects for Eastern Shore Natural Gas that could further support the significant demand growth in our northern service areas. The first is the Delmarva Regional Enhancement Project, which I am pleased to be announcing today. This investment includes over 20 miles of 16- and 24-inch pipeline and looping to add firm capacity and improve reliability, driven by increased shipper demand identified during our latest open season. We currently estimate capital investment of approximately $75 million and an in-service date around the end of 2028. The second project was announced a few weeks ago when we were awarded a $6.5 million grant by the Acomac County Board of Supervisors to begin to assess feasibility, design, and engineering of new infrastructure that would bring natural gas to Virginia's eastern shore. We're working with local stakeholders and potential customers to ascertain the size, route, and cost for this potential system, which could extend natural gas from Princess Anne, Maryland, to Temperanceville, Virginia, serving homes and major employees, including the NASA Wallops Flight Facility, Wallops Island Operations, and other regional commercial and industrial customers. While still in very early stages, we are excited about the opportunity to extend our system into Virginia to deliver safe, reliable natural gas to the Acomac County community. I'll now shift to slide 14 to discuss our five-year capital investment guidance of $1.5 to $1.8 billion through 2028. Given our 2024 and 2025 capital spend, combined with our identified and ongoing capital investments, We've invested and identified a total of $1.6 billion toward our five-year range. As we've discussed, we intend to provide a more significant update to this range a year from now in order to incorporate outcomes of our strategic planning session this summer and make additional headway on multiple potential investment projects under evaluation and development. With that, I'll turn to Jim to discuss our second and third pillars, regulatory strategy and business transformation initiatives.