Chesapeake Utilities Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 8, 2025
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Operator

Welcome to Chesapeake Utilities Corporation's First Quarter twenty twenty five Earnings Conference Call. I would now like to turn the call over to Lucia Dempsey, Head of Investor Relations.

Lucia Dempsey
Lucia Dempsey
Head of Investor Relations (IR) at Chesapeake Utilities

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 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.

Lucia Dempsey
Lucia Dempsey
Head of Investor Relations (IR) at Chesapeake Utilities

The Safe Harbor for forward looking statements section of our 2024 annual report on Form 10 ks and on our first quarter Form 10 Q provides 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 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 has been provided in the appendix of this presentation, our earnings release and our first quarter Form 10 Q. Here at Chesapeake Utilities, safety is our first priority.

Lucia Dempsey
Lucia Dempsey
Head of Investor Relations (IR) at Chesapeake Utilities

We start all meetings with a safety moment, and we'll do so here with a moment on bicycle safety, as highlighted on Slide three. Increasingly warmer temperatures bring more cyclists on the road, whether for commuting or for fun. Bicycling is great for physical and mental health, but we must increase our awareness to ensure safety for all on the road. Cyclists should always wear a helmet, remain highly visible during the day and at night and stay aware of traffic patterns. Drivers also need to remain alert and watch for cyclists, particularly at intersections and when turning or parking.

Lucia Dempsey
Lucia Dempsey
Head of Investor Relations (IR) at Chesapeake Utilities

Sharing the road will ensure we all get to our destination safely. I'll now introduce our presenters. Jeff Householder, Chair of the Board, President and Chief Executive Officer, will provide an update on our quarterly performance, our growing service areas and our capital investment plan. Jim Moriarty, Executive Vice President, General Counsel, Corporate Secretary and Chief Policy and Risk Officer, will review our active regulatory agenda, business transformation initiatives and stakeholder engagement efforts. And Beth Cooper, Executive Vice President, Chief Financial Officer, Treasurer and Assistant Corporate Secretary, will discuss our financial results, strong balance sheet and dividend and earnings growth trajectory.

Lucia Dempsey
Lucia Dempsey
Head of Investor Relations (IR) at Chesapeake Utilities

With that, it is my pleasure to turn the call over to Jeff.

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

Thank you, Lucia. Good morning and thank you for joining our call today. I'll begin with Slide five. Following our strong performance in 2024, we are pleased to announce continued growth in the first quarter of twenty twenty five with adjusted earnings per share of $2.22 up 6% from the first quarter of twenty twenty four. This performance is in line with our expectations, enabling us to reaffirm our full year 2025 adjusted earnings share guidance of 6.15 to $6.35 And as I'll discuss in more detail shortly, our 2025 capital growth plan of $325,000,000 to $375,000,000 is off to an excellent start with $113,000,000 already invested in the first three months of this year.

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

As shown on Slide six, for the first quarter of twenty twenty five, we continue to see strong growth and increasing demand for natural gas across our service areas. We operate in some of the fastest growing regions of the country and recorded another quarter of above average customer growth. Delmarva customer growth was up nearly 4% and Florida increased by 3% relative to the same period last year. This growth is driven by a number of factors, including population and migration to our service areas, construction of new residential communities and system expansions to serve growing commercial and industrial demand. Customers continue to seek natural gas service to fuel their lives and businesses and we'll continue to provide them the safe, reliable and cost effective service they expect.

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

The opportunity to serve increasing customer demand is the basis for our overall growth strategy, which in turn drives sustainable earnings. To deliver consistent returns, we remain focused on the three pillars of our growth strategy as shown on Slide seven. First, we work hard to identify and prudently deploy capital for projects that meet our increasing customer demand. Second, we proactively manage our regulatory agenda to support cost recovery of our capital projects and growing operations. And third, we continually transform our business operations, which includes technology and organizational improvements that enable us to maintain operational excellence as we become a larger organization.

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

Slide eight highlights our fortunate position of having multiple channels of capital investment to drive overall long term earnings growth. The first is reliability infrastructure, which includes upgrades and replacements to improve system resiliency and safety. These infrastructure growth investments are supported by regulatory programs such as the Florida Guard and SAFE programs that provide effective and timely recovery of our capital investments. Reliability infrastructure investments generated $5,800,000 of gross margin in the first quarter of twenty twenty five and are expected to generate a total of $27,000,000 of gross margin throughout the full year. The second category of significant growth is occurring in our gas transmission businesses in Delaware and Florida.

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

Many of our major capital projects are designed to extend transmission service in support of distribution expansion that serves new customers. In the first quarter of this year, these projects generated $2,500,000 of gross margin and are expected to contribute $22,000,000 of gross margin for the full year, primarily in the third and fourth quarters of twenty twenty five. Slide nine provides additional detail on these transmission projects. The Eastern Shore natural gas Warwick Extension in Maryland and the Peninsula Pipeline Company Plant City project in Florida were placed in service in the fourth quarter of twenty twenty four and have driven over $3,000,000 of gross margin in 2025. In addition, our Peninsula Pipeline and Boynton Beach project was placed in service in the first quarter of this year, driving an additional $3,000,000 of 2025 gross margin.

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

Construction continues for our remaining capital projects, many of which are expected to be in service in the second half of this year. Majority of our 2025 margins resulting from these projects will occur in the third and fourth quarters of twenty twenty five. I'll now provide an update on our Worcester Resiliency Upgrade or WRU project as shown on Slide 10. In January of this year, we received FERC approval for WRU, a liquefied natural gas storage facility critical to support seasonal peaking services for interconnected gas distribution systems. The LNG peaking service provides reliable and affordable system peaking capacity service that ensures that we can meet the growing demand for natural gas in our Delaware and Maryland distribution systems.

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

Following FERC approval, we received final updated general contractor bids for site related construction work. The bids were significantly higher than the indicative pricing and the timing of construction was longer than the indicative project timing we had received from contractors at the end of last year. Two factors are principally contributing to the cost increases in the project timing. Reviews of the bids and discussions with the participating contractors indicated availability constraints for certain skilled and licensed labor and that cost estimates were also being impacted by uncertainty around the current economic climate. Climate.

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

These factors have led to a $20,000,000 increase in capital investment, resulting in a total expected project cost of approximately $100,000,000 We will be making the necessary filings to ensure rate recovery of this additional capital. The expected in service date of the project has shifted from October of twenty twenty five to the second quarter of twenty twenty six, which means that the WRU margin that was originally expected in fourth quarter will begin in 2026. This project remains critical to support increasing demand in this area and is still the lowest cost project to address peak winter loads and protect against weather related disruption. We're executing contracts this week and anticipate starting full site construction upon receiving the notice to proceed from FERC. WRU is just one of many projects that supports our five year capital investment plan as shown on Slide 11.

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

We've made significant progress to date with $356,000,000 invested in 2024 and $113,000,000 already invested through the first quarter of twenty twenty five. Cumulatively, we've also already identified and initiated at least $1,400,000,000 of our five year capital investment plan of $1,500,000,000 to $1,800,000,000 of which approximately 70% requires no additional regulatory approval or support. With that, I'll turn to Jim to discuss our regulatory strategy and business transformation initiatives.

James Moriarty
James Moriarty
Executive VP, General Counsel, Corporate Secretary and Chief Policy & Risk Officer at Chesapeake Utilities

Thank you, Jeff, and good morning, everyone. As Jeff discussed earlier, a proactive regulatory agenda is the second pillar of our growth strategy. So to start, I'll share several updates on our active rate cases as shown on Slide 12. For our Maryland jurisdiction in March 2025, a base rate increase of $3,500,000 was approved, which reflects a Phase one revenue increase of $2,600,000 and a subsequent Phase two revenue increase of $900,000 We then received the final order last month with rates effective 04/19/2025. We are pleased to have come to a final resolution on this case and are excited that we will now serve all of our Maryland communities under one consolidated entity, Chesapeake Utilities of Maryland Incorporated.

James Moriarty
James Moriarty
Executive VP, General Counsel, Corporate Secretary and Chief Policy & Risk Officer at Chesapeake Utilities

Onto our Delaware rate case, which was initially filed in August of twenty twenty four. In March of this year, we reached a settlement agreement in principle with an approved cumulative interim rate increase of of $6,100,000 effective 05/01/2025. We expect to reach a final order on the settlement agreement in the second quarter of this year. Our Florida rate case was also filed in August 2024. Following an initial revenue increase voted on by commissioners in March of this year, we worked with interested parties and yesterday reached a settlement agreement for $8,600,000 of a revenue requirement increase.

James Moriarty
James Moriarty
Executive VP, General Counsel, Corporate Secretary and Chief Policy & Risk Officer at Chesapeake Utilities

We anticipate this agreement to be on the Florida PSC hearing agenda in June. Slide 13 summarizes our other key active regulatory filing, an updated depreciation study for Florida City Gas. In February of this year, we requested a reduction in annual depreciation expense of approximately $1,000,000 in the form of revised annual depreciation rates and a two year amortization of an excess depreciation reserve of $27,300,000 This filing reflects a return to our standard way of recovering excess depreciation going forward. The procedural schedule set by the Florida PSC projects a staff recommendation in August 2025 and an order in September 2025 leading to updated annual depreciation rates being implemented no earlier than the third or fourth quarter of this year effective back to 01/01/2025. I'll now turn to Slide 14, which provides an update on our business transformation initiatives, which is the third pillar of our fundamental growth strategy.

James Moriarty
James Moriarty
Executive VP, General Counsel, Corporate Secretary and Chief Policy & Risk Officer at Chesapeake Utilities

In April 2025, we fully completed the implementation of our One CX project by transitioning our Florida City Gas operations to the SAP system that we rolled out to our Delmarva and FPU operations in August of last year. The team capitalized on their experience with the initial system launch and refined the processes around training and implementation, which led to a highly successful rollout and seamless transition thus far. We are also in initial stages of launching a company wide multi year enterprise resource plan or ERP to coordinate and improve functions across the organization, including human resources, supply chain, asset management and finance among others. These technology transformations alongside additional operational and security upgrades within our technology roadmap will create a strong foundation to support our overall growth trajectory. Turning to Slide 15, I would like to highlight a couple of ways we've been highly engaged with our stakeholders, including our investors and our broader communities.

James Moriarty
James Moriarty
Executive VP, General Counsel, Corporate Secretary and Chief Policy & Risk Officer at Chesapeake Utilities

In March, we published our 2024 annual report, which highlights many of our accomplishments throughout last year. This report alongside our twenty twenty five Investor Day held at Cape Canaveral in March launched our theme for this year, Delivering with Purpose, Reaching New Heights. We were excited to host over 35 financial community members at our Investor Day, where we highlighted our growth opportunities across the enterprise. The key accomplishments and objectives related to our regulatory and business transformation pillars and the depth and breadth of leaders from across the company. Yesterday, we were gratified that our investors supported all six proposals on the ballot this year at our annual meeting, including the declassification amendment and an increase in the authorized shares from 50,000,000 to $75,000,000 We also continue to invest in our communities and support local organization based on our four focus areas of giving: safety and health, community development, education and environmental stewardship.

James Moriarty
James Moriarty
Executive VP, General Counsel, Corporate Secretary and Chief Policy & Risk Officer at Chesapeake Utilities

We understand that active engagement with all of our stakeholders is a core responsibility as we grow and we look forward to publishing the third installment of our sustainability micro reports, which will focus on engagement with our employees, communities and customers. With that, I will turn the call to Beth for a more detailed discussion of our financial

Beth Cooper
Beth Cooper
Executive VP, CFO, Treasurer & Assistant Corporate Secretary at Chesapeake Utilities

Thanks, Jim, and good morning, everyone. Our financial results, as shown on Slide 16, demonstrate strong growth in the first quarter of twenty twenty five with adjusted gross margin of approximately $182,000,000 up 11% from the first quarter twenty twenty four driven by higher consumption and margin growth from investments in transmission, distribution and infrastructure. Our margin growth coupled with operational efficiencies drove significant improvements in adjusted net income, up 9% to approximately $51,000,000 for the quarter. We also reported strong growth in adjusted earnings per share this quarter, up $0.12 to $2.22 a 6% increase over the first quarter of twenty twenty four. We are proud of this continued growth, particularly as this quarter did not benefit from a $3,400,000 depreciation expense that was recognized under the Florida City Gas RSAM mechanism in the first quarter of last year.

Beth Cooper
Beth Cooper
Executive VP, CFO, Treasurer & Assistant Corporate Secretary at Chesapeake Utilities

I'll now turn to Slide 17 and highlight some of the key drivers of our first quarter twenty twenty five adjusted EPS. Colder weather across our service areas contributed an $0.18 increase in adjusted EPS, particularly driven by increased consumption in Delaware and across our propane across Continued demand for natural gas drove $0.14 of incremental adjusted EPS, including $07 related to transmission capital projects and zero seven dollars of distribution growth across our service areas. Our unregulated business generated an additional $0.12 of adjusted EPS this quarter driven by increased margins in our propane operations and incremental demand for our Marlin Virtual Pipeline services relative to the first quarter of last year. Regulatory initiatives also drove additional adjusted EPS growth this quarter.

Beth Cooper
Beth Cooper
Executive VP, CFO, Treasurer & Assistant Corporate Secretary at Chesapeake Utilities

Infrastructure reliability investments through our approved regulatory programs contributed $0.11 this quarter and interim rates related to our in process rate cases added zero five dollars in the first quarter of twenty twenty five. These gains were partially offset by a few factors including $0.17 per share of increased depreciation and amortization expense as this quarter had no RSAM depreciation expense reduction compared with an $0.11 benefit in the first quarter of last year. We also incurred additional operations and maintenance expense of $0.20 per share this quarter as a combination of business growth and higher prices led to increases in expenses associated with employees, customers, facilities and insurance. Lastly, financing activity including our debt issuance in November 2024 and additional equity issuances in the first quarter of twenty twenty five reduced adjusted EPS by $0.11 per share. Moving to Slide 18, adjusted gross margin for our regulated segment was approximately $128,000,000 this quarter, up 8% from the first quarter of last year.

Beth Cooper
Beth Cooper
Executive VP, CFO, Treasurer & Assistant Corporate Secretary at Chesapeake Utilities

As just discussed, this improvement was driven by increased consumption due to colder weather, organic transmission and distribution growth in our natural gas distribution operations and growth in regulatory related initiatives. As shown on Slide 19, our unregulated energy segment demonstrated substantial growth relative to the first quarter of last year with adjusted gross margin up 18% to approximately $54,000,000 in the first quarter of twenty twenty five. Even admits an elevated demand environment, which typically compresses margin due to higher cost protein purchases in the spot market, our propane operations and gas supply teams did fantastic job managing supply, enabling us to avoid costly spot market purchases and sustain our margins during high demand periods in January and February of this year. Our Marlin Gas Services business continued to grow as incremental demand for virtual pipeline deliveries drove $3,600,000 of additional gross margin in the first quarter of twenty twenty five. In addition to RNG, we have seen increased CNG demand, particularly from manufacturing businesses in North Carolina and Ohio.

Beth Cooper
Beth Cooper
Executive VP, CFO, Treasurer & Assistant Corporate Secretary at Chesapeake Utilities

I'll now shift to Slide 20 to review our capital structure and financing activities. Maintaining a strong balance sheet and implementing a strategic financing plan is becoming even more critical as we accelerate our growth strategy amidst a volatile market backdrop. In March, Fitch Ratings issued our inaugural investment grade credit rating, including a long term issuer default rating of BBB plus an A- instrument rating for our senior unsecured debt and a stable outlook. We are proud of this assessment as it reflects our long standing commitment to prudent investment and disciplined balance sheet management, and we'll continue to implement a strategy consistent with maintaining an investment grade credit profile. We ended the first quarter of twenty twenty five with an equity to total capitalization ratio of 49%, up from 48% at the end of twenty twenty four and on the cusp of our target equity to total capitalization ratio range of 50%.

Beth Cooper
Beth Cooper
Executive VP, CFO, Treasurer & Assistant Corporate Secretary at Chesapeake Utilities

We were able to take advantage of market performance during the last few months issuing approximately $22,000,000 within the first quarter of twenty twenty five via our ATM program and the waiver component of our direct stock purchase and dividend reinvestment plan and issuing nearly an additional 238,000 shares subsequent to the quarter, bringing our total shares outstanding to $23,300,000 as of 05/02/2025. This puts us ahead of our equity issuance plan for the full year. On the debt side, minimum maturities in 2025 reduce our interest rate exposure and provide optionality for any issuances this year. In addition, our liquidity remains strong with 68% of our revolving credit facility and private placement shelf facilities available at the March 2025. Alongside our equity and debt plans, our dividend policy continues to be a key component of our capital allocation strategy as we fund growth capital investment to drive earnings growth and overall shareholder return.

Beth Cooper
Beth Cooper
Executive VP, CFO, Treasurer & Assistant Corporate Secretary at Chesapeake Utilities

Yesterday, our Board of Directors approved an $8 increase in our annualized dividend, reflecting 7% growth or moving from 2.56 per share to $2.74 per share. As shown on Slide 21, we continue to maintain a ten year dividend CAGR of 9%. Since the Florida City Gas acquisition, we have strived to align our dividend growth with our earnings growth. Both of these metrics are expected to generate a compounded annual growth rate just under 8% over the two year period from 2023 to 2025. This dividend strategy is not an eitheror but a both and proposition.

Beth Cooper
Beth Cooper
Executive VP, CFO, Treasurer & Assistant Corporate Secretary at Chesapeake Utilities

We support continued dividend growth while reinvesting significant earnings back into the company, enabling our investors to benefit from both long term top quartile earnings and dividend growth. Turning now to that earnings growth, Slide '22 demonstrates not only our consistent track record of earnings per share growth, but also our 2025 adjusted EPS guidance, which reflects an increase of 14% to 18% over full year 2024 or growth rates twice as high as the overall utility industry. Our first quarter twenty twenty five performance is in line with our expectations, enabling us to reaffirm our full year 2025 adjusted EPS guidance of $6.15 to $6.35 per share even without WRU's margin this year. Given the continuously evolving macroeconomic environment, we will continue to monitor any potential impacts to our investment plan and operations as we proceed through the year. As shown on Slide 23, our first quarter EPS represents 35% to 36% of our 2025 EPS guidance.

Beth Cooper
Beth Cooper
Executive VP, CFO, Treasurer & Assistant Corporate Secretary at Chesapeake Utilities

There are a couple of factors that will shift a higher than normal percentage of our 2025 incremental gross margin to the third and fourth quarters of the year, which alters the cadence we've typically seen over the last approximate five years. The first factor is the timing of our interim and final revenue rate increases that Jim just highlighted, which primarily begin in the second quarter of this year. Second, as Jeff mentioned earlier, most of our major capital projects are expected to come into service in the third and fourth quarters of twenty twenty five leading to back end weighted incremental margin. The third factor is depreciation expense as each quarter throughout 2024 benefited from an RSAM adjustment, while the full year results of the Florida City Gas depreciation study may not be recognized until the third and or fourth quarters of twenty twenty five based on the current procedural schedule for that filing. Before we shift to Q and A, I'd like to highlight a couple differentiators on Slide 24 that will enable us to drive shareholder value in 2025 and for years to come.

Beth Cooper
Beth Cooper
Executive VP, CFO, Treasurer & Assistant Corporate Secretary at Chesapeake Utilities

As Jim mentioned earlier, our theme for this year is delivering with purpose, reaching new heights. This starts with our mission to deliver energy that makes life better for the people and communities we serve and is reinforced by our track record of delivering consistent financial results and top quartile return over the last twenty years or more. We are uniquely positioned in two regions that benefit from above average customer growth and infrastructure expansion opportunities, enabling us to implement a growth strategy supported by our three pillars prudent capital deployment, proactive regulatory strategy and continuous business transformation. This growth plan is made possible through our relentless focus on financial discipline, balance sheet strength and our three pronged financing strategy. We remain intent on maintaining an investment grade profile and returning to our target capital structure so that we are well positioned to fund our long term capital growth plan.

Beth Cooper
Beth Cooper
Executive VP, CFO, Treasurer & Assistant Corporate Secretary at Chesapeake Utilities

All of these elements drive our ability to reach new heights both in 2025 and beyond. We're not only targeting significantly above average adjusted earnings per share growth this year, but reaching new heights with capital investment projects, regulatory activity and large scale technological transformations enabling us to become a much larger organization over the next few years. Staying committed to our goals and excelling at these differentiators will enable us to continue to drive industry leading growth, total shareholder return and long term value for all our stakeholders. With that, we'll take your questions. Operator?

Operator

The floor is now open for questions.

Operator

Thank

Operator

you. Our first question is coming from Tate Sullivan with Maxim Group. Please go ahead.

Tate Sullivan
Senior Research Analyst at Maxim Group

Hi, thank you. And Jeff, you held your most recent Analyst Day event in Cape Canaveral, Florida. Can you talk about the natural gas infrastructure there on the regulatory side first for the space industry? Or has there been any regulatory developments since then or upcoming in terms of regulatory natural gas infrastructure in that area, please?

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

Hi. Good morning, Tate. Nothing substantive to report in that particular area. Although, I think as we mentioned, we've had some good news in Virginia thinking about moving down to the launch facility there on Wallops Island with a $6,500,000 grant that the state of Virginia has provided to look at infrastructure expansion there. We continue to work with a number of parties on the Florida space launch effort.

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

There are continuing meetings that indicate substantial interest both at the state level and at NASA and the other launch companies that are active there. And I think that before this is over with, as I've said many times, there's certainly a need for liquefied natural gas to supplement the fuels that are used to launch those rockets, and we'll find a way to participate in that as that area is now in our service territory with the FCG acquisition. So we'll keep poking at that. And I think we'll find a way to serve those facilities at some point.

Tate Sullivan
Senior Research Analyst at Maxim Group

Thank you. And then the unregulated margin another at least unregulated operating income rather another good quarter there both from Marlin and it looked from propane as well. Is Marlin are you still expanding Marlin? You commented a couple of years ago about building more trailers, I believe, and such. Can you talk on Marlin's footprint?

Tate Sullivan
Senior Research Analyst at Maxim Group

And if you have disclosed any expansion on?

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

I don't believe that we've talked specifically about Marlin expansion. We continue to capitalize that business appropriately. And as we find additional opportunities for growth, we're looking at a couple of things. I don't know, Ohio right now, as a matter of fact, where we will need to position additional equipment. We've made the appropriate capital advances there.

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

And as you indicate, in cabs and trailers and mobile compressors and those sorts of things. And so we'll continue to do that. There's no big announcement of a large capital expansion program there. This is kind of business as usual as we continue to execute agreements for longer term service contracts with entities across the Mid Atlantic and the Southeast.

Tate Sullivan
Senior Research Analyst at Maxim Group

Thank you very much. Have a good day all.

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

Thanks.

Operator

We'll take our next question from Chris Ellinghaus with Siebert Williams Bank. Please go ahead.

Chris Ellinghaus
Managing Director at Siebert Williams Shank.

Hey, everybody. Good morning.

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

Hey.

Chris Ellinghaus
Managing Director at Siebert Williams Shank.

Jeff, have you got any thoughts on tariffs and how you think about how it might affect your business or what you might be doing with supply chains?

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

Sure. We've been as has everyone else in this industry been looking pretty hard at that. We have experienced very few issues related to those tariffs at this point. Across our supply chain, we're in pretty good shape. We've been communicating expansively with vendors and suppliers of various parts and pieces of our business, just haven't seen anything yet.

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

There is a general view that the price of everything is going to continue to go up. We'll see if that holds true as the federal government continues to try to negotiate its way through these tariff issues. We saw and we reported here on the WRU project that there is an impact, I think that's at least partially directed toward the uncertainty in the marketplace that the tariffs are creating. And so with fixed price contracts, you can see and we did see with WRU, the indicative pricing we were getting before the tariffs went into effect followed by the final pricing we got after the tariffs went into effect and the vendors that were going to construct that facility began to think about what their pricing might look like. We're seeing at least in that particular project an increase in the cost.

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

Some of that, I might add, was also related to the fact that it's pretty tricky to hire an electrical contractor in the state of Maryland. Maryland requires that every electrician on a job of that type hold a Maryland electrician's license and many of those folks work. As the data centers have blossomed around the country, there is a lot of work for electrical contractors on the industrial side. So I think we're seeing that kind of impact in the general marketplace. If you look at our other projects, I can't think of any in the many, many millions of dollars of projects that we have underway that are being impacted by those tariffs at this point.

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

Okay. That's helpful.

Chris Ellinghaus
Managing Director at Siebert Williams Shank.

Vis a vis the WRU, given the delay there, what have you done to adjust to sort of make up for that margin late in the year for this year?

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

Sure. Yes. And as we indicated about a $3,000,000 margin drop in this year that converts Beth could probably spit this number out directly, but probably a little over $2,000,000 I would imagine an operating income impact. We can certainly manage that. We have a large enough company at this point that we can maneuver some things, especially on the expense side.

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

I would remind you, as I've reminded many of our folks, we've overcome many times greater impacts with simply weather adjustments that we've had over the last few years, been able to move fairly effectively through those impacts. And so I think it's unfortunate that WRU is delayed, but we have the operational capabilities to certainly provide the peaking service on a temporary basis that we were contemplating for this coming winter out of WRU and we'll shift that into next year and the next winter. So I think operationally we're in good shape. I think that we will be able without too much difficulty to manage through the margin loss at WRU this year. Lots of projects underway.

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

There's a lot going on in this company that are generating decent income for us. I would also mention that it's not particularly unusual for a FERC regulated company to request a rate adjustment based on cost increases in projects. I mean, it's just the way that FERC has typically worked. You end up before you finalize even the contractor selection going to FERC with an estimated cost, those change over time. And I think it would not be surprising to FERC that we would come back in and request an adjustment on the margin.

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

So what you'll end up with, I believe, is an increase in our capital program followed by our ability, I believe, to find full recovery on those costs. So there is a delay. It does have an impact, but we'll be able to manage through that. Okay, great.

Chris Ellinghaus
Managing Director at Siebert Williams Shank.

There's a lot of sort of trickle down related to the tariff regime and the economy, economic outlook in general. Have you got any concerns for, say foreign travel or foreign tourism or maybe housing starts in the second half of the year? Do you have any general thoughts on those things because they could certainly affect Delmarva and Florida?

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

They certainly can. And we've actually been looking at a number of the projections offered by theme parks and others that restaurant associations and a variety of folks that kind of track that sort of projected data. There probably are some impacts there. We haven't seen anything on the tourism side that specifically impacts our business at this point. We also continue to see homebuilders on the single family residential side of the business continuing to develop very large communities.

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

We have a fairly substantial backlog of contracted housing starts over the next three or four years. So I don't see anything there that's particularly concerning. The multifamily market, certainly in Florida, has undergone some issues with building failures and a couple of other things, insurance costs that are I think affecting and impacting that market. We don't serve a lot of those. So again, it just hasn't moved down to us at this point at all.

Chris Ellinghaus
Managing Director at Siebert Williams Shank.

Okay. One last question for Beth. Obviously, with some of the capital and WRU delays, things like that, there's going to be some movement in the seasonality. So when you look at Slide 23 in that five year average, do you think that, say, 2027, you revert more to that normal pattern because the next 'twenty five and 'twenty six will be some funky periods there. But do you sort of think you revert to that pattern?

Beth Cooper
Beth Cooper
Executive VP, CFO, Treasurer & Assistant Corporate Secretary at Chesapeake Utilities

That's a great question, Chris. And I definitely think you move back towards that in that direction. What that doesn't contemplate though, right, is our steady stream of capital projects and how the implementation of future projects might weigh into that. Next year as you indicated in 2026 like this year will look different, but really that seasonality in '27 and really in any year is going to be driven by whatever regulatory activity and any large substantial incremental capital projects that come on that will come about in the future. But I think for now that's the best path to look at when you look at our longer term plan.

Chris Ellinghaus
Managing Director at Siebert Williams Shank.

That all makes sense. Thanks.

Chris Ellinghaus
Managing Director at Siebert Williams Shank.

Appreciate the details.

Operator

Thank

Operator

you. We'll take our next question from Paul Fremont with Ladenburg. Please go ahead.

Paul Fremont
Paul Fremont
Managing Director at Ladenburg Thalmann

Thanks. Good morning. Congratulations on a good quarter.

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

Thanks Paul.

Paul Fremont
Paul Fremont
Managing Director at Ladenburg Thalmann

I guess my first question is, if you were to settle in the FGC gas depreciation case, what would be sort of the optimal time? Would it be after staff testimony or would it be after the staff issues its report?

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

It's likely to be the former. I mean, think this is probably going to run out into the late third quarter or early fourth quarter, as kind of indicated by that schedule. One of the things that I think all of us are still looking toward, it doesn't have a direct bearing per se on the depreciation study that we filed, but everyone's still looking at that RSAM Supreme Court decision as at least an indicator of what the court's view might be of the original RSAM. This is not that, but I think it all plays in that general context. And so I think it will probably be a summer where we work with staff and work with the Office of Public Counsel as we work through the data requests that have already started on the depreciation study, likely heading toward the schedule that you referred to.

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

And I would imagine we would get pretty close to that before we began significant settlement discussions.

Paul Fremont
Paul Fremont
Managing Director at Ladenburg Thalmann

Great. And then with Fitch initiating ratings, did they indicate a downgrade threshold for FFO to debt?

Beth Cooper
Beth Cooper
Executive VP, CFO, Treasurer & Assistant Corporate Secretary at Chesapeake Utilities

They have the FFO leverage calculation is the predominant calculation that they're looking at. And Paul, from their perspective, they start to view a downgrade when you're thinking about a 4.8 is when there's consideration of a potential downgrade. Then similarly on the other side, an upgrade indicated around the 3.8.

Paul Fremont
Paul Fremont
Managing Director at Ladenburg Thalmann

And then do you have sort of your own target relative to their thresholds?

Beth Cooper
Beth Cooper
Executive VP, CFO, Treasurer & Assistant Corporate Secretary at Chesapeake Utilities

We do. Actually, great question. We have actually spent time with our Board and we have constructed a framework that actually looks at seven different metrics along the kind of the credit spectrum, including that one and two others that they actually monitor as well, but to a lesser degree. But we have those we have this dashboard in place. We've established internal targets that our Board has reviewed and that we monitor and we'll be showing them on a quarterly basis.

Beth Cooper
Beth Cooper
Executive VP, CFO, Treasurer & Assistant Corporate Secretary at Chesapeake Utilities

So that's pretty front and center and something that we're looking at on a regular basis.

Paul Fremont
Paul Fremont
Managing Director at Ladenburg Thalmann

Right. But are you do you plan on sort of sharing any of those metrics with investors or are those We

Beth Cooper
Beth Cooper
Executive VP, CFO, Treasurer & Assistant Corporate Secretary at Chesapeake Utilities

are still looking at that. Mike, Noah, myself, we're looking at that and evaluating, you know, whether or not we'll come out with that. So stay tuned. But right now, we haven't. But, you know, we feel comfortable with, you know, our forecast and what we've shown them.

Beth Cooper
Beth Cooper
Executive VP, CFO, Treasurer & Assistant Corporate Secretary at Chesapeake Utilities

And, certainly, we're looking to sustain the ratings that we have out there.

Paul Fremont
Paul Fremont
Managing Director at Ladenburg Thalmann

Great. Thank you so much.

Beth Cooper
Beth Cooper
Executive VP, CFO, Treasurer & Assistant Corporate Secretary at Chesapeake Utilities

Thank you. Thanks, Paul.

Operator

We'll go next to Nicholas Campanella with Barclays. Please go ahead.

Analyst

Hello, Joe. This is Michael Bayhne with Nicholas Campanella.

Beth Cooper
Beth Cooper
Executive VP, CFO, Treasurer & Assistant Corporate Secretary at Chesapeake Utilities

Hi.

Analyst

Do you think Chesapeake can hit the midpoint of guidance without the WRU project margin for 2020? Well,

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

I think certainly we intend to be in the guidance range. I mean, I think that's what we've reaffirmed today. Where we fall within that range, I think is yet to be seen. It's hard to predict the future in some ways in an economic climate like this. As I've indicated, we haven't seen other than WRU any substantive impacts to us or our business relative to what's going on in the economy at this point.

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

And in fact, we're pretty bullish on our capital program. And you've seen that from, I think, a number of companies reporting here lately. There's a lot to do out there and there's a significant demand for gas. And the WRU margins are it's unfortunate to see them move. And I hate to even say that it's only $3,000,000 3 million dollars is $3,000,000 but it's a number that we I think can manage pretty effectively.

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

Now whether that takes us to the midpoint of the range or the end of the range or the beginning of the range, I think is something we'll continue to look at. Beth, have you got anything to add there?

Beth Cooper
Beth Cooper
Executive VP, CFO, Treasurer & Assistant Corporate Secretary at Chesapeake Utilities

Sure. I mean, the other thing I would to. Thank you, Jeff. There are a couple of things I would add. The first one is, think you've seen us have a pretty robust first quarter as it relates to capital and there's a lot that we're investing in the company and

Beth Cooper
Beth Cooper
Executive VP, CFO, Treasurer & Assistant Corporate Secretary at Chesapeake Utilities

that we have a lot going on from a capital perspective. And I think we'll come back later in the year and revisit whether or not we need to consider any change in our capital guidance in the future. And then second off, I would just add a lot of those dollars are being spent on projects as you can see in our major project table that will have more of a full year impact in 2026. That's number one. The second thing is, I would say you've seen us also commit to getting back to that target capital structure.

Beth Cooper
Beth Cooper
Executive VP, CFO, Treasurer & Assistant Corporate Secretary at Chesapeake Utilities

And so, you know, our decision to do that can weigh into where you actually land within, you know, that that that EPS guidance range. So I think, you know, that's really those couple of things would just be the additional comments that I would have. So I think we're pleased, as Jeff said, when he started off the call and I ended it with the first quarter. I think it was a strong quarter. I think you saw that in our results across our businesses.

Beth Cooper
Beth Cooper
Executive VP, CFO, Treasurer & Assistant Corporate Secretary at Chesapeake Utilities

And so again, we're reaffirming for the year despite WRU. And so maybe Jeff, I'm not sure we have any more questions, so maybe we can turn it to you for some closing remarks.

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

Operator, are there any other questions?

Operator

We have no further questions at this time.

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

All right. Well, thank you guys very much for connecting with us this morning. We appreciate your continued interest in the business. We're pretty happy with the first quarter results. And as Beth and I indicated, I think WRU is not ultimately going to be a significant impact to us this year.

Jeffrey Householder
Jeffrey Householder
President, CEO & Chairman at Chesapeake Utilities

We can manage through that. And we look forward to reporting on how that's going next quarter. And with that, goodbye.

Operator

Thank you. This concludes Chesapeake's Utilities Corporation's first quarter twenty twenty five earnings conference call. Please disconnect your line at this time and have a wonderful day.

Executives
    • Lucia Dempsey
      Lucia Dempsey
      Head of Investor Relations (IR)
    • Jeffrey Householder
      Jeffrey Householder
      President, CEO & Chairman
    • James Moriarty
      James Moriarty
      Executive VP, General Counsel, Corporate Secretary and Chief Policy & Risk Officer
    • Beth Cooper
      Beth Cooper
      Executive VP, CFO, Treasurer & Assistant Corporate Secretary
Analysts
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Key Takeaways

  • Chesapeake reported Q1 2025 adjusted EPS of $2.22, up 6% year-over-year, and reaffirmed its full-year guidance of $6.15–$6.35 per share.
  • First-quarter capital investments reached $113 million toward a $325–375 million 2025 plan, supporting 4% Delmarva and 3% Florida customer growth driven by new residential and commercial connections.
  • The Worcester Resiliency Upgrade (WRU) LNG project saw a $20 million cost increase and was delayed to Q2 2026, with Chesapeake planning to file for rate recovery of the additional capital.
  • Regulatory progress included a $3.5 million Maryland base rate increase effective April, a $6.1 million Delaware interim increase, and an $8.6 million Florida settlement awaiting Public Service Commission approval.
  • Adjusted gross margin rose 11% to $182 million, the unregulated segment grew 18%, Fitch awarded a BBB+ rating, and the Board approved a 7% dividend increase to $2.74 per share.
AI Generated. May Contain Errors.
Earnings Conference Call
Chesapeake Utilities Q1 2025
00:00 / 00:00

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