Good morning. My name is Andres, and I will be your conference operator today. At this time, I would like to welcome everyone to the Chesapeake Utilities' Second Quarter 2017 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the conference over to Beth Cooper. Please go ahead.

Good morning, everyone, and welcome to our second quarter earnings conference call. We're hosting today's conference call live from Wesley College here in Dover, Delaware, where our corporate headquarters is located. And I'd like to just say a special thanks to Dr. Gibson and Dr. Jacobs, who are here in the room with us, for enabling us to hold our conference call here today. In the room with us are several members of our management team as well as several of our key employees, some of which are alumni of Wesley College. Turning to slide two. Before we begin, all of you know that this presentation may include forward-looking information. We will ask that you take a look at our SEC reports, including our Form 10-Q that we filed yesterday, as well as our Annual Report on Form 10-K that we filed in February, where we discussed those factors and those risks that could cause our actual results to differ from the forward-looking information. Turning to slide three. This is a summary for the quarter. Really just three things on here that we wanted to highlight. First, just overall from a top level, we continue to have strong gross margin growth in the second quarter, operating expenses did overshadow that gross margin growth and I'll talk about in just a minute, but still as strong quarter overall in terms of gross margin growth. Secondly, just a high level from an EPS standpoint, we'll talk in a little more detail later on in the presentation, you will see that the letter and also the wind down of Xeron represented a reduction in earnings per share of about $0.04, you'll see that gross margin from our [Indiscernible], including Eight Flags and some of the areas where we had growth, also basically added…

Thanks Beth. I guess so let me move forward to the next slide on slide eight. What we're highlighting here on slide eight are basic five major projects that were currently underway, will be initiated in 2018 and 2019. Basically the Eastern Shore Natural Gas Expansion, that major project almost $100 million of capital investment expected to generating $9.3 million in 2018 and $15.8 million in 2019. The project is expected to go to service the second quarter of 2018. If you look next, FPU Gas Reliability Infrastructure program, I think everyone probably knows that's a program to replace old aging pipe that needs to be replaced, so there's an automatic mechanism to recover cost associated with that. As you can see, that's expected to generate $14.4 million in 2018 and $15.1 million 2019. Eight Flags Combined Heat and Power Plant, that project went into service in June of last year. This year -- well next year is expected to earn $8.7 million, and slightly higher in 2019, there's some automatic pricing adjustments compared to that project. The FPU Northwest Florida Expansion that's going into service we expect probably in the second quarter of next year, as well in 2018, $4 million, and then in 2019, $5.1 million. And then Eastern Shore Natural Gas System Reliability project, that also is a reliability project, it's little bit different that the GRIP, but that, you may recall, there's a forward vortex we had several years ago, and when that occur, what we saw gas price coming into our system from Southeastern PA. It had declined pretty significantly, had an impact on our system. So, we're beefing up our system, so you bet that occurs again, won't have a lot reliability challenges [Indiscernible] what happens in the north. But in any event, $4.5…

[Operator Instructions] And your first question is from Spencer Joyce.

Hi, Beth, good morning.

Good morning Spencer.

Good morning.

Just a few quick ones from me. First I want to talk about the ARM Energy Management purchase that was just announced this week. I know you gave some color on the operations there and some of the rationale. But Beth, perhaps from a financial standpoint, can you just shed a little might maybe on the purchase consideration there? Or just maybe in very rough terms, what kind of margin or operating impact we might expect to see, just incremental work in that acquisition announced?

Spencer, this particular acquisition, as I mentioned in the beginning is rather small. But it also really complement what PESCO does. The base purchase price of this business was just a little bit over $10 million.

Okay. Perfect. Also kind of sticking to the financing side, am I correct the full short-term availability to Chesapeake is just the $330 million. Is that, right?

That's right. We have $330 million and of that $330 million, $150 million is the revolver, and then the balance price are lines of credit that we have with the financial institutions.

Okay, great. Then finally just kind of broadly, could either of you all discuss kind of how the first half of the year has stacked up versus your initial internal expectations? I know the EPS was a little light versus kind of what we're looking for here on The Street, not that that's your problem necessary, but I'm just wondering kind of some of the puts and takes. I know it's been a pretty good, exciting first half of the year. But you just kind of open-ended there, how is the first half of the year gone versus how you had hoped or expected?

We sort of in the first half of the year, we did have the warm weather that came into play. And also we've been ramping up some our cost structure. And I think the combination of that warm weather and the cost structure ramp up, obviously, disappointed us. But its -- we've stayed with the plan to maintain our growth and [Indiscernible] accelerate that growth. And I guess that's a lot of detailed knowledge obviously I can talk about. But I think when you look at overall, we've had 10 years in a row of record earnings, and so we like that to be 11 and we haven't given up on that. But we've had 10 years of record earnings. So, we're sitting here half of this year, nothing higher than last year, anytime that happens, we're going to be in a place where we're going to be pushing things very hard to see what we can do to make any adjustments necessary to continue that record. So, I guess that [Indiscernible].

Sure. I would say one of the things, Spencer that I've alluded to earlier, last year we did the equity issuance, and we did it at a time not knowing what the market expectations for this year around the political election and also at that time with the different expectations in terms of the timing of the 2017 expansion project. So, those two things we were [Indiscernible] and I think we -- it was a great issuance and it was right thing to do. But I would say it was probably a little bit in advance of where the ultimate 2017 expansion project will come in. Having said that, though, as Mike pointed to, we have had the cost ramp, we've had tremendous growth going on with Eight Flags with Eastern Shore doing two projects this year. But in the middle of our rate case and then also the 2017 expansion project on the heels [ph] of that and so there's been in my mind, that you're going to start to see us, as I mentioned, the margin growth and the expense growth, I would say, the expense declining as the margin growth begins accelerating, and completely come out of the third and into the fourth quarter, that's the expectation. And then you have the bigger ramp as our slides show, as you have the 2017 system expansion next year. That alone adding just to almost $9 million in one year from that one project is significant. And had it occur this year, it would be -- as Mike mentioned, we would be in a slightly different place. But we're committed to, as Mike mentioned, trying to look and hopefully accomplish our 11th year of record earnings and we're focused on our margin growth across the company.

Okay. So, I mean, just kind of setting the EPS here year-to-date aside. I mean it's fair to say that, operationally, the progress that you've made is sufficient to support kind of how you see in the company in, say, 2019 and 2020 and kind of the multi-year planning horizon? I mean the first half has been adequately constructive, if you will.

Yes, for 2019 and 2020, I think we're in a very good shape.

Okay. Sounds good. That's all I had. Thanks for taking the call.

Thanks Spencer.

[Operator Instructions] And our next question is from Sarah Akers.

One level of intern rate increase that you were implementing at Eastern Shore relative to that $18.9 million requests?

We are -- Sarah, that's something that we're still discussing at this time again. We'll have more information certainly as we come through the third quarter. But we, as a team, are looking at that. And as we mentioned in our disclosures, we're in the midst of a settlement discussions right now.

Okay, got it. And then just to clarify your comments on O&M. So, should we model O&M increases in the second half of the year similar to the 15% increase in the first half? Or would you expect that to materially come down in terms of the second half O&M growth?

Based on with those products coming on and we have had coming from the first quarter into the second quarter, you saw a decline as we came out of first and as we came into the second and our goal, as I mentioned, hopefully those two start to converge and align more so that cash should continue Sarah.

Okay. And then lastly, Beth, should we take your comments on the balance sheet to mean that you won't need equity to fund next year's capital budget?

We're doing right now, Sarah. We -- also those were in our annual budget process and I would tell you that in our last year's budget process, it was basically borderline, probably looked at ask whether or not we needed any additional equity capital. At this time, we're updating those numbers and those budgets, but if there's big projects that come down the pipe, certainly we would access the markets necessary what Tom and I need to take a look at those and we do have operating cash flows today that's anywhere between $90 million and $100 million of operating cash flow that's going to come in and be available. So, that's going to fund the first $100 million or so of capital and then depending on the level, we'll go out in the permanent market if that's necessary. Right now, what I know is from last year and what I'm hearing, I would not expect us to be accessing those equity markets at this time, but we'll let you know once we get through that process.

Great. Thanks a lot.

Thanks Sarah.

Thank you.

[Operator Instructions] And now we will pass this conference over to Mike McMasters.

Thank you. I want to thank everyone for your continued interest and support of the company. We are not leaving and our efforts to grow our company and also to drive the shareholder value. Thank you very much.

And this does conclude our today's conference. You may now disconnect.