Good morning. My name is Justin and I will be your conference operator today. At this time, I would like to welcome everyone to the Chesapeake Utilities first quarter 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. Ms. Beth Cooper, you may begin your conference.

Good morning everybody. I would like to welcome you to the first quarter Chesapeake Utilities 2019 earnings conference call. Before we begin, I would like to remind everyone that a copy of today's presentation can be found out there on our website. Joining me on the phone today are Jeff Householder, President and CEO and Jim Moriarty, Executive Vice President, General Counsel and Corporate Secretary. We also have other members of the management team in the room today. Our presentation will focus on our quarterly results as well as the opportunities we see looking forward. Turning to slide two. Our normal disclosures are listed related to forward-looking statements concerning the company's future performance. Today's discussions will include certain non-GAAP measures, such as gross margin and adjusted EPS. I would refer you to our annual report on Form 10- for additional information on these matters. I will now turn the call over to Jeff.

Thanks Beth and good morning, everyone. Thank you for joining us. It's great to be able to deliver our positive report on our first quarter results. 2019 is off to a solid start and our financial results are strong and we have experienced continued growth across our business segments. Our core businesses continue to grow. We have been successful in several regulatory initiatives and our recent acquisitions are contributing above our initial expectations. As always, our employees continue to identify and execute on opportunities that contribute to our success. If you move to slide three. As you know, we have a long history of driving total shareholder return in Chesapeake. Over the past 20 years, we have achieved a TSR that exceeds 16%. We are continuing that success in the first quarter of 2019. Our net income for Q1 was $28.7 million, $1.74 earnings per share, which represents a 6.1% growth in the first quarter of 2019 versus 2018. When looking at adjusted EPS, we achieved EPS growth of 20% year-over-year. 2019 annualized dividend was increased 9.5% at our Board meeting earlier this week, reflecting our strong EPS growth track record. Our 2019 first quarter results reflect the positive impact from natural gas expansions in both Delmarva and Florida natural gas, organic growth, higher retail margins for propane and increased rates for Aspire and as I mentioned, the Marlin and Ohl acquisitions we completed at the end of 2018 are both performing well. We achieved successful outcome on our TCJA filing in Florida for our largest natural gas operations. I believe that we are one of the very few, if not the only, utility operations in the country to actually be able to keep a portion of the TCJA tax benefit. We received approval in Florida to retain $1.9 million annually of our TCJA tax savings. That's primarily intended to enable us to recover our historic expense increases for safety and compliance over the last several years. Florida PSC also recently approved a storm recovery fund surcharge amounting to $1.9 million over the next three years. Capital expenditures to-date have been $33.8 million and we are on target to invest $168 million or more this year, given our commitment to growth and return on investment. I will speak more about these growth initiatives but first we will turn the presentation back to Beth to provide more details about our financial results.

Thank you Jeff. Turning to slide four. We provide a snapshot of our adjusted earnings for the first quarter. The company's reported EPS was $1.74, compared to $1.64 in quarter one of 2018. Adjusted non-GAAP net income was $27.8 million or $1.68 per share, an increase of 21.5% and 20% for net income and EPS, respectively, compared to the first quarter last year. Operating performance more than surpassed the first quarter 2018 results, which included $0.24 per share associated with higher mark-to-market activity prior to the company's adoption of the new hedge standard. The 2019 results also included the positive impact of $0.06 per share from retained tax savings in Florida associated with the estimated TCJA rate reductions that correspond to 2018. As mentioned previously, turning to slide five, we reported GAAP earnings per share of $1.74, which meant we generated additional earnings that overcame approximately $0.30 of unusual items, including the PESCO mark-to-market activity discussed previously as well as warmer weather in 2019. Even though the degree days were relatively flat in the first quarter of 2019 as compared to the 10-year average and the first quarter of 2018 overall, the severity of the December and January weather in 2018 drove higher consumption than normal. And when I say December, I am referring to December of 2017. [Indiscernible] increased across all energy businesses. The key drivers, as identified on slide five, added $0.79 per share. This compares favorably to our operating expense increase of $0.29 per share associated with our continued growth and new initiatives. Margin increases associated with our natural gas transmission service expansions in Delmarva and Florida added $4.3 million in terms of gross margin and operating income. Natural gas distribution customer growth and Sandpiper conversions added $1.8 million. The unregulated energy segment had margin gains in…

Thanks Beth. Slide 10 is intended to give you a somewhat longer view of the possible growth that we are anticipating over the coming years. We have previously provided guidance on our five-year capital and EPS expectations. Our current guidance calls for capital spending between $750 million to a $1 billion and earnings per share growth range of 7.75% to 9.5% over the five-year period ending 2022. These targets reflect our recent growth history and we do not anticipate difficulties in achieving those guided targets. We are now updating our five-year plan for strategic growth initiatives, which include capital spending and earnings targets and we anticipate providing further guidance in Q4 this year. We continue our disciplined approach to strategic investments that's resulted in above earnings per share and return on equity over the past five years and for that matter over the past 10 years. We expect to continue that trend going forward through 2022. Turning to slide 11. We show three significant projects that have been developed over the recent years with each either fully or now partially in service. Eastern Shore Natural Gas, as you well know, is the supply artery and growth engine for our Delmarva natural gas business. We have substantially completed a significant expansion project which increases Eastern Shore's firm capacity to our distribution customers and provides additional capacity for other customers in the Peninsula. The overall project added about 26% capacity on Eastern Shore system. We completed the Northwest Florida expansion project providing FPU access to competitively price natural gas to serve anchor customers, including the city of Pensacola and Ascend Performance Materials. We are also providing or there is additional capacity in that pipeline system to increase the industrial base load and continue to grow the margins on that project. The Western…

Well, thank you, Jeff and good morning, everyone. Slide 15 lists some significant regulatory initiatives from the first quarter. And as you know, we are very proactive in our regulatory jurisdictions. With 80% of our assets invested in the regulatory energy segment, we are focused on developing and driving innovative approaches and solutions to further enhance our business operations and therefore continue to provide reliable and safe services to our customers. Slide 15 indicates how the company has pursued multiple regulatory initiatives across our various jurisdictions. Most recently, as mentioned earlier, the company has focused on the regulatory filings under the Tax Cuts and Jobs Act of 2017. In Florida, in our two largest natural gas distribution operations, we were able to retain the tax savings associated with TCJA to recover some of the investments we have made to ensure the ongoing safety and reliability of our systems. On the electric side, we returned the tax savings through lower fuel costs and the storm reserve recovery. Turning to slide 16 and 17, which deals with our commitment, Chesapeake's commitment, to sustainability and ESG, the Environmental, Social and Governance issues. We are fully engaged on ESG and sustainability. We take seriously our role in delivering economic and efficient solutions, consistent with our commitments to all our stakeholders, including the communities we serve. We enjoy sharing our stories of how we have proactively addressed and continue to proactively address environmental issues, social, sustainability and governance matters. As ESG continues to evolve, we will be spending time on each of our upcoming earnings calls talking about our efforts across the company. There are numerous initiatives in which we are engaged that demonstrates the importance of ESG in our daily operations. As just a few examples, we participated in the New York Stock Exchange Earth Day opportunity to highlight ESG and sustainability, including our commitment to reduce emissions and provide solutions for more efficient energy use and conducting business with environmental responsibility. We continue to promote and employ environmental friendly fuels, such as compressed natural gas and our AutoGas propane for vehicles. Our newly constructed Energy Lane business center here in Delaware is certified for energy efficiency. Our Eight Flags CHP facility operates twice as efficiently as a typical plant and we displace a significant amount of coal power generation in doing so. Our corporate culture is recognized with national awards for corporate governance best practices. We have also been recognized for seven consecutive years as a top workplace by our aspiring and caring engaged employees. Our team is focused on giving back to our communities each and everyday in many meaningful ways. Thank you and I would like to turn the call back over to Jeff.

Thanks Jim. I would add one additional point to that list. We have really aggressively pursued increasing and improving our safety and compliance activities over the last several years in all of our operating areas. And one of the things, one of the manifestations, I guess, with that is the replacement of literally hundreds of miles of older gas lane, our older gas lane through our system that has had, I believe, a significant impact not only on safety, but a significant reduction in emissions. And we will continue to pursue those sorts of opportunities as we move forward. If you look on slide 18. Again, just an additional emphasis on total return to shareholders. We mentioned this earlier, but I will mention it again here in closing. Our TSR has exceeded 16% for all periods shown through April 30, 2019. And we have either exceeded or have been very close to the 75th percentile, if you compare us to our peer group. Slide 19. Just in closing, I think it's important again to emphasize the strong foundation that drives this company forward each and every day. Beginning with our track record, we know that we can build upon that track record to drive our future success. Our corporate culture is based on our strategic focus with engaged employees, seeking innovative ways to improve our business, better ways to serve customers and better ways to serve the communities that we operate in. Our team is committed to identify and develop new opportunities and initiatives with the same financial discipline that we have executed in the past and we are committed certainly to continuing to generate excellence and increasing shareholder value. I appreciate your time this morning. Beth, Jim and I would be happy to address any questions that you may have.

[Operator Instructions]. Your first question comes from the line of Tate Sullivan from Maxim Group. Your line is open. Please ask your question.

Thank you. Good morning and thanks for all the detail, in particular on Marlin, because you increased the margin guidance for margin expectation for 2019 for the business shortly after acquiring. Can you give some specific project examples either that Marlin worked for on your systems or other's pipeline systems?

Sure. We have executed several agreements with a number of LDCs, both in Florida and outside of Florida, for essentially emergency service activities or for holding projects, sub-division projects or a couple of industrial customer projects prior to a permanent pipeline being installed. Some of those, the easy ones that I can talk about off the top of my head, are the contracts that we have executed with one of our distribution affiliates for public utilities in Florida. We actually have a number of Marlin trailers, I think we are up to about eight now, deployed in the Palm Beach area in support of the development there, prior to us getting those Western Palm Beach transmission projects and service later this year. In addition to that, we have agreements with other LDCs in Florida to do essentially the same thing. We are pursuing a contract with a large LDC to support the renewable natural gas activities that I mentioned, actually moving gas from a landfill or several landfill sites to a market area either injecting that gas into a transmission pipeline, a distribution system or more interesting to us directly into a compressed natural gas vehicle fueling station, which we believe actually is a pretty interesting market segment for us trying to support both renewable natural gas activities at the source, but also then moving it to a vehicle fuel as opposed to just putting the gas back into a pipeline. There are a number of other projects. We are holding for Atlanta Gas Light for example or for Southern Company Gas, as they are now known, in Savannah, a line segment that moves gas under the Savannah River. They had someone that drove a piling 40-feet down and drove it through the middle of that distribution line. We have been there for several months now doing that work. And so there are those types of projects that are scattered around the Southeast and the mid-Atlantic. We serve an industrial customer in North Carolina that was having some gas quality issues with their current provider so we are augmenting the supply that they get in the delivery of compressed natural gas. So it's those kind of projects that we are finding.

Great. Thank you for all that. And then a second on the Delmarva energy pathway project and I think you have mentioned that potential incremental gross margin would be about $5 million once it's in service. Is that correct? And what regulatory hurdles or regulatory statements do you need from here on to get to that $5 million?

So what we have put out, Tate, at the current time, by the end of 2020, that project will have generated $4.7 million and then there's a small piece that will be coming in 2021. What we are waiting on now would be the certificate that we would be looking for from FERC. And as mentioned earlier by Jeff and Jim, our hope is that we will be in a position to have that within the third quarter at some point and then hopefully soon thereafter to begin construction.

Okay. Thank you. And last one for me. That too is on the storm recovery work in Florida. Maybe I missed it, did you give an adjusted debt to cap ratio based on the storm spending to-date?

Yes. Right now, if you look at us at the end of March and you factor out those two intermediate term loans, our equity to total capitalization would be at 49%. And that's just a little bit shy of where our target range is. But it is very close.

Okay. Thank you very much. I will get back in queue.

Thank you Tate. See you soon.

Thank you.

Your next question comes from the line of Roger Liddell from Clear Harbor Asset. Your line is open. Please ask your question.

Yes. Good morning. A question for Jim. I noted the weather impact, the negative in 2019 of the primarily in Florida about $1 million, $1.1 million negative impact on margin. And I recognize that weather vagaries are, in the long term, a negligible factor. And there is a perspective of excellent strategic and execution going on. So that's the broad perspective. But zeroing in on this point, having weather impacts just seems inconsistent with the sophistication of your regulatory approach and in turn the commissions that you report to. Is there any point in trying to exit through decoupling or any other mechanism these weather vagaries?

Hi Roger, it's Beth. I would just comment on, in Delaware for example, we have made filings to consider weather normalization and that is something that we continue to look at. Certainly it's something that we can, I think, take a look at as it relates to perhaps Florida. Although, I would also say that in Maryland, we actually have that. And so we have captured that piece of it already. So there was a little bit in Florida. In Delaware, we have got the filing there. The other piece that really kind of was strange and I tried to comment on it for the quarter was when you looked at it from a degree day perspective, really the weather didn't stand out. We actually had to look at the impact that December had in terms of coming in that cold part of December and the impact of that kind of carried over into particularly in our unregulated business, consumers really demanding more propane, even though we saw the overall quarter being on average or the same as the prior year. So that's a long winded answer, I know, to your question. But I would say, we have weather normalization in some jurisdictions. We are looking at it in others. And we will continue to look at it. In some cases, as we have been into our regulatory jurisdictions in the past, there's really been some kind of give and take as it relates to ROE versus weather normalization and we look at that and we evaluate the overall impact to the company.

Roger, this is Jeff. When I filed the weather normalization tariff for a gas company 20 years ago in Florida, it lasted two years before the commission killed it off. They have not been interested in entertaining those sorts of normalization mechanisms. On the other hand, what we have done is modify our rate design in a variety of ways in our Florida jurisdictions, especially on the natural gas side, increasing the fixed component of those rates so that the majority of the margins actually are coming in fixed charges as opposed to being associated with variable rates that would be pushed around by weather. So we have tried to come at it in a different direction. We don't have everything normalized, obviously given the adjustments that you saw the change in margins that you saw reflecting the weather differences in Florida. But we are getting close.

Okay. That's very complete, thorough, case closed. And to another question now and it's on Marlin and the particular point about Marlin being a vehicle for supporting renewable gas supplies. And I guess, I am interested in pulling apart the emergency response as in the Savannah River issue. That's a world undo itself. The renewable side, this could be a major vehicle and I think the public's mood is such that any green gas supply is going to be welcomed in the court of public opinion and well, also defending the company against criticism for a fossil. There's a great potential here. Can you flesh out in more detail the potential and is it great growth in a very minor segment or over the five, 10 year period, could this be a real engine for the whole green gas supply side?

We are, as you might imagine, trying to figure out exactly the same thing. Margins for Marlin, at this point, are forecasted based on the usual emergency service, the temporary hold service until the pipeline gets in place and some of the maintenance services that we have provided. We believe however and one of the reasons we were interested in acquiring Marlin is for this renewable gas market opportunity. The contract agreements that we are currently engaged in pursuing and I think are close to executing would set us employees, as I mentioned earlier, not to be the entity that is cleaning the gas up to pipeline quality and not necessarily to be the entity on the end-use side where we are accepting that gas into the compressor station for natural gas vehicle fueling or into a pipeline, but just in the transportation service. One of the things we believe differentiates Marlin from the handful of other folks that are trying to do the same or trying to pursue the same service is that we have the patented regulated delivery system that is either attached to the back-end of our compressor trucks or trailer or we have portable systems that we maneuver around from place-to-place that allows us with no additional construction of delivery equipment to take gas at whatever pressure is coming out of the landfill or off of the farm or wherever we are actually seeing the methane source moving into and compress it into our tube trailers and then redeliver it at whatever delivery pressure is required on the other side into a pipeline, into another CNG station, wherever it may be going. And so that pressure differential from source to site is always a tricky thing for people to deal with and you are usually building…

All right. Just as a final, pursuing that point, you focused repeatedly on pressure differential management. But what about BTU differentials?

Yes. That is an issue. For us, it is an issue for the source provider. And so we are, again not taking title to that gas and dealing with those issues, that's an issue or concern at this point in the market development at least between the source of the methane and the entity that's taking delivery of it. And so what we are attempting to do is transport obviously pipeline quality gas, but the pipeline quality gas contract agreement is essentially between the source and the site and we are just a transportation mechanism. So we are going to be sure obviously that the gas that we are receiving into our trailers is of a quality that makes sense. It's not corrosive. It's not damaging to our equipment. So we will have those contract provisions also in our transport agreements. But the primary BTU content issue for example and the ultimate chemical composition of the fuel is going to be between the source provider and the entity that's receiving the source. We are not taking title of the gas or reselling gas. We are just the virtual pipeline to get it from one place to another.

Yes. Okay. Very helpful. Good comprehensive answer. Thank you.

[Operator Instructions]. There are no further question at this time. Mr. Jeff Householder, you may continue.

Thank you very much for joining us. And we will see, I hope many of you, in Fort Lauderdale in a few days. Good morning.

This concludes today's conference call. Thank you for participating. You may now disconnect.