Welcome to the Chesapeake Utilities Corporation Second Quarter 2024 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. [Operator Instructions] I would now like to turn the call over to Lucia Dempsey, Head of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. This is Lucia Dempsey, Chesapeake, Head of Investor Relations and I appreciate you joining us this morning. Today's presentation can be accessed on our website under the Investors page and events and presentations subsection. After our prepared remarks, we will open up the call for questions. On slide two, we show our typical disclaimers while I remind you that matters discussed on this conference call may include forward-looking statements that involve risks and uncertainties. Forward-looking statements and projections could differ materially from our actual results. The safe harbor for forward-looking statements section of our 2023 annual Report on form 10-K provides further information on the facts that could cause such statements to differ from our actual results. Additionally, the company evaluates its performance based on certain non-GAAP measures, including adjusted gross margin, adjusted net income and adjusted earnings per share, and the information presented today includes the appropriate disclosures in accordance with the SEC's Regulation G. A reconciliation of these non-GAAP measures to the related GAAP measures has been provided in the appendix of this presentation, our earnings release and our second quarter Form 10-Q. Here at Chesapeake Utilities, safety is our first priority. We start all meetings with a safety moment and will do so here with a safety moment on emergency preparedness as we are already in the midst of hurricane season. Our subsidiary, Florida Public Utilities, recently completed its annual hurricane preparation drill, during which our team practiced our emergency response procedures. Lessons learned in this drill have already been put to the test during Hurricane Debby earlier this week. Our customers have experienced minimal disruptions in service and we are grateful to team members across the organization who responded efficiently to keep us operating safely. SPU overall continues to show…

Thank you, Lucia. Good morning and thanks to all of you for joining our call today. I'll begin with slide five. Adjusted earnings per share this quarter was $0.86, bringing our year-to-date 2024 EPS to $2.96. Our results are well aligned with our expectations with strong contributions from our Florida City Gas and legacy operations offset by FCG operating expenses and financing costs. We generated adjusted gross margin of approximately $127 million this quarter, a 27% increase over the second quarter of last year and adjusted net income of approximately $19 million, up 19% from the same period last year. Our year-to-date earnings performance, combined with our growth expectations for the remainder of 2024 enable us to reaffirm our full year 2024 adjusted earnings per share guidance of $5.33 to $5.45. Our progress with integrating FCG, coupled with our increased level of capital projects and regulatory initiatives also enable us to reaffirm our 2025 and 2028 EPS guidance. As I'll discuss in more detail shortly, our 2024 capital growth plan remains on track, with $160 million invested in the first half of this year and $300 million to $360 million expected for full year 2024. Turning to slide six. We operate in some of the fastest growing areas of the country, which enable us to deploy sustainable capital investments to meet the needs of growing customer demand. Customer growth remains strong in both Delmarva and Florida, with each area seeing a 3.7% increase in residential customers in the second quarter of this year relative to the same period last year. We expect strong population growth to continue in our service areas. In spite of increased interest rates, we are regularly executing contracts with builders and developers for gas service to new residential developments. Customers are looking for gas service in…

Thanks Jeff, and good morning, everyone. It is great to be with you today. Our financial results, as shown on slide 12, demonstrate another successful quarter with adjusted gross margin of approximately $127 million, up 27% from the second quarter of last year, driven by the addition of Florida City Gas as well as solid performance across all of our businesses. Operating income for the quarter increased 44% to approximately $41 million, reflecting effective cost management initiatives that added to the strong adjusted gross margin growth. Excluding transaction and transition related expenses, operating income was up approximately $14 million, or 49%, when compared with the second quarter of last year. As a result of our continued business integration, optimization and collaboration efforts, we drove much of this operating income to the bottom line, with adjusted net income up 19% to approximately $19 million for the quarter and up 26% to approximately $66 million for the first half of 2024 compared with the same periods in 2023. I'll now turn to slide 13 and highlight some of the key drivers of our second quarter adjusted earnings per share of $0.86. Our Florida City Gas operations contributed $0.77 in adjusted EPS, reflecting strong customer growth and seasonally consistent natural gas demand. Our legacy natural gas growth, infrastructure and transmission operations generated $0.13 of incremental EPS this quarter as we continue to see consistently strong customer demand for natural gas and incremental earnings from our capital investments placed into service in the last year. These gains were offset by a few factors, including $0.33 of operating expenses related to Florida City Gas, $0.11 of increased expenses related to payroll and related costs, insurance, depreciation and amortization, and property taxes, and approximately $0.50 related to financing the Florida City Gas acquisition. Moving to slide…

Thank you, Beth, and good morning, everyone. As Jeff discussed earlier, a proactive regulatory agenda is our second fundamental growth driver and I would like to share several updates in this area. Starting with slide 20, we now have 11 projects representing over $150 million of capital that have been approved since the fourth quarter of last year, demonstrating strong regulatory support for meeting customer needs through natural gas infrastructure expansions. Last month, the Florida PSC approved three new renewable gas transmission projects in Florida's Indian River, Brevard and Miami-Dade counties. In addition to supporting energy sustainability, these RNG projects increase gas supply and strengthen system reliability and flexibility for these growing communities. Construction also continues on schedule for our other recently approved transmission expansion projects, including buildouts for new and growing Florida communities in Wildlife, Boynton Beach, New Smyrna Beach, Lake Mattie, Plant City and St. Cloud. Slide 21 provides an update on a project designed to support growth and resiliency in the Delmarva region, our Eastern Shore Worcester Resiliency Upgrade, or WRU, which is a liquefied natural gas storage project in Maryland. This $80 million project consists of five low profile storage tanks that can hold up to 500,000 gallons of LNG. WRU will provide critical energy service to customers during the peak winter/heating season and will protect against weather related disruptions, keeping energy prices affordable so that no one is left behind. We are anticipating FERC approval by the end of 2024 and remain on track for construction to begin in the first quarter of 2025 for an in-service date in the third quarter of 2025. Our infrastructure programs detailed on slide 22 are an important part of our service offerings and growth strategy, particularly as they are supported by regulatory mechanisms that ensure timely cost recovery.…

Thanks, Jim. This year is a critical transition for us as we execute on integrating FCG, achieving our 2024 EPS and capital guidance, advancing the organization forward on multiple fronts to achieve the significant growth embedded in our 2025 EPS guidance, and making significant customer focused capital investments to support our long-term growth plan. I'm very pleased with our progress in these areas, including delivering financial results that remain in line with our full year expectations and represent top quartile earnings performance. Recently, we've been described as small, but mighty by the financial community, and I think that description is accurate. Whether we are executing on and integrating acquisitions, achieving top quartile financial results, or advancing customer focused investments, we're proud of our track record of delivering results and are focused on maintaining that record in the future. Chesapeake continues to be a special place to work and remains a unique investment opportunity marked by a significant track record of superior performance, strong opportunities for growth, and top quartile long-term shareholder returns. With that, we'll take your questions. Operator?

Thank you. The floor is now open for questions. [Operator Instructions] Thank you. Our first question will come from Paul Fremont with Ladenburg. Please go ahead.

Great, thanks and congratulations on a good quarter. I guess, my first question relates to sort of the RNG investments, including -- maybe starting with the Full Circle Dairy. Is the RNG project itself owned by Chesapeake, or who is that owned by?

Good morning. This is Jeff. Yes, we are owning and operating through contract, the Full Circle Dairy facility.

Okay. And is that a regulated investment, or does that fall under sort of the non-regulated category?

It's a non-regulated investment at this point. We actually own that facility through a subsidiary of one of our regulated utilities in Florida. And we are pursuing, as you may know, a variety of tariff adjustments and potentially at some point some legislative action that would allow us to move that facility into the regulated utility. And so, we'll see. We don't -- obviously, we don't own the dairy farm or the cows, but we just have the digester and the lagoon and the operating facility that's processing the biogas and RNG.

So, I would assume that project is going to be eligible for 45Z tax credits. Is that something that you would expect to realize over the course of the next three years?

We would. Beth, you want to jump in on that one, yes.

That's correct. We would. That's something by us getting it constructed in the timeframe that we did, we would have that tax. Yeah.

And is there sort of any estimate on sort of a contribution that you would expect from those tax credits?

We can put that out. We've not disclosed that to date. This isn't a huge project overall, but we can come back to you, Paul, with that information.

And then the other three that you talked about, which I think are landfill projects in Florida, those are within the regulated utility.

Those are -- and again, we don't own the landfill, obviously, and we don't own the gas processing equipment even in these particular examples. What we are doing is providing the pipeline connection between the RNG processor and our distribution facilities. And in this particular case, these particular cases, all that's being done through our Peninsula pipeline transmission business, the intrastate pipe business that we own in Florida, that we are moving that gas from the processor through Peninsula pipeline into our distribution facilities.

And so, Paul, what Jeff says, you can think about this not dissimilarly to what we did with the project in Ohio with a fire where we picked up gas at a landfill and we actually moved it through a fire system. That's the same thing Peninsula pipeline is going to do with these projects.

Great. And then my last question, I think, has to do with, you're at a 48% equity ratio now. What -- how should we think about the timing to get to your targeted 50%?

We are looking to do that over the next year to year and a half to move back there. Certainly, we will look at the market. We've been monitoring that relative to interest rates and where our equity is in regards to kind of the market valuation. So, you could see us move a little quicker, a little slower, but certainly we're making strides. Our initial forecast coming out of the transaction, we didn't expect to be moving, as quickly as we have already being at 48% six months after the transaction. So, you'll consider -- you'll still see us move pretty quickly as long as the market cooperates.

Great. Thank you so much.

Thank you.

Thank you.

[Operator Instructions] We will take our next question from Tate Sullivan with Maxim Group. Please go ahead.

Hi. Thanks, Jeff. Following up on the renewable natural gas supply projects, I mean, in the adjusted gross margin table for '25, estimating $5.5 million incremental contributions. So, are all three of those projects in Florida City Gas territory, and are these the first RNG projects in those service -- in FCG's service territory?

They all are in Florida City Gas service territory. And I believe they are the first renewable natural gas connections that FCG is doing.

And there's no existing processing equipment at the landfills. And is the project timeline for all three, roughly a year or so, based on approval?

There are no processing facilities that would convert the biogas into renewable natural gas with a standard that would meet our requirements for pipeline injection. At this point, they're in the process. These are three independent processing companies that are engaged in this, and they are in the process of building those facilities. And they probably do, come on. I can get you the exact dates, but they are, give or take about a year out. We'll probably have some of the pipeline facilities in place a little before then?

And then also all three involve supply pipeline extensions to the landfills themselves, is that correct?

That's correct. We're building those, as I mentioned, through our Peninsula pipeline intrastate transmission business in Florida, and they'll interconnect from the processor at the landfill back into the FCG distribution system.

Is this quite a scalable opportunity in Florida? I mean, was the regulator -- regulating body receptive to these projects? I mean, it seems like it could be duplicated across landfills.

Yes. I mean, we will certainly look at that. The regulator did approve the three pipeline expansions on PPC serving into our affiliate FCG. And any time we can find that kind of a situation and the economics make sense on the pipeline expansion, then we're certainly up for that. And we have other opportunities, I think, to engage our Marlin CNG business in transporting that gas if it doesn't make economic sense to build a pipeline.

Great. Very impressive. Okay. Thank you very much.

Thank you. There are no further questions at this time. I'll turn the call back over to Jeff Householder for any closing remarks. End of Q&A:

Thank you. We appreciate you joining us this morning, and we certainly appreciate your continued interest in Chesapeake Utilities. And we'll speak with you soon. Goodbye.

Thank you. And this concludes Chesapeake Utilities Corporation's second quarter 2024 earnings conference call. Please disconnect your line at this time and have a wonderful day.