Chesapeake Utilities Corporation Q3 FY2025 earnings call

• Safety: First priority, starting meetings with safety moments, highlighting kitchen and fire safety during holidays. - Jeff Householder: Update on quarter's key accomplishments and highlights, full year guidance metrics, capital growth program; year-to-date double-digit growth in adjusted gross margin, operating income and adjusted net income; reaffirmed full year 2025 EPS guidance; increased 2025 full year capital expenditure guidance; customer demand for natural gas driving strategic investment, with core service areas having above-average residential customer growth; examples of natural gas distribution build-outs in Delaware and Florida, propane distribution expansion in North Carolina, and Ohio opportunities. - Jim Moriarty: Update on regulatory activity, with permanent rates in effect for Delaware, Maryland and Florida electric jurisdictions; remaining regulatory filing for Florida City Gas depreciation study with updated schedule; business transformation efforts, including upskilling team, final preparation of enterprise resource critical project; stakeholder engagement, new board member, recognitions, and employee volunteer and charitable activities. - Beth Cooper: Discussion of financial results, key drivers of third quarter performance including demand for natural gas, margin from infrastructure program investments, permanent rates, unregulated businesses, and impact of factors like depreciation, operating expenses, cooling degree days, financing activity, and billing accruals; review of capital structure and financing activities, dividend policy, and alignment of third quarter results with full year 2025 adjusted EPS guidance.

For the third quarter of 2025, adjusted earnings per share was $0.82, with year-to-date at $4.06, an 8% increase over the same period last year. Adjusted gross margin was approximately $137 million, up 12% from the third quarter of 2024, and adjusted net income was approximately $20 million, up 8% from the third quarter of 2024. The Regulated segment had adjusted gross margin of approximately $115 million this quarter, up 12% from the third quarter of last year, with regulated operating income up 11% to approximately $49 million. The unregulated Energy segment had adjusted gross margin up 13% to approximately $22.5 million. Revenue contribution % details weren't explicitly given for each segment in absolute terms but the financial performance in terms of margins and earnings per share were highlighted.

• Reaffirmed full year 2025 EPS guidance of $6.15 to $6.35 per share. - Increased 2025 full year capital expenditure guidance to $425 million to $450 million, a $25 million increase over the top end of prior range. - Core service areas had above-average residential customer growth: 4.3% in Delmarva, 3.9% for Florida Public Utilities and 2.1% for Florida City Gas. - 5-year capital investment plan of $1.5 billion to $1.8 billion through 2028, with at least $1.4 billion identified, and approximately 70% of investment requiring no additional regulatory approval or support.

• Uncertainty regarding the Florida City Gas depreciation study proceeding. If the outcome is not as expected, it could impact the full year EPS guidance range. - Potential delays or unfavorable outcomes in regulatory proceedings which could affect the company's financial performance and growth plans.

Q: This is Nick Campanella. So I wanted to ask on the depreciation study. Just you kind of show in slides that the decision could be anywhere from December to February. I think you're very clear that this is included in guidance. Just ability to kind of overcome that if you do get a decision, let's say, in January or February? Are you still able to kind of hit the range? Or is it fully predicated on that outcome? And then how would you kind of quantify what's in fiscal '25?

A: So we have -- Nick, as we've talked about previously, achieving the guidance range would assume that we do get a successful outcome from that proceeding. And where we actually fall within the range will ultimately be based on where that outcome is, meaning when you look at -- we have filed for a 2-year amortization period. The standard is 5 years. So that will come into play. But as long as there is an outcome from the proceeding from the hearing in December, and we get a final order in time to be able to record it for 2025, that will determine ultimately the timing of the period as well as the amount that would enable us to achieve the guidance range.

Q: First to follow up on a comment from earlier in the call. Jeff, did you say that you had 400 new distribution projects in service in the last 9 months? Or did I mishear that? And if I did not, what does that -- what qualifies as an individual project, please?

A: Yes, that's sure. Those are of a variety of different sizes. It is 400, just to give you some idea of the significant number of projects that we are moving forward on. Those range from distribution level subdivision projects up into some of the transmission work that we do. So it really is just a compilation of the construction activity that's going on throughout the company. And it's a substantial increase over what we would typically see. And so some of that's reflective of the fact that we now have Florida City Gas in the fold and are doing construction activity on that system. And some of it continues to reflect the very substantial growth, especially in residential projects that we see both in Delmarva and in Florida.

Q: I guess my first question, Beth, just to clarify, is the cutoff date for a Retroactive treatment of the amortization of the depreciation reserve, is that December 31? Or is that -- is it a different date?

A: So basically, Paul, as long as we would have an order that would be in the first week or 2 in February, we would be able -- because it would be a subsequent event and the magnitude of that subsequent event, it could be factored into our 2025 earnings.

Q: Maybe just a question just thinking about the -- maybe the year-end earnings call. Has there been just any kind of change in thinking about what the roll forward, what updates you may end up giving on the CapEx plan? I know there's some discussion just about rolling in some of the projects that were talked a little bit about earlier on the call as well as the, I guess, the ERP or business transformation investments. But do you still consider planning on just keeping kind of the '28 long-term target? Or is there a sense maybe you want to do a more kind of full roll forward?

A: Thank you. Great question, Alex. So number one, I think right now, we happen to be in the process where we're working on and finalizing our 2026 budget. And that certainly, that is inclusive of our capital projects. And as we start the year, we have a really good sense and even years prior to that as we're moving through looking at the 5 years, it's a constant updating of CapEx guidance as we're looking at it. So as I think about February, what you will definitely see is you will see us come out with our projection of our capital spend for the year that will be reflective of an updated estimate for our ERP process and plan. And so I think that will be something new that we will include. Our expectation right now is that we will continue to hold to the $1.5 billion to $1.8 billion through 2028. And there is some likelihood in February of 2027 that we will revisit that and decide whether there's just an update or whether there's an extension of guidance from there. But most likely, we don't think it will be next year, but it will likely be the following year.