Chesapeake Utilities 2026 Q2 Earnings Call

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. The Safe Harbor for forward-looking statements section of our 2025 annual report on Form 10-K and in our second quarter Form 10-Q provide further 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.

The information presented today includes the appropriate disclosures in accordance with the SEC's Regulation G. The reconciliation of these non-GAAP measures to the related GAAP measures have been provided in the appendix of this presentation, in 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 we'll do so here, as highlighted on slide three. Given the impact that wildfires have caused across the country lately, today's safety moment focuses on wildfire smoke. Wildfire smoke can contain fine particles and harmful gases that can irritate the eyes and lungs, worsen asthma or heart conditions, and reduce air quality even far from the fire itself. When smoke levels are elevated, limit time outdoors, keep windows and doors closed, and use air conditioning or air purifiers as available. I'll now introduce our presenters today.

Jeff Householder, Chair of the Board, President, and Chief Executive Officer, will provide an update on this quarter's key accomplishments and our capital growth program. Jim Moriarty, Executive Vice President, General Counsel, Corporate Secretary, and Chief Policy and Risk Officer, will discuss the Florida City Gas rate case and stakeholder engagement. Jeff Sylvester, Senior Vice President and Chief Financial Officer, will discuss our financial results in more detail. With that, it's my pleasure to turn the call over to Jeff Householder.

Thank you, Lucia, and good morning, everybody. I'll start with slide five. Our growth trajectory has continued through the second quarter as we reported a 5% increase in adjusted net income, driving an 8% increase in adjusted earnings per share through the first six months of this year. In the second quarter, we generated an incremental $10 million of margin related to growth in our transmission, infrastructure, and distribution systems. We also invested $140 million of capital in the second quarter, bringing our total year-to-date investment to $262 million while continuing to advance our regulatory filings. Moving to slide six. I can continue to report another quarter of solid commercial customer growth and above-average residential customer growth, 3% in Delmarva, 2.1% for Florida Public Utilities, and 1.8% for Florida City Gas. Increasing demand for natural gas remains core to our long-term growth strategy.

We are fortunate to continue seeing above-average growth in our attractive service areas. In our Delmarva region, Spotlight Delaware states that Delaware has consistently ranked top 10 in percentage population growth during recent U.S. Census Bureau studies. We continue to see strong demand for natural gas in new apartment complexes and housing developments, as well as for large commercial and industrial customers. Complementing this, the latest study from the Florida Office of Economic and Demographic Research projects annual state population growth to average nearly 300,000 net new residents. That's like adding a city nearly the size of Orlando every year. This growth will continue to drive increased natural gas demand for years to come. Slide seven highlights the Florida Energy Pathway Project, or FEP, which we just announced last month. This project is designed to address significant transmission capacity constraints and substantial natural gas demand increases in South Florida.

FEP is a 97-mile intrastate natural gas transmission infrastructure project that will run from Palm Beach County to Miami-Dade County in Florida. This is the largest single project in our company's history, representing total investment of approximately $1.2 billion. Our subsidiary, Peninsula Pipeline Company, or PPC, will construct and operate the line and will fund and own at least 51%. We've been working with potential partners that may fund and own up to 49% of the project, and we expect to share more details soon. FEP is expected to be in service in 2030 and is anchored by multiple investment-grade shippers who've committed to nearly 250,000 decatherms per day of capacity. We are also accepting binding commitments with additional shippers. This project is a valuable long-term regulated growth opportunity for the company.

It also aligns strategically with our natural gas transportation construction expertise, above average growth expectations, and increased presence in South Florida following the FCG acquisition. Now let's shift to slide eight, which summarizes our 2026 capital program. Given our strong start to the year and increased expectations for additional capital expenditures in the second half of the year, we're increasing our full-year 2026 capital guidance by $100 million, resulting in an updated range of $550 million-$600 million. This is driven primarily by initial spending for FEP, as well as increases in regulated distribution and infrastructure investments. Slide nine shows additional detail on our transmission projects that are supporting natural gas demand in our service areas. We forecast these projects to contribute approximately $33 million of gross margin in 2026, and an additional $51 million in 2027.

The largest project on this table yet to come online is the Worcester Resiliency Upgrade, or WRU, our LNG storage facility. Slide 10 summarizes the latest updates on this project. Site and facility construction remain on schedule, and I'm pleased with our progress overall. WRU is a substantial, complex project that will deliver significant peak day service capabilities and serve natural gas expansion at the southern end of our system. We look forward to bringing the full project online early next year. I'll now shift to slide 11 to address our longer-term capital program. As we've discussed before, there are a number of expansion opportunities under development that may provide significant growth potential as we serve increasing demand across our service areas. Our Delmarva Regional Enhancement project continues to move forward, with permitting underway and construction expected to start next year.

We're also making progress with the Accomack County Exploration project as we continue to assess opportunities to serve customers on Virginia's Eastern Shore. We continue to engage with partners in the community at the Cape and Port of Canaveral to explore potential opportunities for LNG transportation and storage. Given the growth in our capital program since 2024, we now expect to exceed capital investment of $1.4 billion through the end of this year, which is nearly at the bottom end of our initial five-year capital range. As a result, we are updating that range to share that we now expect to exceed $2.2 billion of capital investment from 2024 through 2028. In addition, we recognize that the progress we're making on our investment opportunities, particularly with the announcement of FEP, will necessitate a more fulsome update of our long-term performance expectations.

Therefore, we now expect to provide the following guidance on our full-year 2026 earnings call this coming February. 2027 through 2031 capital expenditure guidance and 2027 through 2031 earnings growth rate. We believe these disclosures will reflect and support our industry-leading long-term growth opportunities that will drive stakeholder value for years to come. With that, I'll turn it to Jim.

Thank you, Jeff, and good to be with all of you today. I'll start with slide 12. Earlier this year, we filed a rate case for our Florida City Gas business, requesting a base rate adjustment of approximately $47 million and an ROE of 11.25%. This request updates our returns and includes cost recovery for a number of key areas, including technology, insurance, depreciation, and property taxes. We were pleased to have our request for $16 million of annualized interim rate adjustment approved by the Florida Commission in late July. This will generate over $6 million of increased revenue in 2026. We are thrilled that our FCG teammates and customers are part of the Chesapeake family and value the exciting opportunity to serve this growing region. We will continue to work closely with the Florida PSC staff and the Office of Public Counsel to achieve a constructive outcome.

I'll now turn to slide 13 to provide an update on our stakeholder engagement. In April, we launched Spring Impact Days, a company-wide volunteer initiative that brought employees together to continue to support the communities we serve. With more than 30 volunteer events across our service areas, Impact Days brought out our purpose-led mission to life. From environmental cleanups to serving at food banks and supporting animal shelters, walks, and builds, these days were all about connection, compassion, and community. Impact Days are set to become a tradition and cornerstone of our company's commitment to stakeholder engagement. Through the six months of the year, over 500 team members have participated in a volunteer event, and the company has contributed nearly $1 million in charitable donations, community partnerships, and sponsorships. Stakeholder engagement remains central to who we are and to our success.

We are powered by people and guided by a commitment to inclusive progress so that no one is left behind. With that, I am very pleased to turn the call to Jeff Sylvester, who will discuss our financial results in more detail.