CHESAPEAKE UTILITIES CORPORATION REPORTS THIRD QUARTER 2024 RESULTS
-- Net income and earnings per share ("EPS")* were $17.5 million and $0.78,
respectively, for the third quarter of 2024, and $81.9 million and
$3.66, respectively, for the nine months ended September 30, 2024
-- Adjusted net income and Adjusted EPS**, which exclude transaction and
transition-related expenses attributable to the acquisition and
integration of Florida City Gas ("FCG"), were $18.1 million and $0.80,
respectively, for the third quarter of 2024 and $84.2 million and $3.76,
respectively, for the nine months ended September 30, 2024
-- Adjusted gross margin** growth of $89.3 million during the first nine
months of 2024 driven by contributions from FCG, regulatory initiatives
and infrastructure programs, natural gas organic growth, continued
pipeline expansion projects, and additional customer consumption
-- Results continue to track in line with Management's expectations, and
the Company continues to affirm 2024 EPS and capital guidance
DOVER, Del., Nov. 7, 2024 /PRNewswire/ -- Chesapeake Utilities Corporation (NYSE: CPK) ("Chesapeake Utilities" or the "Company") today announced financial results for the three and nine months ended September 30, 2024.
Net income for the third quarter of 2024 was $17.5 million ($0.78 per share) compared to $9.4 million ($0.53 per share) in the third quarter of 2023. Excluding transaction and transition-related expenses associated with the fourth quarter 2023 acquisition of FCG, adjusted net income was $18.1 million ($0.80 per share) or approximately 16 percent higher per share compared to the prior-year period.
The higher results for the third quarter of 2024 were largely attributable to incremental contributions from FCG, additional margin from regulated infrastructure programs, continued pipeline expansion projects to support distribution growth, growth in the Company's natural gas distribution businesses and increased levels of virtual pipeline services. The financing impacts of the FCG acquisition, including increased interest expense related to debt issued and additional shares outstanding, partially offset the increases.
During the first nine months of 2024, net income was $81.9 million ($3.66 per share) compared to $61.9 million ($3.47 per share) in the prior-year period. Excluding the transaction and transition-related expenses, adjusted net income was $84.2 million ($3.76 per share) compared to $64.8 million ($3.63 per share) for the same period in 2023.
Year-to-date earnings for 2024 were primarily impacted by the factors discussed for the third quarter as well as additional adjusted gross margin from increased customer consumption experienced earlier in the year and contributions from the Company's unregulated businesses.
"Chesapeake Utilities delivered strong financial performance and sustained operational excellence in the third quarter as we continued to execute on the three pillars that drive long-term earnings growth and shareholder value: prudently deploying record levels of capital, proactively advancing our regulatory agenda and continually executing on business transformation," said Jeff Householder, chair, president and CEO. "In the third quarter alone, we invested nearly $100 million in capital expenditures, filed for rate increases in Delaware and in Florida for our electric operations and successfully implemented our new enterprise-wide customer billing system."
"In the third quarter of 2024, adjusted earnings per share was up 16 percent relative to the same period in 2023, attributable to adjusted gross margin growth of close to 30 percent and continued cost management driven by our business transformation efforts and focus on a "one company" approach. Some of the larger margin drivers include the addition of FCG, which we continue to effectively integrate, strong customer growth of approximately 4 percent in both Delmarva and Florida, incremental margin related to transmission expansions and increased virtual pipeline services and depreciation savings related to regulatory initiatives," continued Householder. "I'm proud of our teammates' consistent dedication to prioritizing service and safety to deliver performance in line with our expectations. This commitment enables us to affirm our full-year 2024 adjusted EPS and capital guidance."
Earnings and Capital Investment Guidance
The Company continues to affirm its 2024 EPS guidance of $5.33 to $5.45 in adjusted earnings per share given the incremental margin opportunities present across the Company's businesses, investment opportunities within and surrounding FCG, regulatory initiatives and operating synergies.
The Company also affirms its previously-announced 2024 capital expenditure guidance of $300 million to $360 million, as well as the capital expenditure guidance for the five-year period ended 2028 that will range from $1.5 billion to $1.8 billion. This investment forecast is projected to result in a 2025 EPS guidance range of $6.15 to $6.35, as well as a 2028 EPS guidance range of $7.75 to $8.00. This implies an EPS growth rate of approximately 8 percent from the 2025 EPS guidance range.
*Unless otherwise noted, EPS and Adjusted EPS information are presented on a diluted basis.
Non-GAAP Financial Measures
**This press release including the tables herein, include references to both Generally Accepted Accounting Principles ("GAAP") and non-GAAP financial measures, including Adjusted Gross Margin, Adjusted Net Income and Adjusted EPS. A "non-GAAP financial measure" is generally defined as a numerical measure of a company's historical or future performance that includes or excludes amounts, or that is subject to adjustments, so as to be different from the most directly comparable measure calculated or presented in accordance with GAAP. Our management believes certain non-GAAP financial measures, when considered together with GAAP financial measures, provide information that is useful to investors in understanding period-over-period operating results separate and apart from items that may, or could, have a disproportionately positive or negative impact on results in any particular period.
The Company calculates Adjusted Gross Margin by deducting the purchased cost of natural gas, propane and electricity and the cost of labor spent on direct revenue-producing activities from operating revenues. The costs included in Adjusted Gross Margin exclude depreciation and amortization and certain costs presented in operations and maintenance expenses in accordance with regulatory requirements. The Company calculates Adjusted Net Income and Adjusted EPS by deducting costs and expenses associated with significant acquisitions that may affect the comparison of period-over-period results. These non-GAAP financial measures are not in accordance with, or an alternative to, GAAP and should be considered in addition to, and not as a substitute for, the comparable GAAP measures. The Company believes that these non-GAAP measures are useful and meaningful to investors as a basis for making investment decisions, and provide investors with information that demonstrates the profitability achieved by the Company under allowed rates for regulated energy operations and under the Company's competitive pricing structures for unregulated energy operations. The Company's management uses these non-GAAP financial measures in assessing a business unit and Company performance. Other companies may calculate these non-GAAP financial measures in a different manner.
The following tables reconcile Gross Margin, Net Income, and EPS, all as defined under GAAP, to our non-GAAP measures of Adjusted Gross Margin, Adjusted Net Income and Adjusted EPS for each of the periods presented.
Adjusted Gross Margin
For the Three Months Ended September 30, 2024
(in thousands) Regulated Unregulated Other and Total
Energy Energy Eliminations
Operating Revenues $130,633 $35,567 $(6,062) $160,138
Cost of Sales:
Natural gas, propane and electric costs (28,366) (15,868) 6,033 (38,201)
Depreciation & amortization (12,301) (4,553) 3 (16,851)
Operations & maintenance expenses (1) (10,722) (8,058) (18,780)
Gross Margin (GAAP) 79,244 7,088 (26) 86,306
Operations & maintenance expenses (1) 10,722 8,058 18,780
Depreciation & amortization 12,301 4,553 (3) 16,851
Adjusted Gross Margin (Non-GAAP) $102,267 $19,699 $(29) $121,937
For the Three Months Ended September 30, 2023
(in thousands) Regulated Unregulated Other and Total
Energy Energy Eliminations
Operating Revenues $102,411 $34,970 $(5,834) $131,547
Cost of Sales:
Natural gas, propane and electric costs (26,518) (16,381) 5,805 (37,094)
Depreciation & amortization (13,192) (4,420) 2 (17,610)
Operations & maintenance expenses (1) (4,819) (7,532) (382) (12,733)
Gross Margin (GAAP) 57,882 6,637 (409) 64,110
Operations & maintenance expenses (1) 4,819 7,532 382 12,733
Depreciation & amortization 13,192 4,420 (2) 17,610
Adjusted Gross Margin (Non-GAAP) $75,893 $18,589 $(29) $94,453
For the Nine Months Ended September 30, 2024
(in thousands) Regulated Unregulated Other and Total
Energy Energy Eliminations
Operating Revenues $429,684 $160,089 $(17,619) $572,154
Cost of Sales:
Natural gas, propane and electric costs (105,662) (70,928) 17,532 (159,058)
Depreciation & amortization (39,495) (12,257) 8 (51,744)
Operations & maintenance expenses (1) (35,713) (24,373) 1 (60,085)
Gross Margin (GAAP) 248,814 52,531 (78) 301,267
Operations & maintenance expenses (1) 35,713 24,373 (1) 60,085
Depreciation & amortization 39,495 12,257 (8) 51,744
Adjusted Gross Margin (Non-GAAP) $324,022 $89,161 $(87) $413,096
For the Nine Months Ended September 30, 2023
(in thousands) Regulated Unregulated Other and Total
Energy Energy Eliminations
Operating Revenues $345,822 $158,886 $(19,439) $485,269
Cost of Sales:
Natural gas, propane and electric costs (105,692) (75,068) 19,282 (161,478)
Depreciation & amortization (39,179) (12,923) 6 (52,096)
Operations & maintenance expenses (1) (23,346) (23,528) (377) (47,251)
Gross Margin (GAAP) 177,605 47,367 (528) 224,444
Operations & maintenance expenses (1) 23,346 23,528 377 47,251
Depreciation & amortization 39,179 12,923 (6) 52,096
Adjusted Gross Margin (Non-GAAP) $240,130 $83,818 $(157) $323,791
(1)
Operations & maintenance expenses within the condensed consolidated statements of income are presented in accordance with regulatory requirements and to provide comparability within the industry. Operations & maintenance expenses which are deemed to be directly attributable to revenue producing activities have been separately presented above in order to calculate Gross Margin as defined under US GAAP.
Adjusted Net Income and Adjusted EPS
Three Months Ended
September 30,
(in thousands, except per share data) 2024 2023
Net Income (GAAP) $17,507 $9,407
FCG transaction and transition-related expenses, net (1) 593 2,804
Adjusted Net Income (Non-GAAP) $18,100 $12,211
Weighted average common shares outstanding - diluted (2) 22,564 17,858
Earnings Per Share - Diluted (GAAP) $0.78 $0.53
FCG transaction and transition-related expenses, net (1) 0.02 0.16
Adjusted Earnings Per Share - Diluted (Non-GAAP) $0.80 $0.69
Nine Months Ended
September 30,
(in thousands, except per share data) 2024 2023
Net Income (GAAP) $81,946 $61,884
FCG transaction and transition-related expenses, net (1) 2,276 2,898
Adjusted Net Income (Non-GAAP) $84,222 $64,782
Weighted average common shares outstanding - diluted (2) 22,402 17,847
Earnings Per Share - Diluted (GAAP) $3.66 $3.47
FCG transaction and transition-related expenses, net (1) 0.10 0.16
Adjusted Earnings Per Share - Diluted (Non-GAAP) $3.76 $3.63
(1)
Transaction and transition-related expenses represent costs incurred attributable to the acquisition and integration of FCG including, but not limited to, transaction costs, transition services, consulting, system integration, rebranding and legal fees.
(2)
Weighted average shares for the three and nine months ended September 30, 2024 reflect the impact of 4.4 million common shares issued in November 2023 in connection with the acquisition of FCG.
Operating Results for the Quarters Ended September 30, 2024 and 2023
Consolidated Results
Three Months Ended
September 30,
(in thousands) 2024 2023 Change Percent
Change
Adjusted gross margin** $121,937 $94,453 $27,484 29.1 %
Depreciation, amortization and property taxes 24,998 23,800 1,198 5.0 %
FCG transaction and transition-related expenses 819 3,899 (3,080) (79.0) %
Other operating expenses 55,202 46,526 8,676 18.6 %
Operating income $40,918 $20,228 $20,690 102.3 %
Operating income for the third quarter of 2024 was $40.9 million, an increase of $20.7 million compared to the same period in 2023. Excluding transaction and transition-related expenses associated with the acquisition and integration of FCG, operating income increased $17.6 million or 73.0 percent compared to the prior-year period. An increase in adjusted gross margin in the third quarter of 2024 was driven by contributions from the acquisition of FCG, incremental margin from regulated infrastructure programs, continued pipeline expansion projects, increased demand for virtual pipeline services and natural gas organic growth. Higher operating expenses were driven largely by the operating expenses of FCG and increased payroll, benefits and other employee-related expenses compared to the prior-year period. Increases in depreciation, amortization and property taxes attributable to growth projects and FCG were partially offset by a $3.2 million reserve surplus amortization mechanism ("RSAM") adjustment from FCG and lower depreciation from our electric operations and Maryland natural gas division due to revised rates from approved depreciation studies.
Regulated Energy Segment
Three Months Ended
September 30,
(in thousands) 2024 2023 Change Percent
Change
Adjusted gross margin** $102,267 $75,893 $26,374 34.8 %
Depreciation, amortization and property taxes 19,853 18,891 962 5.1 %
FCG transaction and transition-related expenses 819 3,899 (3,080) (79.0) %
Other operating expenses 37,660 28,191 9,469 33.6 %
Operating income $43,935 $24,912 $19,023 76.4 %
The key components of the increase in adjusted gross margin** are shown below:
(in thousands)
Contribution from FCG $23,399
Margin from regulated infrastructure programs 1,806
Natural gas transmission service expansions, including interim services 1,548
Natural gas growth including conversions (excluding service expansions) 1,013
Changes in customer consumption (361)
Other variances (1,031)
Quarter-over-quarter increase in adjusted gross margin** $26,374
The major components of the increase in other operating expenses are as follows:
(in thousands)
FCG operating expenses $7,476
Payroll, benefits and other employee-related expenses 1,223
Insurance related costs 222
Other variances 548
Quarter-over-quarter increase in other operating expenses $9,469
Unregulated Energy Segment
Three Months Ended
September 30,
(in thousands) 2024 2023 Change Percent
Change
Adjusted gross margin** $19,699 $18,589 $1,110 6.0 %
Depreciation, amortization and property taxes 5,144 4,902 242 4.9 %
Other operating expenses 17,616 18,410 (794) (4.3) %
Operating loss $(3,061) $(4,723) $1,662 35.2 %
Operating results for the second and third quarters historically have been lower due to reduced customer demand during warmer periods of the year. The impact to operating income may not align with the seasonal variations in adjusted gross margin as many of the operating expenses are recognized ratably over the course of the year.
The major components of the increase in adjusted gross margin** are shown below:
(in thousands)
Propane Operations
---
Contributions from acquisition $135
CNG/RNG/LNG Transportation and Infrastructure
---
Increased level of virtual pipeline services 1,098
Other variances (123)
Quarter-over-quarter increase in adjusted gross margin** $1,110
The major components of the decrease in other operating expenses are as follows:
(in thousands)
Payroll, benefits and other employee-related expenses $(515)
Other variances (279)
Quarter-over-quarter decrease in other operating expenses $(794)
Operating Results for the Nine Months Ended September 30, 2024 and 2023
Consolidated Results
Nine Months Ended
September 30,
(in thousands) 2024 2023 Change Percent
Change
Adjusted gross margin** $413,096 $323,791 $89,305 27.6 %
Depreciation, amortization and property taxes 77,811 70,918 6,893 9.7 %
FCG transaction and transition-related expenses 3,114 3,899 (785) (20.1) %
Other operating expenses 170,878 145,486 25,392 17.5 %
Operating income $161,293 $103,488 $57,805 55.9 %
Operating income for the first nine months of 2024 was $161.3 million, an increase of $57.8 million compared to the same period in 2023. Excluding transaction and transition-related expenses associated with the acquisition and integration of FCG, operating income increased $57.0 million or 53.1 percent compared to the prior-year period. An increase in adjusted gross margin in the first nine months of 2024 was driven by contributions from the acquisition of FCG, incremental margin from regulatory initiatives, natural gas organic growth and continued pipeline expansion projects, higher customer consumption and increased margins from the Company's unregulated businesses. Higher operating expenses during the current period were driven largely by the operating expenses of FCG and increased insurance costs. These increases were partially offset by lower payroll, benefits and other employee-related expenses compared to the prior-year period. Increases in depreciation, amortization and property taxes attributable to growth projects and FCG were partially offset by an $8.9 million RSAM adjustment from FCG and lower depreciation from our electric operations and Maryland natural gas division due to revised rates from approved depreciation studies.
Regulated Energy Segment
Nine Months Ended
September 30,
(in thousands) 2024 2023 Change Percent
Change
Adjusted gross margin** $324,022 $240,130 $83,892 34.9 %
Depreciation, amortization and property taxes 63,671 56,415 7,256 12.9 %
FCG transaction and transition-related expenses 3,114 3,899 (785) (20.1) %
Other operating expenses 114,688 87,988 26,700 30.3 %
Operating income $142,549 $91,828 $50,721 55.2 %
The key components of the increase in adjusted gross margin** are shown below:
(in thousands)
Contribution from FCG $71,725
Margin from regulated infrastructure programs 4,424
Natural gas growth including conversions (excluding service expansions) 4,182
Natural gas transmission service expansions, including interim services 3,702
Rate changes associated with the Florida natural gas base rate proceeding (1) 1,630
Eastern Shore contracted rate adjustments (238)
Other variances (1,533)
Period-over-period increase in adjusted gross margin** $83,892
(1) Includes adjusted gross margin contributions from permanent base rates that became effective in March 2023.
The major components of the increase in other operating expenses are as follows:
(in thousands)
FCG operating expenses $25,363
Facilities, maintenance costs and outside services 677
Insurance related costs 651
Other variances 9
Period-over-period increase in other operating expenses $26,700
Unregulated Energy Segment
Nine Months Ended
September 30,
(in thousands) 2024 2023 Change Percent
Change
Adjusted gross margin** $89,161 $83,818 $5,343 6.4 %
Depreciation, amortization and property taxes 14,142 14,500 (358) (2.5) %
Other operating expenses 56,413 57,789 (1,376) (2.4) %
Operating income $18,606 $11,529 $7,077 61.4 %
The major components of the change in adjusted gross margin** are shown below:
(in thousands)
Propane Operations
---
Increased propane customer consumption $1,261
Contributions from acquisition 733
Increased propane margins and service fees 521
CNG/RNG/LNG Transportation and Infrastructure
---
Increased level of virtual pipeline services 1,585
Aspire Energy
---
Increased margins - rate changes and gathering fees 1,267
Other variances (24)
Period-over-period increase in adjusted gross margin** $5,343
The major components of the decrease in other operating expenses are as follows:
(in thousands)
Vehicle expenses $575
Insurance related costs 456
Payroll, benefits and other employee-related expenses (1,598)
Facilities, maintenance costs, and outside services (631)
Other variances (178)
Period-over-period decrease in other operating expenses $(1,376)
Forward-Looking Statements
Matters included in this release may include forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those in the forward-looking statements. Please refer to the Safe Harbor for Forward-Looking Statements in the Company's 2023 Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the third quarter of 2024 for further information on the risks and uncertainties related to the Company's forward-looking statements.
Conference Call
Chesapeake Utilities (NYSE: CPK) will host a conference call on Friday, November 8, 2024 at 8:30 a.m. Eastern Time to discuss the Company's financial results for the three and nine months ended September 30, 2024. To listen to the Company's conference call via live webcast, please visit the Events & Presentations section of the Investors page on www.chpk.com. For investors and analysts that wish to participate by phone for the question and answer portion of the call, please use the following dial-in information:
Toll-free: 800.245.3074
International: 203.518.9765
Conference ID: CPKQ324
A replay of the presentation will be made available on the previously noted website following the conclusion of the call.
About Chesapeake Utilities Corporation
Chesapeake Utilities Corporation is a diversified energy delivery company, listed on the New York Stock Exchange. Chesapeake Utilities Corporation offers sustainable energy solutions through its natural gas transmission and distribution, electricity generation and distribution, propane gas distribution, mobile compressed natural gas utility services and solutions, and other businesses.
Please note that Chesapeake Utilities Corporation is not affiliated with Chesapeake Energy, an oil and natural gas exploration company headquartered in Oklahoma City, Oklahoma.
For more information, contact:
Beth W. Cooper
Executive Vice President, Chief Financial Officer, Treasurer and Assistant Corporate Secretary
302.734.6022
Michael D. Galtman
Senior Vice President and Chief Accounting Officer
302.217.7036
Lucia M. Dempsey
Head of Investor Relations
347.804.9067
Financial Summary
(in thousands, except per-share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2024 2023 2024 2023
Adjusted Gross Margin
Regulated Energy segment $102,267 $75,893 $324,022 $240,130
Unregulated Energy segment 19,699 18,589 89,161 83,818
Other businesses and eliminations (29) (29) (87) (157)
Total Adjusted Gross Margin** $121,937 $94,453 $413,096 $323,791
Operating Income (Loss)
Regulated Energy segment $43,935 $24,912 $142,549 $91,828
Unregulated Energy segment (3,061) (4,723) 18,606 11,529
Other businesses and eliminations 44 39 138 131
Total Operating Income 40,918 20,228 161,293 103,488
Other income (expense), net 400 (72) 1,705 1,036
Interest charges 17,022 7,076 50,861 21,272
Income Before Income Taxes 24,296 13,080 112,137 83,252
Income taxes 6,789 3,673 30,191 21,368
Net Income $17,507 $9,407 $81,946 $61,884
Weighted Average Common Shares Outstanding: (1)
Basic 22,501 17,797 22,346 17,784
Diluted 22,564 17,858 22,402 17,847
Earnings Per Share of Common Stock
Basic $0.78 $0.53 $3.67 $3.48
Diluted $0.78 $0.53 $3.66 $3.47
Adjusted Net Income and Adjusted Earnings Per Share
Net Income (GAAP) $17,507 $9,407 $81,946 $61,884
FCG transaction and transition-related-expenses, net (2) 593 2,804 2,276 2,898
Adjusted Net Income (Non-GAAP)** $18,100 $12,211 $84,222 $64,782
Earnings Per Share - Diluted (GAAP) $0.78 $0.53 $3.66 $3.47
FCG transaction and transition-related-expenses, net (2) 0.02 0.16 0.10 0.16
Adjusted Earnings Per Share - Diluted (Non-GAAP)** $0.80 $0.69 $3.76 $3.63
(1) Weighted average shares for the three and nine months ended September 30, 2024 reflect the impact of 4.4 million common shares issued in November 2023 in connection with the acquisition of FCG.
(2) Transaction and transition-related expenses represent costs incurred attributable to the acquisition and integration of FCG including, but not limited to, transaction costs, transition services, consulting, system integration, rebranding and legal fees.
Financial Summary Highlights
Key variances between the third quarter of 2023 and 2024 included:
(in thousands, except per share data) Pre-tax Net Earnings
Income Income Per Share
Third Quarter of 2023 Adjusted Results** $16,979 $12,211 $0.69
Increased Adjusted Gross Margins:
Contributions from acquisitions 23,534 16,958 0.75
Margin from regulated infrastructure programs* 1,806 1,301 0.06
Natural gas transmission service expansions, including interim services* 1,548 1,115 0.05
Increased level of virtual pipeline services 1,098 791 0.04
Natural gas growth including conversions (excluding service expansions) 1,013 730 0.03
Changes in customer consumption (651) (469) (0.02)
28,348 20,426 0.91
Increased Operating Expenses (Excluding Natural Gas, Propane, and Electric Costs):
FCG operating expenses (8,680) (6,255) (0.28)
Payroll, benefits and other employee-related expenses (708) (510) (0.02)
(9,388) (6,765) (0.30)
Interest charges (9,946) (7,167) (0.32)
Increase in shares outstanding due to 2023 and 2024 equity offerings*** (0.14)
Net other changes (878) (605) (0.04)
(10,824) (7,772) (0.50)
Third Quarter
of 2024 Adjusted Results** $25,115 $18,100 $0.80
*
Refer to Major Projects and Initiatives Table for additional information.
** Transaction and transition-related expenses attributable to the acquisition and integration of FCG have been excluded from the Company's non GAAP measures of adjusted net income and adjusted EPS. See reconciliations above for
a detailed comparison to the related GAAP measures.
***
Reflects the impact of 4.4 million common shares issued in November 2023 in connection with the acquisition of FCG and shares also issued in 2024.
Key variances between the nine months ended September 30, 2023 and September 30, 2024 included:
(in thousands, except per share data) Pre-tax Net Earnings
Income Income Per Share
Nine months ended September 30, 2023 Adjusted Results** $87,151 $64,782 $3.63
Non-recurring Items:
Absence of benefit associated with a reduction in the PA state tax rate (1,284) (0.06)
(1,284) (0.06)
Increased Adjusted Gross Margins:
Contributions from acquisitions 72,458 52,952 2.36
Margin from regulated infrastructure programs* 4,424 3,233 0.14
Natural gas growth including conversions (excluding service expansions) 4,182 3,056 0.14
Natural gas transmission service expansions, including interim services* 3,702 2,706 0.12
Rate changes associated with the Florida natural gas base rate proceeding* 1,630 1,191 0.05
Increased level of virtual pipeline services 1,585 1,158 0.05
Improved Aspire Energy performance - rate changes and gathering fees 1,267 926 0.04
Changes in customer consumption 1,191 870 0.04
Increased propane margins and fees 521 381 0.02
90,960 66,473 2.96
(Increased) Decreased Operating Expenses (Excluding Natural Gas, Propane, and Electric Costs):
FCG operating expenses (28,813) (21,057) (0.94)
Depreciation, amortization and property tax costs (includes FCG) (3,441) (2,515) (0.11)
Insurance related costs (1,107) (809) (0.04)
Payroll, benefits and other employee-related expenses 1,484 1,084 0.05
(31,877) (23,297) (1.04)
Interest charges (29,589) (21,623) (0.97)
Increase in shares outstanding due to 2023 and 2024 equity offerings*** (0.74)
Net other changes (1,394) (829) (0.02)
(30,983) (22,452) (1.73)
Nine months ended
September 30, 2024 Adjusted Results** $115,251 $84,222 $3.76
*
Refer to Major Projects and Initiatives Table for additional information.
** Transaction and transition-related expenses attributable to the acquisition and integration of FCG have been excluded from the Company's non GAAP measures of adjusted net income and adjusted EPS. See reconciliations above for
a detailed comparison to the related GAAP measures.
***
Reflects the impact of 4.4 million common shares issued in November 2023 in connection with the acquisition of FCG and shares also issued in 2024.
Recently Completed and Ongoing Major Projects and Initiatives
The Company continuously pursues and develops additional projects and initiatives to serve existing and new customers, further grow its businesses and earnings, and increase shareholder value. The following table includes all major projects and initiatives that are currently underway or recently completed. The Company's practice is to add incremental margin associated with new projects and initiatives to this table once negotiations or details are substantially final and/or the associated earnings can be estimated. Major projects and initiatives that have generated consistent year-over-year adjusted gross margin contributions are removed from the table at the beginning of the next calendar year.
The related descriptions of projects and initiatives that accompany the table include only new items and/or items where there have been significant developments, as compared to the Company's prior quarterly filings. A comprehensive discussion of all projects and initiatives reflected in the table below can be found in the Company's third quarter 2024 Quarterly Report on Form 10-Q.
Adjusted Gross Margin
Three Months Ended Nine Months Ended Year Ended Estimate for
September 30, September 30, December 31, Fiscal
(in thousands) 2024 2023 2024 2023 2023 2024 2025
Pipeline Expansions:
---
Southern Expansion $586 $100 $1,758 $586 $586 $2,344 $2,344
Beachside Pipeline Expansion 603 603 1,809 1,206 1,810 2,451 2,414
St. Cloud / Twin Lakes Expansion 146 118 438 118 264 584 2,752
Wildlight 566 178 970 271 471 1,423 2,996
Lake Wales 114 114 342 152 265 454 454
Newberry 646 718 1,364 2,585
Boynton Beach 3,342
New Smyrna Beach 1,710
Central Florida Reinforcement 98 1,959
Warwick 258 1,858
Renewable Natural Gas Supply Projects 5,460
Total Pipeline Expansions 2,661 1,113 6,035 2,333 3,396 8,976 27,874
CNG/RNG/LNG Transportation and Infrastructure 3,498 2,385 10,438 8,811 11,181 14,000 15,000
Regulatory Initiatives:
---
Florida GUARD program 982 90 2,436 90 353 3,566 6,333
FCG SAFE Program 1,051 2,152 3,337 6,534
Capital Cost Surcharge Programs 765 687 2,373 2,110 2,829 3,167 4,374
Florida Rate Case Proceeding (1) 3,991 3,991 13,591 11,961 15,835 17,153 17,153
Maryland Rate Case (2) TBD TBD
Delaware Rate Case (3) TBD TBD
Electric Rate Case (4) TBD TBD
Electric Storm Protection Plan 717 298 2,024 940 1,326 3,133 5,581
Total Regulatory Initiatives 7,506 5,066 22,576 15,101 20,343 30,356 39,975
Total $13,665 $8,564 $39,049 $26,245 $34,920 $53,332 $82,849
(1) Includes adjusted gross margin during 2023 comprised of both interim rates and permanent base rates which became effective in March 2023.
(2) Rate case application and depreciation study filed with the Maryland PSC in January 2024. See additional information provided below.
(3) Rate case application and depreciation study filed with the Delaware PSC in August 2024. See additional information provided below.
(4) Rate case application filed with the Florida PSC in August 2024. See additional information provided below.
Detailed Discussion of Major Projects and Initiatives
Pipeline Expansions
St. Cloud / Twin Lakes Expansion
In February 2024, Peninsula Pipeline filed a petition with the Florida Public Service Commission ("PSC") for approval of an amendment to its Transportation Service Agreement with FPU for an additional 10,000 Dts/day of firm service in the St. Cloud, Florida area. Peninsula Pipeline will construct pipeline expansions that will allow FPU to serve the future communities that are expected in that area. The Florida PSC approved the project in May 2024, and it is expected to be complete in the fourth quarter of 2025.
Newberry Expansion
In April 2023, Peninsula Pipeline filed a petition with the Florida PSC for approval of its Transportation Service Agreement with FPU for an additional 8,000 Dts/day of firm service in the Newberry, Florida area. The petition was approved by the Florida PSC in the third quarter of 2023. Peninsula Pipeline will construct a pipeline extension, which will be used by FPU to support the development of a natural gas distribution system to provide gas service to the City of Newberry. A filing to address the acquisition and conversion of existing Company owned propane community gas systems in Newberry was made in November 2023. The Florida PSC approved it in April 2024, and conversions of the community gas systems began in the second quarter of 2024.
East Coast Reinforcement Projects
In December 2023, Peninsula Pipeline filed a petition with the Florida PSC for approval of its Transportation Service Agreements with FPU for projects that will support additional supply to communities on the East Coast of Florida. The projects are driven by the need for increased supply to coastal portions of the state that are experiencing significant population growth. Peninsula Pipeline will construct several pipeline extensions which will support FPU's distribution system in the areas of Boynton Beach and New Smyrna Beach with an additional 15,000 Dts/day and 3,400 Dts/day, respectively. The Florida PSC approved the projects in March 2024. Construction is projected to be complete in the first and second quarters of 2025 for Boynton Beach and New Smyrna Beach, respectively.
Central Florida Reinforcement Projects
In February 2024, Peninsula Pipeline filed a petition with the Florida PSC for approval of its Transportation Service Agreements with FPU for projects that will support additional supply to communities located in Central Florida. The projects are driven by the need for increased supply to communities in central Florida that are experiencing significant population growth. Peninsula Pipeline will construct several pipeline extensions which will support FPU's distribution system around the Plant City and Lake Mattie areas of Florida with an additional 5,000 Dts/day and 8,700 Dts/day, respectively. The Florida PSC approved the projects in May 2024. Completion of the projects is projected for the fourth quarter of 2024 for Plant City and the fourth quarter of 2025 for Lake Mattie.
Warwick
In July 2024, the Company announced plans to extend Eastern Shore's transmission deliverability by constructing an additional 4.4 miles of six inch steel pipeline. The project will reinforce the supply and growth for our Delaware division distribution system and expand natural gas service further into Maryland for anticipated future growth. The project is estimated to be in service during the fourth quarter of 2024.
Pioneer Supply Header Pipeline Project
In March 2024, Peninsula Pipeline filed a petition with the Florida PSC for its approval of Firm Transportation Service Agreements with both FCG and FPU for a project that will support greater supply growth of natural gas service in southeast Florida. The project consists of the transfer of a pipeline asset from FCG to Peninsula Pipeline. Peninsula Pipeline will proceed to provide transportation service to both FCG and FPU using the pipeline asset, which supports continued customer growth and system reinforcement of these distribution systems. The Florida PSC approved the petition in July 2024.
Renewable Natural Gas Supply Projects
In February 2024, Peninsula Pipeline filed a petition with the Florida PSC for approval of Transportation Service Agreements with FCG for projects that will support the transportation of additional renewable energy supply to FCG. The projects, located in Florida's Brevard, Indian River and Miami-Dade counties, will bring renewable natural gas produced from local landfills into FCG's natural gas distribution system. Peninsula Pipeline will construct several pipeline extensions which will support FCG's distribution system in Brevard County, Indian River County, and Miami-Dade County. Benefits of these projects include increased gas supply to serve expected FCG growth, strengthened system reliability and additional system flexibility. The Florida PSC approved the petition at its July 2024 meeting with the projects estimated to be completed in the first half of 2025.
Regulatory Initiatives
Maryland Natural Gas Rate Case
In January 2024, the Company's natural gas distribution businesses in Maryland, CUC-Maryland Division, Sandpiper Energy, Inc., and Elkton Gas Company (collectively, "Maryland natural gas distribution businesses") filed a joint application for a natural gas rate case with the Maryland PSC. In connection with the application, the Company is seeking approval of the following: (i) permanent rate relief of approximately $6.9 million with a return on equity ("ROE") of 11.5 percent; (ii) authorization to make certain changes to tariffs to include a unified rate structure and to consolidate the Maryland natural gas distribution businesses which is anticipated to be called Chesapeake Utilities of Maryland, Inc.; and (iii) authorization to establish a rider for recovery of the costs associated with the Company's new technology systems. In August 2024, the Maryland natural gas distribution businesses, the Maryland Office of Peoples' Counsel ("OPC") and PSC Staff reached a settlement agreement which provided for, among other things, an increase in annual base rates of $2.6 million. In September 2024, the Maryland Public Utility Judge issued an order approving the settlement agreement in part. The $2.6 million increase in annual base rates was approved and the Company will file a Phase II filing to determine rate design across the Maryland natural gas distribution businesses, consolidation of the applicable tariffs and recovery of technology costs. The outcome of the application is subject to review and approval by the Maryland PSC.
Maryland Natural Gas Depreciation Study
In January 2024, the Company's Maryland natural gas distribution businesses filed a joint petition for approval of its proposed unified depreciation rates with the Maryland PSC. A settlement agreement between the Company, PSC staff and the Maryland OPC Counsel was reached and the final order approving the settlement agreement went into effect in July 2024, with new depreciation rates effective as of January 1, 2023. The approved depreciation rates will result in an annual reduction in depreciation expense of approximately $1.2 million.
FCG SAFE Program
In April 2024, FCG filed a petition with the Florida PSC to more closely align the SAFE Program with FPU's GUARD program. Specifically, the requested modifications will enable FCG to accelerate remediation related to problematic pipe and facilities consisting of obsolete and exposed pipe. These modifications will require an estimated additional $50.0 million in capital expenditures associated with the SAFE Program, which would increase the total projected capital expenditures to approximately $255.0 million over a 10-year period. The Florida PSC approved the modifications in September 2024.
Delaware Natural Gas Rate Case
In August 2024, the Company's Delaware natural gas division filed an application for a natural gas rate case with the Delaware PSC. In connection with the application, the Company is seeking approval of the following: (i) permanent rate relief of approximately $12.1 million with a ROE of 11.5 percent; (ii) proposed changes to depreciation rates which were part of a depreciation study also submitted with the filing; and (iii) authorization to make certain changes to the existing tariffs. In September 2024, interim rates were approved by the Delaware PSC in the amount of $2.5 million on an annualized basis effective in October 2024. The discovery process has commenced and hearing for the proceeding has been scheduled for May 2025. The outcome of the application is subject to review and approval by the Delaware PSC.
FPU Electric Rate Case
In August 2024, the Company's Florida Electric division filed a petition with the Florida PSC seeking a general base rate increase of $12.6 million with a ROE of 11.3 percent based on a 2025 projected test year. The outcome of the application will be subject to review and approval by the Florida PSC. In October 2024, annualized interim rates of approximately $1.8 million were approved with an effective date of November 1, 2024.
Other Major Factors Influencing Adjusted Gross Margin
Weather and Consumption
Weather was not a significant factor to adjusted gross margin in the third quarter of 2024 compared to the same period in 2023.
For the nine months ended September 30, 2024, higher consumption which includes the effects of colder weather conditions compared to the prior-year period resulted in a $1.2 million increase in adjusted gross margin. While temperatures through September 30, 2024 were colder than the prior-year period, they were approximately 13.2 percent and 13.1 percent warmer, respectively, compared to normal temperatures in our Delmarva and Ohio service territories.
The following table summarizes HDD and CDD variances from the 10-year average HDD/CDD ("Normal") for the three and nine months ended September 30, 2024 and 2023.
Three Months Ended Nine Months Ended
September 30, September 30,
2024 2023 Variance 2024 2023 Variance
Delmarva
Actual HDD 6 19 (13) 2,287 2,069 218
10-Year Average HDD ("Normal") 27 38 (11) 2,635 2,731 (96)
Variance from Normal (21) (19) (348) (662)
Florida
Actual HDD 1 (1) 511 371 140
10-Year Average HDD ("Normal") 1 1 512 550 (38)
Variance from Normal (1) (1) (179)
Ohio
Actual HDD 43 86 (43) 3,180 3,148 32
10-Year Average HDD ("Normal") 65 65 3,661 3,661
Variance from Normal (22) 21 (481) (513)
Florida
Actual CDD 1,528 1,533 (5) 2,824 2,793 31
10-Year Average CDD ("Normal") 1,420 1,391 29 2,615 2,535 80
Variance from Normal 108 142 209 258
Natural Gas Distribution Growth
The average number of residential customers served on the Delmarva Peninsula increased by approximately 3.9 percent for the three and nine months ended September 30, 2024 while our legacy Florida Natural Gas distribution business increased by approximately 3.9 percent and 3.7 percent, respectively, during the same periods.
The details of the adjusted gross margin increase are provided in the following table:
Adjusted Gross Margin**
Three Months Ended Nine Months Ended
September 30, 2024 September 30, 2024
(in thousands) Delmarva Florida Delmarva Florida
Peninsula Peninsula
Customer growth:
Residential $276 $470 $1,118 $1,997
Commercial and industrial 172 95 452 615
Total customer growth (1) $448 $565 $1,570 $2,612
(1) Customer growth amounts for the legacy Florida operations include the effects of revised rates associated with the Company's natural gas base rate proceeding, but exclude the effects of FCG.
Capital Investment Growth and Capital Structure Updates
The Company's capital expenditures were $256.8 million for the nine months ended September 30, 2024. The following table shows a range of the forecasted 2024 capital expenditures by segment and by business line:
2024
(in thousands) Low High
Regulated Energy:
Natural gas distribution $160,000 $190,000
Natural gas transmission 75,000 90,000
Electric distribution 30,000 38,000
Total Regulated Energy 265,000 318,000
Unregulated Energy:
Propane distribution 13,000 15,000
Energy transmission 5,000 6,000
Other unregulated energy 13,000 15,000
Total Unregulated Energy 31,000 36,000
Other:
Corporate and other businesses 4,000 6,000
Total 2024 Forecasted Capital Expenditures $300,000 $360,000
The capital expenditure projection is subject to continuous review and modification. Actual capital requirements may vary from the above estimates due to a number of factors, including changing economic conditions, supply chain disruptions, capital delays that are greater than currently anticipated, customer growth in existing areas, regulation, new growth or acquisition opportunities and availability of capital.
The Company's target ratio of equity to total capitalization, including short-term borrowings, is between 50 and 60 percent. The Company's equity to total capitalization ratio, including short-term borrowings, was approximately 49 percent as of September 30, 2024.
Chesapeake Utilities Corporation and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2024 2023 2024 2023
(in thousands, except per share data)
Operating Revenues
Regulated Energy $130,633 $102,411 $429,684 $345,822
Unregulated Energy 35,567 34,970 160,089 158,886
Other businesses and eliminations (6,062) (5,834) (17,619) (19,439)
Total Operating Revenues 160,138 131,547 572,154 485,269
Operating Expenses
Natural gas and electricity costs 28,366 26,518 105,662 105,692
Propane and natural gas costs 9,835 10,576 53,396 55,786
Operations 49,519 41,217 153,418 128,147
FCG transaction and transition-related expenses 819 3,899 3,114 3,899
Maintenance 5,062 5,125 16,526 15,487
Depreciation and amortization 16,851 17,610 51,744 52,096
Other taxes 8,768 6,374 27,001 20,674
Total operating expenses 119,220 111,319 410,861 381,781
Operating Income 40,918 20,228 161,293 103,488
Other income (expense), net 400 (72) 1,705 1,036
Interest charges 17,022 7,076 50,861 21,272
Income Before Income Taxes 24,296 13,080 112,137 83,252
Income taxes 6,789 3,673 30,191 21,368
Net Income $17,507 $9,407 $81,946 $61,884
Weighted Average Common Shares Outstanding:
Basic 22,501 17,797 22,346 17,784
Diluted 22,564 17,858 22,402 17,847
Earnings Per Share of Common Stock:
Basic $0.78 $0.53 $3.67 $3.48
Diluted $0.78 $0.53 $3.66 $3.47
Adjusted Net Income and Adjusted Earnings Per Share
Net Income (GAAP) $17,507 $9,407 $81,946 $61,884
FCG transaction and transition-related expenses, net (1) 593 2,804 2,276 2,898
Adjusted Net Income (Non-GAAP)** $18,100 $12,211 $84,222 $64,782
Earnings Per Share - Diluted (GAAP) $0.78 $0.53 $3.66 $3.47
FCG transaction and transition-related expenses, net (1) 0.02 0.16 0.10 0.16
Adjusted Earnings Per Share - Diluted (Non-GAAP)** $0.80 $0.69 $3.76 $3.63
(1) Transaction and transition-related expenses represent costs incurred attributable to the acquisition and integration of FCG including, but not limited to, transaction costs, transition services, consulting, system integration, rebranding and legal fees.
Chesapeake Utilities Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)
Assets September 30, December 31,
2024 2023
(in thousands, except per share data)
Property, Plant and Equipment
Regulated Energy $2,600,087 $2,418,494
Unregulated Energy 426,127 410,807
Other businesses and eliminations 32,136 30,310
Total property, plant and equipment 3,058,350 2,859,611
Less: Accumulated depreciation and amortization (556,421) (516,429)
Plus: Construction work in progress 156,180 113,192
Net property, plant and equipment 2,658,109 2,456,374
Current Assets
Cash and cash equivalents 1,609 4,904
Trade and other receivables 57,113 74,485
Less: Allowance for credit losses (2,739) (2,699)
Trade and other receivables, net 54,374 71,786
Accrued revenue 23,634 32,597
Propane inventory, at average cost 6,781 9,313
Other inventory, at average cost 21,139 19,912
Regulatory assets 20,446 19,506
Storage gas prepayments 4,339 4,695
Income taxes receivable 12,563 3,829
Prepaid expenses 18,965 15,407
Derivative assets, at fair value 405 1,027
Other current assets 2,232 2,723
Total current assets 166,487 185,699
Deferred Charges and Other Assets
Goodwill 507,852 508,174
Other intangible assets, net 15,475 16,865
Investments, at fair value 14,156 12,282
Derivative assets, at fair value 122 40
Operating lease right-of-use assets 10,945 12,426
Regulatory assets 81,899 96,396
Receivables and other deferred charges 12,147 16,448
Total deferred charges and other assets 642,596 662,631
Total Assets $3,467,192 $3,304,704
Chesapeake Utilities Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)
Capitalization and Liabilities September 30, December 31,
2024 2023
(in thousands, except per share data)
Capitalization
Stockholders' equity
Preferred stock, par value $0.01 per share (authorized 2,000 shares), no shares issued and outstanding
$ -
$ -
Common stock, par value $0.4867 per share (authorized 50,000 shares) 11,085 10,823
Additional paid-in capital 812,896 749,356
Retained earnings 528,426 488,663
Accumulated other comprehensive loss (4,135) (2,738)
Deferred compensation obligation 9,775 9,050
Treasury stock (9,775) (9,050)
Total stockholders' equity 1,348,272 1,246,104
Long-term debt, net of current maturities 1,172,956 1,187,075
Total capitalization 2,521,228 2,433,179
Current Liabilities
Current portion of long-term debt 18,522 18,505
Short-term borrowing 214,753 179,853
Accounts payable 70,138 77,481
Customer deposits and refunds 47,408 46,427
Accrued interest 13,776 7,020
Dividends payable 14,492 13,119
Accrued compensation 14,495 16,544
Regulatory liabilities 14,762 13,719
Derivative liabilities, at fair value 633 354
Other accrued liabilities 25,832 13,362
Total current liabilities 434,811 386,384
Deferred Credits and Other Liabilities
Deferred income taxes 289,208 259,082
Regulatory liabilities 190,512 195,279
Environmental liabilities 2,441 2,607
Other pension and benefit costs 16,327 15,330
Derivative liabilities, at fair value 2,030 927
Operating lease - liabilities 9,157 10,550
Deferred investment tax credits and other liabilities 1,478 1,366
Total deferred credits and other liabilities 511,153 485,141
Environmental and other commitments and contingencies (1)
Total Capitalization and Liabilities $3,467,192 $3,304,704
(1) Refer to Note 6 and 7 in the Company's Quarterly Report on Form 10-Q for further information.
Chesapeake Utilities Corporation and Subsidiaries
Distribution Utility Statistical Data (Unaudited)
For the Three Months Ended September 30, 2024 For the Three Months Ended September 30, 2023
Delmarva NG Florida Florida City FPU Electric Delmarva NG Florida FPU Electric
Distribution Natural Gas Gas Distribution Distribution Natural Gas Distribution
Distribution Distribution Distribution
Operating Revenues
(in thousands)
Residential $8,277 $9,583 $12,026 $16,053 $8,663 $9,862 $16,967
Commercial and Industrial 7,119 22,873 15,713 14,368 9,119 26,020 15,920
Other (1) 2,375 4,485 5,710 (565) 217 2,441 (204)
Total Operating Revenues $17,771 $36,941 $33,449 $29,856 $17,999 $38,323 $32,683
Volumes (in Dts for natural gas and MWHs for electric)
Residential 237,744 347,995 341,010 100,207 245,612 325,445 102,699
Commercial and Industrial 1,913,091 9,070,258 2,686,804 118,214 1,915,125 10,684,539 96,716
Other 59,512 659,557 1,496,698 62,277
Total 2,210,347 10,077,810 4,524,512 218,421 2,223,014 11,009,984 199,415
Average Customers
Residential 101,635 92,125 114,200 25,776 97,847 88,640 25,782
Commercial and Industrial 8,322 8,494 8,567 7,354 8,208 8,411 7,382
Other 27 118 24 6
Total 109,984 100,619 122,885 33,130 106,079 97,057 33,164
For the Nine Months Ended September 30, 2024 For the Nine Months Ended September 30, 2023
Delmarva NG Florida Florida City FPU Electric Delmarva NG Florida FPU Electric
Distribution Natural Gas Gas Distribution Distribution Natural Gas Distribution
Distribution Distribution Distribution
Operating Revenues
(in thousands)
Residential $60,003 $36,201 $39,975 $38,704 $67,562 $38,546 $39,347
Commercial and Industrial 35,009 80,647 52,115 37,285 41,637 80,499 39,913
Other (1) (2,262) 7,966 9,730 (3,623) (6,696) 6,401 (805)
Total Operating Revenues $92,750 $124,814 $101,820 $72,366 $102,503 $125,446 $78,455
Volumes (in Dts for natural gas and MWHs for electric)
Residential 3,499,276 1,714,914 1,367,409 243,454 3,302,125 1,551,348 238,051
Commercial and Industrial 7,588,547 29,318,803 8,455,727 301,687 7,523,061 31,047,013 239,505
Other 207,213 1,962,689 4,566,210 213,600 627,934
Total 11,295,036 32,996,406 14,389,346 545,141 11,038,786 33,226,295 477,556
Average Customers
Residential 101,045 91,345 113,633 25,747 97,230 88,051 25,718
Commercial and Industrial 8,361 8,484 8,545 7,361 8,242 8,408 7,373
Other 26 109 23 6
Total 109,432 99,829 122,287 33,108 105,495 96,465 33,091
(1) Operating Revenues from "Other" sources include unbilled revenue, under (over) recoveries of fuel cost, conservation revenue, other miscellaneous charges, fees for billing services provided to third parties and adjustments for pass-through taxes.
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SOURCE Chesapeake Utilities Corporation
