Financial Performance - Income from continuing operations for Q1 2021 was $34.5 million, or $1.96 per share, compared to $29.0 million, or $1.77 per share in Q1 2020, representing a 19.0% increase in earnings per share [161]. - Operating income for Q1 2021 increased by $9.5 million, or 22.5%, over the same period in 2020, driven by pipeline expansion projects and favorable regulatory initiatives [161]. - Total gross margin for Q1 2021 was $116.9 million, up from $99.8 million in Q1 2020, reflecting an increase of $17.1 million, or 17.1% [163]. - The company recorded regulatory assets in Q4 2020 related to incremental expenses incurred due to the COVID-19 pandemic [160]. - In the first quarter of 2021, the company reported a pre-tax income of $46,877,000 and a net income of $34,472,000, resulting in earnings per share of $1.96 [167]. - The gross margin increased by $16,996,000 in the first quarter of 2021 compared to $12,499,000 in the first quarter of 2020, reflecting a growth of approximately 36% [167]. Segment Performance - Regulated energy segment gross margin increased by $10.0 million to $78.2 million in Q1 2021, while unregulated energy segment gross margin rose by $7.0 million to $38.8 million [163]. - Operating income for the Regulated Energy segment increased by $5.0 million or 17.8% to $32.9 million in Q1 2021 compared to Q1 2020, driven by increased consumption and regulatory settlements [198]. - Revenue for the Unregulated Energy segment increased to $74.8 million in Q1 2021, up from $54.0 million in Q1 2020, representing a growth of 38.5% [209]. - Operating income for the Unregulated Energy segment was $19.1 million, an increase of $5.2 million or 37.8% compared to the same period in 2020 [209]. Growth Strategies - The company is focused on optimizing earnings growth through organic growth, territory expansions, and new products and services [153]. - The company’s growth strategy includes pursuing strategic propane acquisitions to expand its market presence [153]. - Marlin Gas Services is expanding its CNG transport business and entering LNG and RNG transport services, as well as methane capture [153]. - The company plans to continue expanding its natural gas distribution and transmission systems, with significant capital allocated for infrastructure improvements and strategic initiatives [222]. Weather Impact - The company experienced a return to more normal weather conditions in Q1 2021, which positively impacted energy consumption compared to the warmer weather in Q1 2020 [161]. - Increased customer consumption due to weather resulted in a gross margin increase of $1.6 million, with an 18% increase in HDDs on the Delmarva Peninsula and a 36% increase in Florida [203]. - Weather conditions accounted for a $6.4 million increase in gross margin in Q1 2021 compared to Q1 2020, primarily due to a 13.8% increase in HDDs [193]. - Customer consumption in Propane Operations increased by $3.8 million, attributed to 18% colder weather on the Delmarva Peninsula compared to Q1 2020 [211]. Capital Expenditures and Investments - Capital expenditures for Q1 2021 were $48.7 million, with a forecasted range for total capital expenditures in 2021 between $175 million and $200 million [221]. - The company expects the West Palm Beach County expansion project to generate an annual gross margin of $5,000,000 in 2021 and $5,200,000 in 2022 [171]. - The Del-Mar Energy Pathway project is anticipated to provide an additional 14,300 Dts/d of firm service and is expected to be fully operational by Q4 2021 [172]. - The acquisition of Western Natural Gas is expected to generate a gross margin of approximately $1,800,000 in 2021 [183]. Financial Position and Debt - Long-term debt as of March 31, 2021, was $508.5 million, accounting for 41% of total capitalization, which was $1.23 billion [226]. - The company issued 1.0 million shares of common stock in late 2020, raising approximately $83.0 million for general corporate purposes [227]. - The company has a funded indebtedness ratio of no greater than 65%, and as of March 31, 2021, it was in compliance with this covenant [234]. - The company has authorized up to $375 million in short-term debt, with $214.1 million available under the new Revolver as of March 31, 2021 [235]. Cash Flow and Liquidity - Net cash provided by operating activities increased to $80.4 million for the three months ended March 31, 2021, compared to $58.8 million for the same period in 2020, reflecting a $21.6 million increase [241]. - Net cash used in investing activities totaled $51.8 million in Q1 2021, up from $31.5 million in Q1 2020, primarily due to capital expenditures of $52 million compared to $35.2 million in the prior year [242]. - Net cash used in financing activities was $26.5 million in Q1 2021, an improvement from $30.3 million in Q1 2020, driven by the absence of long-term debt repayments [243]. Risk Management - The company actively seeks new producers to fulfill natural gas purchase requirements and mitigate commodity price risks [255]. - The Risk Management Committee reviews credit risks associated with counterparties to commodity derivative contracts prior to approval [259]. - The unregulated energy segment faces commodity price risk, particularly in propane operations, which are mitigated through storage activities and forward contracts [253]. - The regulated energy distribution operations have limited commodity price risk exposure due to fuel cost recovery mechanisms authorized by respective Public Service Commissions (PSCs) [252]. Inflation and Cost Management - Inflation impacts the costs of supply, labor, and services, prompting the company to seek rate increases from regulatory commissions to cope with these effects [260]. - The company utilizes interest rate swap agreements to mitigate risks associated with fluctuations in interest rates on long-term debt [251]. - Interest charges decreased by $0.7 million in Q1 2021 compared to Q1 2020, primarily due to lower interest expenses from reduced revolving credit [216].

Chesapeake Utilities Corporation (NYSE:CPK) Q4 2020 Earnings Conference Call February 25, 2021 4:00 PM ET Company Participants Beth Cooper – Executive Vice President and Chief Financial Officer Jim Moriarty – Executive Vice President, General Counsel, Corporate Secretary, Chief Risk Officer and Compliance Officer Jeff Householder – President and Chief Executive Officer Conference Call Participants Tate Sullivan – Maxim Group Brian Russo – Sidoti Michael Gaugler – Janney Montgomery Scott Roger Liddell – Clea ...

Commitment Growth Leadership Safety Sustainability Solutions Energy Strength Team Service Performance Community Value | --- | --- | |-------|--------------------------------------------| | | | | | Earnings Conference Call February 25, 2021 | Presenters Jeff Householder President & CEO Beth Cooper Executive Vice President, CFO and Asst. Secretary Jim Moriarty Executive Vice President, General Counsel , Corporate Secretary and Chief Policy and Risk Officer 2 Forward Looking Statements and Other Disclosures Sa ...

Part I [Business](index=8&type=section&id=ITEM%201.%20Business.) Chesapeake Utilities Corporation is an energy delivery company focused on natural gas, electricity, and propane distribution, transmission, and generation across the Mid-Atlantic, Florida, and Ohio regions - Chesapeake Utilities Corporation is a **diversified energy delivery company** with operations primarily in the Mid-Atlantic region, Florida, and Ohio. Its strategy focuses on growing earnings from a **stable utility foundation** and investing in related businesses and services that offer **returns greater than traditional utility returns**[14](index=14&type=chunk) - The Company's growth strategy includes **optimizing existing businesses**, pursuing **pipeline expansions** (interstate and intrastate), growing **Marlin Gas Services' CNG transport business** and expanding into **LNG and RNG transport**, identifying **strategic propane acquisitions**, and participating in **renewable energy opportunities**[15](index=15&type=chunk) Regulated Energy Segment Net Income and Total Assets (Year Ended December 31, 2020, in thousands) | Operations | Areas Served | Net Income (in thousands) | Total Assets (in thousands) | | :------------------------ | :---------------------------- | :------------------------ | :-------------------------- | | Natural Gas Distribution | | | | | Delmarva Natural Gas | Delaware/Maryland | $9,448 | $319,028 | | Central Florida Gas and FPU | Florida | $12,542 | $451,966 | | Natural Gas Transmission | | | | | Eastern Shore | Delaware/Maryland/Pennsylvania | $20,320 | $471,492 | | Peninsula Pipeline | Florida | $9,359 | $129,862 | | Aspire Energy Express | Ohio | $34 | $1,599 | | Electric Distribution | | | | | FPU | Florida | $3,942 | $173,672 | | **Total Regulated Energy**| | **$55,645** | **$1,547,619** | - In July 2020, Chesapeake Utilities acquired Elkton Gas, expanding its natural gas distribution service to approximately **7,000 customers** in Cecil County, Maryland. Elkton Gas's results are now integrated into Delmarva Natural Gas operations[21](index=21&type=chunk) Unregulated Energy Segment Net Income and Total Assets (Year Ended December 31, 2020, in thousands) | Operations (in thousands) | Area Served | Net Income (in thousands) | Total Assets (in thousands) | | :------------------------ | :------------------------------------------ | :------------------------ | :-------------------------- | | Propane Operations | Delaware, Maryland, Virginia, Pennsylvania, Florida | $6,485 | $144,805 | | Energy Transmission | Ohio | $3,407 | $115,882 | | Energy Generation | Florida | $2,260 | $40,666 | | Marlin Gas Services | The Eastern U.S. | $1,404 | $45,541 | | **Total** | | **$13,556** | **$346,894** | - The Company divested **PESCO's natural gas marketing business** in the fourth quarter of 2019 to focus on core energy delivery, with PESCO's historical financial results now reported as **discontinued operations**[60](index=60&type=chunk) - As of December 31, 2020, the Company had **947 employees**, with **110 unionized**. It was recognized as a **Top Workplace** for the ninth consecutive year and established an **Equity, Diversity and Inclusion (EDI) Council** in 2020[64](index=64&type=chunk)[65](index=65&type=chunk) - In response to COVID-19, the Company implemented an emergency response plan, ensured employee safety with PPE and premium pay, enabled remote work, suspended disconnections, waived late payment fees, and donated **$200,000** to relief organizations[68](index=68&type=chunk)[69](index=69&type=chunk) [Risk Factors](index=18&type=page&id=ITEM%201A.%20Risk%20Factors.) The Company faces various financial, operational, and regulatory risks - Financial risks include **instability in financial markets** affecting access to capital, fluctuations in **propane gas prices**, potential failure to comply with **debt covenant obligations**, increases in **interest rates**, and adverse impacts on **pension plan assets**[82](index=82&type=chunk)[83](index=83&type=chunk)[84](index=84&type=chunk)[85](index=85&type=chunk)[86](index=86&type=chunk) - Operational risks include dependence on **new facility construction**, **competition** from other energy suppliers, fluctuations in **weather impacting earnings**, natural disasters and acts of terrorism, operating events affecting public safety, **security breaches**, failure to **attract and retain qualified employees**, labor disputes, **capital-intensive projects**, non-renewal of franchise agreements, slowdowns in customer growth, energy conservation, commodity price increases, and **acquisition integration challenges**[86](index=86&type=chunk)[89](index=89&type=chunk)[90](index=90&type=chunk)[91](index=91&type=chunk)[92](index=92&type=chunk)[93](index=93&type=chunk)[94](index=94&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk)[99](index=99&type=chunk)[100](index=100&type=chunk)[101](index=101&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk)[108](index=108&type=chunk)[109](index=109&type=chunk) - Regulatory, legal, and environmental risks include changes in the **regulatory environment**, **pipeline safety legislation**, operating and litigation risks not fully covered by insurance, significant costs of **environmental law compliance** (especially MGP sites), unanticipated changes in **tax provisions**, and future regulatory and financial risks associated with **global warming and climate change**[111](index=111&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk)[117](index=117&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk)[120](index=120&type=chunk) - The COVID-19 pandemic poses **significant health and financial risks**, impacting business operations, supply chains, personnel, and general economic conditions, with the ultimate impact being **unpredictable**[121](index=121&type=chunk)[123](index=123&type=chunk) [Unresolved Staff Comments](index=25&type=section&id=ITEM%201B.%20Unresolved%20Staf%20Comments) There are no unresolved staff comments to report for the period - **No unresolved staff comments** were reported[126](index=126&type=chunk) [Properties](index=25&type=section&id=ITEM%202.%20Properties.) Chesapeake Utilities owns or leases various operational facilities across its service territories - The Company **owns or leases offices and operational facilities** in Delaware, Maryland, Virginia, Florida, Pennsylvania, and Ohio[128](index=128&type=chunk) Regulated Energy Segment Pipeline Miles (as of December 31, 2020) | Operations | Miles | | :----------------------------- | :---- | | Natural Gas Distribution | | | Delmarva Natural Gas | 1,864 | | Delmarva Natural Gas (Propane) | 32 | | Central Florida Gas and FPU | 2,973 | | Natural Gas Transmission | | | Eastern Shore | 501 | | Peninsula Pipeline | 129 | | Electric Distribution | | | FPU | 900 | | **Total** | **6,399** | Unregulated Energy Segment Properties (as of December 31, 2020) | Operations | Gallons or miles | | :---------------------------------------- | :--------------- | | Propane storage capacity (gallons in millions) | 8.3 | | Underground propane distribution mains (miles) | 204 | | Unregulated Energy Transmission and gathering (Aspire Energy) | 2,700 | | Natural gas pipelines (miles) | 2,700 | - In December 2020, FPU redeemed its **9.08% secured first mortgage bonds**, removing the lien on its assets[132](index=132&type=chunk) [Legal Proceedings](index=26&type=section&id=ITEM%203.%20Legal%20Proceedings.) Information regarding legal proceedings is incorporated by reference from Note 21, Other Commitments and Contingencies, in the Consolidated Financial Statements - Legal proceedings information is **incorporated by reference** from Note 21, Other Commitments and Contingencies[133](index=133&type=chunk) [Mine Safety Disclosures](index=26&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures.) This item is not applicable to Chesapeake Utilities Corporation - This item is **not applicable**[134](index=134&type=chunk) Part II [Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=27&type=section&id=ITEM%205.%20Market%20for%20the%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities.) Chesapeake Utilities common stock trades on the NYSE under CPK, with consistent cash dividends for 60 consecutive years and strong cumulative total returns - Chesapeake Utilities common stock is traded on the NYSE under the ticker symbol **CPK**. As of February 18, 2021, there were **2,127 holders of record**[137](index=137&type=chunk) Common Stock Dividends Declared Per Share | Year | Dividends Per Share ($) | | :--- | :---------------------- | | 2020 | $1.725 | | 2019 | $1.585 | - The Company has paid a cash dividend to common stockholders for **60 consecutive years**[137](index=137&type=chunk) Issuer Purchases of Equity Securities (Quarter Ended December 31, 2020) | Period | Total Shares Purchased | Average Price Paid per Share ($) | | :----------------------------------- | :--------------------- | :------------------------------- | | October 1, 2020 - October 31, 2020 | 544 | $84.15 | | November 1, 2020 - November 30, 2020 | — | — | | December 1, 2020 - December 31, 2020 | — | — | | **Total** | **544** | **$84.15** | - The **544 shares** purchased in October 2020 were for reinvesting dividends on shares held in Rabbi Trust accounts under the Non-Qualified Deferred Compensation Plan[139](index=139&type=chunk) Cumulative Total Stockholder Return (December 31, 2015 = $100) | Index | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | | :--------------------- | :--- | :--- | :--- | :--- | :--- | :--- | | Chesapeake Utilities | $100 | $120 | $144 | $151 | $181 | $209 | | Industry Index | $100 | $122 | $138 | $156 | $175 | $147 | | S&P 500 Index | $100 | $112 | $136 | $130 | $171 | $203 | [Selected Financial Data](index=29&type=section&id=ITEM%206.%20Selected%20Financial%20Data) This section provides a five-year summary of key financial data, including operating revenues, operating income, net income, assets, capitalization, and common stock data Selected Operating and Net Income Data (in thousands) | Metric | 2020 (in thousands) | 2019 (in thousands) | 2018 (in thousands) | 2017 (in thousands) | 2016 (in thousands) | | :--------------------------------------- | :------------------ | :------------------ | :------------------ | :------------------ | :------------------ | | Regulated Energy Revenues | $352,746 | $343,006 | $345,281 | $326,310 | $305,689 | | Unregulated Energy Revenues | $152,526 | $154,151 | $161,905 | $140,076 | $108,364 | | Total revenues | $488,198 | $479,605 | $490,316 | $449,646 | $404,735 | | Regulated Energy Operating Income | $92,124 | $86,584 | $79,215 | $74,584 | $71,515 | | Unregulated Energy Operating Income | $20,664 | $19,938 | $17,125 | $14,938 | $11,732 | | Total operating income from Continuing Operations | $112,723 | $106,285 | $94,844 | $89,727 | $83,649 | | Income from Continuing Operations | $70,642 | $61,100 | $56,968 | $60,321 | $43,283 | | Net Income | $71,498 | $65,153 | $56,580 | $58,124 | $44,675 | Selected Asset and Capitalization Data (in thousands) | Metric | 2020 (in thousands) | 2019 (in thousands) | 2018 (in thousands) | 2017 (in thousands) | 2016 (in thousands) | | :--------------------------------------- | :------------------ | :------------------ | :------------------ | :------------------ | :------------------ | | Gross property, plant and equipment | $1,908,992 | $1,746,532 | $1,568,441 | $1,310,993 | $1,175,595 | | Net property, plant and equipment | $1,601,178 | $1,463,797 | $1,353,520 | $1,124,938 | $986,664 | | Total assets | $1,932,487 | $1,783,198 | $1,693,671 | $1,414,934 | $1,229,219 | | Capital expenditures | $195,875 | $198,986 | $282,861 | $179,337 | $169,376 | | Stockholders' equity | $697,085 | $561,577 | $518,439 | $486,294 | $446,086 | | Long-term debt, net of current maturities| $508,499 | $440,168 | $316,020 | $197,395 | $136,954 | | Total capitalization | $1,205,584 | $1,001,745 | $834,459 | $683,689 | $583,040 | | Total capitalization and short-term financing | $1,394,828 | $1,294,716 | $1,140,852 | $944,079 | $805,010 | Selected Common Stock Data and Ratios | Metric | 2020 ($) | 2019 ($) | 2018 ($) | 2017 ($) | 2016 ($) | | :---------------------------------------------- | :--------- | :--------- | :--------- | :--------- | :--------- | | Basic Earnings Per Share | $4.28 | $3.97 | $3.46 | $3.56 | $2.87 | | Diluted Earnings Per Share | $4.26 | $3.96 | $3.45 | $3.55 | $2.86 | | Diluted earnings per share growth - 1 year (%) | 13.2 % | 7.2 % | (5.7)% | 32.9 % | 5.3 % | | Return on average equity (%) | 11.5 % | 11.3 % | 11.3 % | 13.0 % | 11.0 % | | Common equity / total capitalization (%) | 57.8 % | 56.1 % | 62.1 % | 71.1 % | 76.5 % | | Cash dividends declared per share ($) | $1.73 | $1.59 | $1.44 | $1.28 | $1.20 | | Payout ratio (%) | 40.9 % | 42.6 % | 41.4 % | 34.7 % | 43.2 % | | Natural gas distribution customers | 178,220 | 164,134 | 158,387 | 153,537 | 149,179 | | Electric distribution customers | 32,326 | 31,818 | 32,185 | 32,026 | 31,695 | | Propane operations customers | 67,034 | 59,671 | 56,915 | 54,760 | 54,947 | | Total employees | 947 | 955 | 983 | 945 | 903 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=ITEM%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Chesapeake Utilities' financial performance, liquidity, and capital resources, along with factors influencing these results - The COVID-19 pandemic negatively impacted 2020 earnings by approximately **$1.0 million**, primarily due to reduced energy consumption in commercial and industrial sectors and increased operational expenses (PPE, bad debt, premium pay). Regulatory assets were established for these incremental expenses in natural gas and electric distribution businesses[151](index=151&type=chunk) Operating Income and Net Income (2020 vs. 2019, in thousands) | Metric (in thousands) | 2020 (in thousands) | 2019 (in thousands) | Increase (decrease) (in thousands) | | :-------------------- | :------------------ | :------------------ | :--------------------------------- | | Regulated Energy | $92,124 | $86,584 | $5,540 | | Unregulated Energy | $20,664 | $19,938 | $726 | | Operating Income | $112,723 | $106,285 | $6,438 | | Net Income | $71,498 | $65,153 | $6,345 | | Diluted EPS | $4.26 | $3.96 | $0.30 | Key Factors Impacting 2020 vs. 2019 Continuing Operations (Pre-tax Income / Net Income / EPS) | Factor | Pre-tax Income (in thousands) | Net Income (in thousands) | EPS ($) | | :------------------------------------------------------------------ | :---------------------------- | :------------------------ | :------ | | Unfavorable COVID-19 impacts | $(5,864) | $(4,284) | $(0.26) | | Decreased customer consumption - primarily weather related | $(4,305) | $(3,145) | $(0.19) | | Hurricane Michael Settlement Margin Impact | $10,864 | $7,936 | $0.47 | | Eastern Shore and Peninsula Pipeline service expansions | $8,006 | $5,849 | $0.35 | | Margin from recent acquisitions | $5,304 | $3,875 | $0.23 | | Natural gas growth (excluding service expansions) | $3,370 | $2,462 | $0.15 | | Increased retail propane margins per gallon | $1,937 | $1,415 | $0.08 | | Increased demand for CNG services for Marlin Gas Services | $1,821 | $1,331 | $0.08 | | Aspire Energy rate increases | $1,312 | $959 | $0.06 | | Florida GRIP | $1,239 | $905 | $0.05 | | Eastern Shore margin from capital improvements and non-service expansion projects | $1,033 | $755 | $0.05 | | Depreciation and amortization associated with Hurricane Michael regulatory proceeding settlement | $(7,133) | $(5,210) | $(0.31) | | Depreciation, amortization and property tax costs due to new capital investments | $(6,262) | $(4,575) | $(0.27) | | Operating expenses from recent acquisitions | $(3,269) | $(2,388) | $(0.14) | | Insurance | $(2,088) | $(1,525) | $(0.09) | | Favorable income tax impact associated with the CARES Act | — | $1,841 | $0.11 | | Lower pension expense | $1,777 | $1,298 | $0.08 | | Increased share count from 2020 equity offerings | — | — | $(0.08) | | Deferral of COVID expenses under PSC orders | $1,925 | $1,432 | $0.09 | | Interest charges | $(1,232) | $(900) | $(0.05) | | Gains from sales of assets | $3,162 | $2,317 | $0.14 | | Interest expense associated with the early extinguishment of FPU mortgage bonds | $(961) | $(715) | $(0.04) | | Other income tax effects | — | $(1,060) | $(0.06) | | Payroll, benefits and other employee-related expenses | $716 | $523 | $0.03 | | Net Other changes | $614 | $446 | $0.01 | | **Total Change** | **$11,966** | **$9,542** | **$0.49** | Gross Margin from Major Projects and Initiatives (in thousands) | Project/Initiative | 2018 (in thousands) | 2019 (in thousands) | 2020 (in thousands) | Estimate for Fiscal 2021 (in thousands) | 2022 (in thousands) | | :---------------------------------- | :------------------ | :------------------ | :------------------ | :-------------------------------------- | :------------------ | | Pipeline Expansions | $54 | $3,153 | $11,159 | $18,126 | $21,664 | | CNG Transportation | $110 | $5,410 | $7,231 | $7,900 | $8,500 | | RNG Transportation | — | — | — | $1,000 | $1,000 | | Acquisitions | — | $329 | $5,633 | $9,992 | $10,463 | | Regulatory Initiatives | $13,020 | $13,939 | $26,042 | $29,253 | $31,726 | | **Total** | **$13,184** | **$22,831** | **$50,065** | **$66,271** | **$73,353** | - Weather variations led to a **$4.3 million decrease** in gross margin in 2020 compared to 2019, and a **$5.8 million decrease** compared to normal temperatures[183](index=183&type=chunk) - Natural gas distribution customer growth generated **$3.4 million** in additional margin in 2020, with residential customer growth of approximately **5.3%** on the Delmarva Peninsula and **4.1%** in Florida[185](index=185&type=chunk) Regulated Energy Segment Financial Performance (in thousands) | Metric (in thousands) | 2020 (in thousands) | 2019 (in thousands) | Increase (decrease) (in thousands) | | :-------------------- | :------------------ | :------------------ | :--------------------------------- | | Revenue | $352,746 | $343,006 | $9,740 | | Cost of sales | $91,994 | $102,803 | $(10,809) | | Gross margin | $260,752 | $240,203 | $20,549 | | Operating Income | $92,124 | $86,584 | $5,540 | Unregulated Energy Segment Financial Performance (in thousands) | Metric (in thousands) | 2020 (in thousands) | 2019 (in thousands) | Increase (decrease) (in thousands) | | :-------------------- | :------------------ | :------------------ | :--------------------------------- | | Revenue | $152,526 | $154,150 | $(1,624) | | Cost of sales | $62,780 | $68,884 | $(6,104) | | Gross margin | $89,746 | $85,266 | $4,480 | | Operating Income | $20,664 | $19,938 | $726 | - Interest charges decreased by **$0.5 million** in 2020 compared to 2019, primarily due to lower outstanding revolving credit facilities and interest rates, and a **$1.5 million amortization credit** from the Hurricane Michael settlement, partially offset by increased long-term debt interest[215](index=215&type=chunk) - Income tax expense from continuing operations increased to **$23.5 million** in 2020 from **$21.1 million** in 2019. The effective income tax rate was **25.0%** in 2020 (**26.9%** excluding CARES Act benefit) and **25.7%** in 2019. A **$1.8 million tax benefit** was recognized in 2020 due to the CARES Act allowing net operating loss carrybacks[216](index=216&type=chunk) Capital Expenditures by Segment (in thousands) | Segment | 2020 Capital Expenditures (in thousands) | | :--------------------------- | :--------------------------------------- | | Regulated Energy | $147,100 | | Unregulated Energy | $46,295 | | Other | $2,480 | | **Total** | **$195,875** | Forecasted Capital Expenditures for Fiscal 2021 (in thousands) | Segment | Low Estimate (in thousands) | High Estimate (in thousands) | | :--------------------------- | :-------------------------- | :--------------------------- | | Regulated Energy | $143,000 | $158,000 | | Unregulated Energy | $31,000 | $39,000 | | Other | $1,000 | $3,000 | | **Total** | **$175,000** | **$200,000** | Capitalization (in thousands) | Metric | December 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :-------------------------------------- | :------------------------------- | :------------------------------- | | Long-term debt, net of current maturities | $508,499 (42%) | $440,168 (44%) | | Stockholders' equity | $697,085 (58%) | $561,577 (56%) | | **Total capitalization** | **$1,205,584 (100%)** | **$1,001,745 (100%)** | | Short-term debt | $175,644 (13%) | $247,371 (19%) | | Long-term debt, including current maturities | $522,099 (37%) | $485,768 (38%) | | Stockholders' equity | $697,085 (50%) | $561,577 (43%) | | **Total capitalization, including short-term borrowings** | **$1,394,828 (100%)** | **$1,294,716 (100%)** | - The Company's equity to total capitalization ratio (including short-term borrowings) was **50%** as of December 31, 2020, aligning with its target of **50-60%**[225](index=225&type=chunk) Cash Flows Summary (in thousands) | Activity | 2020 (in thousands) | 2019 (in thousands) | 2018 (in thousands) | | :----------------------- | :------------------ | :------------------ | :------------------ | | Operating activities | $158,916 | $102,964 | $117,362 | | Investing activities | $(181,631) | $(186,587) | $(256,848) | | Financing activities | $19,229 | $84,519 | $139,961 | | Net (decrease) increase in cash and cash equivalents | $(3,486) | $896 | $475 | | Cash and cash equivalents—end of period | $3,499 | $6,985 | $6,089 | Contractual Obligations (as of December 31, 2020, in thousands) | Contractual Obligations | 2021 (in thousands) | 2022-2023 (in thousands) | 2024-2025 (in thousands) | After 2025 (in thousands) | Total (in thousands) | | :---------------------- | :------------------ | :----------------------- | :----------------------- | :------------------------ | :------------------- | | Long-term debt | $13,600 | $37,700 | $42,200 | $429,500 | $523,000 | | Operating leases | $2,027 | $3,907 | $3,052 | $4,419 | $13,405 | | Purchase obligations | | | | | | | Transmission capacity | $35,330 | $66,434 | $56,533 | $169,102 | $327,399 | | Storage capacity | $2,044 | $2,618 | — | — | $4,662 | | Commodities | $25,728 | — | — | — | $25,728 | | Electric supply | $6,357 | $12,788 | $12,887 | $32,402 | $64,434 | | Unfunded benefits | $310 | $606 | $572 | $1,274 | $2,762 | | Funded benefits | $3,863 | $3,090 | $3,090 | $3,031 | $13,074 | | **Total** | **$89,259** | **$127,143** | **$118,334** | **$639,728** | **$974,464** | Overview and Highlights](index=32&type=section&id=Overview%20and%20Highlights) The Company's operating income increased by $6.4 million (6.1%) in 2020 compared to 2019, reaching $112.7 million Operating Income and Net Income (2020 vs. 2019, in thousands) | Metric (in thousands) | 2020 (in thousands) | 2019 (in thousands) | Increase (decrease) (in thousands) | | :-------------------- | :------------------ | :------------------ | :--------------------------------- | | Regulated Energy | $92,124 | $86,584 | $5,540 | | Unregulated Energy | $20,664 | $19,938 | $726 | | Operating Income | $112,723 | $106,285 | $6,438 | | Net Income | $71,498 | $65,153 | $6,345 | | Diluted EPS | $4.26 | $3.96 | $0.30 | - Key variances in continuing operations for 2020 compared to 2019 included unfavorable COVID-19 impacts (**$0.26 EPS decrease**), decreased customer consumption due to weather (**$0.19 EPS decrease**), and interest expense from early extinguishment of FPU mortgage bonds (**$0.04 EPS decrease**)[156](index=156&type=chunk) - Positive impacts included Hurricane Michael Settlement Margin (**$0.47 EPS increase**), Eastern Shore and Peninsula Pipeline service expansions (**$0.35 EPS increase**), margin from recent acquisitions (**$0.23 EPS increase**), natural gas growth (**$0.15 EPS increase**), and favorable income tax impact from the CARES Act (**$0.11 EPS increase**)[156](index=156&type=chunk) Summary of Key Factors](index=34&type=section&id=Summary%20of%20Key%20Factors) The Company's gross margin growth is significantly influenced by major projects and initiatives across pipeline expansions, CNG/RNG transportation, acquisitions, and regulatory efforts Gross Margin from Major Projects and Initiatives (in thousands) | Project/Initiative | 2018 (in thousands) | 2019 (in thousands) | 2020 (in thousands) | Estimate for Fiscal 2021 (in thousands) | 2022 (in thousands) | | :---------------------------------- | :------------------ | :------------------ | :------------------ | :-------------------------------------- | :------------------ | | Pipeline Expansions | $54 | $3,153 | $11,159 | $18,126 | $21,664 | | CNG Transportation | $110 | $5,410 | $7,231 | $7,900 | $8,500 | | RNG Transportation | — | — | — | $1,000 | $1,000 | | Acquisitions | — | $329 | $5,633 | $9,992 | $10,463 | | Regulatory Initiatives | $13,020 | $13,939 | $26,042 | $29,253 | $31,726 | | **Total** | **$13,184** | **$22,831** | **$50,065** | **$66,271** | **$73,353** | - Pipeline expansions, including Western Palm Beach County, Del-Mar Energy Pathway, Auburndale, and Callahan Intrastate Pipeline, are projected to significantly increase gross margin, with Callahan alone generating **$3.9 million** in 2020 and an estimated **$7.6 million annually** from 2021[161](index=161&type=chunk)[162](index=162&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk) - Marlin Gas Services' CNG transportation business generated an additional **$1.8 million** in gross margin in 2020, with projected annual gross margin of **$7.9 million** in 2021 and **$8.5 million** in 2022[166](index=166&type=chunk) - The Company is actively pursuing Renewable Natural Gas (RNG) transportation opportunities, including projects with Noble Road Landfill RNG, Bioenergy Devco, and CleanBay, with an estimated **$1.0 million** in incremental margin from RNG transportation starting in 2021[168](index=168&type=chunk)[169](index=169&type=chunk)[170](index=170&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk) - Acquisitions in 2019-2020, including Boulden Propane, Elkton Gas, and Western Natural Gas, contributed **$5.3 million** in incremental gross margin in 2020, with projected annual gross margin of **$9.99 million** in 2021[173](index=173&type=chunk)[174](index=174&type=chunk)[175](index=175&type=chunk) - Regulatory initiatives like Florida GRIP and the Hurricane Michael settlement significantly boosted gross margin. The Hurricane Michael settlement alone contributed **$10.9 million** in additional gross margin in 2020[177](index=177&type=chunk)[181](index=181&type=chunk) - Weather conditions resulted in a **$4.3 million decrease** in gross margin in 2020 compared to 2019, primarily due to milder temperatures[183](index=183&type=chunk) - Natural gas distribution operations experienced **$3.4 million** in additional margin from customer growth in 2020, driven by residential growth on the Delmarva Peninsula (**5.3%**) and Florida (**4.1%**)[185](index=185&type=chunk) Regulated Energy](index=39&type=section&id=Regulated%20Energy) The Regulated Energy segment's operating income increased by $5.5 million (6.4%) to $92.1 million in 2020, driven by regulatory settlements, expansion projects, and customer growth Regulated Energy Segment Financial Performance (in thousands) | Metric (in thousands) | 2020 (in thousands) | 2019 (in thousands) | Increase (decrease) (in thousands) | | :-------------------- | :------------------ | :------------------ | :--------------------------------- | | Revenue | $352,746 | $343,006 | $9,740 | | Cost of sales | $91,994 | $102,803 | $(10,809) | | Gross margin | $260,752 | $240,203 | $20,549 | | Operating Income | $92,124 | $86,584 | $5,540 | - Operating income increased by **$5.5 million (6.4%)** in 2020, driven by the Hurricane Michael regulatory proceeding settlement (**$10.9 million**), Eastern Shore and Peninsula Pipeline service expansions (**$8.0 million**), natural gas distribution customer growth (**$3.4 million**), Elkton Gas acquisition (**$1.3 million**), Florida GRIP (**$1.2 million**), and Eastern Shore capital relocation projects (**$1.0 million**)[188](index=188&type=chunk)[189](index=189&type=chunk)[191](index=191&type=chunk)[192](index=192&type=chunk)[193](index=193&type=chunk)[194](index=194&type=chunk)[195](index=195&type=chunk) - These increases were partially offset by unfavorable COVID-19 impacts on gross margin (**$3.8 million decrease**) and decreased customer consumption due to milder weather (**$1.3 million decrease**)[189](index=189&type=chunk)[196](index=196&type=chunk)[197](index=197&type=chunk) Increase in Other Operating Expenses for Regulated Energy (2020 vs. 2019, in thousands) | Factor | Increase (in thousands) | | :------------------------------------------------------------------ | :---------------------- | | Hurricane Michael settlement agreement - depreciation and amortization impact | $7,133 | | Depreciation, amortization and property tax costs due to new capital investments | $5,551 | | Unfavorable COVID-19 impacts (higher operating expenses) | $2,285 | | Insurance (non-health) expense - both insured and self-insured components | $1,442 | | Operating expenses from the Elkton Gas acquisition | $651 | | Deferral of net expense increases of COVID-19 under PSC orders | $(1,925) | | Other variances | $(128) | | **Period-over-period increase in other operating expenses** | **$15,009** | Unregulated Energy](index=42&type=section&id=U%20NREGULATED%20E%20NERGY) The Unregulated Energy segment's operating income increased by $0.7 million in 2020, driven by acquisitions, higher propane margins, and increased CNG demand Unregulated Energy Segment Financial Performance (in thousands) | Metric (in thousands) | 2020 (in thousands) | 2019 (in thousands) | Increase (decrease) (in thousands) | | :-------------------- | :------------------ | :------------------ | :--------------------------------- | | Revenue | $152,526 | $154,150 | $(1,624) | | Cost of sales | $62,780 | $68,884 | $(6,104) | | Gross margin | $89,746 | $85,266 | $4,480 | | Operating Income | $20,664 | $19,938 | $726 | - Operating income increased by **$0.7 million** in 2020, primarily due to a **$4.5 million increase** in gross margin. This was driven by: **$3.96 million** from Boulden and Western Natural Gas acquisitions, **$1.94 million** from increased retail propane margins, **$1.82 million** from increased demand for Marlin Gas Services' CNG, and **$1.31 million** from Aspire Energy rate increases[202](index=202&type=chunk)[203](index=203&type=chunk)[204](index=204&type=chunk)[205](index=205&type=chunk)[207](index=207&type=chunk)[208](index=208&type=chunk) - Offsetting factors included decreased customer consumption due to warmer weather (**$2.45 million decrease** for Mid-Atlantic propane, **$0.52 million decrease** for Aspire Energy) and unfavorable COVID-19 impacts on gross margin (**$1.46 million decrease**)[203](index=203&type=chunk)[207](index=207&type=chunk)[208](index=208&type=chunk)[209](index=209&type=chunk) Increase in Other Operating Expenses for Unregulated Energy (2020 vs. 2019, in thousands) | Factor | Increase (in thousands) | | :------------------------------------------------------------------ | :---------------------- | | Depreciation and amortization due to new capital investments | $1,840 | | Operating expenses from Boulden and Western Natural Gas acquisitions | $1,510 | | Insurance expense (non-health) - both insured and self-insured | $645 | | Other variances | $(241) | | **Period-over-period increase in other operating expenses** | **$3,754** | Divestiture of PESCO](index=43&type=section&id=Divestiture%20of%20PESCO) In the fourth quarter of 2019, Chesapeake Utilities completed the sale of PESCO's assets and contracts, exiting the natural gas marketing business - The Company sold PESCO's assets and contracts in Q4 2019, exiting the natural gas marketing business to focus on core energy delivery. PESCO's historical financial results are now reported as **discontinued operations**[212](index=212&type=chunk) Other Income (Expense), Net](index=44&type=section&id=OTHER%20INCOME%20(EXPENSE),%20NET) Other income (expense), net, significantly increased from $(1.8) million in 2019 to $3.2 million in 2020 Other Income (Expense), Net (in thousands) | Year | Amount (in thousands) | | :--- | :-------------------- | | 2020 | $3,222 | | 2019 | $(1,847) | - The increase in other income (expense), net, was primarily due to **gains from the sale of two properties** and **lower pension expense** in 2020[214](index=214&type=chunk) Interest Charges](index=44&type=section&id=INTEREST%20CHARGES) Interest charges decreased by $0.5 million in 2020 compared to 2019, primarily due to lower revolving credit facilities and an amortization credit Interest Charges (in thousands) | Year | Amount (in thousands) | | :--- | :-------------------- | | 2020 | $21,765 | | 2019 | $22,224 | - Interest charges decreased by **$0.5 million** in 2020, primarily due to a **$4.6 million decrease** from lower revolving credit facility outstanding balances and lower interest rates, a **$1.5 million amortization credit** from the Hurricane Michael settlement, and **$0.5 million** from higher capitalized interest[215](index=215&type=chunk) - This decrease was partially offset by a **$5.9 million increase** in interest expense on long-term debt from 2019 and 2020 issuances, and **$1.0 million** in interest and fees for the early payoff of FPU's **9.08% secured first mortgage bonds**[215](index=215&type=chunk) Income Taxes](index=44&type=section&id=INCOME%20TAXES) Income tax expense from continuing operations increased to $23.5 million in 2020, with a $1.8 million tax benefit from the CARES Act Income Tax Expense from Continuing Operations (in thousands) | Year | Amount (in thousands) | | :--- | :-------------------- | | 2020 | $23,538 | | 2019 | $21,114 | Effective Income Tax Rate from Continuing Operations | Year | Effective Tax Rate (%) | | :--- | :--------------------- | | 2020 | 25.0% | | 2019 | 25.7% | - In 2020, the Company recognized a **$1.8 million reduction** in tax expense due to the CARES Act, which allowed net operating losses from 2018 and 2019 to be carried back to prior years with a **35% federal income tax rate**. Excluding this impact, the effective tax rate for 2020 was **26.9%**[216](index=216&type=chunk) Liquidity and Capital Resources](index=44&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The Company's capital requirements are driven by investments, debt retirement, and working capital, funded by operations, borrowings, and equity issuances - Capital requirements are primarily for **new plant and equipment**, **debt retirement**, and **seasonal working capital**. Funding sources include **cash from operations**, **short-term borrowings**, and **long-term debt/equity issuances**[217](index=217&type=chunk) - The business is **weather-sensitive and seasonal**, with a large portion of net income and accounts receivable generated in **Q1 and Q4** due to **peak heating season demand**[218](index=218&type=chunk) Capital Expenditures by Segment and Business Line (Year Ended December 31, 2020, in thousands) | Segment/Business Line | Amount (in thousands) | | :--------------------------- | :-------------------- | | Regulated Energy: | | | Natural gas distribution | $85,257 | | Natural gas transmission | $58,609 | | Electric distribution | $3,234 | | Total Regulated Energy | $147,100 | | Unregulated Energy: | | | Propane distribution | $15,455 | | Energy transmission | $19,398 | | Other unregulated energy | $11,442 | | Total Unregulated Energy | $46,295 | | Other: | | | Corporate and other businesses | $2,480 | | Total Other | $2,480 | | **Total 2020 Capital Expenditures**| **$195,875** | Forecasted Capital Expenditures for Fiscal 2021 (in thousands) | Segment/Business Line | Low Estimate (in thousands) | High Estimate (in thousands) | | :--------------------------- | :-------------------------- | :--------------------------- | | Regulated Energy: | | | | Natural gas distribution | $79,000 | $85,000 | | Natural gas transmission | $55,000 | $60,000 | | Electric distribution | $9,000 | $13,000 | | Total Regulated Energy | $143,000 | $158,000 | | Unregulated Energy: | | | | Propane distribution | $9,000 | $12,000 | | Energy transmission | $14,000 | $15,000 | | Other unregulated energy | $8,000 | $12,000 | | Total Unregulated Energy | $31,000 | $39,000 | | Other: | | | | Corporate and other businesses | $1,000 | $3,000 | | Total Other | $1,000 | $3,000 | | **Total 2021 Forecasted Capital Expenditures**| **$175,000** | **$200,000** | - The target ratio of equity to total capitalization (including short-term borrowings) is **50-60%**. As of December 31, 2020, this ratio was **50%**[225](index=225&type=chunk) - In Q3 and Q4 2020, the Company issued **1.0 million shares** of common stock through DRIP and ATM programs, generating **$83.0 million** in net proceeds[226](index=226&type=chunk) - As of December 31, 2020, **$324.6 million** of consolidated net income was free of dividend restrictions imposed by Senior Notes covenants[227](index=227&type=chunk) - The Company has Shelf Agreements with Prudential, MetLife, and NYL, with a total remaining borrowing capacity of **$310.0 million** as of December 31, 2020[233](index=233&type=chunk) - Short-term borrowings decreased from **$247.4 million** in 2019 to **$175.6 million** in 2020, with weighted average interest rates decreasing from **2.62%** to **1.28%**[234](index=234&type=chunk) - A new **$375.0 million** syndicated Revolver was entered into in September 2020, replacing previous credit facilities. Available credit under the Revolver was **$196.9 million** as of December 31, 2020[235](index=235&type=chunk)[237](index=237&type=chunk) - Net cash provided by operating activities increased by **$55.9 million** in 2020 to **$158.9 million**, driven by changes in receivables, net income adjustments, and tax refunds from the CARES Act[243](index=243&type=chunk) - Net cash used in investing activities decreased by **$5.0 million** to **$181.6 million** in 2020, primarily due to lower capital expenditures and cash received from asset sales, partially offset by acquisitions[247](index=247&type=chunk) - Net cash provided by financing activities decreased by **$65.3 million** to **$19.2 million** in 2020, mainly due to lower long-term debt issuances and higher repayments of short-term debt, partially offset by new equity issuances[248](index=248&type=chunk) Contractual Obligations](index=49&type=section&id=Contractual%20Obligations) As of December 31, 2020, the Company had total contractual obligations of $974.5 million, with significant portions related to long-term debt, transmission capacity, and electric supply Contractual Obligations (as of December 31, 2020, in thousands) | Contractual Obligations | 2021 (in thousands) | 2022-2023 (in thousands) | 2024-2025 (in thousands) | After 2025 (in thousands) | Total (in thousands) | | :---------------------- | :------------------ | :----------------------- | :----------------------- | :------------------------ | :------------------- | | Long-term debt | $13,600 | $37,700 | $42,200 | $429,500 | $523,000 | | Operating leases | $2,027 | $3,907 | $3,052 | $4,419 | $13,405 | | Purchase obligations | | | | | | | Transmission capacity | $35,330 | $66,434 | $56,533 | $169,102 | $327,399 | | Storage capacity | $2,044 | $2,618 | — | — | $4,662 | | Commodities | $25,728 | — | — | — | $25,728 | | Electric supply | $6,357 | $12,788 | $12,887 | $32,402 | $64,434 | | Unfunded benefits | $310 | $606 | $572 | $1,274 | $2,762 | | Funded benefits | $3,863 | $3,090 | $3,090 | $3,031 | $13,074 | | **Total** | **$89,259** | **$127,143** | **$118,334** | **$639,728** | **$974,464** | - Expected interest payments on long-term debt total **$180.0 million** across all periods[249](index=249&type=chunk) Off-Balance Sheet Arrangements](index=50&type=section&id=Off-Balance%20Sheet%20Arrangements) The Company's Board of Directors has authorized up to $20.0 million in corporate guarantees and letters of credit for subsidiary obligations - The Board authorized up to **$20.0 million** for corporate guarantees and letters of credit for subsidiary obligations[252](index=252&type=chunk) - As of December 31, 2020, **$5.7 million** in guarantees (expiring through September 2021) and **$4.8 million** in letters of credit (expiring through October 2021) were outstanding. No draws have occurred, and renewals are expected[252](index=252&type=chunk)[253](index=253&type=chunk) Critical Accounting Policies](index=50&type=section&id=Critical%20Accounting%20Policies) The Company's financial statements rely on estimates and assumptions, particularly for regulated operations under ASC Topic 980, requiring significant management judgment - Financial statements are prepared using GAAP, requiring estimates and assumptions about future economic factors. Regulated operations follow **ASC Topic 980**, deferring costs/revenues as regulatory assets/liabilities based on probable recovery/refund through rates[254](index=254&type=chunk)[255](index=255&type=chunk) - Environmental liabilities for MGP sites are estimated by independent consultants and recorded on an **undiscounted basis**, with costs expected to be **recoverable through regulatory rate mechanisms**[256](index=256&type=chunk) - Financial instruments are used to mitigate **commodity price and interest rate risks**. Derivatives are recorded at **fair value**, with changes recognized in earnings or comprehensive income based on **hedge accounting criteria**[257](index=257&type=chunk)[259](index=259&type=chunk) - Revenue recognition for regulated operations is based on **PSC/FERC approved rates**, with **unbilled revenues accrued**. Unregulated operations recognize revenue based on delivery/service, with **flexible rates for competitive customers**[260](index=260&type=chunk)[261](index=261&type=chunk)[262](index=262&type=chunk)[263](index=263&type=chunk)[264](index=264&type=chunk) - An **allowance for expected credit losses** is recorded against trade receivables, based on historical collections, economic conditions, and customer payment ability, including impacts from pandemics[265](index=265&type=chunk) - Goodwill is tested for impairment annually using a **discounted cash flow technique**, with **no impairment indicated for 2020**. Pension and other postretirement plan costs and liabilities are determined **actuarially**, influenced by assumptions like market value of assets, discount rates, and expected returns[266](index=266&type=chunk)[269](index=269&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=45&type=section&id=ITEM%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The Company is exposed to interest rate risk, commodity price risk, and wholesale credit risk, which are managed through various strategies - **Interest rate risk** arises from potential losses due to changes in interest rates, affecting debt refinancing costs and short-term borrowings. The Company uses **interest rate swap agreements** to mitigate short-term borrowing rate risk[274](index=274&type=chunk) - Regulated energy distribution businesses have **limited commodity price risk** due to PSC-authorized **fuel cost recovery mechanisms**[276](index=276&type=chunk) - Unregulated propane operations are exposed to **commodity price risk**, mitigated by propane storage activities (**8.3 million gallons capacity**) and forward contracts for supply. Aspire Energy manages commodity price risk by procuring firm capacity and seeking new producers[277](index=277&type=chunk) Fair Market Value of Financial Derivatives Contracts (Propane) (in thousands) | Business unit | Balance at Dec 31, 2019 (in thousands) | Increase (Decrease) in Fair Market Value (in thousands) | Less Amounts Settled (in thousands) | Balance at Dec 31, 2020 (in thousands) | | :-------------- | :------------------------------------- | :------------------------------------------------------ | :---------------------------------- | :------------------------------------- | | Sharp | $(1,844) | $4,292 | $734 | $3,182 | | **Total** | **$(1,844)** | **$4,292** | **$734** | **$3,182** | Fair Market Value of Financial Derivatives by Maturity (as of December 31, 2020, in thousands) | Metric | 2021 (in thousands) | 2022 (in thousands) | 2023 (in thousands) | Total Fair Value (in thousands) | | :----------------------------------- | :------------------ | :------------------ | :------------------ | :------------------------------ | | Price based on Mont Belvieu - Sharp | $2,669 | $508 | $5 | $3,182 | | **Total** | **$2,669** | **$508** | **$5** | **$3,182** | - **Wholesale credit risks** with commodity derivative counterparties are reviewed by the **Risk Management Committee**[280](index=280&type=chunk) - **Inflation impacts** operating, maintenance, and capital improvement costs. The Company seeks **rate increases** for regulated operations and monitors returns for unregulated businesses to mitigate these effects[282](index=282&type=chunk) [Financial Statements and Supplementary Data](index=55&type=section&id=ITEM%208.%20Financial%20Statements%20and%20Supplementary%20Data.) This section presents the audited consolidated financial statements for Chesapeake Utilities Corporation and its subsidiaries for the years ended December 31, 2020, 2019, and 2018 - The independent registered public accounting firm, Baker Tilly US, LLP, issued an **unqualified opinion** on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2020[285](index=285&type=chunk)[286](index=286&type=chunk) - The goodwill impairment assessment for four reporting units within the Unregulated Energy segment (Aspire Energy, Mid-Atlantic Propane, Florida Propane, Marlin Gas Services) was identified as a **critical audit matter** due to significant estimates and assumptions in fair value calculations[295](index=295&type=chunk) Consolidated Statements of Income (in thousands, except per share data) | Metric | 2020 (in thousands) | 2019 (in thousands) | 2018 (in thousands) | | :--------------------------------------- | :------------------ | :------------------ | :------------------ | | Total operating revenues | $488,198 | $479,605 | $490,316 | | Total operating expenses | $375,475 | $373,320 | $395,472 | | Operating Income | $112,723 | $106,285 | $94,844 | | Income from Continuing Operations | $70,642 | $61,100 | $56,968 | | Net Income | $71,498 | $65,153 | $56,580 | | Basic Earnings Per Share of Common Stock | $4.28 | $3.97 | $3.46 | | Diluted Earnings Per Share of Common Stock | $4.26 | $3.96 | $3.45 | Consolidated Balance Sheets (in thousands) | Asset/Liability | December 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--------------------------------------- | :------------------------------- | :------------------------------- | | Net property, plant and equipment | $1,601,178 | $1,463,797 | | Total current assets | $136,431 | $134,826 | | Total deferred charges and other assets | $194,878 | $184,575 | | **Total Assets** | **$1,932,487** | **$1,783,198** | | Total stockholders' equity | $697,085 | $561,577 | | Long-term debt, net of current maturities| $508,499 | $440,168 | | Total capitalization | $1,205,584 | $1,001,745 | | Total current liabilities | $329,032 | $423,324 | | Total deferred credits and other liabilities | $397,871 | $358,129 | | **Total Capitalization and Liabilities** | **$1,932,487** | **$1,783,198** | Consolidated Statements of Cash Flows (in thousands) | Activity | 2020 (in thousands) | 2019 (in thousands) | 2018 (in thousands) | | :----------------------- | :------------------ | :------------------ | :------------------ | | Net cash provided by operating activities | $158,916 | $102,964 | $117,362 | | Net cash used in investing activities | $(181,631) | $(186,587) | $(256,848) | | Net cash provided by financing activities | $19,229 | $84,519 | $139,961 | | Net (Decrease) Increase in Cash and Cash Equivalents | $(3,486) | $896 | $475 | | Cash and Cash Equivalents — End of Period | $3,499 | $6,985 | $6,089 | - The Company adopted **ASU 2016-13 (Credit Losses)** on January 1, 2020, recording an immaterial cumulative effect in retained earnings. The allowance for credit losses increased from **$1.3 million** in 2019 to **$4.8 million** in 2020, reflecting COVID-19 impacts[369](index=369&type=chunk)[374](index=374&type=chunk)[375](index=375&type=chunk) - In 2020, the Company acquired Western Natural Gas for **$6.7 million** and Elkton Gas for **$15.6 million**, expanding its unregulated propane and regulated natural gas distribution services, respectively. These acquisitions contributed to goodwill and intangible assets[379](index=379&type=chunk)[380](index=380&type=chunk) - The divestiture of PESCO's natural gas marketing business in Q4 2019 resulted in **$23.1 million cash consideration** and a **$7.5 million pre-tax gain**, with PESCO's results reclassified as discontinued operations[386](index=386&type=chunk) Total Operating Revenues by Segment (in thousands) | Segment | 2020 (in thousands) | 2019 (in thousands) | 2018 (in thousands) | | :----------------------- | :------------------ | :------------------ | :------------------ | | Regulated Energy | $352,746 | $343,006 | $345,281 | | Unregulated Energy | $152,526 | $154,151 | $161,905 | | Other and Eliminations | $(17,074) | $(17,552) | $(16,870) | | **Total Operating Revenues**| **$488,198** | **$479,605** | **$490,316** | Long-Term Debt (in thousands) | Debt Type | December 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :-------------------------------------- | :------------------------------- | :------------------------------- | | FPU secured first mortgage bonds (9.08%)| — | $7,990 | | Uncollateralized Senior Notes | $408,000 | $328,300 | | Term Note due Feb 2

Financial Performance & Growth - The company's five-year performance through September 30, 2020, shows an annual shareholder return of 117%[7], EPS growth of 87%[7], and dividend growth of 89%[7] - The company's Return on Equity (ROE) consistently exceeds the peer median and 75th percentile[9] - Capital expenditures for the nine months ended September 30, 2020, were $1439 million[82] - The company reaffirms its five-year capital expenditure guidance up to $1 billion[84] From 2018 through September 30, 2020, the company has invested $626 million on new capital expenditures[84] Strategic Initiatives & Expansion - The company invested $144 million in Gas Reliability and Infrastructure Project[32] - The company's strategic plan for 2021-2025 includes optimizing earnings growth, pursuing transmission projects, expanding Marlin Gas Services, further expanding the propane business, and investing in Renewable Natural Gas (RNG) production projects[33] - The company expects to generate $1 million in incremental margin in 2021 from renewable gas transportation due to the Bioenergy DevCo, CleanBay, and Fortistar projects[78] COVID-19 Impact - For the three and nine months ended September 30, 2020, the COVID-19 operating income impacts were $19 million and $67 million, respectively[88] - Year-to-date net income was reduced $19 million or $012 per share due to COVID-19[88] Regulatory & Other Factors - In September 2020, the Florida Public Service Commission approved a settlement agreement regarding the final cost recovery and rates associated with Hurricane Michael, improving operating income by $29 million for the third quarter[89] - The settlement agreement allowed FPU to record regulatory assets for storm costs in the amount of $458 million, recover these storm costs through a surcharge for a total of $77 million annually, and collect an annual increase in revenue of $33 million to recover capital costs[89] - Gross Margin increased $82 million in the third quarter of 2020 compared to the third quarter of 2019[90]

Chesapeake Utilities Corporation Commitment Growth Leadership Safety Sustainability Solutions Driven By Energy Strength Team Service Performance Community Value 2020 Wells Fargo Virtual Midstream and Utility Symposium December 8, 2020 Forward Looking Statements and Other Disclosures Safe Harbor Statement: Some of the Statements in this document concerning future Company performance will be forward-looking within the meanings of the securities laws. Actual results may materially differ from those discussed i ...

Chesapeake Utilities Corporation (NYSE:CPK) Q3 2020 Earnings Conference Call November 5, 2020 4:00 PM ET Company Participants Beth Cooper – Chief Financial Officer Jeff Householder – President and Chief Executive Officer Jim Moriarty – Executive Vice President, General Counsel, Corporate Secretary and Chief Risk and Compliance Officer Conference Call Participants Brian Russo – Sidoti Tate Sullivan – Maxim Group Roger Liddell – Clear Harbor Asset Management Operator Welcome to Chesapeake Utilities Corp Third ...

Financial Performance - The company's operating income for the third quarter of 2020 was $17406 thousand, compared to $14357 thousand in 2019[11] - Net income for the third quarter of 2020 was $9261 thousand, compared to $5621 thousand in 2019[11] - Diluted EPS from continuing operations for the third quarter of 2020 was $056, compared to $038 in 2019[11] - The company estimates major projects will contribute $50 million in 2020 and $63 million in 2021[10] Growth and Expansion - The company completed the acquisition of Western Natural Gas Company, a Florida propane company[9] - The company issued 735336 shares under the At-The-Market (ATM) program at an average price of $8496, resulting in $625 million in gross proceeds[25] - Capital expenditures for the nine months ended September 30, 2020, were $1439 million[15] - The company updated its 2020 capital expenditure forecast to a range of $195 million to $215 million[14] COVID-19 Impact - The COVID-19 pandemic had an operating income impact of $19 million for the three months ended September 30, 2020, and $67 million for the nine months ended September 30, 2020[13] - Year-to-date net income was reduced by $19 million, or $012 per share, due to COVID-19 impacts[13] Hurricane Michael Settlement - The settlement of the Hurricane Michael proceeding improved operating income by $29 million for the third quarter[32] - The settlement agreement allowed FPU to record regulatory assets for storm costs in the amount of $458 million, which will be amortized over six years, and recover these storm costs through a surcharge for a total of $77 million annually[32]

PART I—FINANCIAL INFORMATION [Financial Statements](index=6&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) Chesapeake Utilities reported strong financial performance in Q3 and the first nine months of 2020, with net income and assets significantly increasing, and operating cash flow improving [Condensed Consolidated Statements of Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) The company achieved substantial year-over-year growth in Q3 and the first nine months of 2020, with net income and diluted EPS significantly increasing Financial Metric | Financial Metric (in thousands, except EPS) | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | **Total Operating Revenues** | $101,419 | $92,626 | $351,160 | $347,630 | | **Operating Income** | $17,406 | $14,357 | $77,518 | $76,645 | | **Income from Continuing Operations** | $9,280 | $6,251 | $48,981 | $43,977 | | **Net Income** | $9,261 | $5,621 | $49,146 | $42,589 | | **Diluted EPS from Continuing Operations** | $0.56 | $0.38 | $2.96 | $2.67 | | **Diluted EPS** | $0.56 | $0.34 | $2.97 | $2.59 | [Condensed Consolidated Balance Sheets](index=8&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets expanded to $1.888 billion by September 30, 2020, driven by increased property, plant, and equipment, alongside growth in stockholders' equity and long-term debt Balance Sheet Item | Balance Sheet Item (in thousands) | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Total Assets** | $1,888,088 | $1,783,198 | | Net property, plant and equipment | $1,567,350 | $1,463,797 | | **Total Liabilities** | $1,271,398 | $1,221,621 | | Long-term debt, net | $519,971 | $440,168 | | **Total Stockholders' Equity** | $616,690 | $561,577 | | **Total Capitalization and Liabilities** | $1,888,088 | $1,783,198 | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow increased to $115.9 million for the nine months ended September 30, 2020, while investing and financing cash flows saw notable shifts Cash Flow Activity | Cash Flow Activity (in thousands) | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $115,880 | $103,939 | | **Net cash used in investing activities** | ($136,551) | ($139,913) | | **Net cash provided by financing activities** | $16,742 | $34,205 | | **Net Decrease in Cash and Cash Equivalents** | ($3,929) | ($1,769) | [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide details on accounting policies, the impact of COVID-19, significant acquisitions and divestitures, regulatory authorizations, and financial instruments - The company acquired **Elkton Gas** in **July 2020** for approximately **$15.6 million**, adding **7,000** natural gas customers in **Cecil County, Maryland**. The acquisition resulted in the recording of **$4.3 million** in **goodwill**[53](index=53&type=chunk)[54](index=54&type=chunk) - The company divested its natural gas marketing business, **PESCO**, in **Q4 2019**. **PESCO**'s historical financial results are now reflected as discontinued operations in the financial statements[40](index=40&type=chunk)[56](index=56&type=chunk) - The company has received authorization from the **Delaware**, **Maryland**, and **Florida Public Service Commissions (PSCs)** to establish **regulatory assets** to record prudently incurred incremental costs related to the **COVID-19** pandemic, facilitating future cost recovery[94](index=94&type=chunk)[95](index=95&type=chunk)[96](index=96&type=chunk) - In **September 2020**, the company entered into a new **$375.0 million syndicated revolving credit facility (Revolver)**, which expires in **September 2021**. This replaced all previously existing bilateral lines of credit[172](index=172&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=43&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Strong Q3 2020 performance was driven by the Hurricane Michael settlement and organic growth, despite COVID-19 impacts, with the company maintaining a sound capital structure and executing strategic investments [Results of Operations](index=46&type=section&id=Results%20of%20Operations) Operating income significantly increased in Q3 2020, primarily due to the Hurricane Michael settlement and gross margin growth, despite COVID-19 and weather impacts over nine months - The settlement of the **Hurricane Michael regulatory proceeding** was a primary driver of performance, improving **operating income** by **$2.9 million** in **Q3 2020**. This included recognizing **$1.9 million** in **operating income** that was previously billed under interim rates during the first half of **2020**[192](index=192&type=chunk) - For the nine months ended **September 30, 2020**, the estimated unfavorable impact of **COVID-19** on earnings was approximately **$1.9 million**, primarily from reduced commercial/industrial consumption, higher bad debt, and incremental pandemic-related expenses[191](index=191&type=chunk) Gross Margin Drivers | Gross Margin Drivers (in thousands) | Q3 2020 vs Q3 2019 | Nine Months 2020 vs 2019 | | :--- | :--- | :--- | | Hurricane Michael regulatory settlement | $8,261 | $8,261 | | Pipeline Expansions (Eastern Shore & Peninsula) | $2,677 | $5,485 | | Acquisitions (Boulden & Elkton Gas) | $684 | $3,120 | | Florida GRIP | $685 | $678 | | Increased demand for CNG services | $599 | $694 | | Decreased consumption (weather related) | ($1,005) | ($3,090) | [Financial Position, Liquidity and Capital Resources](index=64&type=section&id=FINANCIAL%20POSITION%2C%20LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The company maintains a strong financial position and liquidity, supported by operating cash flow, a new credit facility, and capital market access, with a 2020 capital expenditure forecast of $195-$215 million 2020 Expected Capital Expenditures | 2020 Expected Capital Expenditures (in thousands) | Low | High | | :--- | :--- | :--- | | **Regulated Energy** | $150,000 | $164,000 | | **Unregulated Energy** | $43,000 | $48,000 | | **Other** | $2,000 | $3,000 | | **Total** | **$195,000** | **$215,000** | - The company's target **equity to total capitalization ratio** (including short-term debt) is **50-60%**. The ratio was **45%** at **September 30, 2020**, and rose to ~**50%** by **October 31, 2020**, after equity issuances[291](index=291&type=chunk)[292](index=292&type=chunk) - As of **September 30, 2020**, the company had **$310 million** in remaining **borrowing capacity** under its shelf agreements with **Prudential, MetLife, and NYL**[295](index=295&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=69&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company manages interest rate risk through fixed-rate debt and mitigates commodity price risk in regulated and unregulated segments via recovery mechanisms and hedging strategies - The company's **regulated energy** businesses have limited **commodity price risk** exposure due to **fuel cost recovery mechanisms** authorized by **Public Service Commissions**, which allow for the recovery of prudently incurred fuel costs[315](index=315&type=chunk) - Unregulated **propane operations** are exposed to **commodity price risk**, which is mitigated by storing up to **8.0 million gallons** of propane and using **fair value hedges**, **cash flow hedges**, or other **economic hedges**[316](index=316&type=chunk) [Controls and Procedures](index=70&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) The CEO and CFO affirmed the effectiveness of disclosure controls and procedures as of September 30, 2020, with recent operational changes not materially impacting internal controls - Based on their evaluation, the **Chief Executive Officer** and **Chief Financial Officer** concluded that the company's **disclosure controls and procedures** were effective as of **September 30, 2020**[321](index=321&type=chunk) - Changes during the quarter, including a new fixed asset tracking system and a pandemic response plan for remote work, did not materially affect the company's **internal control over financial reporting**[322](index=322&type=chunk) PART II—OTHER INFORMATION [Legal Proceedings](index=71&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) Management believes ongoing legal proceedings and claims will not materially affect the company's financial position, results of operations, or cash flows - In the opinion of management, the ultimate disposition of ongoing legal proceedings and claims will not have a material effect on the company's consolidated financial position, results of operations, or cash flows[330](index=330&type=chunk) [Risk Factors](index=71&type=page&id=ITEM%201A.%20RISK%20FACTORS) No material changes to previously disclosed risk factors were reported in the current period - The report refers to the risk factors described in the **2019 Annual Report on Form 10-K** and the **Q1 2020 Form 10-Q**, indicating no material updates in the current period[331](index=331&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=71&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) In Q3 2020, the company purchased 556 shares for its Non-Qualified Deferred Compensation Plan's Rabbi Trust, with no other public repurchase plans - In **July 2020**, the company purchased **556 shares** at an **average price** of **$84.77 per share** for its **Non-Qualified Deferred Compensation Plan**'s **Rabbi Trust**[329](index=329&type=chunk)[332](index=332&type=chunk) [Exhibits](index=72&type=section&id=ITEM%206.%20EXHIBITS) This section lists exhibits filed with the Form 10-Q, including key agreements, certifications, and XBRL data files

Commitment Growth Leadership Safety Sustainability Solutions Energy Strength Team Service | --- | --- | --- | |--------|-------|-------| | | | | | Driven | | By | Performance Community Value Forward Looking Statements and Other Disclosures Safe Harbor Statement: Some of the Statements in this document concerning future Company performance will be forward-looking within the meanings of the securities laws. Actual results may materially differ from those discussed in these forward-looking statements. You shou ...