Chesapeake Utilities(CPK) - 2025 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION Financial Statements Unaudited condensed consolidated financial statements show significant revenue and net income growth for Q2 and H1 2025, with total assets growing to $3.74 billion Condensed Consolidated Statements of Income Highlights (Unaudited) | Metric (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Operating Revenues | $192.8 | $166.3 | $491.5 | $412.0 | | Operating Income | $50.3 | $40.8 | $137.1 | $120.4 | | Net Income | $23.9 | $18.2 | $74.8 | $64.4 | Condensed Consolidated Balance Sheet Highlights (Unaudited) | Metric (in millions) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $3,737.8 | $3,577.0 | | Total Liabilities | $2,238.7 | $2,186.8 | | Total Stockholders' Equity | $1,499.1 | $1,390.2 | Condensed Consolidated Statements of Cash Flows Highlights (Unaudited) | Metric (in millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $139.2 | $167.4 | | Net cash used in investing activities | $(212.7) | $(155.8) | | Net cash provided by (used in) financing activities | $67.1 | $(10.1) | Earnings Per Share (Diluted) | Period | Diluted EPS | | :--- | :--- | | Three Months Ended June 30, 2025 | $1.02 | | Three Months Ended June 30, 2024 | $0.82 | | Six Months Ended June 30, 2025 | $3.22 | | Six Months Ended June 30, 2024 | $2.89 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, revenue recognition, rate cases, segment performance, debt financing, and derivative instruments for hedging - The company adopted ASU 2023-07 for segment reporting and ASU 2023-09 for income tax disclosures, which only impacted disclosures and not the financial position or results of operations[33][34] - In August 2025, the company entered into a Note Purchase Agreement for $200.0 million in Senior Notes to reduce short-term borrowings and fund capital expenditures[126] - The company amended its revolving credit agreement in August 2024, increasing total borrowing capacity to $450.0 million. As of June 30, 2025, $245.3 million was outstanding[130][131] - The company uses propane and interest rate swap agreements, designated as cash flow hedges, to mitigate risks from commodity price fluctuations and changes in short-term borrowing rates[110][111][112] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes strong Q2 2025 performance to regulatory initiatives and infrastructure, increasing capital expenditure forecasts Q2 2025 vs Q2 2024 Performance (GAAP) | Metric (in millions) | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Net Income | $23.9 | $18.2 | +$5.7 | | Diluted EPS | $1.02 | $0.82 | +$0.20 | Six Months 2025 vs 2024 Performance (GAAP) | Metric (in millions) | H1 2025 | H1 2024 | Change | | :--- | :--- | :--- | :--- | | Net Income | $74.8 | $64.4 | +$10.4 | | Diluted EPS | $3.22 | $2.89 | +$0.33 | - The company's growth strategy focuses on prudently deploying capital in existing businesses and new projects, proactively managing its regulatory agenda, and executing business transformation initiatives[143][148] - The company increased its 2025 capital expenditure forecast to a range of $375.0 million to $425.0 million, up from previous estimates, to support growth projects[248] Results of Operations Q2 2025 operating income rose to $50.3 million, driven by a $16.2 million increase in Adjusted Gross Margin, primarily from Regulated Energy Adjusted Gross Margin by Segment - Q2 2025 vs Q2 2024 | Segment (in millions) | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Regulated Energy | $117.7 | $103.3 | +$14.4 | | Unregulated Energy | $25.0 | $23.4 | +$1.6 | | Total Adjusted Gross Margin | $142.8 | $126.6 | +$16.2 | Operating Income by Segment - Q2 2025 vs Q2 2024 | Segment (in millions) | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Regulated Energy | $51.8 | $40.5 | +$11.3 | | Unregulated Energy | $(1.5) | $0.4 | $(1.9) | | Total Operating Income | $50.3 | $40.8 | +$9.5 | - Key drivers for the Q2 2025 pre-tax income increase included rate changes (+$4.1M), natural gas transmission expansions (+$3.9M), contributions from infrastructure programs (+$3.7M), and increased CNG/RNG/LNG services (+$3.5M)[165] Summary of Key Factors Influencing Adjusted Gross Margin Adjusted gross margin is significantly influenced by major projects and regulatory initiatives, forecasted to contribute $84.9 million in 2025 Forecasted Adjusted Gross Margin from Major Projects & Initiatives (in millions) | Category | Estimate for Fiscal 2025 | Estimate for Fiscal 2026 | | :--- | :--- | :--- | | Pipeline Expansions | $22.8 | $45.3 | | CNG/RNG/LNG Transportation & Infrastructure | $22.0 | $22.7 | | Regulatory Initiatives | $40.1 | $56.0 | | Total | $84.9 | $124.0 | - The Worcester Resiliency Upgrade project, approved by FERC in January 2025, is expected to generate significant adjusted gross margin of $10.2 million in 2026 and $17.6 million in 2027 and thereafter[177][178] - Colder weather in H1 2025 compared to H1 2024 contributed an additional $5.7 million in adjusted gross margin from increased customer consumption[201] Financial Position, Liquidity and Capital Resources The company maintains a strong financial position, funding capital expenditures through cash flow, borrowings, and equity, with $197.1 million available credit 2025 Forecasted Capital Expenditures (in millions) | Category | Low Estimate | High Estimate | | :--- | :--- | :--- | | Regulated Energy | $335.0 | $375.0 | | Unregulated Energy | $33.0 | $42.0 | | Corporate and other | $7.0 | $8.0 | | Total | $375.0 | $425.0 | Capitalization (including short-term debt) | Component (in millions) | June 30, 2025 | % of Total | | :--- | :--- | :--- | | Short-term debt | $245.3 | 8% | | Long-term debt | $1,275.1 | 42% | | Stockholders' equity | $1,499.1 | 50% | | Total capitalization | $3,019.5 | 100% | - Net cash provided by financing activities was $67.1 million for H1 2025, driven by $61.2 million in stock issuance proceeds and $46.6 million in net revolver borrowings, partially offset by $29.0 million in dividend payments[263][271] Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk with fixed-rate debt and swaps, commodity price risk through recovery mechanisms and hedging - Regulated energy operations have limited commodity price risk due to PSC-authorized fuel cost recovery mechanisms[273] - Unregulated propane operations use storage (up to 8.6 million gallons), forward contracts, and derivative hedges to mitigate wholesale price fluctuation risk[274][275] - The company utilizes interest rate swap agreements to mitigate risk associated with changes in short-term borrowing rates on its revolving credit facility[272] Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[282] - No material changes to internal controls over financial reporting occurred during the quarter ended June 30, 2025[283] PART II—OTHER INFORMATION Legal Proceedings Management believes ongoing legal and regulatory proceedings will not materially affect the company's financial position or results - Management does not expect ongoing legal and regulatory proceedings to have a material effect on the company's financial condition or results[284] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2024 Annual Report on Form 10-K - The report states there are no material changes from the risk factors disclosed in the 2024 Annual Report on Form 10-K[285] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2025, the company repurchased a small number of shares for dividend reinvestment in a Rabbi Trust, without a public program Share Repurchases - Q2 2025 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2025 | 629 | $128.40 | | May 2025 | 0 | N/A | | June 2025 | 0 | N/A | | Total | 629 | $128.40 | - Share purchases were made for the purpose of reinvesting dividends on shares held in the Rabbi Trust for the Non-Qualified Deferred Compensation Plan[286] Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - None[287] Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the second quarter of 2025 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the quarter[288] Exhibits This section lists filed exhibits, including a Note Purchase Agreement and CEO/CFO certifications - Key exhibits filed include a Note Purchase Agreement dated August 1, 2025, and certifications by the CEO and CFO pursuant to the Securities Exchange Act of 1934[289]