Chesapeake Utilities(CPK) - 2023 Q4 - Annual Results

Financial Highlights Full Year 2023 Performance Fiscal year 2023 adjusted net income rose 8.9% to $97.8 million, with adjusted EPS growing 5.4% to $5.31, despite a $0.54 per share weather impact | Metric | 2023 | 2022 | Growth | | :--- | :--- | :--- | :--- | | GAAP EPS | $4.73 | $5.04 | -6.1% | | Adjusted EPS | $5.31 | $5.04 | +5.4% | | Adjusted Net Income | $97.8M | $89.8M | +8.9% | - Full year earnings were negatively impacted by approximately $0.54 per share due to significantly warmer than normal temperatures[4] - Adjusted gross margin increased by $33.9 million for the year, driven by regulatory initiatives, natural gas organic growth, pipeline expansion projects, increased propane margins, and incremental margin from the FCG acquisition[4] - Earnings growth was partially offset by increased interest expense from higher rates on short-term borrowings and new debt and equity issued for the FCG acquisition[18] Fourth Quarter 2023 Performance Fourth quarter 2023 adjusted net income reached $33.1 million, with adjusted EPS growing 11.6% to $1.64, despite a $0.14 per share negative impact from warmer weather | Metric | Q4 2023 | Q4 2022 | Growth | | :--- | :--- | :--- | :--- | | GAAP EPS | $1.26 | $1.47 | -14.3% | | Adjusted EPS | $1.64 | $1.47 | +11.6% | | Adjusted Net Income | $33.1M | $26.2M | +26.3% | - Fourth quarter earnings were negatively impacted by approximately $0.14 per share due to warmer than normal temperatures[4] - The quarter's earnings drivers were consistent with the full year, though partially offset by reduced customer consumption and lower adjusted gross margin from virtual pipeline services[19] CEO Commentary and Business Outlook CEO Commentary The CEO highlighted 2023 as the 17th consecutive year of record earnings, driven by strong customer growth and the successful FCG acquisition, despite rising interest rates and warm weather - The company delivered its 17th consecutive year of record earnings, excluding transaction costs related to the FCG acquisition[21] - Regulated natural gas distribution businesses gained customers at more than twice the national average[21] - The company reinforces its commitment to achieving its 2025 EPS guidance of $6.15-$6.35 per share, supported by the FCG acquisition and strong performance in 2023[21] Acquisition of Florida City Gas Acquisition Details Chesapeake Utilities completed the acquisition of Florida City Gas (FCG) for $923.4 million in cash on November 30, 2023, adding approximately 120,000 customers in Florida - The acquisition of FCG was completed on November 30, 2023, for $923.4 million in cash[22] - FCG serves approximately 120,000 residential and commercial natural gas customers across eight counties in Florida[22] - In June 2023, FCG received approval for a $23.3 million total increase in base revenue from the Florida Public Service Commission, with new rates effective May 1, 2023[22] Capital Investment and Earnings Guidance Earnings Guidance The company introduced 2024 EPS guidance of $5.33-$5.45 and reaffirmed 2025 ($6.15-$6.35) and 2028 ($7.75-$8.00) EPS guidance, implying an approximate 8% growth rate from 2025 | Period | EPS Guidance Range | | :--- | :--- | | 2024 | $5.33 - $5.45 | | 2025 | $6.15 - $6.35 (Reaffirmed) | | 2028 | $7.75 - $8.00 (Reaffirmed) | Capital Expenditure Guidance Chesapeake Utilities affirmed 2024 capital expenditure guidance of $300 million to $360 million and maintained its $1.5 billion to $1.8 billion five-year guidance through 2028 | Period | Capital Expenditure Guidance | | :--- | :--- | | 2024 | $300M - $360M (Affirmed) | | 2023-2028 | $1.5B - $1.8B (Reaffirmed) | Consolidated Financial Results Operating Results for the Year Ended December 31, 2023 Full year 2023 operating income increased 5.5% to $150.8 million, or 12.8% excluding FCG transaction expenses, driven by a $33.9 million adjusted gross margin increase | Metric (in thousands) | 2023 | 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Adjusted Gross Margin | $454,123 | $420,198 | $33,925 | 8.1% | | Operating Income | $150,803 | $142,933 | $7,870 | 5.5% | - Excluding $10.4 million in FCG transaction-related expenses, operating income increased by $18.2 million or 12.8% compared to the prior year[32][30] Operating Results for the Quarter Ended December 31, 2023 Fourth quarter 2023 operating income rose 10.2% to $47.3 million, or 25.2% excluding FCG transaction expenses, with adjusted gross margin growing 13.0% to $130.3 million | Metric (in thousands) | Q4 2023 | Q4 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Adjusted Gross Margin | $130,331 | $115,297 | $15,034 | 13.0% | | Operating Income | $47,315 | $42,952 | $4,363 | 10.2% | - Excluding FCG transaction-related expenses, operating income increased by $10.8 million or 25.2% compared to the same period in 2022[65] Segment Performance Regulated Energy Segment The Regulated Energy segment's 2023 operating income grew 9.4% to $126.2 million, driven by a 10.4% increase in adjusted gross margin from rate changes, FCG acquisition, and organic growth Full Year Performance (in thousands) | Metric | 2023 | 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Adjusted Gross Margin | $333,587 | $302,252 | $31,335 | 10.4% | | Operating Income | $126,199 | $115,317 | $10,882 | 9.4% | Key Drivers of Full Year Adjusted Gross Margin Increase (in thousands) | Driver | Contribution | | :--- | :--- | | Rate changes (Florida) | $13,361 | | FCG Acquisition | $8,687 | | Natural gas growth | $6,214 | | Transmission expansions | $4,812 | | Warmer temperatures | ($5,096) | Unregulated Energy Segment The Unregulated Energy segment's 2023 operating income decreased 10.7% to $24.4 million, despite a 2.2% adjusted gross margin increase driven by propane margins but offset by lower consumption Full Year Performance (in thousands) | Metric | 2023 | 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Adjusted Gross Margin | $120,656 | $118,067 | $2,589 | 2.2% | | Operating Income | $24,426 | $27,350 | ($2,924) | -10.7% | Key Drivers of Full Year Adjusted Gross Margin Change (in thousands) | Driver | Contribution | | :--- | :--- | | Increased propane margins and fees | $8,821 | | Propane customer consumption (weather) | ($8,235) | | Aspire Energy gathering margin | $1,141 | Major Projects and Initiatives Project Portfolio Overview The company's major projects, including pipeline expansions and clean energy initiatives, contributed $38.1 million to adjusted gross margin in 2023, with projections of $53.0 million in 2024 and $64.0 million in 2025 Adjusted Gross Margin Contribution from Major Projects (in thousands) | Category | 2022 | 2023 | 2024 (Est.) | 2025 (Est.) | | :--- | :--- | :--- | :--- | :--- | | Pipeline Expansions | $1,763 | $6,575 | $11,812 | $14,096 | | CNG/RNG/LNG | $11,100 | $11,181 | $12,500 | $13,969 | | Regulatory Initiatives | $4,961 | $20,343 | $28,669 | $35,907 | | Total | $17,824 | $38,099 | $52,981 | $63,972 | - Key regulatory initiatives include the Florida GUARD Program and FCG SAFE Program, which are expected to drive significant margin growth in coming years[81][115][93] - The company is constructing a dairy manure RNG facility in Florida, with the first injection of RNG projected for the first half of 2024[114] Other Major Factors Influencing Performance Weather and Consumption Warmer weather significantly impacted 2023 results, reducing adjusted gross margin by approximately $13.6 million due to reduced heating demand across key service territories - Significantly warmer weather negatively impacted adjusted gross margin by approximately $13.6 million in 2023 compared to 2022[117][140] Full Year 2023 Heating Degree Day (HDD) Variance from Normal | Region | Variance from 10-Year Average | | :--- | :--- | | Delmarva | (745) | | Florida | (162) | | Ohio | (551) | Natural Gas Distribution Growth The company achieved strong organic customer growth in 2023, with residential customer increases of 5.4% in Delmarva and 3.9% in Florida, contributing $6.2 million to adjusted gross margin - Average residential customers grew by 5.4% in Delmarva and 3.9% in legacy Florida operations during 2023[142] Full Year 2023 Adjusted Gross Margin from Customer Growth (in thousands) | Region | Residential | Commercial & Industrial | Total | | :--- | :--- | :--- | :--- | | Delmarva | $1,895 | $589 | $2,484 | | Florida | $1,599 | $2,131 | $3,730 | Capital Investment and Structure Capital Expenditures Total 2023 capital expenditures were approximately $1.1 billion, primarily driven by the $926.7 million FCG acquisition, with 2024 forecasted between $300 million and $360 million 2023 Capital Expenditures (in thousands) | Category | Amount | | :--- | :--- | | Legacy Capital Expenditures | $211,195 | | FCG Acquisition | $926,702 | | Total | ~$1.1B | 2024 Forecasted Capital Expenditures (in thousands) | Segment | Low | High | | :--- | :--- | :--- | | Regulated Energy | $265,000 | $318,000 | | Unregulated Energy | $31,000 | $36,000 | | Other | $4,000 | $6,000 | | Total | $300,000 | $360,000 | Capital Structure As of December 31, 2023, the company's equity to total capitalization ratio was approximately 47%, below its 50% to 60% target, reflecting the FCG acquisition financing impact - The company's equity to total capitalization ratio was approximately 47% as of December 31, 2023, impacted by the FCG acquisition financing[124] - The company's target ratio of equity to total capitalization is between 50% and 60%[124] Financial Statements and Reconciliations Non-GAAP Reconciliations This section provides reconciliations for non-GAAP financial measures, primarily adjusting for FCG acquisition transaction-related expenses to enable clearer period-over-period operating comparisons Reconciliation of GAAP to Non-GAAP EPS | Metric (per share) | Full Year 2023 | Q4 2023 | | :--- | :--- | :--- | | GAAP EPS - Diluted | $4.73 | $1.26 | | FCG transaction-related expenses, net | $0.58 | $0.38 | | Adjusted EPS - Diluted (Non-GAAP) | $5.31 | $1.64 | Reconciliation of GAAP to Non-GAAP Net Income (in thousands) | Metric | Full Year 2023 | Q4 2023 | | :--- | :--- | :--- | | Net Income (GAAP) | $87,212 | $25,328 | | FCG transaction-related expenses, net | $10,625 | $7,727 | | Adjusted Net Income (Non-GAAP) | $97,837 | $33,055 | Consolidated Statements of Income (Unaudited) This section presents the unaudited consolidated statements of income for the years and quarters ended December 31, 2023, and 2022, detailing revenues, expenses, and net income Consolidated Balance Sheets (Unaudited) This section provides the unaudited consolidated balance sheets as of December 31, 2023, and 2022, detailing assets, liabilities, and stockholders' equity Operating Statistics This section provides key operating statistics for the company's distribution businesses, including operating revenues, volumes, and average customer counts