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CHESAPEAKE UTILITIES CORPORATION REPORTS SECOND QUARTER 2022 RESULTS

·15-min read
Cision
  • Year-to-date earnings increased to $3.04 per share from $2.75, an increase of $0.29 or 10.5 percent, compared to the prior year

  • Earnings per share ("EPS")* was $0.96 for the second quarter of 2022, an increase of $0.18, compared to $0.78 for the second quarter of 2021

  • Included in the second quarter results was a one-time gain of $1.9 million or $0.08 in EPS related to a building sale

  • Performance in the first half of 2022 was driven by the acquisition of Diversified Energy, pipeline expansions, natural gas organic growth, regulatory initiatives and higher earnings in the Company's unregulated businesses during the first half of the year

  • Commenced delivery of natural gas to meet customer demand in Somerset County, Maryland and further economic development

  • The Company's Delmarva natural gas distribution operations surpassed 100,000 customers during the second quarter of 2022

  • Continued focus on organic growth and expansion projects as well as ESG initiatives, including renewable energy opportunities to further enhance sustainability in our local communities

DOVER, Del., Aug. 3, 2022 /PRNewswire/ -- Chesapeake Utilities Corporation (NYSE: CPK) ("Chesapeake Utilities" or the "Company") today announced its financial results for the three and six months ended June 30, 2022.

For the first half of 2022, net income was $54.0 million compared to $48.3 million for the same period in 2021. EPS for the first half of 2022 was $3.04 per share compared to $2.75 per share reported in the same prior-year period, representing growth of 10.5 percent. Included in these results, was a one-time gain of $1.9 million associated with a property sale.

The Company's net income for the quarter ended June 30, 2022 was $17.1 million, compared to $13.8 million reported in the same quarter of 2021. Diluted EPS in the quarter was $0.96, a 23.1 percent increase compared to $0.78 reported in the same prior-year period. Included in these results, was the one-time gain of $1.9 million referenced above.

Higher second quarter earnings were driven by contributions from natural gas transmission pipeline expansions, improved profitability in the Company's propane distribution business, regulated infrastructure programs, organic growth in the Company's natural gas distribution businesses, increased customer consumption and increased performance in the Company's other unregulated businesses. These increases were partially offset by higher interest expense resulting from interest rate increases impacting the Company's short-term borrowings.

On a year-to-date basis, earnings were primarily driven by the factors noted above as well as the 2021 acquisitions of Diversified Energy Company ("Diversified Energy") and the natural gas metering station located in Escambia County, Florida (the "Escambia Meter Station").

"Chesapeake Utilities delivered strong financial results during the second quarter and through the first half of the year," commented Jeff Householder, president and CEO. "Our businesses continue to organically add new natural gas customers across our service territories at levels well above the national average. Annual residential customer growth for the second quarter was 5.7% and 4.1% in Delmarva and Florida, respectively. While the housing and lending markets have shifted as of late, our home building partners see continued demand in the communities we serve.

"Additionally, our teams have done an outstanding job given the inflationary environment and supply chain constraints that have delayed certain projects. Through planning, certain discretionary expense mitigation efforts and continued real estate rationalization, our teams drove earnings growth in the quarter that served to offset inflationary pressure in the quarter. Looking forward, we'll continue with these efforts to minimize the cost impact, recognizing there will be significant challenges ahead, especially in the short-term. Despite these headwinds, we remain committed to growing our stable utility operations and investing in complementary businesses, including renewable natural gas and other energy delivery solutions that position the Company for long-term sustainable success."

Capital Expenditures Forecast and Earnings Guidance Update

During the first half of 2022, the Company experienced a reduced level of new capital investments due to regulatory delays and supply chain disruptions. As a result, the Company is decreasing its capital expenditure guidance range to $140 million to $175 million for 2022. The Company expects these delays in timing to be temporary and reiterates its long-term capital expenditures and EPS guidance ranges. These include capital expenditures in the range of $750 million to $1 billion in 2021 through 2025 and an EPS guidance range of $6.05 to $6.25 for 2025.

*Unless otherwise noted, EPS information is presented on a diluted basis.

Non-GAAP Financial Measures

**This press release including the tables herein, include references to non-Generally Accepted Accounting Principles ("GAAP") financial measures, including adjusted gross margin. A "non-GAAP financial measure" is generally defined as a numerical measure of a company's historical or future performance that includes or excludes amounts, or that is subject to adjustments, so as to be different from the most directly comparable measure calculated or presented in accordance with GAAP. Our management believes certain non-GAAP financial measures, when considered together with GAAP financial measures, provide information that is useful to investors in understanding period-over-period operating results separate and apart from items that may, or could, have a disproportionately positive or negative impact on results in any particular period.

The Company calculates Adjusted Gross Margin by deducting the purchased cost of natural gas, propane and electricity and the cost of labor spent on direct revenue-producing activities from operating revenues. The costs included in Adjusted Gross Margin exclude depreciation and amortization and certain costs presented in operations and maintenance expenses in accordance with regulatory requirements. Adjusted Gross Margin should not be considered an alternative to Gross Margin under US GAAP which is defined as the excess of sales over cost of goods sold. The Company believes that Adjusted Gross Margin, although a non-GAAP measure, is useful and meaningful to investors as a basis for making investment decisions. It provides investors with information that demonstrates the profitability achieved by the Company under the Company's allowed rates for regulated energy operations and under the Company's competitive pricing structures for unregulated energy operations. The Company's management uses Adjusted Gross Margin as one of the financial measures in assessing a business unit's performance. Other companies may calculate Adjusted Gross Margin in a different manner.

Reconciliation of GAAP to Non-GAAP Measures



For the Three Months Ended June 30, 2022

(in thousands)


Regulated Energy


Unregulated Energy


Other and Eliminations


Total

Operating Revenues


$ 92,193


$ 53,463


$ (6,186)


$ 139,470

Cost of Sales:









Natural gas, propane and electric costs


(21,573)


(31,701)


6,158


(47,116)

Depreciation & amortization


(13,140)


(4,074)


(2)


(17,216)

Operations & maintenance expense (1)


(8,324)


(6,699)


(521)


(15,544)

Gross Margin (GAAP)


49,156


10,989


(551)


59,594

Operations & maintenance expense (1)


8,324


6,699


521


15,544

Depreciation & amortization


13,140


4,074


2


17,216

Adjusted Gross Margin (Non-GAAP)


$ 70,620


$ 21,762


$ (28)


$ 92,354






For the Three Months Ended June 30, 2021

(in thousands)


Regulated Energy


Unregulated Energy


Other and Eliminations


Total

Operating Revenues


$ 80,910


$ 34,773


$ (4,601)


$ 111,082

Cost of Sales:









Natural gas, propane and electric costs


(14,447)


(16,821)


4,567


(26,701)

Depreciation & amortization


(11,830)


(3,456)


(12)


(15,298)

Operations & maintenance expense (1)


(8,320)


(5,807)


67


(14,060)

Gross Margin (GAAP)


46,313


8,689


21


55,023

Operations & maintenance expense (1)


8,320


5,807


(67)


14,060

Depreciation & amortization


11,830


3,456


12


15,298

Adjusted Gross Margin (Non-GAAP)


$ 66,463


$ 17,952


$ (34)


$ 84,381






For the Six Months Ended June 30, 2022

(in thousands)


Regulated Energy


Unregulated Energy


Other and Eliminations


Total

Operating Revenues


$ 220,084


$ 154,754


$ (12,488)


$ 362,350

Cost of Sales:









Natural gas, propane and electric costs


(67,016)


(89,708)


12,427


(144,297)

Depreciation & amortization


(26,225)


(7,954)


(14)


(34,193)

Operations & maintenance expense (1)


(16,485)


(13,756)


(944)


(31,185)

Gross Margin (GAAP)


110,358


43,336


(1,019)


152,675

Operations & maintenance expense (1)


16,485


13,756


944


31,185

Depreciation & amortization


26,225


7,954


14


34,193

Adjusted Gross Margin (Non-GAAP)


$ 153,068


$ 65,046


$ (61)


$ 218,053






For the Six Months Ended June 30, 2021

(in thousands)


Regulated Energy


Unregulated Energy


Other and Eliminations


Total

Operating Revenues


$ 202,107


$ 109,532


$ (9,371)


$ 302,268

Cost of Sales:









Natural gas, propane and electric costs


(57,491)


(52,804)


9,298


(100,997)

Depreciation & amortization


(23,860)


(6,780)


(22)


(30,662)

Operations & maintenance expense (1)


(16,585)


(12,120)


292


(28,413)

Gross Margin (GAAP)


104,171


37,828


197


142,196

Operations & maintenance expense (1)


16,585


12,120


(292)


28,413

Depreciation & amortization


23,860


6,780


22


30,662

Adjusted Gross Margin (Non-GAAP)


$ 144,616


$ 56,728


$ (73)


$ 201,271


(1) Operations & maintenance expenses within the Consolidated Statements of Income are presented in accordance with regulatory requirements and to provide comparability within the industry. Operations & maintenance expenses which are deemed to be directly attributable to revenue producing activities have been separately presented above in order to calculate Gross Margin as defined under US GAAP.

Operating Results for the Quarters Ended June 30, 2022 and 2021
Consolidated Results


Three Months Ended






June 30,





(in thousands)

2022


2021


Change


Percent Change

Adjusted gross margin**

$ 92,354


$ 84,381


$ 7,973


9.4 %

Depreciation, amortization and property taxes

22,854


20,532


2,322


11.3 %

Other operating expenses

43,031


41,271


1,760


4.3 %

Operating income

$ 26,469


$ 22,578


$ 3,891


17.2 %

Operating income for the second quarter of 2022 was $26.5 million, an increase of $3.9 million, or 17.2 percent, compared to the same period in 2021. Higher performance in the second quarter of 2022 was generated primarily from continued pipeline expansion projects, increased propane margins per gallon and fees, incremental contributions associated with regulated infrastructure programs, organic growth in the Company's natural gas distribution businesses, increased customer consumption, and improved performance in the Company's other unregulated businesses. The Company recorded higher depreciation, amortization and property taxes related to recent capital investments and higher operating expenses associated primarily with growth initiatives. The Company closely managed its operating expense increases, given anticipated future interest and other inflationary expense increases.

Regulated Energy Segment


Three Months Ended






June 30,





(in thousands)

2022


2021


Change


Percent Change

Adjusted gross margin**

$ 70,620


$ 66,463


$ 4,157


6.3 %

Depreciation, amortization and property taxes

18,380


16,651


1,729


10.4 %

Other operating expenses

26,399


27,052


(653)


(2.4) %

Operating income

$ 25,841


$ 22,760


$ 3,081


13.5 %

Operating income for the Regulated Energy segment for the second quarter of 2022 was $25.8 million, an increase of $3.1 million, or 13.5 percent, over the same period in 2021. Higher operating income reflects continued pipeline expansions by Eastern Shore Natural Gas Company ("Eastern Shore"), Peninsula Pipeline Company, Inc. ("Peninsula Pipeline") and Aspire Energy Express, LLC ("Aspire Energy Express") incremental contributions from regulated infrastructure programs, organic growth in the Company's natural gas distribution businesses, increased customer consumption, and operating results from the Escambia Meter Station acquisition completed in 2021. Operating expenses increased by $1.1 million compared to the prior year quarter primarily due to a higher level of depreciation, amortization and property taxes and increased vehicle expense resulting from higher fuel costs. The increase was partially offset by reductions in facilities, maintenance and outside services costs, as well as a lower level of payroll and benefits expenses.

The key components of the increase in adjusted gross margin** are shown below:

(in thousands)


Natural gas transmission service expansions

$ 1,291

Contributions from regulated infrastructure programs

1,080

Natural gas growth (excluding service expansions)

938

Changes in customer consumption

636

Escambia Meter Station acquisition

166

Other variances

46

Quarter-over-quarter increase in adjusted gross margin**

$ 4,157

The major components of the decrease in other operating expenses are as follows:

(in thousands)


Facilities expenses, maintenance costs and outside services

$ (635)

Payroll, benefits and other employee related costs

(506)

Vehicle expenses

207

Other variances

281

Quarter-over-quarter decrease in other operating expenses

$ (653)

Unregulated Energy Segment


Three Months Ended






June 30,





(in thousands)

2022


2021


Change


Percent Change

Adjusted gross margin**

$ 21,762


$ 17,952


$ 3,810


21.2 %

Depreciation, amortization and property taxes

4,466


3,862


604


15.6 %

Other operating expenses

16,736


14,555


2,181


15.0 %

Operating income (loss)

$ 560


$ (465)


$ 1,025


NMF

Operating results for the Unregulated Energy segment for the second quarter of 2022 increased by $1.0 million compared to the same period in 2021. The operating results for the Unregulated Energy segment are impacted by seasonal variances, with the first and fourth quarters generating a significantly larger portion of adjusted gross margin as a result of colder temperatures generally contributing to higher customer demand. Operating results for the second and third quarters historically have been lower due to reduced customer demand during warmer periods of the year. The impact to operating income may not align with the seasonal variations as many of the operating expenses are recognized ratably over the course of the year.

Higher operating results during the second quarter were driven by contributions from the Company's acquisition of Diversified Energy, increased propane margins including higher service fees, increased demand for compressed natural gas ("CNG") from Marlin Gas Services and margin improvement from Aspire Energy of Ohio, LLC ("Aspire Energy"). Additionally, the Company experienced increased operating expenses associated with the acquisition of Diversified Energy as well as depreciation, amortization and property taxes and increased vehicle expenses due to rising fuel costs.

The major components contributing to the change in adjusted gross margin** are shown below:

(in thousands)



Propane Operations



Diversified Energy acquisition (completed in December 2021)


$ 1,491

Increased propane margins and service fees


1,104

Marlin Gas Services



Increased demand for CNG services


547

Aspire Energy



Increased margins - rate changes and natural gas liquid processing


203

Other variances


465

Quarter-over-quarter increase in adjusted gross margin**


$ 3,810

The major components of the increase in other operating expenses are as follows:

(in thousands)


Operating expenses from the Diversified Energy acquisition

$ 2,258

Increased vehicle expenses due to higher fuel costs

199

Other variances

(276)

Quarter-over-quarter increase in other operating expenses

$ 2,181

As discussed above, Diversified Energy's operating results reflected lower adjusted gross margins during the second quarter of 2022 which is in line with the seasonality typically experienced during the second and third quarters by the Company's legacy propane distribution businesses.

Operating Results for the Six Months Ended June 30, 2022 and 2021

Consolidated Results


Six Months Ended






June 30,





(in thousands)

2022


2021


Change


Percent Change

Adjusted gross margin**

$ 218,053


$ 201,270


$ 16,783


8.3 %

Depreciation, amortization and property taxes

45,418


41,242


4,176


10.1 %

Other operating expenses

91,301


85,853


5,448


6.3 %

Operating income

$ 81,334


$ 74,175


$ 7,159


9.7 %

Operating income for the first six months of 2022 was $81.3 million, an increase of $7.2 million, or 9.7 percent, compared to the same period in 2021. Higher performance in the first six months of 2022 was generated from propane and natural gas acquisitions completed in 2021, continued pipeline expansion projects, organic growth in the Company's natural gas distribution businesses, incremental contributions associated with regulated infrastructure programs, increased propane margins per gallon and fees and improved performance in the Company's other unregulated businesses. The Company recorded higher depreciation, amortization and property taxes related to recent capital investments and operating expenses associated primarily with growth initiatives, as well as increased vehicle expenses due to higher fuel costs.

Regulated Energy Segment


Six Months Ended






June 30,





(in thousands)

2022


2021


Change


Percent Change

Adjusted gross margin**

$ 153,068


$ 144,616


$ 8,452


5.8 %

Depreciation, amortization and property taxes

36,631


33,577


3,054


9.1 %

Other operating expenses

55,898


55,573


325


0.6 %

Operating income

$ 60,539


$ 55,466


$ 5,073


9.1 %

Operating income for the Regulated Energy segment for the first six month of 2022 was $60.5 million, an increase of $5.1 million, or 9.1 percent, over the same period in 2021. Higher operating income reflects continued pipeline expansions by Eastern Shore, Peninsula Pipeline and Aspire Energy Express, organic growth in the Company's natural gas distribution businesses, incremental contributions from regulated infrastructure programs, increased customer consumption, and operating results from the Escambia Meter Station acquisition completed in 2021. Operating expenses increased by $3.4 million compared to the prior year primarily due to a higher level of depreciation, amortization and property taxes as well as a greater amount of costs related to payroll, benefits and other employee related expenses and vehicle expenses mainly due to higher fuel costs.

The key components of the increase in adjusted gross margin** are shown below:

(in thousands)


Natural gas transmission service expansions

$ 2,518

Natural gas growth (excluding service expansions)

2,132

Contributions from regulated infrastructure programs

2,004

Changes in customer consumption

449

Escambia Meter Station acquisition

416

Other variances

933

Period-over-period increase in adjusted gross margin**

$ 8,452

The major components of the increase in other operating expenses are as follows:

(in thousands)


Customer service related costs

$ 414

Payroll, benefits and other employee-related expenses

188

Other variances

(277)

Period-over-period increase in other operating expenses

$ 325

Unregulated Energy Segment


Six Months Ended






June 30,





(in thousands)

2022


2021


Change


Percent Change

Adjusted gross margin**

$ 65,046


$ 56,728


$ 8,318


14.7 %

Depreciation, amortization and property taxes

8,762


7,631


1,131


14.8 %

Other operating expenses

35,671


30,522


5,149


16.9 %

Operating income

$ 20,613


$ 18,575


$ 2,038


11.0 %

Operating results for the Unregulated Energy segment for the six months ended June 30, 2022 increased by $2.0 million, or 11.0 percent compared to the same period in 2021.

Higher operating results during the first half of 2022 were driven by contributions from the Company's acquisition of Diversified Energy, increased propane margins including higher service fees, increased demand for CNG from Marlin Gas Services and margin improvement from Aspire Energy. These increases were partially offset by reduced consumption in our propane operations. Additionally, the Company experienced increased operating expenses associated with the acquisition of Diversified Energy as well as increased payroll, benefits and employee related expenses, depreciation, amortization and property taxes, and increased vehicle expenses due to rising fuel costs.

The major components contributing to the change in adjusted gross margin** are shown below:

(in thousands)



Propane Operations



Diversified Energy acquisition (completed in December 2021)


$ 5,466

Increased propane margins and service fees


1,823

Decreased customer consumption - intra-quarter weather volatility


(577)

Decreased customer consumption due to conversion of customers to our natural gas system


(478)

Marlin Gas Services



Increased demand for CNG services


612

Aspire Energy



Increased margins - rate changes and natural gas liquid processing


1,131

Increased customer consumption - primarily weather related


465

Other variances


(124)

Period-over-period increase in adjusted gross margin**


$ 8,318

Items contributing to the period-over-period increase in operating expenses are listed in the following table:

(in thousands)


Operating expenses from the Diversified Energy acquisition

$ 4,708

Increased payroll, benefits and other employee-related expenses

607