CHESAPEAKE UTILITIES CORPORATION REPORTS SECOND QUARTER 2022 RESULTS
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 |