Q2 2023 Chesapeake Utilities Corporation Earnings Call
Welcome to the Chesapeake utilities second quarter 2023 earnings conference call.
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I would now like to turn the call over to Beth Cooper.
Decorative Vice President Chief Financial Officer, Treasurer, and assistant Corporate Secretary. Please go ahead.
Thank you and good morning, everyone. We appreciate you joining us today for Chesapeake utilities second quarter 2023 earnings call.
You saw in our press release issued yesterday the company delivered solid performance in both the quarter and year to date period in 2023. Despite the continued effects of warmer temperatures into the first half of the year across our operating footprint.
Current quarter results also exclude the impact of a nonrecurring pretax gain recognized in the second quarter of 2022 amounting to one $9 million or eight cents per share on a diluted basis, we will touch on the financial results in more detail in just a few minutes, but Chuck.
The big utilities remains committed to delivering another year of record performance.
Using all its growth strategy and driving long term increase shareholder value.
As shown on slide two participating with me on the call today are Jeff householder chairman, President and Chief Executive Officer, and Jim Moriarty Executive Vice President General Counsel, corporate Secretary and Chief policy and risk Officer. We also have other members of our <unk>.
<unk> team joining us virtually.
Today's presentation can be accessed on our website under the investors page and events and presentation sub section.
After our prepared remarks as we typically do we will open the call up for questions.
Moving to slide three I would like to remind you that matters discussed in this conference call May include forward looking statements that involve risks and uncertainties.
We're looking statements and projections could differ materially from our actual rethought the safe Harbor for forward looking statements section of the company's 2020 to Form 10-K provides further information on the factors that could cause such statements to differ from our actual results.
Additionally, the company evaluates its performance based on non-GAAP adjusted gross margin and have provided the appropriate disclosures in accordance with the SEC's regulation G. <unk>.
A reconciliation of GAAP gross margin to non-GAAP adjusted gross margin is provided in the appendix of this presentation and in our earnings release now I'll turn the call over to Jeff to provide some opening remarks.
<unk> on the company's second quarter and the key drivers of our performance Jeff. Thank you Beth good morning, and thank you for joining our call today.
We are reporting earnings per share of 90% for the second quarter and $2.94 for 2023 year to date.
Yeah remember weather was a significant impact 38 cents on a year to date basis, including nine sales for the second quarter.
As far as the warm water and continued interest rate hikes. Our team went to work looking for cost savings margin acceleration and other opportunities.
<unk> okay.
The significant impact of several million dollars today, we've recovered all but 10 cents per share.
In mind, we also recognized a nonrecurring gain during the prior period related to a real estate transaction that represented.
For sure.
'twenty two.
Despite the challenges thus far during 'twenty four for three fundamental growth strategy driven by the dedication and efforts of the Chesapeake team continue to be successful.
As a result, our adjusted gross margin increased by $7 $4 million or for last year's second quarter.
We've also initiated several new investment projects that meet their continued strong customer demand for our energy delivery services.
In addition, we finalized several significant regulatory initiatives that are adding to margins and paving the way forward for substantial system investments over the coming years.
During the second quarter, we deployed approximately $50 million of new capital investments.
Bringing our total spend during the first half of the year to just under $92 million.
We continue to support the previously communicated 2023 capital expenditure guidance range of 200 million to $230 million.
As an example of our continued investment growth opportunities. This week, we received Florida Public Service Commission approval for our newest pipeline expansion to bring gas to the city of Newbury, Florida.
We also began to recognize margin from two recently completed pipeline projects for Beach side and Lake Wales extensions.
Other projects are underway, including the eastern shore natural gas foreign expansion on Delmarva and an expansion in the wildlife development in Nassau County, Florida, which will highlight later.
Addition to the Newberry expansion, the Florida, PSC recently approved our guard program.
The second phase of our comprehensive pipeline replacement program in Florida.
Gordon will enable us to improve safety and deliverability for our Florida distribution systems through the relocation means located at the rear easements the street side locations in front of customer premises.
It will also allow us to replace and upgrade other system facilities and Jim will provide more details on the guard program a little later on the call.
Our long term growth initiatives have provided an earnings foundation that served to offset most of the volumetric impact of weather and the other cost pressures presented by the current economic environment.
We're covering the effect of the previously mentioned nonrecurring gain in 2022, while weather has been a distraction it is not temporary or dampened our expectations in regard to achieving another strong year of performance.
Yeah.
On slide five we wanted to provide some additional color on whether you have a significant impact on volumes for the quarter and year to date periods as.
As you can see each of our primary service territories experienced temperatures that were notably warm not just compared to last year, but were unseasonably warmer compared to the last 10 years.
The Delmarva service area heating degree days were 20% lower compared to the first six months of 2022, and 24% lower compared to normal levels.
While temperatures were also more than 13% and 15% lower than year to date 2022 and normal levels respectively.
While we're not as dependent on heat load in Florida.
Degree days were down by over 30% in the year over year and 10 year normal comparisons.
Again, the team did an excellent job to overcome these warmer temperatures by remaining focused on our growth initiatives and cost mitigation efforts. These efforts will continue through the remainder of the year.
To restore as much as possible of these earnings significantly colder temperatures later in the year would certainly be a big help.
Turning to slide six let me provide some updates on our key growth drivers.
First we continued to experience organic growth in our natural gas distribution businesses.
Far outpaces, the national average across both of our Delmarva and Florida service territories customers continue to select natural gas as their preferred energy choice for.
For the quarter, we saw a five 5% increase for our Delmarva service territories, and a 4% increase in Florida. This continues to highlight the attractive nature of the communities we serve.
Given the magnitude of questions, we get around the growth rates, we achieved and the runway for continued growth.
Highlight just two of the many areas driving our customer growth rates, Middletown, Delaware and wildlife and Nassau County, Florida.
The magnitude of the customer growth in our distribution businesses is also continuing to drive the need for additional investment in our transmission systems as I mentioned previously several of our pipeline projects generated margin for the first time in the second quarter.
We also continue to make headway with other projects that putting our wildlife expansion and we added the newberg project or a major project stable. This quarter. These projects and others will deliver significant margin growth in 2023 and beyond.
While warmer temperatures impacted volumes in our propane business in the second quarter.
Our team did an excellent job managing margins and service fees, especially on our northern service territories beyond the customer growth. We are secured with natural gas. We continue to add new propane community gas systems, where natural gas is not yet available.
It's a highly desirable energy choice for our customers, where natural gas isn't available propane remains a core component of our growth strategy.
Marlin gas services continues to drive solid growth for the company as our virtual pipeline solution Marlin serves our customers with gas transportation services that solve unique and complex challenges, including service to clean energy in Florida that we mentioned on our last call Marlins virtual pipeline solution is delivering compress.
Natural gas fueling station.
Finally, we continue to advance several sustainable investment projects.
We're being disciplined and cautious in our approach we recognize the evolving nature of the renewable natural gas market and the <unk>.
Inventory tons trucks, we have initiated construction on our first full scale renewable natural gas facility at <unk>.
Full circle dairy farm in Madison County, Florida and.
And we remain on track for that you'd have to go into service in the first half of 2024.
On our last call. We also discussed our participation on a collective team comprised of commercial governmental and educational institutions that submitted a proposal for the mark to hydrogen hub in the Delaware, Philadelphia, and Southern New Jersey region.
There were weeks ago, we participated alongside some of our team members in an interview with the Department of Energy are proposed hub is one of 11 finalists volume for funding to promote hydrogen development and deployment across multiple uses.
Wanted to work with these partners and further our mission to deliver energy that supports a more sustainable future.
Back in May we unveiled some drone footage of the growth within our service territories on the Delmarva and in Florida.
Footage has been well received and clearly demonstrates the current and future runway of growth that our service territories provide.
We recognize though that we need to spend more time, showcasing our service areas and future potential, but then I'm going to highlight one such area in Delaware and one in Florida.
These are only a few of the many areas that are experiencing high levels of growth.
Middletown, Delaware was recently ranked by Fortune Dot Com has the fifth best talent in the U S for families.
During development commercial growth and related infrastructure continue to build out at a fast pace with nine schools for example, being built in the last 10 years.
Recently <unk> was selected for a new pharmaceutical manufacturing facility that will drive hundreds of jobs. This is the company's second facility in the United States.
As part of their manufacturing process, we will provide natural gas service to their plan.
The expectations for the facility that began operations sometime in 2025.
While we tend to talk about residential developments comprising hundreds maybe thousands of homes you need to think about growth at mass scale. When we talk about wildlife located 40 commitments from the beaches of Amelia Island in Jacksonville Wildlife is expected to be constructed over the next 10 to 20 years and will comprise approximately.
Currently 22000 homes, our FTE distribution system is positioned to meet the growth from these residential customers as well as from the surrounding commercial infrastructure, that's being constructed including schools businesses medical facilities and so many more to.
To meet the natural gas distribution Peninsula pipeline also had to construct additional facilities to serve demand while the distribution system.
Before I turn it over to bet on slide eight I wanted to highlight several examples of pipeline expansion was driven by a distribution system growth.
Although Delmarva one such example is the southern expansion.
We're installing a new natural gas compressor skill at our existing Bridgeville facility that will provide additional transportation capacity to support our own distribution system demand as a result of the significant growth in southern Delaware.
We'll go into service in the fourth quarter and generated $2 3 million of adjusted gross margin on an annual basis beginning in 2024.
Next I, just mentioned and the wildlife pipeline expansion, which supports the distribution system growth we cover on the preceding page. Another key Florida pipeline expansion project is the proposed $18 1 million dollar expansion of Newbury, which brings natural gas to this town in central Florida.
In addition to capturing new natural gas growth from residential and commercial customers will be converting the town from propane to natural gas service. There are other commercial and industrial opportunities that were also exploring which would add incremental adjusted gross margin beyond our current annualized estimate of $2 9 million.
It is fully in service.
And with that I'll turn the call over to Beth to discuss our results in more depth.
Thank you, Jeff and good morning, again, everyone turning to slide nine I'd like to begin by saying I am proud of the things that we continue to accomplish as an organization and our performance relative to our peers now I'll provide some additional details on our results for the second quarter and first six months of the year.
As Jeff mentioned diluted EPS for the second quarter of the year with 90 cents compared to 96 during.
During the prior year, which included warmer weather that impacted EPS by nine sacks.
Impact of the eight that gain related to real estate and higher interest cost of five.
We have a cadence 16 cents of the cumulative 22 cent impact.
<unk> gross margin and operating income for the quarter increased by more than 8% and 7% respectively. Both relative to the prior year period, despite the weather impacts.
The key factors shaping the growth of our adjusted gross margin during the quarter included contributions from new permanent base rates that went into effect in Florida in March and incremental contributions associated with regulated infrastructure programs.
Organic growth in our natural gas distribution businesses.
Higher fees and margin per gallon in our propane business.
New pipeline expansions and increased demand for our virtual pipeline solutions, including compressed natural gas and renewable natural gas.
Consistent with the conditions that we saw during the first quarter, our consumption was impacted by warmer weather, which partially offset the overall adjusted gross margin growth.
However on a year to date basis weather has had a more significant impact on our results while our diluted EPS came in at $2 94. During the first six months of 2023 compared to $3.04. During the prior year. The current year results reflect a margin.
Impact of approximately 38 cents attributable to the significantly warmer weather experienced throughout 2023.
Overcoming 28 of this impact through growth was a monumental task by our teams.
On slide 10, our financial summary shows that adjusted gross margin increased seven $4 million and operating income increased $1 $9 million for the second quarter.
Interest expense was almost 20% higher during the current quarter.
<unk> of the rising rate environment experienced during 2022 were more impactful during the second half of the year and Unfortunately continued to linger into 2023.
Despite these headwinds EPS for the second quarter of 2023 with just six that's slower than the second quarter of last year and more importantly on a year to date basis. The impact was only 10.
This performance continues to highlight the resilience of our team who continue to stay focused on our long term growth initiatives and strategic plan.
Moving to slide 11, let me provide some additional insight on our EPS walk for the quarter.
As mentioned now several times, we recognize that gain related to real estate rationalization in the second quarter of 2022 of eight cents per share.
Our core businesses, including the continued impact of weather provided additional margin contributions that increased earnings by 42 cents per share. We previously touched on the key drivers of this growth.
Although to a lesser degree than the first quarter weather continue to partially offset this growth through reduced volumes, representing approximately nine cents for the quarter.
Higher operating expenses tied to our core business drove a 17.
Pack or just 40% of adjusted gross margin.
Well. This is reflective of our continued focus on cost management I want to remind everyone that had weather been consistent with historical averages operating expenses would have been higher for both the quarter and year to date periods.
At a minimum incremental volumes would've required income rental expenses tied to such volumes, particularly in the protein businesses.
Higher depreciation and amortization and property tax costs resulted in a 3% impact and finally increased interest expense and other changes together resulted in an 11 cumulative impact compared to the same quarter last year.
On slide 12, we provide a bridge with regard to our year to date performance.
Primary drivers are similar to what we just covered for the quarter. So I won't walk through all of the details, but I did want to note a few key items first the year to date period includes a 7% increase related to a one time benefit associated with a decrease in one of our state tax rates. This served.
Largely offset the absence of the real estate gain from the prior year.
Second weather was much more impactful on our year to date performance the historic temperatures experienced during the during the first quarter along with the continuation of warmer temperatures into the second quarter have impacted our results by 38 cents per share relative to the prior year as.
As you can see on this slide the weather impact cut into the core business growth contribution of 84 cents per share year to date by 45%.
So with that said, we generated EPS within 10 cents of the prior year or approximately 3% with temperatures that were 20% warmer than 2022, and our northern service territories.
This further demonstrates the dedication of our team and that's the fundamental growth strategies are delivering results that will drive future long term earnings growth.
Moving to the next two slides, let me touch on Chesapeake Utilities' operating segment.
As you can see on slide 13, adjusted gross margin was up nine 4% for the quarter and seven 3% year over year for our regulated energy segment operating income was also higher in both periods by double digit growth rates.
13.4% and 10, 5%, respectively, and driven by new rates associated with our Florida natural gas base rate proceeding organic growth in our natural gas distribution systems, including propane CGS conversions.
<unk> pipeline expansions and finally incremental contributions from our various infrastructure program.
Turning to slide 14, adjusted gross margin for the unregulated segment increased 4% for the quarter and was relatively constant with the prior year period.
The operating income level, the combination of the significantly warmer temperatures experienced throughout the year and the fixed operating expenses that are inherent in those businesses resulted in a decrease of $1 $6 million and $4 $4 million for the quarter and year to date periods respectively.
As our capital projections remain on track as our strategic plan continues to support strong capital investment in the future I'd like to highlight some of the details on our strong balance sheet position.
As shown on slide 15, and as mentioned last quarter, the $80 million of 15 year Senior notes that we issued in March allowed us to reduce short term borrowings considerably with the short term debt balance of just under $96 million, we have been able to mitigate some of the continued effects of the <unk>.
Rising interest rate environment, we locked in interest rates for $15 million of the short term debt balance utilizing a three year swap that we executed several months ago at.
At the end of the period total capitalization was approximately $163 billion. This included 53, 2% stockholders equity, 49% long term debt at an average fixed rate of 389% and only five nine.
1% of short term debt given the long term debt financing I just mentioned.
You will see us continue to execute financing plans that facilitate our growth while also maintaining our financial discipline and targets that have yielded our top quartile performance over the last 10 plus years.
Moving to slide 16, we highlight our major projects, including the pipeline expansions PNG, LNG and LNG transportation projects and strategic regulatory initiatives, which will drive our adjusted gross margin growth. This year and next as always we remind you that this table does.
Not include organic growth and it is not indicative of all the projects that we are evaluating and pursuing.
We continue to be encouraged with the opportunities that are presented by our business development team and look forward to announcing other projects in the future combine these initiatives are expected to add more than $21 million in 2023, and approximately $8 $6 million in additional <unk>.
Margin in 2024, as new projects or initiatives or announce are finalized we will add them to the table.
Moving to slide 17, we highlight our key pipeline expansion projects and the increased level of activity projects to be completed as well as projects that will be partially constructed this year with an investment of approximately $83 million. These projects are expected to contribute more than 11.
<unk> million dollars and adjusted gross margin once completed.
With that said I would like to finish by acknowledging the efforts of our team year to date standing together, we remain committed to achieving our long standing track record of year over year earnings growth and delivering industry leading performance.
The diversity of our operations strong organic growth a pipeline of investment growth opportunities regulatory innovation and our talented workforce. We will continue to drive increased financial performance for our stakeholders I will now pass the call to Jim to discuss our regulatory and company called.
Sure updates Jim.
Thank you Beth and good morning, it is great to be with you all.
I'd first like to highlight some of our recent regulatory activities as.
As we have already mentioned the outcome of the Florida rate case was significant on many fronts, including financially as well as serving to simplify our business.
The second quarter of 2023 was the first full quarter with permanent rates in effect.
With a full year of permanent rates in 2024, you should expect to recognize close to the $17 2 million projected margin impact.
Building off of the process, we followed in Florida, we are preparing for our upcoming Maryland filings.
We are required to file a rate case in early 2024 for our Maryland Division and Sandpiper energy, we will look to build on regulatory strategies and lessons learned from Florida as we prepare these filings.
I would also like to provide a little more context around the approval of the guard program earlier this week.
The Florida PSC.
As shown on slide 19. This projected 10 year program is expected to represent $205 million of additional capital investment, including $8 million of investment in 2023, which is reflected in our capital forecast.
For 2024, we're projecting $20 million of capital investment.
Which is reflected in our long term forecast that will result in $1 $4 million of margin and <unk>.
24.
Guard combined with our other infrastructure programs like our electric storm protection plan Eastern Shore's capital cost surcharge plan and our planned investments by eastern shore to meet the new FEMSA requirements.
Demonstrate the importance that our regulatory approach is plenty and maintaining safe and reliable service and secondarily contributing to margin growth.
Turning to slide 20, I also wanted to take a few minutes and highlight our most recent sustainability reporting initiatives.
During the second quarter, we published our second sustainability report, which.
Which is available on our website.
Within this report and without covering all the detail we reported on in emissions decrease of 16% as compared to 2019 and enhanced our disclosures on multiple fronts, including human capital management diversity initiatives, our new giving policy.
Our safety and enterprise risk management programs.
The new data tables.
In addition to the full sustainability report, we also prepared summary, and highlight reports.
And rolled out a multi week social media campaign discussing key updates and milestones since our inaugural report.
These efforts reflect our long standing and continuing focus on sustainability.
You have heard us speak many times about our commitment to safety is the first and most foundational organizational imperative.
Protecting people safeguarding our communities and securing our assets are at the heart of our operating culture.
Reflecting this safety culture and commitment three Chesapeake two subsidiaries earned American Gas Association awards in late May.
Florida public utilities company in Eastern Shore Natural gas company earned the AGL Safety Achievement Award, which is given to companies that demonstrate outstanding commitment to employee and for heal cooler safety and.
In addition, aspire energy of Ohio was named in a G. A industry leader and accident prevention for achieving a dart rate, which is days away restricted or transferred lower than the industry average for local distribution companies.
<unk> is a metric used by the occupational safety and health administration to measure the impact of workplace injuries.
With that it was great to be with you all today I will now turn the call back to Jeff for some closing comments.
Thanks, Jim turning to slide 21, I want to reaffirm that we remain on track with both our long term capital guidance of 900 million to $1 1 billion for the 2021 to 2025 period and this year's expectations for 200 million to $230 million.
Capital guidance continues to support our earnings guidance of $6 15 to $6 35 per share in 2025.
Earlier this week, we reviewed our latest strategic plan update with our board.
Discussed a number of additional investment opportunities before us.
We expect to issue updated guidance in early 2024.
Looses of these new opportunities.
Our capital plan includes typical growth in vessels, including organic distribution system growth pipeline expansions and reliability infrastructure programs.
So the new technology platform more than $50 million of projected investment.
Discussed previously we are upgrading our utility customer information billing system, we have established and accomplished teams undertake this monumental tasks, including partnering with SAP and IBM over the next few years will also supplement our new work management and dispatch system as well as our financial ERP.
T system.
The customer growth, we've experienced along with our expectations for the future that.
Necessitated the need for an enhanced technology platform that will leave us well prepared to deliver a high level of service to our customers.
We also see these technology upgrades.
<unk> transformation, and enabling us to accelerate standardized and enhance the way we deliver service.
Both stakeholders internally and externally.
Moving to slide 22, you can see that historically would have achieved just under 10% annual earnings growth and dividend growth since we initiated guidance in early 2018.
Many of you know our dividend growth has been supported by our earnings growth.
We adhere to the principle, enabling us to grow our dividends faster, while we're saying approximately 55% of our earnings and reinvest it back into the business to fund future growth.
We achieved the EPS guidance in 2025, our compound annual earnings growth rate since issuing guidance would be eight 5% to 9%.
That's something that the entire team at <unk> is very proud of them.
To conclude on slide 23, we continue to be excited by the prospects for future investment and a traditional energy delivery businesses driven by customer demand and the communities we serve.
Our foundation for sustainable growth remains strong.
Also excited about our recent investments to bring renewable natural gas into our system.
Our noble road pipeline project in Ohio, Our acquisition of planet found in Maryland, and our implied full circle very ways to R&D projects in Florida.
Pilot projects demonstrate our commitment to a more sustainable future.
Strength of our balance sheet will enable us to capitalize on future opportunities across the value chain as they present themselves.
With our diversified operations, our talented team a strong financial position and a robust pipeline of opportunities on the horizon, we remain well positioned to deliver long term record performance well into the future.
And with that why don't we open it up for questions.
The floor is now open for questions. At this time, if you have a question or comment. Please press star one on your telephone keypad.
If at any point. Your question is answered you may remove yourself from the queue by pressing star.
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Thank you.
Our first question comes from Tate Sullivan with Maxim Group.
Okay.
Hello, Thank you good day.
Middletown and wildlife. Thank you for the detail and.
Putting it in context I mean these are just one of the many projects in both Delmarva and Florida.
It is just based on the slide 17 with the pipeline projects that they could be a meaningful part of the growth going forward or can you put it in context.
Sure.
Good morning pain, great to hear your voice.
One of the savings that kind of became very clear you know as we were headed into the Agi. We had been talking a lot about our growth is actually we needed to put a picture and be able to show those areas that we're talking about and so it really be the Ana as Jeff talked about with us, creating some drone footage in.
I'd love to jump on the phone and I want to walk you and be able to show you that drone footage. But then we also saw let's start to highlight some of those areas. So in the north Middletown is actually a community that is not even in the beach areas that you will hear us talk about where there's a lot of growth going on Middletown is basically.
A little almost in the middle of a little north of the middle of the state of Delaware, but it has been a pretty high growth area. Because it is you know it's an hour. It's a community that's outside of Wilmington, but it's where a lot of people live and commute to London tend to Baltimore to Philadelphia et cetera to work and so theres been a tremendous amount.
Mount of growth, but keep in mind you know it's a.
A far distance from the other areas at the beach that we're having exceptional growth out as well. So this is the only one in Florida. It's the same thing we actually picked the wildlife community to show just because that community is so large and by the time that it done beyond just the residential development.
There is gonna be substantial commercial infrastructure, but again, we could show you the communities and the drone footage, we actually show a community in Central Florida, We show a community in southern Florida.
These are just examples, but we're trying to provide more and more opportunity for you to see where the growth is occurring and that you know there's a long runway into the future.
Yeah, It's great. Examples and then just on the pipeline page page 17 in the present is Newberry and related to the 25 guidance.
Expanding infrastructure for new dairy.
Is that not in the 25 EPS guidance currently.
So you know we weren't as it related to wildlife is that right.
No Newberry is actually not related to a wild lightest actually left of wildlife on the map and so it's a it's a new expansion keep in mind, though you know 'tatoes, we're developing our five year guidance, both from a capital standpoint, and an earnings standpoint, we.
Are looking at projects way before Theyre being announced and you know we're thinking about where expansion is likely so as we've created that capital guidance. That's out there through 2025 and the earnings guidance. There is some level of projects that we feel have a high probability of occurring so that.
It is inherent within within that current capital and earnings guidance.
And then the southern expansion.
Is is that expansion related to supporting Middletown, partly as well.
Well and know it it's actually further south it is supportive of growth that would be happening happening in that southern Delaware area surrounding those beach areas into Maryland growth that's happening there so.
Middletown is much more northern and the state of Delaware.
The southern expansion with it isn't bridgeville is somewhat west of the growth that's happening in Sussex County, but theres a lot of growth that's starting to come westward from the beach area. So it's supporting all of the Delaware divisions growth.
In the southern area.
Okay.
Adding a pump you, yes, I will talk about a great example of adding another industrial customer to with Middletown.
Yes, it is and actually Theres a lot of commercial development, that's going all along and you know what's coming up in that area as well and so I think as you start to see that manufacturing facility there'll be some potential other facilities that may also developed to surround it.
Hey, take this is Joe.
Another.
Another factor in all of this I guess in the Newberry.
Example, that was a pound right outside of Gainesville, Florida.
In our natural gas services four excuse me and we had an underground propane system. There that we're serving a variety of customers and so the town as literally been approaching us for the last several years as he has to get natural gas service there.
It's reflective I think of a couple of things. One is the continued demand for natural gas service on the part of consumers and the fact that we have once again found a way to take our propane operation.
And go in some of the civil here go into a pound before we could get natural gas pipe there serve customers generate demand from the <unk> and then come along later.
And convert those propane customers to natural gas. So it really I think is reflective of kind of a larger picture that we see across our distribution systems were not in heavily urbanized areas.
And that has led to significant opportunities for expansion as people continue to move into these smaller communities while Middletown.
Around the urban areas of Philadelphia, and Wilmington, as Beth mentioned.
Thank you Jeff Thank you.
Sure.
Thank you as a reminder to ask a question. Please press star one at this time. Our next question comes from Brian Russo with Sidoti.
Hi, good morning.
Morning, Brian .
Hey, just the customer growth, probably between 5% and Delmarva, 4%, Florida, I think that compares to last quarter of five 4% and Delmarva and 4.4% in Florida. I mean is there any read through the read through there or is it just kind of getting too granular on it.
Quarter to quarter type of change.
Too granular, Brian because you know just just because even if you take for example, you know the wildlife.
Alrighty Theres, so much growth that's going to happen, but the number of individual customers that can get added one quarter versus the next it might be up or down a little bit, but it's really not for example, going to signal anything because theres a tremendous amount of growth that's still coming.
Looking over it over the long term, but again you know as we've talked about right. Now you know theres been really no slowdown we keep monitoring that wondering with the current economic environment are we or are we going to start to see that right and so but we have not yet.
Homes have continued to sell new communities are continuing to.
Evolve and you know we had a couple of community gas systems that we're adding as well. So the growth is still occurring in all of our service territories.
Okay got it and.
[laughter] Newberry and you mentioned your kind of your footprint.
Heavily urbanized areas I mean, how many.
New battery type of opportunities do you guys potentially have to convert propane to gas.
You know I would say you know I wouldn't say there was a lot I think there you know there are communities from time to time, I mean that was Ocean City, Maryland back when we bought that in 2013 Ocean City, Maryland Ocean Pines, Marilyn Newberry, Florida.
There will be one, but I mean, that's a 10 year span to be candid when you think about our community Brian So I wouldn't you know.
I wouldn't say that there are lots I think there are selected pockets.
Just you know there are certain areas.
Within Florida, where there may be an opportunity there's less so now on the Delmarva Peninsula.
I know, there's one or two in southern Maryland.
But at this point it hasn't made sense to convert them yet but.
But I don't think there's a lot Jeff if you have anything you'd want to know everything is right I mean, we.
We're pretty opportunistic about.
Go where there is no guest service and.
In a state like Florida, and frankly in Delaware, we see the same thing.
Population growth has been so significant I mean, we're still looking at a thousand people a day moving into Florida.
And so these sort of bedroom communities like Newberry serves.
Roll.
Little bit.
Started Gainesville, Florida.
When you develop and we're continuing to see people move into those communities.
It offers and opportunities that we may not have.
That many brand new towns that we can go and serve as we're doing with Newberry.
There's still a significant amount of development in areas, where we have nearby facilities.
Okay, Okay, great and then switching to the propane.
Syed.
You mentioned volumes down obviously because of the weather.
What were the margins like and then also what are your criteria when you.
Evaluating complimentary or bolt on acquisitions to the existing business.
Great question.
So you know.
We have continued you know one of the things that's been beneficial both in the first and the second quarters.
Has been.
I am saying beneficial you can look at it depending on which side of the mouth right you're talking out of but what tends to happen is in lower volume quarters. As we've talked about is you know there's there's less I would say there's less movement in terms of prices coming down where that's quickly and so we have been.
Able to retain some of the margins as we've gone into the spring and the summer months and that continued into the second quarter.
In regards to your second questions about acquisition you know we look for opportunities on several fronts number. One you know is there an opportunity to add something into our existing operation right and create synergies when we acquire something number two can we go into a high growth.
Area, where like we did in the North Carolina, and particularly in the coastal areas of those in North Carolina high growth areas natural gas isn't there, it's an opportunity not only for us to come in but to bring our programs to bring order to bring our community gas system. So.
We're going to look at an opportunity.
Ryan, where we can add our services and what we bring to the table and then you know.
Certainly we're going to look at from a financial standpoint is it you know earnings per share we want it to be earnings per share accretive you know out of the gate and then secondarily, we wanted to achieve our target return over the respective period of time, but we've refined and so those are typically the criteria Jeff.
If there's anything else you want to add but that's some of what we look at.
Just a couple of things with her we're also looking for cultural fit between the organizations.
We're looking for political and regulatory.
The states, where we where we believe that we will find Oh, a welcome into the state we're looking for integration.
Integration ease we're looking at.
Technology issues, where we can bring something to the table, especially with some of these smaller propane operations.
All of those sorts of things as a business model that we're inheriting can.
Can we live with that is it consistent with what we're already doing or.
Or can we bring something to the table when we modify that models.
Look more like what we do typically that Chesapeake so it's all of that plus.
And obviously, we're looking at a whole list of operational risk and the other things that are what you would expect we would be doing environmental issues.
Yeah.
Okay, Great and then lastly on the Florida Guard program right, which.
Before today was to be determined what that margin would be so that's incremental right.
To that.
But margin slide.
The $205 million over 10 years, and the 1.24 million in 2020 for margin I mean is that linear.
Every year, you'll you'll generate that type of of earnings or does your margin or does it ramp up or there's some other mechanics that we should be aware of when looking.
Post 2024.
I think you know I think looking at it linear it gives you a good base, but I think if you go back and look at our grip program, depending on what other projects. We have going on you know how many pipeline expansions how many other projects, where our resources being dedicated you could see some spikes and you know you could see some spikes up in.
Down depending on what else is going on from a growth standpoint, and what other projects are happening, but I think for purposes of your model using that as a base from which to start Brian I think is a good place to go.
Alright, great. Thank you very much.
Thank you at this time, we have no further questions in queue I will now turn the floor back over to Jeff householder for any additional or closing remarks.
Well, thank you and I want to thank everyone for joining us. This morning. We appreciate your time and we appreciate your continued interest in the company.
Goodbye.
Thank you. This concludes today's Chesapeake utilities second quarter 2023 earnings conference call.
Please disconnect. Your line at this time and have a wonderful day.
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