Executive Summary / Key Takeaways

• Chesapeake Utilities ($CPK) is strategically positioned in high-growth regions, leveraging strong population in-migration and demand for natural gas to drive above-average capital investment and earnings growth.
• The company's three-pillar strategy – prudent capital deployment, proactive regulatory management, and continuous business transformation – is effectively translating regional tailwinds into tangible financial results and a robust project pipeline.
• Recent financial performance, including Q1 2025 Adjusted EPS of $2.22 and FY 2024 Adjusted EPS of $5.39, demonstrates solid execution, supported by contributions from the Florida City Gas (FCG) acquisition, infrastructure programs, and organic customer growth.
• A significant capital investment plan ($1.5B-$1.8B through 2028, $325M-$375M in 2025) is underway, with key projects expected to contribute substantial incremental margin, underpinning reaffirmed 2025 Adjusted EPS guidance of $6.15-$6.35.
• While facing risks such as project delays (e.g., WRU), cost increases, and regulatory timing, CPK's strong balance sheet, investment-grade rating, and proactive management of regulatory and operational challenges support its ability to execute on its growth trajectory.

Chesapeake Utilities Corporation stands as a diversified energy delivery company, strategically rooted in the Mid-Atlantic, Florida, and Ohio regions. Its core business model balances stable, regulated energy distribution and transmission operations with growth-oriented unregulated energy services. This structure is underpinned by a clear strategy: capitalize on the demographic and economic tailwinds in its service territories to drive earnings growth that outpaces traditional utility peers. The company's history, marked by targeted acquisitions like Aspire Energy and the pivotal Florida City Gas (FCG) transaction in late 2023, reflects a deliberate expansion into high-potential markets and complementary energy value chain segments. This strategic evolution has positioned CPK to leverage its integrated capabilities and pursue significant capital investment opportunities.

Within the competitive landscape, CPK operates alongside larger, more geographically diverse players such as Atmos Energy (ATO), UGI Corporation (UGI), ONE Gas (OGS), and Spire Inc. (SR). While CPK's overall scale is smaller compared to these rivals, it maintains a strong competitive position within its specific niche markets. The company's focus on high-growth regions like Florida and parts of the Mid-Atlantic provides a distinct advantage, fueling organic customer additions at rates significantly above the industry average. CPK differentiates itself through operational efficiency and a more integrated approach across its regulated and unregulated segments. For instance, its natural gas transmission systems benefit from operational synergies, contributing to higher efficiency compared to some peers. In Florida, CPK's electric distribution systems incorporate advanced digital controls, leading to faster grid management and potentially lower operating costs per unit compared to less technologically advanced systems. The company's Marlin Gas Services, leveraging an integrated pipeline network, offers competitive operating costs for virtual pipeline solutions. While larger competitors may benefit from greater economies of scale, potentially leading to lower per-unit costs in certain areas, CPK's targeted investments and operational improvements provide a competitive edge in efficiency and service delivery within its footprint.

A cornerstone of CPK's strategy is its commitment to continuous business transformation, heavily reliant on technological advancements. The recent, successful implementation of the SAP customer billing system (1CX) across its legacy operations and the subsequent transition of FCG in April 2025 is a significant operational achievement. This system aims to streamline processes, enhance customer service, and improve billing efficiency. Furthermore, the company is in the early stages of launching a multiyear Enterprise Resource Plan (ERP), targeting improvements across critical functions like HR, supply chain, asset management, and finance. These technology investments are not merely upgrades; they are foundational to supporting the company's rapid scaling following the FCG acquisition and are designed to drive operational efficiencies and cost management, thereby contributing to bottom-line performance. While specific quantitative metrics on the efficiency gains from the SAP or planned ERP systems are not yet detailed, the strategic intent is clearly to leverage technology to maintain operational excellence as the company grows larger and more complex. CPK also invests in specialized operational technology, such as its Safety Town training facilities, which utilize simulations and hands-on training to enhance safety and emergency preparedness, a critical aspect of utility operations and a differentiator in service reliability.

The company's financial performance reflects the initial benefits of its expanded footprint and strategic execution. For the first quarter of 2025, CPK reported Adjusted Gross Margin of $182.4 million, an 11% increase over Q1 2024, and Adjusted Net Income of $51.1 million, up 9.2%. This translated to Adjusted Earnings Per Share of $2.22. Full year 2024 results also demonstrated substantial growth, with Adjusted Gross Margin reaching $567 million (up 25% from 2023) and Adjusted EPS of $5.39. These results were primarily driven by the full-year contribution from the FCG acquisition, incremental margin from regulated infrastructure programs ($3.4 million in Q1 2025), organic natural gas distribution growth ($2.2 million in Q1 2025, with residential customer growth around 4% in Delmarva and 3% in Florida), pipeline expansion projects ($2.2 million transmission margin in Q1 2025), and increased demand for virtual pipeline services ($3.6 million in Q1 2025). Operating expenses saw increases, partly due to the absence of a specific RSAM adjustment benefit at FCG seen in the prior year and higher payroll and depreciation costs associated with growth.

CPK's growth trajectory is fundamentally tied to its significant capital investment program. The company has reaffirmed its ambitious 5-year capital investment plan of $1.5 billion to $1.8 billion through 2028, having already identified at least $1.4 billion of this total. The 2025 capital expenditure guidance is set between $325 million and $375 million. These investments are concentrated in regulated energy, particularly natural gas distribution and transmission, and are designed to serve new customers and enhance system reliability. Key projects include transmission expansions like Wildlight ($3.0 million expected 2025 adjusted gross margin), Newberry ($2.6 million expected 2025 adjusted gross margin), East Coast Reinforcement ($4.7 million expected 2025 adjusted gross margin), Central Florida Reinforcement ($2.0 million expected 2025 adjusted gross margin), and the Miami Inner Loop ($0.6 million expected 2025 adjusted gross margin), among others. Reliability infrastructure programs like Florida's GUARD and SAFE programs are expected to contribute $6.9 million and $8.5 million in adjusted gross margin, respectively, in 2025. The Worcester Resiliency Upgrade (WRU) LNG storage project, critical for peaking service, received FERC approval in January 2025. However, the project has faced challenges, with final bids coming in higher than expected, leading to a $20 million cost increase (totaling $100 million) and shifting the in-service date from Q4 2025 to Q2 2026. This delay impacts the expected margin contribution in 2025, but management has expressed confidence in managing this impact within their overall guidance.

A proactive regulatory strategy is essential for enabling these capital investments and ensuring cost recovery. CPK has been actively engaged in rate cases across its jurisdictions. In Maryland, a natural gas rate case resulted in a total cumulative increase of $3.5 million, with new rates effective April 2025, including approval to consolidate operations. In Delaware, a natural gas rate case application seeking $12.1 million led to a settlement for a $6.1 million annual revenue increase, with interim rates effective March 2025 and final approval pending. The Florida Electric rate case, seeking $12.6 million, reached a settlement agreement in May 2025 for an $8.6 million annual revenue increase, pending PSC approval in June 2025. These regulatory outcomes are crucial for supporting the company's earnings growth and return on invested capital. Additionally, CPK filed a depreciation study for FCG in February 2025, seeking revised rates and amortization of a reserve imbalance, with an outcome expected in September 2025.

The company maintains a strong focus on financial health and liquidity to support its capital plan. It ended Q1 2025 with an equity to total capitalization ratio of 49%, progressing towards its target range of 50% to 60%. This effort is supported by strategic financing activities, including the issuance of $100 million in Senior Notes in November 2024 and utilizing its ATM program, which generated $19.8 million in net proceeds in Q1 2025. The Revolving Credit Facility was amended in August 2024, increasing capacity to $450 million, and the company had $227 million available under the Revolver and $255 million under Shelf Agreements at the end of Q1 2025. Fitch Ratings assigned CPK an inaugural investment-grade credit rating (BBB+ Stable outlook) in March 2025, acknowledging its prudent balance sheet management and growth prospects, which should enhance access to capital.

Looking ahead, CPK has reaffirmed its full year 2025 Adjusted EPS guidance of $6.15 to $6.35, representing significant growth over 2024 and projecting performance well above the utility industry average. The company also reaffirmed its 2028 Adjusted EPS guidance of $7.75 to $8.00. Management anticipates a higher-than-normal percentage of incremental gross margin in the latter half of 2025, driven by the timing of interim and final rate case approvals and major capital projects coming into service. While the WRU delay shifts its margin contribution to 2026, the strength of the overall project pipeline is expected to support the 2025 guidance. Risks to this outlook include potential further delays or cost increases in capital projects, the outcome and timing of regulatory decisions (including the FCG depreciation study and the pending Florida OPC appeal), and external factors like economic conditions, tariffs impacting material costs, and weather variability.

Conclusion

Chesapeake Utilities is executing a compelling growth strategy centered on leveraging its presence in high-demand regions and investing heavily in regulated infrastructure and complementary unregulated services. The successful integration of FCG, coupled with a robust pipeline of capital projects and proactive regulatory initiatives, positions the company for above-average earnings growth, as reflected in its reaffirmed 2025 and 2028 guidance. While challenges such as project execution risks and regulatory uncertainties exist, CPK's strong financial position, strategic focus on operational efficiency through technology, and demonstrated ability to secure rate relief underpin its capacity to navigate these headwinds. For investors seeking exposure to a utility with significant growth potential driven by demographic trends and strategic capital deployment, CPK presents a noteworthy opportunity, contingent on continued successful execution of its ambitious investment and regulatory agenda.