Good morning. My name is Alice and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Ms. Beth Cooper, you may begin your conference.

Good morning, everyone. I’d like to welcome you to Chesapeake Utilities first quarter 2017 earnings conference call. We are thankful today to be hosting the call live from Wesley College in Dover, Delaware. We have several of our officers as well as our employees that graduated from this college in attendance, and we typically recruit from this college and have new employees joining the organization all the time. We’re especially thankful to Dr. Gibson, Provost and Vice President of Academic Affairs for enabling us to conduct today’s call here at Wesley College, as well as members of the faculty and students that are in attendance. So good morning everybody. Turning to Slide 2, you all are accustomed to our normal disclosure regarding forward-looking statements. We actually refer you to our Form-Q where we describe the reasons for why the forward-looking information may actually differ from our actual results. I am now going to turn the call over to Mike McMasters, our President and CEO, and he is going to make some introductory opening remarks.

Thanks, Beth. I guess, first, I am going to talk just very briefly about the first quarter. The margin growth in the first quarter was coming from both regulated and unregulated operations of $6.8 million, a very strong performance in that regard. Additional margin of $2.3 million came from Eight Flags, or Combined Heat and Power plant down in Florida, $2.2 million came from Peninsula Energy Services Company, our natural gas marketing operations. $1.6 million came from our natural gas transmission and distribution customer growth. Our Florida reliability infrastructure program also generated $680,000. So overall again a very strong quarter in margin. We also had higher operating expenses, depreciation and taxes due to growth primarily; cost increases in our regulated and unregulated operations; multiple system expansions and growth in our unregulated energy business: Eight Flags, Aspire and PESCO; due diligence costs associated with an investment that we’re reviewing that we decided to not pursue; higher appreciation and taxes associated with capital spending for Florida GRIP, Eastern Shore, Aspire and Eight Flags. There are some other factors that are impacting our earnings for this year. The third warmest weather on Delmarva Peninsula during the last 50 years negatively impacted us by $0.12 when compared to normal weather. Shutdown of Xeron our wholesale marketing company in Houston costs $0.02. Common stock issuance in September of 2016 to finance recent capital expenditures for $0.07 and higher interest from increased debt and other expenses cost $0.02 more. Overall, again a very strong quarter, we’re committed to the long term sustainable growth and you’re seeing that in terms of margin growth and we’ll talk about some of the operating costs in a moment. I’ll turn it back to Beth.

Turning to Slide 4, what you will see – the factors that Mike described resulted in our earnings per share being down for the quarter by $0.16 per share. For all that Mike talked about is strong gross margin growth of $6.8 million, net operating expenses that increased by 8.5 for many of the reasons that Mike talked about, so overall EPS for the quarter was $1.17 compared to $1.33 last year. Turning to Slide 5, what we've tried to do is lay out some of those -- the impact of some of those non-recurring unusual items. And so when you begin looking at 2017, the first thing you add back is the variance in terms of the weather quarter over quarter and that represented $0.04 per share. Xeron that Mike talked about was clamped down in the quarter, we made a decision that we were going to exit that business. As a result of making that decision, we recorded expenses that translated into $0.02 per share. So on an adjusted EPS basis, we were basically sitting on $1.23. Pretty much the same as last year when you look at it also on adjusted basis. The factors that we adjusted for 2016 on the slide include: first the fact that we have been providing OPT 90 service last year on an interim basis before the physical facilities could actually been constructed. So factoring that in, the construction of those facilities, they are now in place in 2017 but putting the two on an apples to apples comparison, we would deduct that $0.08 per share and then also this year we continue to have further decline in our retail propane margin per gallon that represented $0.02. So last year was $0.02 higher but we did start to see last year, if…

Thanks, Beth. I guess when you look at the slide, you can now see five different points of focus that we have. First, promoting growth and development of our team. Obviously our team is critically important to our growth. This includes strategic thinking and creative energy. If you think about our strategy plan, we work on a plan, you shut it down, you start initiating that plan, invariably something's going to change. So the creative thinking part was about reacting to that change in a manner that's constructive and then creative energy just raised the stakes of our employees again, how they approach the project. Expanding our energy delivery services both organically and new graphic markets last longer expertise and certainly natural natural gas transmission and distribution customers. So we're looking both what, where we currently serve, and what opportunities do we have there but also to adjacent territories, how can we expand our footprint through this organic growth mechanism? Next bullet, expand our footprint into new growth markets through strategic initiatives. So if you look at a couple years ago we were looking for opportunities, that we were looking to Ohio actually. We were able to identify a pipeline gathering at that time and figure out how to make that project work for us, and that’s an example of getting out beyond the current footprint or even current territory. Fourth bullet, develop new and unregulated energy services and products that complement our existing businesses and growth strategy. We think about Eight Flags -- Eight Flags is a Combined Heat and Power plant, this is our first power plant that we’ve ever constructed in the company wherever they operator the company. And what was happening there is the customer, the host company, if you will, came to us and expressed…

[Operator Instructions] You have a question from Insoo Kim of RBC Capital Markets.

Just starting with the Pensacola project announcement, around what time period that decision by the Florida PSC and then maybe a follow up to that, now that you're in negotiation with other third parties for potential further expansion into their territories like, could you kind of describe at what stage are you guys are with those parties and could that maybe be a 2018 event as well?

I am trying to – make sure I heard your question properly. I think on the approval process, I think we're fully approved. There may be a couple little things out there but we’ve got pipe on order, which typically would mean we’ve gotten all of the approvals that we need. There might be a permit here or there but that’s been – we’ve been working on that project for, I want to say, a year and a half, maybe two years. So we're good to go there on that project in terms of getting started and bring into completion. I think, I am trying to think you were asking – I am thinking about how much -- a load we have to support for the project; is that –

I think it was more regarding the comment that you guys are in negotiations with other third parties for potential further expansion out there, at the current project base you have on task and whether that could be a 2018 event as well?

There is some potential that we will have additional customers on the system in 2018 and beyond, but we've already focused on. There are several opportunities that we're talking to right now. Yes, we know it's a solid investment with what we’ve got and so anything we do will enhance that. But this is most of the project.

And maybe sticking with Florida MD, the electric distribution system proposal – the ESTAR proposal they've got, would you run more to your limited filing -- Would – are you able to give kind of the magnitude of how much less the ask would be versus the original amount of $59.8 million?

I think it's probably premature to say what the expectation is. I think what we did was we restructured the filing and included – pretty much the same words, the way we're getting recovery is changing.

And then given the extreme mild weather, you guys recorded this year -- I know last year was also mild but it was even milder, how much leverage do you guys have on the O&M side to mitigate some of that impact?

Yes, that's a $0.04 a share, and now back to normal, that’s a pretty big number and on the O&M side in a single year it is very tough to do that. But we are looking at the things that we can do to bring our numbers up. There may be some things we’re looking around to see if we can do some revenue enhancements in addition to the cost contentment to improve 2017. We look at 2018 and we know we’re in a good position with those big projects that we have coming on-board, 2017 is a bit challenged and again we’re pretty focused on what we have to do there and try to make the 2017 as strong as we can get it.

Your next question comes from the line of Spencer Joyce of Hilliard Lyons.

Congrats on the Florida announcements, we always like to see you guys not knock out those big projects. Mike, kind of want to ask you from a high level; I know a year or two ago we saw you guys kind of wind down BravePoint and then seeing a similar actions with Xeron here this quarter. I'm wondering if there's been any kind of internal -- kind of broad strategic review of some of the legacy businesses or are each of these just kind of one-offs that eventually kind of presented themselves? Just kind of moving forward, I guess, is it possible that we see some other items like this or should we just kind of take these as kind of one-offs as they come?

Spencer, we have a strategic planning process every year, and so that kind of creates the forum to talk about these kinds of things. And this particular case, similar to the BravePoint case where non-performance was beating our expectations, then they required us to take action. This BravePoint had a little bit unique because it was a technology company as opposed to an energy company. But so this Xeron situation purely that performance concern that we had and our future view of what those earnings were going to be. So at some point in time, I believe it’s every year there is the opportunity to discuss that and the board is very engaged in the performance of each of these individual companies or whatever, and we’re certainly aware of that. And so we don’t want to have sustained losses in any of our businesses, we’ll just – what we can do to face it, if we can’t face it, then we’ll have to do something else. That’s where we go with Xeron.

Beth, maybe on, sticking with Xeron here for a second. On the profitability side, as we look out over kind of the balance of this year, remind us what Xeron contributed kind of Q2, 3, 4, in 2016 just from either margin or an EPS type standpoint?

If you look at Xeron, I can’t get the more detailed numbers – I am sorry, I am going to talk off the top of my head but my recollection is that Xeron contribution from an operating income standpoint was a little less than a negative $1 million down from last year. So when you look at the year, it’s about $1 million negative, but it decline operating income.

Great, so not a huge swing either way.

No.

I guess, Beth, sticking with you here for a second as well. Obviously a big jump-up in O&M which is totally understandable given what you all are doing on the growth side. But I just want to ask kind of everything listed slot 7 and then kind of everything listed slot 7, is there anything that we can parse out that is arguably either nonrecurring or extraordinary in some sense, I mean maybe you had to pay over time where you expect to have kind of regular labor next year? I mean is there any kind of nuance just given kind of the magnitude, and I just want to -- I mean it seems like there could be a piece or two that we should at least maybe adjust for kind of modeling Q1 2018 but any thoughts there?

Sure, and actually Spencer, that's a great question, and we actually had, I would say, opposite have happened when you look at last year, that really had a negative impact this year. And what I mean by that is, for example, with Aspire Energy, we completed that acquisition in 2015, we had a final valuation that was done on that business as to where we could record the purchase price and allocate the assets and as a result of that allocation we actually had a rise in depreciation expense and Aspire in our 2016 numbers in the first quarter about $300,000, that this year you would argue that depreciation is up by $300,000 but last year was understated because of that valuation. Similarly to that, when you look at our report, we guide on the health care spend, we've got about $700,000 higher of health care spend this year than what we had last year. We came out of last year at the end of 2015 looked at our claims, looked at our rate, we do a lot of different analyses there and had an opportunity to write-in on healthcare reserve that unfortunately did not repeat itself this year. That really was something -- we don't have a lot of information out there, Spencer, because from one year, from one quarter to the next it’s really a matter of what our health claims experiences were self-insured. But there is a huge volatility there that I would point out. And then lastly as we go through and look at our operation, I would say we have between $500,000 to $750,000 of non-recurring expenses, this in terms of things that we’re seeing within the business unit. So those I would say are the three key things when you look at it year over year that I would keep in kind.

So if we think about those three items, obviously the depreciation from 2016, were kind of a clear or a clean comparison here in 2017. The final item -- the $500,000 to $750,000 of items within the business units. Is that kind of a special but you know could be a recurring theme into next year or are some of those a little less likely to repeat next year?

Well, I mean those costs can include anything if we have like special initiatives that we're – in terms of projects that we're doing so much from our projects standpoint, we just get a little bit challenging in terms of trying to say they won’t, to be incurred again. I think we're trying to -- some of those could be regulatory related expenses given the fact and we've had multiple rate cases and we’re really going to have been through a lot of our jurisdictions. Those types of things might not repeat itself. So I think there's about $500,000 that we could stay we don't see recurring. The other thing I would add, Spencer, is that we also had – as Mike mentioned in the very beginning on Slide 3, we had transaction costs and we talked internally about, are those costs going to -- are you going to have those year over year over year we don't know, it really depends on the opportunities and which opportunities come to fruition. But for now we haven't included those as an add back, or an adjustment just because we are pursuing growth we've had success in that area and despite the fact that we had some costs that we didn't end up moving forward with the transaction. We don't want to say those aren't going to be incurred in the future. So Mike, I don't know if there is anything that you would want to add.

Yes, you might want to also think us, Spencer, about these are sort of rate case, rates are going to affect subject to refund in August. And so the things that – you’re going to get some sort of revenue pickup. We've disclosed revenue requirement on the reliability project, we haven’t talked about the additional revenue requirements but that’s another factor that would be fairly large in the second half of the year from August through December, and clearly in 2018.

Your next question comes from the line of Ken Argeee [ph] of Ladenburg Thalmann.

Hi, the weather impact was pretty significant in the quarter. Just asking, any opportunities [indiscernible] weather normalization –

Yes, we’ve had weather normalization in Maryland currently exists. Delaware has – looked, not looked upon that favourably or disaster discounts on the returns or more than we wanted to accept. And in Florida we’ve not -- it's a little bit more difficult in Florida just with warmer weather, generally speaking. That’s something again I think Florida – but anyway so, yes, we do look at that – made conversations, this last filing, particularly in Delaware, have elected not to move forward with that, in the past we made it differently, given two years in a row warm weather, and there’s something to look for.

[Operator Instructions] Our next question comes from the line of Michael Gaugler of Janney Montgomery.

Just wondering where do you see the sizable opportunities like the Florida natural gas in terms of larger of that investment; is it in Delmarva? Does it stay in Florida or somewhere else? And then as a follow up, what's the pipeline look like for those larger type projects?

I think it's fair to say that we've been getting growth -- strong growth in both Delmarva and Florida. Florida does have a significantly larger state than Delaware. So you would think that over time as long as we’re getting big pipeline projects, Delmarva, that's a fantastic place to be. But you would think that over time Florida will have significant opportunities down there and we’re actually committing on those now, and I think so we do like the state of Florida. You would also think that high up in Pennsylvania they also present opportunities for us. In terms of the pipeline, we do that strategic planning process every year and typically what we see is, we’ve got pretty clear view over the next three years but the fourth and fifth year get a little bit more catchy just because it’s so early in the game. But every year it seems like we go back over the next year and we fill in that fourth year, and we keep doing that. So I think we’re very confident in the future, we're pretty confident in the next three years and then we get a little bit weak on that back. We don’t disclose where that pipeline is at this – Michael. So sorry, I don’t have that information for you. End of Q&A

There are no further questions. Mr. McMasters you may continue.

Well, thanks everyone. Just want to show you our commitment to the communities we serve, our customers and our investors are steadfast. And you look at our brand values, we do not rest on our laurels, we're results oriented, we're relentless in our efforts to drive value. We're going to stay on that path. We appreciate your interest in our company and thank you and have a great weekend.

This concludes today’s conference call. You may now disconnect.