Good morning. My name is Denise, and I'll be facilitating today's call. I'd now like to turn the call over to Beth Cooper. Please go ahead. .

Thank you, and good morning, everyone. I'd first like to thank those that are joining us on the call today and then, secondly, thank those in the room for today we're doing our earnings conference call live from Delaware State University, in our hometown in Dover, Delaware.

And we appreciate so many -- the faculties, the deans, so many -- those individuals being able to join us as well as it's a great opportunity for us to be able to get out and work with the university in these types of settings..

I'm going to begin today's call first. Moving to Slide 2. I know everyone on the call is familiar. We have our standard disclosures around forward-looking statements. Certainly, I would refer everyone to the forward-looking information that we provide in our Form 10-K.

We will talk about various projections, but you should always look at those in light of those disclosures that we provide around those in our public documents..

We thought, today, a good place to start the call, we had quite a few questions from the financial community, will be to discuss the most recent hurricane, Hurricane Matthew, and what impact that may have had, if any, on the company..

And so I'm going to turn our call over to Mike McMasters, President and CEO who will discuss that. .

Thank you, Beth. I mentioned earlier that we didn't have a hurricane a little while ago, and I just want to bring everybody up to what's happened. There's been a lot of questions about this. There was a lot -- a tremendous amount of work that was done upfront to prepare for the hurricane.

I'm skipping over that just to kind of -- in the interest of time here. But basically, I'm just picking up from when the hurricane was, I guess, quickly approaching the island. We had a mandatory evacuation on Amelia Island at 6 a.m. on Thursday. We shut down our combined heat power plant on the island shortly thereafter.

So the hurricane impacts from Thursday, October 6 to Saturday, October 8. On a Saturday morning at 8:30, our trucks were lined up at the bridge to get back on the island to go check out the facilities and get customers turned back on service they since have lost. Our trucks were actually the first group of people back on the island. We lined up early.

And since the Board of -- Department of Transportation ruled that the bridge was safe, we drove across the island and started over..

When we got there, we've been on to 90% of our electric customers without power. There, of course, have been minimal damage done to our natural gas propane systems, no damage to the storm hardened transmission poles, no damage to our Florida Public Utilities operations centered on the island. This is a pretty big deal.

There's a lot of stuff that has been done over the last 5 or 6 years to our Florida Public Utilities to strengthen the -- focus on the island, to make this more able to withstand storms. The most important thing, I can't -- I'd say another factor. So there's no damage to the Eight Flags combined heat power plant.

There's an elevated platform on pilings for the plant since it's designed for hurricane category 4 storm. So what we refer [indiscernible]. And then, I guess, [indiscernible] category 4 storm earlier in the week, we are fortunate, like I said, it came in at slightly below that..

Restoration. Once we got back on the island, we had the power plant running within 3 hours. We had 12,000 of the 14,000 electric outages fixed in the first day. On the next day, we increased it, 1,800 more customers. By the time we got on Monday, we only had 200 without power. And we're able to get that done on Monday.

It was a very quick restoration with approximately $1 million cost plus or minus. We do have storm reserve in place, so that does not impact earnings..

And there was no accidents or injuries. A lot of work done quickly, no one hurt, and everyone back on service. So it was very good. I think the only -- just one piece of thing [ph] that was done by Jeff Householder, stock was [indiscernible] up, so a potential [indiscernible]. So [indiscernible] details to that situation..

I guess, I'm going to jump at a couple of slides here real quick while I've got the floor. When we think about -- when I think about what we're doing to the company to try and grow the company, we look a lot of this, I guess, company performance and direction as a strategic platform for sustainable growth as I will refer to it.

And we will get this from the bottom up. Now if you look at the bottom, we'll see engagement strategies, provide the strategic infrastructure for sustainable growth. You'll see safety, reliability and customer satisfaction, et cetera. .

But really, what is we have a lot of top-notch, high-quality employees and they're highly engaged. And so they're that build relationships with our customers, with the communities we serve. We're going to make sure that our systems are safe and reliable. And with that, I'm going to say, as a foundation, we create a good reputation to the community.

And that frees up a lot of time for us as -- whether you're executives or whether you're frontline with the customers, to focus on growth. And so with that, we're looking very aggressively for growth opportunities whether it's inside our footprint from the peninsula or Ohio or it's outside.

We're going to build anywhere -- to anywhere the growth opportunity makes sense for us. We're going to try and make sure that we're participating in that growth opportunity..

If you look at the top of the triangle, you see results, safety awards, top workplace and top leadership awards, community service awards, achieving top quartile growth in earnings and top quartile total shareholder return. So we're proud of all those things. Real quickly, I'll hit this first slide and I'll hand it back over to Beth..

The third quarter and year-to-date results exceeded our expectations. So we are very comfortable with where we are today. We know that our growth is working. Our forecast indicated that we would not get earnings as high as they are right now both on a year-to-date basis and also for the quarter.

Now we're getting growth from expansions as well as customer growth within our territories. Eight Flags was a critical contributor in the third quarter that generated margin and operating income as expected. We're very pleased with how that project has worked out and how it's working today.

On November 2, we announced that we signed all the precedent agreements necessary for us to make a filing with the FERC for an expansion of our Eastern Shore Natural Gas pipeline. This will be the largest expansion in our history, approximately $99 million project with about $50 million [indiscernible].

And as we reported, our operations were minimally impacted by Hurricane Matthew. And then finally, we issued stock for the quarter netting $57.3 million. I'd say it's probably the lowest stock issuance for us in our history. But now [indiscernible], it's fairly slow and it's going to maybe help with currently how things have changed..

Now I'm going to turn it back over to Beth. .

Now, really, just to dig in and take a look at the financial results, first beginning with the quarter. Turning to Slide 10 for those on the phone. For the quarter, we reported $4.4 million of net income, which basically represents $0.29 per share.

Recall and I know many of those on the phone know that the third quarter for us in terms of overall contribution for the company is typically the lowest when you look at where and when our earnings fall due to the seasonality of our businesses.

The $0.29 for the quarter that Mike mentioned, there's a lot of growth in here, though, that really is going on that we want to highlight and walk you through. .

So turning to Slide 11, beginning with our Regulated Energy segment. That segment had higher gross margin of about $4.7 million that ultimately translated into about $1.3 million of increased operating income. It didn't really come from just one area, though.

And consistent with what we've been talking about for the last several quarters, there were multiple areas where we had growth as well in the company. First and foremost, included our natural gas expansions that we made on the transmission and distribution side. Those generated about $1.6 million in terms of incremental margins.

Above and beyond that, we had $943,000 of new customer growth. That's customer growth in our distribution operations as well as additional margin that we're generating in our transmission operations. We also generated $920,000 incremental margin from our Gas Reliability and Infrastructure Program.

That's a gas pipe replacement program that's been in place since August of 2012 in Florida. By the end of this year, we'll have invested close to $100 million in that program. So very substantial in terms of the contribution that it's making each quarter in terms of gross margin.

Beyond that, we also have been -- and we'll talk in a few minutes about, we've been involved in our Delaware rate case. We've implemented interim rates to the tune of overall $2.5 million on an annual basis. The impact for the quarter was $469,000. I'll talk about year-to-date in a few minutes.

And then lastly, service by our natural gas distribution and transmission company in Florida to bring natural gas to that combined heat power plant that Mike talked about, adding close to another $0.5 million..

On the unregulated side of our business, there was also growth. Our Eight Flags CHP plant went into operations. That generated incremental margin of $1.6 million. When you look at gross margins for this particular business on Slide 7, (sic) [Slide 12] though, or for this particular segment, what you'll see, though, is gross margin is relatively flat.

And that's because year-over-year, we had some nonrecurring items and we also had lower retail margin per gallon in our propane distribution operation, which we've been talking about for a very long period of time, those margins will be returning toward normal levels..

So when we break that down and look at some of those factors that offset that $1.6 million contributed by Eight Flags, the retail propane margin decline was about $414,000. The timing of costs that we had related to one of the contracts that we've entered into by our PESCO subsidiary, we incurred about 20% of cost associated with an annual contract.

And basically, we have volumes of about 5% during that quarter..

Lastly, we had some nonrecurring imbalance positions in Aspire in 2015. So overall, once again, there's growth -- a lot of growth in this segment. We see the $1.6 million and overall year-to-date, we'll talk about the other growth profit [ph] segment..

In terms of the 9 months, where are we? One of the things that I like to take a look at, shown on Slide 13, is as we started this year, we moved through the year, we had over $10 million of gross margin that we needed to overcome, $7.5 million of that coming from the weather, $2.2 million of that coming from expected lower retail propane margins per gallon.

We have retained all of that, and we're moving beyond that. So as you see on Slide 13, our gross -- in terms of our operating income, we're up by about $700,000, which is being led by gross margin increases.

In this period, gross margin increases are $5.5 million coming from the natural gas transmission and distribution expansion; $3.1 million coming from GRIP, I talked about that earlier; another $2.6 million of gross margin growth coming from other customer growth within our natural gas distribution and transmission operations; $2 million coming from our interim rates in our Delaware division that's about $1.35 million of that $2 million; and then we've also implemented the improve our -- system improvement rates on our Sandpiper operation of about $600,000 to $700,000.

And then lastly, our Eight Flags service from our distribution and transmission operations generated just under $1 million..

On the unregulated side of the house, we also generated $4.5 million incremental margin from our newest subsidiary, Aspire Energy. But additionally, the Eight Flags CHP plant added $1.7 million in terms of what they sell in to Rayonier [indiscernible] steam generation.

And then lastly, $1.1 million was generated from our PESCO marketing company due to the opportunities from our new customers as well as favorable supply management..

So overall, year-over-year, when you look at us, our net income was up. We've overcome $10 million-plus in terms of gross margin from the weather, which we can't control as well as the expectation of lower retail margins.

And so overall, when you factor in higher level of shares year-over-year, our earnings per share is $2.14 compared to $2.16 last year..

Taking a look at it from an earnings per share standpoint. This is where it really stands out for myself. So you will see, I talk about the weather, this is on Slide 14. Weather is basically $0.31 per share. In addition to that, the low expected retail margins were $0.09 and we had a recovery from a billing system settlement in 2015.

The net impact of that is basically $0.06 per share. So $0.46 downward pressure on earnings. But this was more than overcome by $0.67 of gross margin increases for the reasons that I just went through. Additionally, Aspire Energy was accretive in its first year. And looking at the 9 months, it's added $0.08 per share..

So where are the growth that I talked about? So many different factors of growth coming from all different parts of the business. We lay down the results of the investments that we've been making shown on Slide 15. On a year-to-date basis, we've invested about $106 million in new capital expenditures this year. Our original budget was $179 million.

We believe right now, we put a kind of range in our public documents of $150 million to $170 million. So we've taken the midpoint here and said, basically, we're targeting and we believe right now we'll be close to that $160 million. We've completed the CHP plant. That's done. It's about half over its expense.

We're in the process of constructing our reliability project as well as our mainline expansion project. Those are underway, each just under $40 million. And in addition to that, we've been doing the GRIP replacement program as well as some other initiatives..

Turning to Slide 16, just in terms of having the balance sheet to be able to support those capital investments. We've positioned ourselves -- and hopefully, as we move forward, we have the balance sheet in place that will support our continual growth.

When you take a look at where we sit at the end of September, we're approximately $750 million of booked capitalization as a company. Of that amount, we've got approximately $438 million of equity, which represents just under 59% equity to total capitalization. Our target as a company is 50% to 60%, so well within our target range..

Wells Fargo and RBC Capital Markets. We also had fixed managers that participated, including Janney Montgomery, Baird, Hilliard Lyons, Ladenburg Thalmann, BB&T and U.S. Capital. What was interesting for us was when we initiated the equity offering, there was an interest that represented more than 300% of what we were trying to raise.

And so a very good time and that -- that we are hopefully developing -- continue to develop great relationship with new markets, new investors. Our existing investors continue to hopefully be pleased with our results and where we're headed certainly with our strategy. And so we were able to raise that. We issued the stock at $62.26.

Our allocation was 69% retail, 31% institutional. We had existing institutional investors participate, we had new institutional investors got involved and we placed our stock throughout the company through various channels. So we believe a win-win. We exercised a greenshoe.

So from our perspective, hopefully, also well received by the investment community..

Turning to Slide 18. We continue to be focused on our dividend growth. Most recently, in May, our board increased our dividends. Our annualized dividend is $1.22. Earlier this week, the board decided a quarterly dividend that's equal to that annualized amount.

We're now paying dividends for 56 consecutive years, and in all those years either maintaining or increasing our dividends. Our most recent dividend increase represented a 6.1% increase or 5.8% over the last 5 years.

What's important to us, though, was that when we have dividend growth, we want that dividend growth to be supported by sustainable earnings growth. And that's really what we've been looking for and trying to achieve throughout the years..

Moving on to Slide 19. We talked a lot about the various components with the gross margin increases.

So this is the table in our press release where we tried to lay out the projects that are underway, the projects that have been completed, so that we can define where we feel there is future opportunity and growth in terms of the margin from these projects that are done as well as those that are to be completed.

If you take a look at 2016 compared to 2015, our expectation is that gross margin from those projects will have represented incremental margin of $22 million for us as a company. As we look into 2017, right now, that estimate is right around $10 million of incremental margin that we've identified from the Chesapeake [ph] projects..

Please keep in mind, when I talked earlier about organic growth, that's not in this table. We'll be -- so we have a filing forthcoming as it relates to our Eastern Shore Natural Gas operation. At this time, that's not in the table.

As things become more firm in regards to expectation, we include them on this table or if they're projects that are going to be put in a public domain, then we can add it at that time..

And then lastly, right now, our projection is for 2018 over '17, we would have incremental margin of $17.5 million from these projects that we've identified..

Some of those that are included on that slide on page -- Slide 19 relates to rate cases, and we wanted to update everyone relating to those. So our Sandpiper filing in regards to that particular rate case, a settlement agreement was approved on October 29. The new rates go into effect on December 1. Initially, it will be a revenue-neutral situation.

Over time, those rates to customers will decline, but as many of you will recall that we also implement a process where we're converting customers. And in conjunction with that, the rates and what we'll be earning on that process will offset, to some degree, those lower returns and earnings that's coming out of the rate case..

In our Delaware division, we're in the process of settlement discussions. There's been a 2-phase approval process by the PSC as it relates to interim rates.

The first tranche was the $2.5 million, which we had implemented, and recall earlier I talked about that our margin reflected, both for the quarter and year-to-date, incremental margin from the Delaware rate case. In the case of the quarter, it was under $0.5 million. In case of year-to-date, it was about $1.35 million.

There's a second tranche of rate increases to bring it up to our full request. We have reserved for that second tranche of rate increases pending a final PSC approval.

And lastly, I made reference to our Eastern Shore Natural Gas subsidiary, where we're being required to come back in there and file a rate case, and we're targeting by the end of January for that with rates proposed to be effective on March 1..

And so with that, I'm going to turn it now back to Mike. .

Okay. I guess, you already have seen this slide, Slide 21. So I'm going to skip over that. We're trying to do things pretty quickly. Eight Flags, we talked about that a lot -- a little bit earlier. I'm just going to skip over this thing and just mention a couple of things.

One, $40 million investment in the project, annual margin is expected to be with some other -- some that we're doing on that project, $8.2 million. And savings would be [indiscernible] of $3 million to $4 million a year from power loss..

The Eastern Shore expansion, I just spoke about that. Somewhat you could see pretty much our map with the initial [indiscernible] that covers. So that's FERC's [indiscernible] Federal Energy Regulatory Commission. The pre-filing processes underway. And so we're getting moving.

And we also have all the precedent agreements so we could start putting together our filings for FERC to get approval for the Eastern Shore file..

Real quickly, as I mentioned, $99 million capital investment, $15.7 million in the first full year of operation after the service. So that will be in service in the fourth quarter of '17, late in the fourth quarter. So most of the margin impact will be -- greater impact on the margin impact will be in ‘18 as opposed to '17..

These performance quadrants are pretty important slide for us. Those weighted average ROE is on the vertical axis. The capital expenditure/total compensation is on the horizontal axis. And what we're looking at here is based [indiscernible]. I want to talk about the capital expenditures first in that horizontal axis.

We can deploy a lot of capital, make a few investments, and we can do that right now. You can see in this peer bridge, there are only 2 companies higher than us. And this is basically a pretty broad group in the peer group, which is a [indiscernible] in here. You can see 2 companies greater than we are.

Then if you look at ROE, you can see we're about fifth. So when you do that, you need to deploy a tremendous amount of capital to get higher returns that should drive earnings per share growth. It does take all of our -- other business units to identify all those opportunities..

But from a financial perspective, what you can see on Slide 26 that it can really provide returns -- total shareholder return. So if you look to the left-hand side, for example, 1 year, 53% ranking on the group. I think that's actually created a 17.4% shareholder return.

If you look at the 3-year, 23.1% shareholder return; 5-year, 21%; and 10-year, 15.5%. And this is compared to the broader New York Stock Exchange. And you can see, we're hitting 75th percentile on numbers 3 out of those 4 periods. And so there's some high performance coming out of those financial results..

This is just a table of metrics, financial metrics that we look at periodically. As you can see, in all of the 3 periods, all categories we're hitting top quartile performance. So it's a pretty big deal for us. And we're working hard to maintain this or actually continue to accelerate our growth..

With that, I'll turn it over for any questions. .

[Operator Instructions] Your first question comes from Spencer Joyce with Hilliard Lyons. .

Just one really quick one for me here, and I actually had to hop off on to the South Jersey call. But I did want to ask about the Sandpiper rate case and the new rates going into effect in December. I know you mentioned revenue-neutral. I know Sandpiper, we've talked about kind of on the periphery for a few years now.

And was -- is that revenue-neutral about what you expected? I know, Mike, you've mentioned that's kind of a long game there as we get those customers converted over the next few years.

I'm just wondering how the ultimate outcome there kind of jive with your initial kind of hopes and expectations?.

Actually, I just [indiscernible] it might sound strange, but it is very good outcome [indiscernible] make a very fair outcome, probably a little better than we expected. What you have here with the Sandpiper, as you know, it was a propane underground distribution system, unregulated [indiscernible] there.

We knew we had a complex, I guess, series of investment we'll be placing in trying to convert that to natural gas. And if we were trying to convert that and had customers that are all going from unregulated to regulated as we were doing conversions, there was going to be a lot of friction, I guess, with the residents that were still on propane.

And so we went and [indiscernible] costs, so that everybody was in the same boat. We could [indiscernible] conversion as quickly as possible. And so with that, it creates a complex mostly rate of return question.

So we have propane customers, we have natural gas customers, what kind of rate of return do you use? And we have been achieving very high rates of return -- maybe very high rates of return, but very high rates of return. So we knew that, that was at risk. And so we felt like the balance that we can get [indiscernible] was a good -- pretty good place.

So we're going to be continuing to convert customers, getting properly compensated for that with reasonably good -- the effect is to have reasonably good return. .

[Operator Instructions] There are no further questions queued up on the phone. I turn the call back over to the presenters. .

Well, thanks, everybody, for joining us here today and your interest in our company. We're going to continue to be dedicated to drive earnings in a manner that's responsible for the safety of the customers [indiscernible]. So thank you very much. .

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