Essential Utilities, Inc. · NYSE:WTRG
Essential Utilities — Aqua America — Q3 2018 Earnings Presentation
41 slides from Essential Utilities's earnings presentation, Nov 6, 2018
Slide 1: Earnings Call Third Quarter 2018
Earnings Call Third Quarter 2018 November 6, 2018
Slide 2: Forward Looking Statement
Forward Looking Statement Brian Dingerdissen Vice President, Chief of Staff and Investor Relations AQUA NYSE: WTR 6
Slide 3: Forward Looking Statement
Forward Looking Statement This presentation contains in addition to historical information, forward looking statements based on assumptions made by management regarding future circumstances over which the company may have little or no control, that involve risks, uncertainties and other factors that
Slide 4: Introduction
Introduction Chris Franklin Chairman, Chief Executive Officer and President AQUA NYSE: WTR 6
Slide 5: Peoples Acquisition Highlights
Peoples Acquisition Highlights Creating a Larger, More Diversified, Regulated Water and Natural Gas Utility Aqua America to acquire Peoples in an all-cash transaction that reflects an enterprise value of $4.275B, which includes the assumption of approximately $1.3B of debt * Aligns with growth strat
Slide 6: Momentum Continues in Municipal Acquisitions
A Momentum Continues in Municipal Acquisitions UA
Slide 7: Sustaining Strong Investment in Infrastructure
Sustaining Strong Investment in Infrastructure * Invested $343.2 million in pipes, plants and other infrastructure year to date * We expect to invest approximately $500 million this year * On track to install approximately 170 miles of pipe this year AQUA NYSE: WTR 6
Slide 8: Inaugural CSR Report and CDP Survey
Providing and protecting earth’s most essential resource October 2018 Inaugural CSR Report October 2018 CDP Survey
Slide 9: Summary of Financial Results
Summary of Financial Results Dan Schuller Executive Vice President, CFO AQUA NYSE: WTR é
Slide 10: 2018 Third Quarter Highlights
2018 Third Quarter Highlights In millions Q3 2018 Q3 2017 ‘Variance except per share Revenue $226.1 A {8215.0 5.2% F h Favorable Change Operations and Unfavorable Change Maintenance $68.6 A | 8667 2.8% Expense Net Income $78.2 A | $762 2.6% Net Income ; per Share $0.44 A | $0.43 2.3% AQU A NYSE: WTR
Slide 11: Year to Date Highlights
Year to Date Highlights As of Sept 30, 2018 In millions except per share YTD 2018 YTD 2017 Variance Revenue $632.3 $606.2 4.3% Fi h Favorable Change Operations and BI Unfavorable Change Maintenance $216.1 $204.2 5.8% Expense Net Income $195.6 $186.3 5.0% Net Income 0 per Share $1.10 $1.05 4.8% AQUA
Slide 12: Operating Revenues Q3 2018 vs. Q3 2017
Operating Revenues Q3 2018 vs. Q3 2017 nge in Operating Revenues (thousands) $235,000 $1,809 $248 ($198) $225,000 $3,110 = anal $6,160 = $215,008 $215,000 $205,000 $195,000 $185,000 $175,000 Revenue Q3 Rates & Consumption Regulated Other Market Based Revenue Q3 2017 Surcharges Growth Activities 2018
Slide 13: Operations & Maintenance Expenses
Operations & Maintenance Expenses Q3 2018 vs. Q3 2017 Change in Operations & Maintenance Expenses (thousands) $75,000 68,624 $70,000 599 $129 $68, $66,744 ($2,442) 62,352 $1,243 S598. ” 7 $65,000 ETlU $60,000 $55,000 $50,000 $45,000 $40,000 O&M Q3 2017 Other Employee Production Regulated Market-Base
Slide 14: Earnings per Common Share
Earnings per Common Share Q3 2018 vs. Q3 2017 Change in Earnings Per Share $0.50 $0.48 $0.012 $0.005 ($0.022) $0.46 $0.031 || ™ || ($0.015) $0.42 $0.40 $0.38 $0.36 $0.34 $0.32 $0.30 EPS Q3 2017 Rate cases Consumption Regulated Income tax Other EPS Q3 2018 (including growth matters surcharges) AQUA N
Slide 15: Completed Rate Cases and Surcharges
2018 • Completed Rate Cases and Surcharges • 2018 Pending Rate • Cases and Surcharges
Slide 16: Growth
Growth Matt Rhodes Executive Vice President, Strategy & Corporate Development AQU A. NYSE: WTR 4
Slide 17: Closed Acquisitions
Listed in chronological order of closing. Limerick was previously referred to as “System A”, Manteno as “System F” and Peotone as “System E.”.
Slide 18: Signed Municipal Agreements
Signed Municipal Agreements As of Nov. 5, 2018 Acquisition Approx. # of Customers Approx. Purchase Price ($000s) New Garden PA ww 2,106 $29,500 System D PA Ww 600 $3,600 East Bradford PA ww 1,248 $5,000 System H IL ww 540 $2,300 Cheltenham PA ww 10,500 $50,250 System | IL wW/WW 752 $3,550 East Norri
Slide 19: Peoples Transaction Update
Peoples Transaction Update Matt Rhodes Executive Vice President, Strategy & Corporate Development AQUA NYSE: WTR 6
Slide 20: A regulated natural gas distributor with over 740,000 total customers
A regulated natural gas distributor with over 740,000 total customers. • • • • • • • • • • 20
Slide 21: Capital Expenditures
Peoples’ Distribution System Material (Miles) 7,448 8,000 (>99.9% plastic) PA WV KY 6,000 LTIIP-approved replacement Can be included in LTIIP as “at-risk” assets 4,107 4,000 3,064 2,000 92 525 131 0 Cast Iron Bare Unprotected Steel Bare Cathodically Coated Unprotected Coated Cathodically Plastic, Co
Slide 22: Overview of Financing Plan
Overview of Financing Plan Acquisition Financing Strategy Fully committed acquisition bridge facility Current standalone Aqua FFO / Debt of 14% to 15% will remain strong for a fully regulated company following the acquisition at 12% to 13% Permanent financing plan targets a strong balance sheet and
Slide 23: Key Milestones
Key Milestones v Public Announcement v Bridge Financing Secured _) Regulatory Filings Completed J Equity Offering _) Debt Financing “) State PUC Approvals Expected Closing Mid-2019 AQUA. NYSE: WTR 6
Slide 24: Guidance
Guidance Chris Franklin Chairman, Chief Executive Officer and President AQUA NYSE: WTR é
Slide 25: No earnings guidance for 2019
• • • • • • We recently announced that we do not plan to provide earnings guidance for 2019 due to the ongoing Pennsylvania rate case. However, we will continue to provide guidance on capital and operating expenses, rate base, and customer growth. At the conclusion of the rate case, the company will
Slide 26: Summary
Summary ¥ Municipal acquisition program on track v Capital investment on pace for record year v Inaugural CSR report released v First PA rate case in seven years filed v Peoples acquisition approval and integration processes are underway v Updated 2018 EPS guidance to $1.40 - $1.42 from $1.37 -$1.42
Slide 27: Q&A Session
O&A Session Aqua America
Slide 28: Thank You for Attending Aqua's Third Quarter 2018 Conference Call
Thank You for Attending Aqua’s Third Quarter 2018 Conference Call Fourth Quarter and Full Year 2018 Earnings Conference Call and Webcast Tuesday, February 26, 2019 For more information contact: Brian Dingerdissen Vice President, Chief of Staff and Investor Relations 610.645.1191 BJDingerdissen@AquaA
Slide 29: Aqua America
NYSE: WTR . ; _ Aqua America » , > r Abe.
Slide 30: 2018 Closed Acquisitions
2018 Closed Acquisitions As of November 5, 2018 Approximate Acquisition State Transaction Sumber of Rate Base ($000s) Sun Valley PA Private Ww 81 $5* Firestone Trace OH Private Ww 229 $124* Firestone Trace OH Private ww 138 $61* Limerick PA Municipal Www 5,497 $64,373 Manteno IL Municipal ww 3,890 2
Slide 31: Operating Revenues YTD
Operating Revenues YTD Sept 30, 2018 vs. YTD Sept. 30, 2017 nge in Operating Revenues (thousands) $640,000 $630,000 $620,000 $610,000 $600,000 $590,000 $580,000 $570,000 $560,000 $550,000 AQUA $606,213 $4,830 $15,973 ($1,261) $632,344 Revenue YTD 2017 Rates & Surcharges Consumption Regulated Other G
Slide 32: Operations & Maintenance Expenses YTD
Operations & Maintenance Expenses YTD Sept 30, 2018 vs. YTD Sept. 30, 2017 Change in Operations & Maintenance Expenses (thousands) $220,000 5740 6332 $2,182 $216,085 $11,147 | $210,000 $204,249 ($2,565) | $200,000 $190,000 $180,000 $170,000 $160,000 $150,000 O&MYTD 2017 Market-Based Employee Regulat
Slide 33: Earnings per Common Share YTD
Earnings per Common Share YTD Sept 30, 2018 vs. YTD Sept. 30, 2017 Change in Earnings Per Share 002 $0.019 — aaa (So08s) S115 $0.085 || || ($0.025) $1.10 $1.10 |_| $1.05 $1.20 $1.05 $1.00 $0.95 $0.90 $0.85 $0.80 EPS YTD 2017 Ratecases Consumption Regulated Income tax = Net expense Other EPS YTD 2018
Slide 34: Dividend Increase History
Dividend Increase History 7.0% Increase to Annualized Dividend Rate Effective 9/1/2018 AQUA $0.90 $0.85 $0.80 $0.75 $0.70 $0.65 $0.60 $0.55 $0.50 $0.45 $0.40 Dividend per Share (annualized) 7 o - - 0.8760 - - - OJ cel of Pan 0.6188 cP - - 7 0.7652 - - - -7 0.7120 - - - ~-7 0.6600 asowo 2013 2014 201
Slide 35: State by State Comparison
State by State Comparison As of October 1, 2018 State Rate Base Water Wastewater Total (Smillions)* Connections Connections Customers PA 2,831 440,031 26,846 466,877 OH 287 145,819 6,883 152,702 IL 276 65,273 15,150 80,423 T™ 241 64,108 17,358 81,466 NJ 172 53,534 6,185 59,719 NC 165 80,891 18,900 9
Slide 36: Infrastructure Capital Investment Breakdown 2018 - 2020
| nfra st ru ctu re Capital Investment Breakdown 2018 - 2020 Investment othe Meter 1% ~ Regulated Operations Vehicles 2% Tanks & Boosters 4% Mains & Services Source Treatment & 56% Facilities 28% 3 Year Total = $1.4 billion AQU A. NYSE: WTR 4
Slide 37: PA Rate Case Summary
PA Rate Case Summary June 2012: January 2013: October 2017: Rates went into effect DSIC Reduced to 0% Re-implemented DSIC @ @ August 2018: November 2011: October 2012: Filed Rate Case Aqua PA filed its Implemented 2011 Rate Case Repair Deduction 2019: Rates projected to be in effect 2013 - 2016 AQU
Slide 38: PA Rate Case Summary
PA Rate Case Summary Timeframe: * Filed: August 2018 * Complete: 2019 Case Summary/Issues: ¢ First case filed in 7 years * Consolidated Water & WW ° First filing using Fully Projected Future Test Year * Tax Act and Tax Repair AQUA Over $2 billion of capital Over 20 Acquisitions ($000’s) 2012 $129,92
Slide 39: Water & Wastewater Regulatory Trends
Water & Wastewater Regulatory Trends 4/30/13 TANS 7. IN Forward 13. IN DSIC Increase to 10% Test Year e 2/14/12 6/6/13 7/10/18 1. PA WW DSIC 8.NC W&WW 3/22/16 2. Forward Test Year DSIC 14. IN Expands FMV 3. WW Consolidation 2/5/15 10/19/18 11. NJ Fair 6/13/16 Market 15. PA Fair Value Market Value 6/
Slide 40: Rates and Surcharges Completed
Rates and Surcharges Completed As of November 5, 2018 Docket Number Awarded Annualized Revenue Increase (Sthousands) Illinois 17-0259 Rate Case (w) $6,549 17-0259 Rate Case (ww) $758 Indiana 50137, 50144, 50143, 50141 Tax Compliance Filing (S788) New Jersey WR16010090 Surcharge (w) ($39) WR18030237
Slide 41: Rates and Surcharges Pending
Rates and Surcharges Pending As of November 5, 2018 Requested Annualized Docket Number Revenue Increase (Sthousands) . Cause No. 45032 . a Indiana Sub docket 18 & 19 Tax Compliance Filing ($486) North Carolina W-218, Sub 497 Rate Case (w) $3,664 W-218, Sub 497 Rate Case (ww) $1,304 Ohio 18-0337-WW-S