Essential Utilities, Inc. · NYSE:WTRG
Essential Utilities — Investor Day (January 2021)
47 slides from Essential Utilities's investor day presentation, Jan 11, 2021
Slide 1: Guidance Event January 11, 2021
GUIDANCE EVENT January 11, 2021 NYSE LISTED WTRG
Slide 2: Welcome
Brian Dingerdissen Vice President, Chief of Staff, Investor Relations, and Communications Welcome 2 INVESTOR PRESENTATION
Slide 3: Forward Looking Statement
Forward Looking Statement 3 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 th
Slide 4: Agenda
Agenda 4 INVESTOR PRESENTATION Review of 2020 Objectives 2021 Priorities ESG Commitments Financial Guidance Acquisition Program Update Summary Q&A
Slide 5: Chris Franklin, Chairman, CEO and President
5 Chris Franklin Chairman, Chief Executive Officer, and President Company Update INVESTOR PRESENTATION
Slide 6: Our 2020 Objectives Executed
Our 2020 Objectives Executed INVESTOR PRESENTATION 6 • Implemented Peoples integration • Completed DELCORA and Aqua PA Wastewater organization plan • Developed companywide ESG program including ESG Report publication Integration • Continued process to close DELCORA • Closed $63M in municipal deals a
Slide 7: Customer Focus Drives Strong Performance
7 Leveraging Innovation to Improve Wastewater System at Lake Monticello in Virginia INVESTOR PRESENTATION Customer Focus Drives Strong Performance Reducing Purchased Water Expense in Pennsylvania Deployed $1.7 million capital investment included in a new tie - in pipeline with a control valve, magme
Slide 8: Essential is a Good Neighbor
8 INVESTOR PRESENTATION Essential is a Good Neighbor Essential has a charitable foundation with a focus on enriching the lives of those who live and work in the communities we serve. Essential has formed important partnerships with community - based nonprofit organizations throughout our company foo
Slide 9: 2021 Priorities
2021 Priorities INVESTOR PRESENTATION 9 • Continue Peoples integration • Implement DELCORA integration plan Integration • Close DELCORA acquisition • Announce at least 20,000 EDU’s from Municipal Acquisitions • Sign municipal deals of at least $100M in rate base Growth • Continue to keep employees s
Slide 10: Emissions Reduction Commitment
INVESTOR PRESENTATION Emissions Reduction Commitment 10 Charting a Course for Aggressive Emissions Reduction (MT CO2e in 000s) By 2035, Essential Utilities will reduce its annual Scope 1 and 2 emissions by 60% from its 2019 baseline • Goal applies to all our operations, including gas, water and wast
Slide 11: Elements of Our Emissions Reduction Plan
INVESTOR PRESENTATION Elements of Our Emissions Reduction Plan 11 G AS D ISTRIBUTION W ATER AND W ASTEWATER • 2022 commitment to source 100% renewable electricity for IL, NJ, OH, and PA operations • I ncreasing share of renewable energy in other states in our footprint • S hare of renewable energy w
Slide 12: To Put This In Perspective
To Put T his In Perspective… By 2035, Essential’s targeted reduction is roughly equivalent to any one of the following activities taking place over one year: Annual emissions from 76,000 cars on the road Annual emissions from 59,000 homes’ electricity usage CO2 sequestered annually by over 457,000 a
Slide 13: A Premier Provider of Natural Gas
INVESTOR PRESENTATION A Premier Provider of Natural Gas 13 • Significant savings for consumers by using natural gas compared to electricity. • Abundant supply to meet demands for more than 110 years. • Safe and reliable service with continued investments each year. Essential is the Right Partner for
Slide 14: Diversity and Inclusion - Central to Who We Are
Diversity and Inclusion - Central to Who We Are 14 Employee Diversity Multiyear plan to achieve 17% employees of color Inclusion of Diversity, Equity and Inclusion (DE&I) metrics into executive compensation Enhance workplace environment Support supply chain Supplier Diversity Multiyear plan to incre
Slide 15: Financial Guidance
15 - Neil Armstrong Dan Schuller Executive Vice President, Chief Financial Officer INVESTOR PRESENTATION Financial Guidance
Slide 16: We will invest approximately $3 billion from 2021E through 2023E
16 We will invest approximately $3 billion from 2021E through 2023E 52% 31% 4% 8% 5% Mains & Services Source Treatment Meters IT Other Water 79% 1% 4% 6% 10% Mains & Services Source & Facilities Meters IT Other Gas INVESTOR PRESENTATION ~$1 Billion 2021E GAS WATER is eligible to be recovered through
Slide 17: Robust Infrastructure Spending Profile
Robust Infrastructure Spending Profile 17 INVESTOR PRESENTATION 147 142 156 161 148 173 171 193 295 315 327 354 2020P 2021E 2022E 2023E Gas Water Miles Pipe Rehab/Replaced Responsibility to quickly and significantly reduce emissions of pipeline over the next 3 years 1,000 miles Undeniable expertise
Slide 18: Maximizing Rate Base Growth Potential
Maximizing Rate Base Growth Potential INVESTOR PRESENTATION 18 $5.0 $5.4 $5.8 $6.1 $6.4 $0.3 $0.5 $0.5 2019A 2020P 2021E 2022E 2023E Water ($ in Billions) $2.3 $2.5 $2.8 $3.1 $3.4 2019A 2020P 2021E 2022E 2023E Gas ($ in Billions) Acquisitions Organic “A” denotes Actual “P” denotes Projection “E” den
Slide 19: Strong Balance Sheet: Central to our Strategy
2 3 2 4 3 A+ A A- BBB+ BBB 1 1 0 3 5 A1 A2 A3 Baa1 Baa2 FFO/Net Debt 12 – 14% Strong Balance Sheet: Central to our Strategy 19 I n order to maintain our credit metrics and achieve our investment and acquisition goals, we will regularly be in the market for debt and equity. Peer Issuer Ratings (1) Pe
Slide 20: Earnings Guidance Refined
Earnings Guidance 20 INVESTOR PRESENTATION Refined 2020 annual adjusted earnings per share guidance to the top end of the $1.53 to $1.58 range 2021 annual earnings per share guidance of $1.64 to $1.69 2019 – 2023 Earnings Per Share $1.47 $1.53 - $1.58 $1.64 - $1.69 2019A* 2020P** 2021E 2022E 2023E *
Slide 21: Earnings Weighted to 1Q, 4Q
Earnings Weighted to 1Q, 4Q 21 INVESTOR PRESENTATION Approximate Net Income By Quarter 25% 10% 10% 35% 35% 20% 20% 45% 4Q 3Q 2Q 1Q Based on proforma projections, 65 - 75% of net income is earned in 1Q and 4Q
Slide 22: Acquisition Program Update
22 Chris Franklin Chairman, Chief Executive Officer, and President Acquisition Program Update INVESTOR PRESENTATION
Slide 23: Strategy for Continued Growth
INVESTOR PRESENTATION Strategy for Continued Growth Water Gas Target ≥ 70/30 water to gas rate base mix CORE COMPETENCIES regulated water/wastewater utilities Approximately 1% of net income today Foundational growth driver of our water/ wastewater business Our primary focus today Water and Wastewate
Slide 24: Continued Successful Municipal Acquisition Program in 2020
- 20,000 40,000 60,000 80,000 100,000 2015 2016 2017 2018 2019 2020 Continued Successful Municipal Acquisition Program in 2020 INVESTOR PRESENTATION 24 Cumulative Additions of Customers Through Acquisitions Almost 87,000 (2) Water and Wastewater Customers and 2020 Closed Municipal Acquisitions ($ 00
Slide 25: Pending Transactions
Pending Transactions INVESTOR PRESENTATION 25 ~$ 420.5 M of rate base with signed APAs is expected to generate ~$ 21 M of incremental annual earnings potential (1) PA Lower Makefield • Wastewater • 11,000 customers • $53M purchase price Commons Water (2) • Water • 980 customers • $4M purchase price
Slide 26: DELCORA Key Milestones Status Update
DELCORA Key Milestones INVESTOR PRESENTATION 26 Status Update Events Announced Acquisition of DELCORA 9/17/2019 Filed Application with PA PUC 3/3/2020 Forward Equity Offering (Financial) 8/10/2020 Anticipated PA ALJ’s Recommended Decision 1/20/2021 PA PUC Public Meeting 3/11/2021 Anticipated Closing
Slide 27: Municipal M&A Strategy
Municipal M&A Strategy INVESTOR PRESENTATION 27 Essential's Considerations for Municipal Deals Community needs/use of proceeds Deal scale (connections, net income) Ability to utilize FMV Funding - equity used for larger deals Future rate expectations Rate case timing Muni growth profile (incl. futur
Slide 28: Active Municipal Opportunities
28 Active Municipal Opportunities INVESTOR PRESENTATION >25,000 125,000 10,000 - 25,000 125,000 <10,000 90,000 Size Range (Approx. # of Customers) Total Customers (Approx. # of Customers) At an illustrative purchase p rice of $4,000 - $6,000 per customer, this would imply additional rate base of app
Slide 29: Guidance
• Income per diluted common share of $1.64 to $1.69 for 2021 • 3 - year earnings per share growth CAGR of 5 to 7% for 2020 through 2023 • Regulated water segment infrastructure investments of approximately $550 million in 2021 • Regulated natural gas segment infrastructure investments of approximate
Slide 30: Essential Value Proposition
INVESTOR PRESENTATION Essential Value Proposition 30 Long - term growth plan with predictable earnings and dividend growth Regulatory collaboration drives strong investment pipeline Proven acquirers with ample opportunity for future consolidations Strong ESG practices with targeted emissions reducti
Slide 31: Questions?
31 Questions? INVESTOR PRESENTATION
Slide 32: Thank You for Attending Essential's Guidance Event
32 Thank You for Attending Essential’s Guidance Event NYSE LISTED WTRG Fourth Quarter and Full Year Earnings Conference Call and Webcast Thursday, February 25, 2021
Slide 33: For more information contact
INVESTOR PRESENTATION For more information contact: 33 Brian Dingerdissen Vice President, Chief of Staff, Investor Relations and Communications (610)645 - 1191 BJDingerdissen@Essential.co Renee Marquis Director, Investor Relations (610)645 - 1021 RTMarquis@Essential.co
Slide 34: Appendix
Appendix 34 INVESTOR PRESENTATION
Slide 35: Essential: Proven, thoughtful stewards of natural resources
Essential: Proven, thoughtful stewards of natural resources 35 $5.2 $2.5 Water Gas $7.3b Q3 2020 Combined Rate Base 66% 9% 6% 2% 2% 3% 5% 5% 1% 2% PA OH NC IN VA NJ TX IL WV KY Q3 2020 Combined Customers by State (1) Water Gas Combined INVESTOR PRESENTATION Our purpose: Essential Utilities is unique
Slide 36: Dividend Growth Targeted In Line with EPS
Dividend Growth Targeted In Line with EPS 36 INVESTOR PRESENTATION Dividends Per Share (Annualized) $0.6600 $0.7120 $0.7652 $0.8188 $0.8760 $0.9372 $1.0028 2014 2015 2016 2017 2018 2019 2020 Dividend target: maintain similar level payout ratio, no higher than 65%
Slide 37: Usage Trends Table
37 INVESTOR PRESENTATION 2020 Usage Trends Table Due to COVID - 19 and favorable weather, we have seen residential usage increase by almost 11% in the third quarter when compared to the same time last year, while commercial usage has decreased by just 3% 11,693 4,361 1,688 663 408 201 12,952 4,211 1
Slide 38: Rate Activity
38 Rate Activity 2020 Completed Rate Cases and Surcharges Gas segment surcharges in KY and PA with annualized revenue increase of $1.0 million Water segment base rate cases or surcharges in IL, IN, NC, OH, VA, and PA with annualized revenue increase of $21.0 million Pending Rate Cases and Surcharges
Slide 39: Rates and Surcharges Completed
39 39 INVESTOR PRESENTATION 2020 Rates and Surcharges Completed As of 01/10/2021 State Docket Number Segment Type Awarded Annualized Revenue Increase ($thousands) Illinois N/A Water Surcharge $2,902 N/A Wastewater Surcharge $369 20 - 0309 Water Surcharge $840 20 - 0309 Wastewater Surcharge $125 Virg
Slide 40: Rates and Surcharges Pending
40 40 INVESTOR PRESENTATION Rates and Surcharges Pending As of 01/10/2021 State Docket Number Segment Type Requested Annualized Revenue Increase ($thousands) Virginia PUR - 2020 - 00106 Water Rate Case $1,476 PUR - 2020 - 00106 Wastewater Rate Case $257 Indiana 45416 - U Water Rate Case $33 Total $1
Slide 41: Constructive Regulation Enables Investment for Customers
Constructive Regulation Enables Investment for Customers INVESTOR PRESENTATION 41 Mechanism Allowed Surcharges Mechanism Allowed Surcharge DSIC PA 7.5% W 5% WW NC WSSIC 5% IL QIPS 2.5% avg. annual increase NJ DSIC 5% OH SIC 12.75% W 9% WW IN DSIC 10% No Cap PRP DSIC KY PA DSIC refers to “Distributio
Slide 42: Tax Repair Considerations
Tax Repair Considerations 42 INVESTOR PRESENTATION IRS tax repair regulations allow repair costs that were previously capitalized to be expensed for tax purposes. We plan to elect tax repair for Peoples' largest Pennsylvania subsidiary, Peoples Natural Gas, shortly after close. • Gas pipelines are c
Slide 43: Well-Positioned in Fair Market Value States
43 Well - Positioned in Fair Market Value States INVESTOR PRESENTATION Enacted FMV Essential State Year FMV Enacted Illinois 2013 New Jersey, Indiana 2015 Pennsylvania 2016 North Carolina, Ohio 2018 Texas 2019 Virginia 2020 Essential has a history of successful collaboration with legislatures and re
Slide 44: The Truth About Natural Gas
The Truth About Natural Gas 44 INVESTOR PRESENTATION • 179 million Americans use natural gas in their homes • Households that use natural gas for heating, cooking and clothes drying save an average of $879 per year compared to homes using electricity for those applications • The affordability of nat
Slide 45: Natural Gas – A Solution to Emissions Reduction
Natural Gas – A Solution to Emissions Reduction 45 INVESTOR PRESENTATION • Residential natural gas accounts for only 4% of the total U.S. greenhouse gas emissions • Emissions from natural gas distribution systems have declined 73% • Increased use of natural gas in the single largest factor in power
Slide 46: Water Quality, PFAS, Safety and Diversity Awards
46 7X WATER QUALITY • In 2019, we outperformed the national average on drinking water quality by a factor of seven times (1) • We continue to reach new highs in wastewater system compliance • Essential made an ambitious pledge to address the important issue of PFAS in drinking water • A company wide
Slide 47: Enhanced Reporting Underscores ESG Commitment
Enhanced Reporting Underscores ESG Commitment 1 INVESTOR PRESENTATION 47 Interactive ESG Website & Tear Sheet Investor and Stakeholder Reporting Utilize Multiple ESG Reporting Frameworks INVESTOR PRESENTATION