Slide 1: 2017 Full Year Earnings Report & Analyst Update
Aqua America 2017 Full Year Earnings Report & Analyst Update NYSE: WTR February 28, 2018
Slide 2: 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 3: Today's Presenters
Today’s Presenters Christopher Franklin Dave Smeltzer Chairman, Chief Executive Executive Vice President & Officer and President Chief Financial Officer Rick Fox Kim Joyce Vice President, Executive Vice President & Regulatory, Government Chief Operating Officer and External Affairs Dan Schuller Bria
Slide 4: Introduction
Introduction Christopher Franklin Chairman, Chief Executive Officer and President NYSE: WTR
Slide 5: Today's Agenda
Today’s Agenda Company Overview • Company Overview • Financial Update • Operations Overview • Legislative and Regulatory Update • Growth Strategy Update • Summary and Outlook NYSE: WTR 5
Slide 6: Company Overview
Company Overview • Large multi-state water & wastewater company • Proven growth model • History of industry leading profitability • Above average dividend growth NYSE: WTR 6
Slide 7: U.S. Regulated Water and Wastewater Industry Overview
U.S. Regulated Water and Wastewater Industry Overview Water Wastewater • 53,000 systems in the U.S. • 16,000 systems in the U.S. • 85% of U.S. population • 97% of U.S. population served by municipalities served by municipalities • Aqua serves 1% of U.S. • Aqua serves 0.1% of U.S. population populati
Slide 8: EPA's Estimate of the National Need for Infrastructure Investment
EPA’s Estimate of the National Need for Infrastructure Investment Water Wastewater American Society of Civil Engineers Grade for Drinking Water and Wastewater Infrastructure = D NYSE: WTR 8
Slide 9: 2017 Full Year Highlights
2017 Full Year Highlights Acquisitions Net Income Per Share • Four water and wastewater deals representing over 1,000 new customers • Municipal pipeline expands with six pending acquisitions due to close in 2018 Dividend Growth Infrastructure Investment • 7% year-over-year dividend growth • 73 years
Slide 10: Financial Update
Financial Update Dave Smeltzer Executive Vice President and Chief Financial Officer NYSE: WTR
Slide 11: 2017 Full Year Financial Results
2017 Full Year Financial Results In millions FY 2017 FY 2016 Variance except per share Revenue $809.5 819.9 (1.3%) Regulated Segment Revenue $804.9 $800.1 0.6% Operations and Maintenance Expense $287.2 $304.9 (5.8%) Regulated Segment Operations and $287.0 $285.3 0.6% Maintenance Expense Net Income $
Slide 12: Operating Revenues
Operating Revenues FY 2017 vs. FY 2016 NYSE: WTR 12
Slide 13: Operations & Maintenance Expenses
Operations & Maintenance Expenses FY 2017 vs. FY 2016 NYSE: WTR 13
Slide 14: Earnings per Common Share
Earnings per Common Share FY 2017 vs. FY 2016 NYSE: WTR 14
Slide 15: Tax Reform Implications
Tax Reform Implications 2017 2018 • Write-off of $3.1M • Tax savings typically being o Typically related to deferred for future return to deferred comp, goodwill customers and deferred gains • Exceptions • $303 million Deferred Income o Negative impact in PA Tax reclassified to Regulatory due to NOL
Slide 16: Accounting for Tax Reform
Accounting for Tax Reform Accrue 21% for Federal Income Tax @ 1/1/2018 Remaining 14%, will be recorded as: Reduction in Revenue (DR) Recognition of Regulatory Liability (CR) Regulatory Liability To be refunded to customers based on specific state requirements NYSE: WTR 16
Slide 17: Change in Corporate Tax Rate
Change in Corporate Tax Rate (Illustrative Example) 35% Tax Rate 21% Tax Rate Revenue $1.00 $.88 Expenses $(0.35) $(0.35) Pre-Tax Income $0.65 $0.53 Federal Tax Rate 35% 21% Federal Income Tax $(0.23) $(0.11) Net Income $0.42 $0.42 NYSE: WTR 17
Slide 18: Taxability of Capital Contributions (CAC / CIAC)
Taxability of Capital Contributions (CAC / CIAC) • Estimated $27 Million in CAC/CIAC Additions • Taxes estimated to be $6 million • Balance Sheet only • Some states will recognize deferred tax asset in rate base NYSE: WTR 18
Slide 19: Key Benefits
Key Benefits • Reduces rates / bills without impacting profitability • Helps comparability to municipal bills • Reduces the future increases required related to Capital additions • 7:1 projects become 8:1 projects • Permits more system improvements in a typical 5% infrastructure surcharge NYSE: WTR
Slide 20: PA Rate Case Summary
PA Rate Case Summary Timeframe: PA CAPX • File: Summer 2018 Year ($000’s) • Complete: Spring 2019 2012 $129,923 Case Summary/Issues: 2013 $212,721 • First case filed in 7 years 2014 $214,155 • Over $2 billion of capital • Consolidated Water & WW 2015 $248,354 • Over 20 Acquisitions 2016 $251,373 • F
Slide 21: PA Rate Case Summary
PA Rate Case Summary June 2012: Rates went into effect October 2017: Re-implemented DSIC January 2013: DSIC Reduced to 2018: 0% Projected to file November 2011: Rate Case Aqua PA filed its October 2012: 2011 Rate Case Implemented Repair Deduction 2019: Rates projected to be in effect 2011 2012 2013
Slide 22: Rate Activity: 2017 Completed Rate Cases and Infrastructure Surcharges
Rate Activity 2017 Completed Rate Cases and Infrastructure Surcharges • Base rate cases or infrastructure surcharges completed in IN, IL, NJ, NC, PA, OH, and VA • $22 million in additional annualized revenue 2018 Completed Rate Cases and Surcharges • Base rate cases or infrastructure surcharges comp
Slide 23: Rate Activity: Pending Rate Cases and Surcharges
Rate Activity (Continued from previous page) Pending Rate Cases and Surcharges • Base rate cases or infrastructure surcharges in IL, NJ and VA with requested annualized revenue increase of $16 million *Additional rate activity information provided in Appendix NYSE: WTR 23
Slide 24: Operations Overview
Operations Overview Rick Fox Executive Vice President and Chief Operating Officer NYSE: WTR
Slide 25: Infrastructure Footprint
Infrastructure Footprint as of December 31, 2017 + 12,825 21 187 ~ 3,300 +866 ~1,100 Miles of Surface Wastewater Wells Water Vehicles Water Main Water Treatment Storage Filtration Plants Tanks Plants $4.1 Billion in Total Rate Base NYSE: WTR 25
Slide 26: Building for the Future
Building for the Future Regulated Operations $500,000 $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 S- WTR Average Annual Capital Investment ($thousands) 2006-2008 2009-2011 2012-2014 2015-2017 *2018 to 2020: forecasted annual capital investments AQ 2018-2020* 26
Slide 27: Infrastructure Investment
Infrastructure Investment Regulated Operations 3 YEAR TOTAL= $1.4 billion NYSE: WTR 27
Slide 28: State by State Comparison
State by State Comparison as-of December 31, 2017 Rate Base Water Wastewater State ($millions) Connections Connections PA $2,831 437,985 21,306 OH 287 145,000 6,719 IL 276 63,699 9,821 TX 241 63,046 16,869 NJ 172 53,115 6,125 NC 165 79,906 18,293 IN 74 1,169 26,371 VA 77 25,676 7,749 Total $4,123 86
Slide 29: Energy Optimization
Energy Optimization • Reduce Costs • Operational Excellence • Increase Accountability Aqua Pennsylvania Cost per 1000 Gallon Produced $0.28 $0.28 $0.27 $0.27 $0.26 $0.26 $0.25 $0.25 $0.24 2015 2016 2017 NYSE: WTR 29
Slide 30: Safety at Aqua
Safety at Aqua NYSE: WTR 30
Slide 31: Legislative and Regulatory Update
Legislative and Regulatory Update Kim Joyce Vice President, Regulatory, Government and External Affairs NYSE: WTR
Slide 32: Water & Wastewater Regulatory Trends
Water & Wastewater Regulatory Trends 4/30/13 3/22/16 7. IN Forward Test Year 3/27/14 13. IN Expands FMV 10. IN WW DSIC 2/14/12 1. PA WW DSIC 7/1/15 2. Forward Test Year 6/6/13 14. IN DSIC Increase to 10% 3. WW Consolidation 8. NC W&WW DSIC 6/13/16 15. PA Fair Market Value 2012 2013 2014 2015 2016 20
Slide 33: Aqua States with Infrastructure Surcharges
Aqua States with Infrastructure Surcharges State Allowed Surcharge IL 2.5% Avg. Annual Increase IN 10% NC 5% NJ** 5% 12.75% water OH 9% wastewater 7.5% water PA 5% wastewater * 16 additional states have water infrastructure surcharges ** Water only NYSE: WTR 33
Slide 34: DSIC Applications
DSIC Applications Then Now Water Mains Water Mains Hydrants Meters Hydrants Equipment Filters Supporting Valves Water Quality Wastewater Meters Infrastructure Pumps NYSE: WTR 34
Slide 35: Benefits of Fair Market Value Legislation
Benefits of Fair Market Value Legislation • Allows municipalities to receive fair value for their assets • Provides municipalities with options for their aging systems • Voluntary process • Acquisitions approved by the state commission • Increases regionalization of the water and wastewater industry
Slide 36: Customer Communications
Customer Communications NYSE: WTR 36
Slide 37: Helping Communities & Employees Enjoy More Good!
Helping Communities & Employees Enjoy More Good! NYSE: WTR 37
Slide 38: Growth Strategy Update
Growth Strategy Update Dan Schuller Executive Vice President, Strategy and Corporate Development NYSE: WTR
Slide 39: Aqua America Growth Strategy
Aqua America Growth Strategy Core Competencies Infrastructure Regulatory Operational Investment Affairs Excellence (pipes, plants, etc.) Leads To • Driver of growing our foundational Municipal water/wastewater business Initiative • Our primary focus today Three- Pronged Strategic • Opportunistic pur
Slide 40: Aqua America Investment Committee
Aqua America Investment Committee Our Investment Committee (IC) process is a “well-oiled machine” through which the company’s executives review, shape, and approve/reject acquisition opportunities. “Kitchen Cabinet” Meeting: Prior to presenting to full IC, states use the “Kitchen Cabinet” for guidan
Slide 41: Historical Growth Performance
Historical Growth Performance If we include our 2018 projections, from 2015 to 2018, we will average a total of ~17,000 new customers per year , with an average of ~8,600 from acquisitions. 2015 2016 2017 2018P 9,000 Organic Growth 7,168 7,681 Acquisitions 9,581 16,325 10,579 6,658 1,003 # of New Co
Slide 42: 2018 Municipal Acquisition Activity
2018 Municipal Acquisition Activity We have six municipal acquisitions that are signed and slated to close in 2018. Approx. Number of Approx. Purchase Price Acquisition1 Type Customers ($000s) Expected to Close in 2018 System A WW 5,400 $75,100 System B WW 2,100 $29,500 System D W 600 $3,600 System
Slide 43: Large Municipal Acquisitions in Development
Large Municipal Acquisitions in Development Our 10 largest municipal potential acquisitions total over 289,000 connections. Target Approx. # of Customers Type System 1 85,000 W System 2 50,000 W System 3 45,000 W System 4 30,000 W / WW System 5 25,000 W / WW System 6 25,000 WW System 7 10,000 WW Sys
Slide 44: Summary and Outlook
Summary and Outlook Christopher Franklin Chairman, Chief Executive Officer and President NYSE: WTR
Slide 45: 2018 Guidance
2018 Guidance Earnings • Full-year earnings per share between $1.37 – $1.42 • Infrastructure investment of approximately $500 million in 2018 Capex • Infrastructure investment of approximately $1.4 billion through 2020 in existing operations • Rate base growth of approximately 7% Rate Activity • Aqu
Slide 46: Q&A Session
Q&A Session NYSE: WTR
Slide 47: For more information contact
For more information contact: Brian Dingerdissen Vice President, Chief of Staff and Investor Relations 610.645.1191 BJDingerdissen@AquaAmerica.com NYSE: WTR 47
Slide 48: Appendix
Appendix NYSE: WTR
Slide 49: 2017 Fourth Quarter Financial Results
2017 Fourth Quarter Financial Results In millions Q4 2017 Q4 2016 Variance except per share Revenue $203.3 $196.8 3.3% Regulated Segment Revenue $202.6 193.8 4.5% Operations and Maintenance Expense $79.2 $77.6 2.2% Regulated Segment Operations and $80.7 $75.3 7.2% Maintenance Expense Net Income $53.
Slide 50: Operating Revenues
Operating Revenues Q4 2017 vs. Q4 2016 NYSE: WTR 50
Slide 51: Operations & Maintenance Expenses
Operations & Maintenance Expenses Q4 2017 vs. Q4 2016 NYSE: WTR 51
Slide 52: Earnings per Common Share
Earnings per Common Share Q4 2017 vs. Q4 2016 NYSE: WTR 52
Slide 53: Dividend History
Dividend History 7.0% Increase to Annualized Dividend Rate of $0.8188 Effective 9/1/2017 NYSE: WTR 53
Slide 54: Rates and Infrastructure Surcharges Completed
Rates and Infrastructure Surcharges Completed as of December 31, 2017 Rates or Surcharges Received in 2017 Awarded Annualized State Docket Number Type Revenue Increase ($thousands) Indiana 44752 Rate Case (ww) $1,896 Illinois 17-0131 Surcharge (w) $454 17-0131 Surcharge (w) $660 17-0131 Surcharge (w
Slide 55: Rates and Infrastructure Surcharges Completed
Rates and Infrastructure Surcharges Completed as of December 31, 2017 (continued from previous page) Rates or Surcharges Received in 2017 Awarded Annualized State Docket Number Type Revenue Increase ($thousands) North Carolina W-215-Sub-363A Surcharge (w) $482 W-215-Sub-363A Surcharge (ww) $57 W-215
Slide 56: Rates and Infrastructure Surcharges Completed
Rates and Infrastructure Surcharges Completed as of December 31, 2017 (Continued from previous page) Rates or Surcharges Received in 2017 Awarded Annualized State Docket Number Type Revenue Increase ($thousands) Virginia PUR-2017-00017 Rate Case (w) $67 PUR-2017-00017 Rate Case (ww) $88 Total $21,60
Slide 57: Rates and Infrastructure Surcharges Completed
Rates and Infrastructure Surcharges Completed as of February 23, 2018 Rates or Surcharges Received in 2018 Awarded Annualized State Docket Number Type Revenue Increase ($thousands) North Carolina W-218, Sub 363A Surcharge (ww) $56 W-218, Sub 363A Surcharge (w) $14 W-218, Sub 363A Surcharge (ww) $9 O
Slide 58: Rates and Infrastructure Surcharges Pending
Rates and Infrastructure Surcharges Pending as of February 23, 2018 Rates Pending in 2018 Requested Annualized State Docket Number Type Revenue Increase ($thousands) Virginia PUR-2017-00082 Rate Case (w) $1,489 PUR-2017-00082 Rate Case (ww) $399 Illinois 17-0259 Rate Case (w) $10,542 17-0259 Rate Ca