Essential Utilities, Inc. · NYSE:WTRG
Essential Utilities — Aqua America — FY2017 Earnings Presentation
58 slides from Essential Utilities's earnings presentation, Feb 27, 2018
Slide 1: Aqua America 2017 Full Year Earnings Report & Analyst Update
February 28, 2018 Aqua America 2017 Full Year Earnings Report & Analyst Update NYSE: WTR Exhibit 99.2
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 Chairman, Chief Executive Officer and President Dave Smeltzer Executive Vice President & Chief Financial Officer Brian Dingerdissen Vice President, Chief of Staff & Investor Relations Rick Fox Executive Vice President & Chief Operating Officer Dan Schuller Exe
Slide 4: Introduction
Christopher Franklin Chairman, Chief Executive Officer and President Introduction NYSE: WTR
Slide 5: Today's Agenda
Today’s Agenda Operations Overview Growth Strategy Update Legislative and Regulatory Update Financial Update Company Overview Summary and Outlook Company Overview
Slide 6: Company Overview
Company Overview Large multi-state water & wastewater company Proven growth model History of industry leading profitability Above average dividend growth
Slide 7: U.S. Regulated Water and Wastewater Industry Overview
U.S. Regulated Water and Wastewater Industry Overview Water 53,000 systems in the U.S. 85% of U.S. population served by municipalities Aqua serves 1% of U.S. population Aqua serves 0.1% of U.S. population 97% of U.S. population served by municipalities 16,000 systems in the U.S. Wastewater
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
Slide 9: 2017 Full Year Highlights
2017 Full Year Highlights (in millions) Net Income Per Share Infrastructure Investment Acquisitions Dividend Growth 73 years of consecutive years of quarterly dividends Municipal pipeline expands with six pending acquisitions due to close in 2018 Dividend CAGR of 7.9% since 2012 Four water and waste
Slide 10: Financial Update
Dave Smeltzer Executive Vice President and Chief Financial Officer Financial Update NYSE: WTR
Slide 11: 2017 Full Year Financial Results
2017 Full Year Financial Results In millions except per share FY 2017 FY 2016 Variance 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 Maintenance Expense $287.0 $285.3 0.6% Net Income $
Slide 12: Operating Revenues FY 2017 vs. FY 2016
Operating Revenues FY 2017 vs. FY 2016
Slide 13: Operations & Maintenance Expenses FY 2017 vs. FY 2016
Operations & Maintenance Expenses FY 2017 vs. FY 2016
Slide 14: Earnings per Common Share FY 2017 vs. FY 2016
Earnings per Common Share FY 2017 vs. FY 2016
Slide 15: Tax Reform Implications
Tax Reform Implications 2018 Tax savings typically being deferred for future return to customers Exceptions Negative impact in PA due to NOL status Positive impact in Market Based and negotiated / divisions 2017 Write-off of $3.1M Typically related to deferred comp, goodwill and deferred gains $303
Slide 16: Accounting for Tax Reform
Accounting for Tax Reform Regulatory Liability To be refunded to customers based on specific state requirements Reduction in Revenue (DR) Accrue 21% for Federal Income Tax @ 1/1/2018 Remaining 14%, will be recorded as: Recognition of Regulatory Liability (CR )
Slide 17: Change in Corporate Tax Rate
Change in Corporate Tax Rate 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 (Illustrative Example)
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
Slide 19: 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 Key Benefits
Slide 20: PA Rate Case Summary
PA Rate Case Summary Timeframe: File: Summer 2018 Complete: Spring 2019 Case Summary/Issues: First case filed in 7 years Over $2 billion of capital Consolidated Water & WW Over 20 Acquisitions First filing using Fully Projected Future Test Year Tax Act and Tax Repair Year PA CAPX ($000’s) 2012 $129,
Slide 21: PA Rate Case Summary Timeline
PA Rate Case Summary November 2011: Aqua PA filed its 2011 Rate Case October 2012: Implemented Repair Deduction 2019: Rates projected to be in effect June 2012: Rates went into effect October 2017: Re-implemented DSIC 2018: Projected to file Rate Case January 2013: DSIC Reduced to 0% 2011 2012 2017
Slide 22: Rate Activity
*Additional rate activity information provided in Appendix 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 Surchar
Slide 23: Rate Activity (Continued)
*Additional rate activity information provided in Appendix 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
Slide 24: Operations Overview
Rick Fox Executive Vice President and Chief Operating Officer Operations Overview NYSE: WTR
Slide 25: Infrastructure Footprint as of December 31, 2017
Infrastructure Footprint as of December 31, 2017 $4.1 Billion in Total Rate Base + 12,825 Miles of Water Main 187 Wastewater Treatment Plants 21 Surface Water Filtration Plants ~ 3,300 Wells +866 Water Storage Tanks ~1,100 Vehicles
Slide 26: Building for the Future: Average Annual Capital Investment
$500,000 $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 S- 2006-2008 Building for the Future Regulated Operations Average Annual Capital Investment ($thousands) 2009-2011 2012-2014 2015-2017 2018-2020* *2018 to 2020: forecasted annual capital investments AQL
Slide 27: Infrastructure Investment Regulated Operations
Infrastructure Investment Regulated Operations 3 YEAR TOTAL= $1.4 billion
Slide 28: State by State Comparison
State by State Comparison as-of December 31, 2017 State Rate Base ($millions) Water Connections Wastewater 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, Operational Excellence
Energy Optimization Reduce Costs Operational Excellence Increase Accountability
Slide 30: Safety at Aqua
Safety at Aqua NYSE: WTR AQUA 30
Slide 31: Legislative and Regulatory Update
Kim Joyce Vice President, Regulatory, Government and External Affairs Legislative and Regulatory Update NYSE: WTR
Slide 32: Water & Wastewater Regulatory Trends
2/14/12 1. PA WW DSIC 2. Forward Test Year 3. WW Consolidation 10/23/12 4. NJ DSIC 6/6/13 8. NC W&WW DSIC 3/27/14 10. IN WW DSIC 3/27/13 5. OH Expanded DSIC 6. Forward Test Year 7/1/15 14. IN DSIC Increase to 10% 8/9/13 9. IL Fair Market Value 2/5/15 11. NJ Fair Market Value 5/5/15 12. IN Distressed
Slide 33: States with Infrastructure Surcharges
State Allowed Surcharge IL 2.5% Avg. Annual Increase IN 10% NC 5% NJ** 5% OH 12.75% water 9% wastewater PA 7.5% water 5% wastewater Aqua States with Infrastructure Surcharges * 16 additional states have water infrastructure surcharges ** Water only
Slide 34: DSIC Applications
DSIC Applications Then Now Hydrants Meters Water Mains Water Mains Hydrants Meters Wastewater Infrastructure Equipment Supporting Water Quality Valves Filters Pumps
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 Success S
Slide 36: Customer Communications
Customer Communications Water is Esser Prepared for the residents of Lake Monticello. <A The MR * erent ERS SR WaterLink @= Oz @ ett ad ova Aqua C Fetow Have you explored our tips for living a A O U A. Blog ~~ #WaterSmart life? There are ways to reduce #water usage around every corner: bitly/1gGF3VP
Slide 37: Helping Communities & Employees Enjoy More Good!
Helping Communities & Employees Enjoy More Good!
Slide 38: Growth Strategy Update
Dan Schuller Executive Vice President, Strategy and Corporate Development Growth Strategy Update NYSE: WTR
Slide 39: Aqua America Growth Strategy
Aqua America Growth Strategy Driver of growing our foundational water/wastewater business Our primary focus today Municipal Initiative Strategic M&A MBAs Opportunistic pursuit of large, regulated utility/infrastructure targets Complementary to our regulated business Capitalizes on broader infrastruc
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. Prospect Identification Due Diligence Acquisition Model Development Investment Committee Review Refine
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 Total New: EOY Total Aqua: YoY Growth %: 17,747 957,866 1.9% 14,399 972,265 1.5% 10,584 9
Slide 42: 2018 Municipal Acquisition Activity
2018 Municipal Acquisition Activity Acquisition1 Type Approx. Number of Customers Approx. Purchase Price ($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 E W / WW 2,987 $12,300 System F WW 3,838 $25,200 System G WW 1,400 $5,000 Total
Slide 43: Large Municipal Acquisitions in Development
Large Municipal Acquisitions in Development 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 System 8 8,000 W / WW System 9 7,000 WW System 10 4,600 WW Total 289,600 - Our 10 l
Slide 44: Summary and Outlook
Christopher Franklin Chairman, Chief Executive Officer and President Summary and Outlook NYSE: WTR
Slide 45: 2018 Guidance
2018 Guidance Earnings Full-year earnings per share between $1.37 – $1.42 Capex Infrastructure investment of approximately $500 million in 2018 Rate Activity Customer growth of 2% to 3% year-over-year Customer Growth Aqua Pennsylvania, expects to file a rate case in 2018 Rate base growth of approxim
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
Slide 48: Appendix
Appendix NYSE: WTR
Slide 49: 2017 Fourth Quarter Financial Results
In millions except per share Q4 2017 Q4 2016 Variance 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 Maintenance Expense $80.7 $75.3 7.2% Net Income $53.5 $49.6 7.7% Net Income per Share $0.3
Slide 50: Operating Revenues Q4 2017 vs. Q4 2016
Operating Revenues Q4 2017 vs. Q4 2016
Slide 51: Operations & Maintenance Expenses Q4 2017 vs. Q4 2016
Operations & Maintenance Expenses Q4 2017 vs. Q4 2016
Slide 52: Earnings per Common Share Q4 2017 vs. Q4 2016
Earnings per Common Share Q4 2017 vs. Q4 2016
Slide 53: Dividend History
Dividend History 7.0% Increase to Annualized Dividend Rate of $0.8188 Effective 9/1/2017
Slide 54: Rates and Infrastructure Surcharges Completed as of December 31, 2017
Rates and Infrastructure Surcharges Completed as of December 31, 2017 Rates or Surcharges Received in 2017 State Docket Number Type Awarded Annualized Revenue Increase ($thousands) Indiana 44752 Rate Case (ww) $1,896 Illinois 17-0131 Surcharge (w) $454 17-0131 Surcharge (w) $660 17-0131 Surcharge (w
Slide 55: Rates and Infrastructure Surcharges Completed (continued)
Rates and Infrastructure Surcharges Completed as of December 31, 2017 (continued from previous page) Rates or Surcharges Received in 2017 State Docket Number Type Awarded Annualized Revenue Increase ($thousands) North Carolina W-215-Sub-363A Surcharge (w) $482 W-215-Sub-363A Surcharge (ww) $57 W-215
Slide 56: Rates and Infrastructure Surcharges Completed (continued)
Rates and Infrastructure Surcharges Completed as of December 31, 2017 (Continued from previous page) Rates or Surcharges Received in 2017 State Docket Number Type Awarded Annualized Revenue Increase ($thousands) Virginia PUR-2017-00017 Rate Case (w) $67 PUR-2017-00017 Rate Case (ww) $88 Total $21,60
Slide 57: Rates and Infrastructure Surcharges Completed as of February 23, 2018
Rates and Infrastructure Surcharges Completed as of February 23, 2018 Rates or Surcharges Received in 2018 State Docket Number Type Awarded Annualized Revenue Increase ($thousands) North Carolina W-218, Sub 363A Surcharge (ww) $56 W-218, Sub 363A Surcharge (w) $14 W-218, Sub 363A Surcharge (ww) $9 O
Slide 58: Rates and Infrastructure Surcharges Pending as of February 3, 2018
Rates and Infrastructure Surcharges Pending as of February 23, 2018 Rates Pending in 2018 State Docket Number Type Requested Annualized Revenue Increase ($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