Essential Utilities, Inc. · NYSE:WTRG
Essential Utilities — Aqua America — Investor Presentation (June 2019)
42 slides from Essential Utilities's investor presentation, Jun 12, 2019
Slide 1: Investor Presentation Q2 2019
NYSE: WTR Investor Presentation Q2 2019
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: Aqua America Overview
NYSE: WTR Aqua America Overview NYSE: WTR
Slide 4: Peoples Acquisition Highlights
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 Expected to close in the fall of 2019, pending regulatory approvals Peoples Acquisition Highlights Creating a Larger, More Diversifi
Slide 5: Aqua America Overview
Aqua America Overview • Founded in 1886; headquartered in Bryn Mawr , Pennsylvania • Large multi - state water & wastewater company with ~$5.0 billion of estimated rate base expected as of year - end 2019 • >99% regulated water and wastewater utility 1 • Serving 1 million customer connections in eig
Slide 6: Corporate Highlights
Corporate Highlights Peoples Financing Complete • CPPIB investment kicks off permanent financing with $750 million PIPE investment • Equity, TEU and debt offerings successfully closed Progress Towards Peoples Regulatory Approval 6 Revenue Growth EPS Growth $194.3 $201.1 Q1 2018 Q1 2019 $ 105.1 Q1 20
Slide 7: Three-Pronged 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 infrastructure renewal Three
Slide 8: Substantial U.S. Water Infrastructure Needs Represent a Massive Opportunity
Substantial U.S. Water Infrastructure Needs Represent a Massive Opportunity Treatment $102 Collection Systems $96 Other $54 Storm Water Management $19 $271 Billion Source: EPA Clean Watersheds Needs Survey (CWNS) 2012 Wastewater Water • 50,000 systems • 85% of population served by municipalities • A
Slide 9: Favorable Water & Wastewater Regulatory Trends
Favorable Water & Wastewater Regulatory Trends Implemented in Last Decade Six of Aqua’s States Have Fair Market Value Legislation 9 2012 2013 2014 2016 2017 2018 2015 2019 Feb - 2012 1. PA WW DSIC 2. PA Forward Test Year 3. PA WW Consolidation Oct - 2012 4. NJ DSIC Apr - 2013 7. IN Forward Test Year
Slide 10: Customer Growth and Acquisitions
2.3% total customer growth in 2018 from acquisitions (over 14,000 customers) and organic growth (over 8,500 customers) An additional ~450 customers were added from small, non - municipal acquisitions. Also closed $28.3 million acquisition of Tredyffrin Township Municipal Authority’s trunk sewer syst
Slide 11: Current Water and Wastewater Municipal Transaction Opportunities
Size Range (Approx. # of Customers) Total Customers (approx.) >50,000 315,000 10,000 – 50,000 54,000 <10,000 46,000 Total 415,000 11 Current Water and Wastewater Municipal Transaction Opportunities We are actively pursuing acquisition opportunities, in four of our existing states, totaling over 400,
Slide 12: 2019 Rate Activity
2019 Rate Activity Pending Rate Cases and Surcharges • Base rate cases or surcharges completed in IL, NJ and OH* • $7.3 million in additional annualized revenue As of 5/2/2019 12 Completed Rate Cases and Surcharges • Base rate cases or surcharges in IL, OH and PA with requested annualized revenue in
Slide 13: Aqua and Peoples PA Rate Case Update
Aqua and Peoples PA Rate Case Update 13 Aqua Pennsylvania Peoples Natural Gas 2 (PA) Date Filed 17 - Aug - 2018 28 - Jan - 2019 Requested Rate Base $3,409m 1 $2,052m Test Year • Fully - projected future test year ending Mar - 2020 • Fully - projected future test year ending Oct - 2020 Requested Reve
Slide 14: Aqua's Commitment to Safety and Sustainability
14 Aqua’s Commitment to Safety and Sustainability • Issued inaugural Corporate Social Responsibility Report in 2018 • Participated in Carbon Disclosure Project (CDP) Survey and received a strong first - time score of C in the “Awareness” level in the top 40% of CDP companies • Main break average ste
Slide 15: 2019 Aqua Stand-Alone Guidance
2019 Aqua Stand - Alone Guidance Excluding Peoples transaction - related items and earnings impacts from Peoples post - closing 15 Earnings • Adjusted income of $1.45 to $1.50 per share Capex • Infrastructure investments of approximately $550 million in 2019 for communities served by Aqua • Infrastr
Slide 16: Growth in Income from Continuing Operations per Share
Growth in Income from Continuing Operations per Share Income from Continuing Operations per Share (diluted) 2015 adjusted for joint venture impairment charge (a non - GAAP financial measure). 2015 Income per Share was $1.14. 2018 adjusted for transaction costs and other items related to the Peoples
Slide 17: Dividend Increase History
Dividend Increase History 7.0% Increase to Annualized Dividend Rate Effective 9/1/2018 17 $0.6080 $0.6600 $0.7120 $0.7652 $0.8188 $0.8760 $0.40 $0.45 $0.50 $0.55 $0.60 $0.65 $0.70 $0.75 $0.80 $0.85 $0.90 2013 2014 2015 2016 2017 2018 Dividend per Share (annualized) Dividend paid for last 74 years in
Slide 18: Peoples Acquisition
NYSE: WTR Peoples Acquisition
Slide 19: Peoples Overview
Source(s): SNL, FERC filings; Peoples projections per Peoples management, adjusted per Aqua diligence. 1 Represents expected compound annual growth from 01 - Jan - 2019 through 31 - Dec - 2021 based on capex, depreciation and rate base assumptions. • Provides natural gas distribution services to ove
Slide 20: Combined Pro Forma Utility Profile
Combined Pro Forma Utility Profile Creating an infrastructure company well - positioned for strong growth 20 TX IL IN OH NC WV KY PA VA $7.2b $5.0 $2.2 Water Gas 1.7m 66% 9% 6% 5% 5% 10% PA OH NC TX IL All Other 1 As of 31 - Dec - 2018. Due to rounding, percentages may not always appear to add up to
Slide 21: Acquisition of Peoples: Strategic Rationale
Adds platform for growth • Introduces new platform for growth • Expands infrastructure investment opportunities to drive rate base growth Benefits of increased scale • Increases rate base ~45% 1 and diversifies earnings mix • Creates only multi - platform water and natural gas utility of scale in th
Slide 22: Peoples' Pipeline Replacement Program
- $50 $100 $150 $200 $250 $300 $350 $400 2016A 2017A 2018A 2019E 2020E 2021E ($ Millions) Peoples’ Distribution System Material 1 (Miles) 0 2,000 4,000 6,000 8,000 Cast Iron Bare Unprotected Steel Bare Cathodically Protected Steel Coated Unprotected Steel Coated Cathodically Protected Steel Plastic,
Slide 23: Attractive Capex Recovery Mechanisms
46% DSIC Eligible 54% Standard Rate - Making Aqua Capex: 2019 - 2021 Estimates 70% DSIC Eligible 30% Standard Rate - Making Peoples Capex: 2019 - 2021 Estimates 57% DSIC Eligible 43% Standard Rate - Making Pro Forma Combined Capex: 2019 - 2021 Estimates State PA IN OH NJ IL NC Mechanism DSIC DSIC SI
Slide 24: Significantly Larger Utility Platform
+ % Increase Above Aqua Standalone Enterprise Value ($B) $9.1 1 $4.3 $13.4 +47% Customers 2 ~1,000,000 ~740,000 ~1,740,000 +74% ‘19E Rate Base ($B) 2 $5.0 $2.2 $7.2 +44% Full - Time Employees 3 ~1,600 ~1,500 ~3,100 +94% Significantly Larger Utility Platform 24 Source(s): Aqua America SEC Filings, Bl
Slide 25: Sources and Uses
Sources and Uses ($ in millions) Sources of Funds Use s of Funds Common Stock $1,294 Peoples Equity Purchase Price 1 $2,905 CPPIB Equity Investment 2 $750 Assumption of Peoples debt 3 $1,370 Tangible Equity Units (“Mandatory Convertible”) $690 Aqua Private Placement Note Refinancing $314 Debt $900 T
Slide 26: Strong Debt Issuance and Credit Ratings
Strong Debt Issuance and Credit Ratings • Issued $900 million of senior notes at a weighted average yield of 3.96% • Weighted average maturity of 21 years • Lower interest rate than expected at October announcement • Strong investment - grade ratings • Interest rate swaps settled; will result in $11
Slide 27: Timeline / Transaction Status
Timeline / Transaction Status 23 - Oct - 2018 x Aqua America announces acquisition of Peoples 28 - Jan - 2019 x Peoples filed a rate case for PA 08 - Feb - 2019 x Aqua America filed a rate case settlement for PA April - 2019 x Aqua America equity and debt offerings May - 2019 x Aqua America PA Rate
Slide 28: Benefits to Key Stakeholders
Customers • Continued best - in - class service from established gas and water utilities • No impact to customer rates from transaction • Financial capacity will enhance infrastructure investments, increasing reliability and safety Employees • Shared culture of safety, operational excellence and pro
Slide 29: Questions?
For a more detailed presentation visit our website at www.AquaAmerica.com Questions? 29 For more information contact: Brian Dingerdissen Vice President, Chief of Staff and Investor Relations 610.645.1191 BJDingerdissen@AquaAmerica.com
Slide 30: Appendix
NYSE: WTR Appendix Aqua America
Slide 31: Public Information Available on Peoples
Public Information Available on Peoples Publicly Available Information • Aqua America Press Release Announcing Peoples Acquisition • Aqua America Peoples Acquisition Investor Presentation and Call Transcript • Aqua America Q3 ’18, FY 2018 and Q1 2019 Earnings Presentations and Call Transcripts • 201
Slide 32: First Quarter Highlights
First Quarter Highlights Unfavorable Change Favorable Change 32 As of March 31, 2019 In millions except per share Q1 2019 Q1 2018 Variance Revenue $201.1 $194.3 3.5% Operations and Maintenance Expense $79.3 $73.9 7.3% Net Income (GAAP) $16.9 $50.8 (66.7%) Net Income per Share (GAAP) $0.09 $0.29 (69.
Slide 33: Operating Revenues Q1 2019 vs. Q1 2018
Operating Revenues Q1 2019 vs. Q1 2018 Change in Operating Revenues (thousands) 33 ($2,215) $194,347 $4,747 $3,147 $1,036 $70 $201,132 $165,000 $170,000 $175,000 $180,000 $185,000 $190,000 $195,000 $200,000 $205,000 $210,000 Revenue Q1 2018 Rates & Surcharges Regulated Growth Other Market-Based Acti
Slide 34: Operations & Maintenance Expenses
Operations & Maintenance Expenses Change in Operations & Maintenance Expenses (thousands) 34 Q1 2019 vs. Q1 2018 ($4,008) $73,946 $6,646 $972 $744 $638 $376 $79,314 $40,000 $45,000 $50,000 $55,000 $60,000 $65,000 $70,000 $75,000 $80,000 $85,000 $90,000 O&M Q1 2018 Transaction Expenses Regulated Acqu
Slide 35: Earnings per Common Share Q1 2019 vs. Q1 2018
Earnings per Common Share Q1 2019 vs. Q1 2018 Change in Earnings Per Share 35 ($0.036) ($0.009) ($0.154) ($0.030) $0.29 $0.020 $0.011 $0.006 $0.28 $0.09 $0.00 $0.05 $0.10 $0.15 $0.20 $0.25 $0.30 $0.35 $0.40 EPS Q1 2018 Rate cases (including surcharges) Regulated Growth Expenses Market Based Activiti
Slide 36: Aqua 2019 Rates and Surcharges Completed
State Docket Number Type Awarded Annualized Revenue Increase ($thousands) Illinois N/A Surcharge (w) $1,394 N/A Surcharge (ww) $268 Ohio 89 - 7028 - WW - TRF Rate Cases (w) $974 18 - 0337 - WW - SIC Surcharge (w) $2,267 Pennsylvania M - 2018 - 3006585, M - 2018 - 3006634, M - 2019 - 3008029, M - 201
Slide 37: Aqua 2019 Rates and Surcharges Pending
Aqua 2019 Rates and Surcharges Pending As of May 2, 2019 State Docket Number Type Requested Annualized Revenue Increase ($thousands) New Jersey WRT18121351 Rate Case (w) $7,202 North Carolina W - 218, Sub 497A Surcharge (w) $602 W - 218, Sub 497A Surcharge (ww) $62 Ohio 18 - 1843 - WW - UNC & 18 - 1
Slide 38: Building for the Future
Building for the Future Regulated Operations 38 $328,605 $364,689 $382,996 $478,089 $495,737 $550,000 $- $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 2014 2015 2016 2017 2018 2019* Average Annual Capital Investment ($thousands) *2019: forecasted annual capital investments
Slide 39: Aqua States with Infrastructure Surcharges
Aqua States with Infrastructure Surcharges Water only 16 additional states have water 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 39
Slide 40: State by State Comparison
State by State Comparison As of December 31, 2018 State Rate Base ($000s) Water Connections Wastewater Connections Total Customers PA 3,095,126 440,487 28,115 468,602 OH 317,168 145,938 6,878 152,816 IL 320,002 65,214 15,222 80,436 TX 234,569 64,360 17,480 81,840 NJ 171,113 53,639 6,213 59,852 NC 20
Slide 41: Pro Forma Organization Overview
Note: Organization chart simplified to exclude non - operational legal entities and small unregulated subsidiaries. As part of the Aqua America family, Peoples provides a natural gas platform of scale and creates another avenue for growth. Combined Company (Aqua America, Inc.) Peoples Natural Gas Co
Slide 42: GAAP to non-GAAP Reconciliation
GAAP to non - GAAP Reconciliation 2019 2018 Net income (GAAP financial measure) $16,924 $50,839 Plus: transaction - related expenses for the Peoples transaction 41,428 Less: tax effect (8,628) Adjusted income (non - GAAP financial measure) $ 49,724 $50,839 Net income per common share (GAAP financial