BRYN MAWR, Pa. – Essential Utilities Inc. (NYSE: WTRG), formerly Aqua America Inc., today reported results for the second quarter ended June 30, 2020.
Company Highlights
Despite the considerable work to overcome challenges associated with the COVID-19 pandemic, Essential has remained focused on operational excellence, the integration of Peoples and advancing the DELCORA transaction process. With many customers working from home, as well as favorable weather across the company’s states, residential water consumption was up year over year, more than offsetting consumption declines in commercial, industrial, and other segments. Essential Chairman and CEO Christopher Franklin said, “We are pleased with our strong financial results for the first full quarter following the closing of Peoples. The company continues to take the COVID-19 pandemic very seriously and thus far has seen little financial impact. In addition to concerns for the health and safety of our employees and customers, we are working with our customers on bill payment options where necessary. We are pleased that most of the states in which we operate have provided constructive regulatory treatment for this customer support. Additionally, the board of directors’ action earlier this week declaring a 7% increase to the quarterly dividend reflects confidence in our strategy and execution, continuing 75 years of consecutive quarterly cash dividends.”
Operating Results
Essential reported net income of $74.6 million (GAAP) for the second quarter 2020, or $0.29 per share (GAAP), compared to $54.9 million, or $0.25 per share, for the second quarter 2019. Results for the second quarter of 2020 include the operating results of Peoples, which largely comprises Essential’s regulated natural gas segment, and results for the second quarter of 2019 include Peoples transaction-related items.
Essential’s revenues for the quarter were $384.5 million, an increase of 75.6% compared to $218.9 million in the second quarter of 2019. The natural gas utility acquired in the first quarter contributed $149.6 million of this revenue growth, while the remainder was due to rate and surcharge increases, increased volume and growth in the regulated water segment. Operations and maintenance expenses increased to $128.6 million for the second quarter of 2020 compared to $86.4 million in the second quarter of 2019. The increase in operations and maintenance expenses was primarily a result of operations and maintenance expenses of $52.8 million from the acquisition of Peoples.
Essential’s regulated water segment reported revenues for the quarter of $234.1 million, an increase of 7.4% compared to $218.0 million in the second quarter of 2019. Rates and increased volume were the largest contributors to the increase in revenues for the period, in addition to customer growth from both organic growth and acquisitions. Operations and maintenance expenses for Essential’s regulated water segment increased 3.5% to $76.6 million for the second quarter of 2020 compared to $74.1 million. Excluding the impact of growth, the increase in regulated water segment operations and maintenance expenses for the second quarter of 2020 were in line with historical experience.
Essential’s regulated natural gas segment reported revenues for the second quarter of 2020 of $146.9 million. Operations and maintenance for the same period for Essential’s regulated natural gas segment were $50.9 million and purchased gas costs were $41.6 million.
For the first six months of 2020, the company reported revenues of $640.1 million compared to $420.0 million in the first half of 2019. Operations and maintenance expenses for the first half of 2020 were $235.2 million compared to $165.8 million in 2019. Adjusted for the Peoples transaction items, O&M would have been in line year over year.
As of June 30, 2020, Essential reported year-to-date net income of $126.4 million or $0.50 per share (GAAP) compared to $71.8 million or $0.36 per share (GAAP) reported through the same period of 2019. Adjusted income and adjusted income per share (both non-GAAP financial measures) for the first half of 2020, excludes the impact of the Peoples transaction-related expenses and includes a normalized pro forma adjustment for the Peoples operating results for the period Jan. 1, 2020 to March 15, 2020 to provide the basis for a 2020 full-year run rate of operating results. Adjusted income for the first six months of 2020 was $228.3 million or $0.90 per share (non-GAAP). Please refer to the reconciliation of GAAP to non-GAAP financial measures later in this press release for additional information on Essential’s use of non-GAAP financial measures as a supplement to its GAAP results.
Dividend
On Aug. 4, 2020, Essential’s board of directors declared a quarterly cash dividend of $0.2507 per share of common stock. This increase represents a 7% increase to the quarterly dividend rate and is the company’s 30th increase in the last 29 years. This dividend will be payable on Sept. 1, 2020 to shareholders of record on Aug. 14, 2020. Essential has paid a consecutive quarterly cash dividend for 75 years.
Financing
As previously announced, as a preventive measure to address liquidity concerns related to COVID-19 and its potential economic and capital markets impacts, the company secured and borrowed an additional $500 million on a 364-day term loan in early April 2020. Subsequent to the company’s $1.1 billion public debt offering on April 15, 2020 and after gaining more knowledge as to the COVID-related impacts to Essential’s revenue and bad debt, the company repaid the term loan in full with payments in May and June.
Water utility acquisition growth
Essential’s continued acquisition growth allows the company to provide safe and reliable water and wastewater service to an even larger customer base. On June 22, 2020, Essential Utilities closed its acquisition of the East Norriton Township wastewater system in Pennsylvania, a utility with approximately 5,000 customer connections. In the first six months of 2020, customer growth for the company’s water utilities has totaled 1.2% including organic growth.
As previously announced, fair market value legislation has been enacted in all eight states in which Essential Utilities provides regulated water services. This legislation allows regulated water companies to pay fair market value for the purchase of water and wastewater systems, benefiting local governments and other water utility owners, customers and the environment. Essential recently announced that its regulated water subsidiary, Aqua Texas, signed a purchase agreement to acquire Commons Water Supply, Inc. in Texas, an investor owned utility with approximately 1,000 customer connections in the Houston suburbs. This will be Essential’s first fair market value transaction in Texas.
Essential has signed purchase agreements for other municipal water and wastewater acquisitions that are expected to add the equivalent of over 200,000 water and wastewater retail customers and over $300 million in expected rate base. This includes the previously announced signed purchase agreement between Essential’s regulated water segment subsidiary, Aqua Pennsylvania Wastewater, and the Delaware County Regional Water Quality Control Authority (DELCORA).
Capital expenditures
Essential invested $293.1 million in the first half of the year to improve its regulated water and natural gas infrastructure systems. This does not include an additional $53.5 million that was invested by Peoples, pre-closing, during the period from Jan. 1, 2020 to March 15, 2020. The company remains on track to replace and expand its water and wastewater utility infrastructure by investing approximately $550 million in 2020. Additionally, the company expects to invest approximately $400 million in 2020 to replace and upgrade its natural gas utility infrastructure (including capital invested in 2020 prior to Essential’s ownership). In total, infrastructure investments of approximately $2.8 billion are expected through 2022 to improve water and natural gas systems (including capital invested at Peoples in 2020 prior to Essential’s ownership). The capital investments made to rehabilitate and expand the infrastructure of the communities Essential serves are critical to its mission of safely and reliably delivering Earth’s most essential resources. The company’s plan to accelerate the replacement of approximately 2,700 miles of aged gas pipe at Peoples is underway. This program will enable significant reduction in methane emissions that occur in aged gas pipes.
Rate activity
To date in 2020, Essential’s regulated water segment has received rate awards or infrastructure surcharges in Illinois, Indiana, North Carolina, Ohio, Virginia and Pennsylvania totaling an estimated increase in annualized revenues of $10.2 million. Additionally, Essential’s regulated natural gas segment has received rate awards or infrastructure surcharges in Kentucky and Pennsylvania totaling an estimated increase to annualized revenues of $1.0 million. The company currently has proceedings pending in New Jersey, Virginia and Ohio for its regulated water segment totaling $5.2 million.
Essential reaffirms 2020 guidance
The company continues to monitor the global outbreak of COVID-19 and will update guidance impacts from the outbreak in the future if needed. At this time, the following continues to be the 2020 full-year guidance:
- Adjusted income per diluted common share (non-GAAP) of $1.53 to $1.58
- Earnings growth CAGR of 5 to 7 percent for 2019 through 2022
- Regulated water segment infrastructure investments of approximately $550 million in 2020
- Regulated natural gas segment infrastructure investments of approximately $400 million in 2020 on full-year basis (adjusted to include capital invested in 2020 prior to Essential’s ownership)
- Infrastructure investments of approximately $2.8 billion through 2022 in existing operations to rehabilitate and strengthen water, wastewater, and natural gas systems (including regulated natural gas segment capital invested in 2020 prior to Essential’s ownership)
- Regulated water segment rate base compound annual growth rate of 6 to 7 percent through 2022
- Regulated natural gas segment rate base compound annual growth rate of 8 to 10 percent through 2022
- Gas customer count expected to be relatively stable for 2020
- Total annual regulated water segment customer growth of between 2 and 3 percent on average depending upon regulatory approval
Please refer to the reconciliation of GAAP and non-GAAP financial measures later in this press release for additional information on Essential’s use of non-GAAP financial measures as a supplement to its GAAP results.
Essential Utilities does not guarantee future results of any kind. Guidance is subject to risks and uncertainties, including, without limitation, those factors outlined in the “Forward Looking Statements” of this release and the “Risk Factors” section of the company’s annual and quarterly reports filed with the Securities and Exchange Commission.
Earnings Call Information
Date: Aug. 6, 2020
Time: 11 a.m. EDT (please dial in by 10:45 a.m.)
Webcast and slide presentation link: https://www.essential.co/events-and-presentations/events-calendar
Replay Dial-in #: 888.203.1112 (U.S.) & +1 719.457.0820 (International)
Confirmation code: 7052213
The company’s conference call with financial analysts will take place Thursday, Aug. 6, 2020 at 11 a.m. Eastern Daylight Time. The call and presentation will be webcast live so that interested parties may listen over the internet by logging on to Essential.co and following the link for Investors. The conference call will be archived in the Investor Relations section of the company’s website for 90 days following the call. Additionally, the call will be recorded and made available for replay at 2 p.m. on Aug. 6, 2020 for 10 business days following the call. To access the audio replay in the U.S., dial 888-203-1112 (pass code 7052213). International callers can dial +1 719-457-0820 (pass code 7052213).
About Essential
Essential is one of the largest publicly traded water, wastewater and natural gas providers in the U.S., serving approximately 5 million people across 10 states under the Aqua and Peoples brands. Essential is committed to excellence in proactive infrastructure investment, regulatory expertise, operational efficiency and environmental stewardship. The company recognizes the importance water and natural gas play in everyday life and is proud to deliver safe, reliable services that contribute to the quality of life in the communities it serves. For more information, visit http://www.essential.co.
Forward-looking statements
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, among others: the guidance range of adjusted income per diluted common share for the fiscal year ending in 2020; the 3-year earnings growth from 2019 to 2022; the projected total regulated water segment customer growth for 2020; the anticipated amount of capital investment in 2020; the anticipated amount of capital investment from 2020 through 2022; and the company’s anticipated rate base growth from 2020 through 2022. There are important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements including: disruptions in the global economy; financial and workforce impacts from the COVID-19 virus; the continuation of the company's growth-through-acquisition program; the company’s continued ability to adapt itself for the future and build value by fully optimizing company assets; general economic business conditions; the company’s ability to fund needed infrastructure; housing and customer growth trends; unfavorable weather conditions; the success of certain cost-containment initiatives; changes in regulations or regulatory treatment; availability and access to capital; the cost of capital; disruptions in the credit markets; the success of growth initiatives; the company’s ability to successfully close municipally owned systems presently under agreement; the company’s ability to continue to deliver strong results; the company’s ability to continue to pay its dividend, add shareholder value and grow earnings; municipalities’ willingness to privatize their water and/or wastewater utilities; the company’s ability to control expenses and create and maintain efficiencies; the company’s ability to acquire municipally owned water and wastewater systems listed in its “pipeline”; and other factors discussed in our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q, which are filed with the Securities and Exchange Commission. For more information regarding risks and uncertainties associated with Essential's business, please refer to Essential's annual, quarterly and other SEC filings. Essential is not under any obligation - and expressly disclaims any such obligation - to update or alter its forward-looking statements whether as a result of new information, future events or otherwise.
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