Essential Utilities, Inc.

Hello, and welcome to the Essential Utilities Second Quarter 2023 Earnings Call. My name is George, and I'll be your coordinator for today's event. Please note, this conference is being recorded, and for the duration of the call, utilize the listen-only mode. However, you will have the opportunity to ask questions at the end of the call, and this can be done by pressing star 1 on your telephone keypad to answer per question. If it requires you to send a point, please press star 0, and you will be connected to an operator. And I'd like to hand the call over to host, Mr. Brian Dingerdissen, to begin today's conference. Please go ahead, sir.

Thank you, George. Good morning, everyone, and thank you for joining us. I am Brian Dingerdissen, Vice President of Investor Relations and Treasurer at Essential. If you did not receive a copy of the press release, you can find it by visiting the Investor Relations section of our website at essential.co. The slides that we will be referencing in the webcast of this event can also be found on our site. Here is our forward-looking statement. As a reminder, some of the matters discussed during this call may include forward-looking statements that involve risk, uncertainties, and other factors that may cause the actual results to be materially different from any future results expressed or implied by such forward-looking statements. Please refer to our most recent 10Q, 10K, and other SEC filings for a description of such risk and uncertainties. During the course of this call, reference may be made to certain non-GAAP financial measures. Reconciliation of these non-GAAP to GAAP financial measures is included at the end of the presentation and also posted in the investor relations section of the website. We'll begin the call today with Chris Franklin, our chairman and CEO, who will provide an update on the company. So with that, I will turn the call over to Chris Franklin.

Hey, thanks, Brian, and good morning, everyone. Thanks for joining us today. As a reminder for those of you who may not be as familiar with our story, Essential Utilities is an industry-leading water, wastewater service, and natural gas utility. The core of the company's 135-year-old nature is that it's the second largest regulated water utility in the United States, with operations in eight states and a proven track record of nearly three decades of growth through acquisition, which, coupled with a substantial capital investment over the same period of time, has led to significant and consistent earnings growth. In addition, Essential Utilities includes the largest gas LDC in Pennsylvania, also with a 135-year history of industry leadership and growth. Together, these utilities form a platform poised to deliver consistent 5% to 7% earnings per share growth. The key component of our long-term rate-based growth is the significant need in both water and gas for investment in core infrastructure, and I'm talking about things like pipe and plants. This is the engine which helps us deliver long-term shareholder value. I want to spend a few minutes with you on this topic today, but first let's talk about the good news of the second quarter. Although we were off to a rough start with warm weather in the first quarter, the second quarter has put us back in a strong position. For the quarter, we reported earnings per share of $0.34. Dan will provide much more detail in a few moments, but I'll note that with this quarter's strong performance, we are even more confident in our ability to achieve this year's guidance despite the lower results in the first quarter associated with the abnormally mild winter weather. We remain on track to invest $1.1 billion in capital projects this year. In fact, this work includes more than 8,000 projects that improve service and reliability for our customers and will add substantial rate base to generate future growth for shareholders. We'll get into that in just a few minutes. So far in 2023, we've closed six acquisitions, which included seven systems. You may recall the village of Frankfurt was both water and wastewater. But those were done across four states in which we have existing water operations. Combined, these acquisitions added over $44.6 million in rate base and more than 11,000 customer equivalents. Additionally, we have four asset purchase agreements signed that are expected to add over 208,000 customers or customer equivalents and nearly $336 million in purchase price. Now, importantly, I'll remind you that at our August board meeting just a week or so ago, the board increased the dividend by 7%, demonstrating confidence in our ability to deliver long-term value to both customers and shareholders. Here in the next slide, before I get into the meat of this slide, I want to remind investors of the importance of our capital investment program. we get far more questions about our acquisition program than our capital program. So I want to remind you that the capital program, which is critical for customer reliability, safety, and quality, is also what generates more than 90% of our growth and earnings per share in any given year. I'll remind you that the municipal acquisition program is important because it gives us the opportunity to improve water and wastewater systems for the future and deepens the pool of capital needs for the future as well. In fact, you could say that most of today's capital projects are taking place in systems that were acquired at some point in our company's history. However, I want to underscore that the most important contribution to earnings per share growth is the execution of the company's capital improvement plan. Over the years, we've demonstrated a core competency in infrastructure rehabilitation and specifically in deploying large amounts of capital over many individual projects each year, as I said, 8,000 this year alone. The first half of 2023 was no exception. We invested $547.6 million in infrastructure improvements as compared to $424.6 million for the same period in 2022. Those of you who have been following us know that we've been increasing our capital investment over the years. In fact, just as I became CEO in 2015, we've invested nearly $5.8 billion, some of that pre-people's and some of it post-people's acquisition. And both our annual capital plans and our rate base have grown by approximately 200% during this period. Now, despite today's discussion on the relative importance of capital plans to earnings generation, I will tell you that our municipal acquisition program is very important and remains strong because although acquisitions don't typically add significantly to earnings at closing, over time they are an important part of our growth story and deepen the capital improvement opportunities for the future. I'll update you on our acquisition progress in just a moment. Hopefully, you'll get a sense of the magnitude of our capital improvement program on this slide. We have certainly done our part to improve American infrastructure over the years. This chart shows that we have already replaced over 1,100 miles of pipe in just the last three years, and we expect to replace another 1,300 additional miles between this year and 2025. If you look at the miles of pipe in just these six years, it would be like installing a pipeline from Philadelphia to Sacramento, California. This is the work that all utilities in the United States should be doing, especially because much of the pipe across the country is now over 100 years old. Our pool of capital needs remains strong as we continue to improve plants, address PFAS, remove lead services, and replace aging pipes. We expect our annual capital budgets to continue to exceed a billion dollars for the foreseeable future. And that's why we've developed a focused program to seek low-interest loans for as much of our capital program as possible. Now, shareholders won't necessarily benefit directly from lower interest rates, But customers benefit through lower utility bills, which in turn allows us to continue to make these large, necessary infrastructure improvements. I want to point out that although we have a massive, sustained capital improvement program, our efficiency and safety measures continue to be at optimal levels. In 2015, we committed to a strategy which has remained consistent. maintain operational excellence in the utilities we own and operate, invest capital in needed infrastructure improvements, and target acquisitions in the water and wastewater space. And I've said before, we don't plan to do any more gas acquisitions. Now, infrastructure investment is the low-risk backbone of our guidance of 6% to 7% rate-based growth in water and 8% to 10% rate-based growth in our natural gas business, which results in the 5% to 7% earnings growth guidance, which we have achieved every year since we established that target. All right. Let's talk for a moment about our strong acquisition program. On this slide, you can see that we are having another good year in our growth through acquisition work. So far this year, we've acquired seven systems, adding over 11,000 customer equivalents to our current water and wastewater footprint. You might have noticed that this is a recent uptick in closed acquisitions. As a reminder, Essential has been a pioneer driving consolidation of water and wastewater utilities for over 30 years. In fact, we've done more than 400 utility acquisitions over that same period of time. Just since 2015, we've added nearly 129,000 customer equivalents and over $526 million in rate base to our water and wastewater footprint to a very successful acquisition program. On June 30th, we closed the acquisition of Union Roam Sewer System in Ohio, which serves approximately 5,300 customers. This is the largest municipal acquisition to date in Ohio. We're very proud of that one. And on July 24th, we closed the borough of Shenandoah's municipal authority in Pennsylvania, which serves about 3,000 customers. And in addition to these two systems, we acquired four other systems on July 31st. Southern Oaks in Texas, the village of Frankfort's water and wastewater assets in Illinois, and the village of LaRue in Ohio. Collectively, these four systems added nearly 2,500 customers and $7 million in rate base to the company's footprint. We include the previously announced acquisition of North Heidelberg in Pennsylvania. Some of you may recall that this was the The system where we were appointed receiver, it's a small wastewater system. In Pennsylvania, we were appointed receiver by the PAPUC. If we add that to the mix, then year-to-date, we've acquired seven systems and added more than $44.6 million in rate base and 11,000 customer equivalents. Pretty nice year. All of these acquisitions demonstrate our ability to provide operational expertise and a solution to systems needing substantial capital improvements to ensure customers have high quality, safe and reliable services. All right, let's talk about a recent court decision that's been in the news. You know, in August of 2022, after approval by the PAPUC, we acquired the East Whiteland Wastewater Assets in Pennsylvania. which was subsequently appealed by the consumer advocate in Commonwealth Court. Just last week, the court issued a decision to overturn the PUC order approving our acquisition. We are obviously disappointed with the decision and will work with the PAPUC to defend its order, including evaluating options for appeal in concert with the PUC and East Whiteland Township. We believe that no matter what the ultimate outcome of this decision, there is a path forward to a continued regionalization of water and wastewater systems in Pennsylvania. It will require the continued engagement of all stakeholders so that using fair market value as a regulatory tool benefits all of those impacted by the process. Okay. Shifting now to the dividend, as I mentioned up front, last week the board declared a 7% increase to the quarterly dividend. We have a great and consistent history of delivering what our investors expect. This marks the 33rd increase in 32 years and the 78th consecutive year of quarterly dividend payments. This supports our consistent record of delivering shareholder value. Following the increase, the annualized dividend rate will be nearly $1.23 per share. All right. With that, Dan, let me turn it to you to talk about our financial results.