Essential Utilities, Inc.

Good day and welcome to today's Essential Utilities Third Quarter 2023 earnings call. This meeting is being recorded. At this time, I'd like to hand the call over to Brian Dingerdissen. Please go ahead, sir.

Thank you, Sergey. Good morning, everyone, and thank you for joining us for Essential Utilities Third Quarter 2023 earnings call. I'm 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. The slides that we will be referencing in the webcast of this event can also be found on the 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, 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 description of such risk and uncertainties. During the course of this call, reference may be made to certain non-GAAP financial measures. A reconciliation of any non-GAAP to GAAP financial measures is posted in the Investor Relations section of the company's website. We'll begin the call with Chris Franklin, our Chairman and CEO, who will provide an update on the company. With that, I will turn the call over to Chris.

Hey, thanks, Brian, and good morning, everyone. Thanks for joining us today. I want to start the call out Thank you for joining us. has indicated that based on the investigation, the incident occurred inside of the home and was not a result of an issue with the gas utility. We continue to, of course, fully cooperate with investigators. They really need to recognize our team for their response to this tragic event, their professionalism, their expertise, and especially the way they performed under extremely difficult conditions, just having lost one of their colleagues that day. Very difficult day for the team. All right, let me shift gears a little bit here and start off by expressing my appreciation to those of you who participated in our off-season governance meetings and our IR perception study. While they are still compiling and synthesizing your comments, I want you to know that we appreciate your time and your feedback and most certainly will take the insights gained very seriously. Operating a public company, we're always glancing at the stock price throughout every given day. And as sizable shareholders ourselves, our management team, and the board are well aware of the current performance of our stock. We acknowledge the sector has been trading off. Much of the industry performance over the past few months, we believe, has largely been driven by the macro environment and the recent sell-off of utilities due to the Fed's comments and actions on interest rates. We know that dividend paying stocks are typically out of favor during periods when investors can capture income through interest bearing accounts without the risk of their principal. We also understand that some investors are concerned about utilities that have robust capital programs which need to be financed and then recovered through the rate process. Fortunately, our team has a long history of executing large capital programs and achieving timely regulatory recovery, obviously helped by the constructive regulatory environments in the states where we operate. Now, I also want to acknowledge that we are below our expected price. We don't like it. We don't believe it's as large as some might imply. If we compare our PE to that of our most similar water utility pier, and assuming a slight discount because our projected growth rate is just slightly lower, we estimate that since the People's Transaction in 2020, we've traded at an average discount of about 5% compared to the weighted average of our water and gas peers. That discount currently sits a little higher, roughly 10%. For those of you who've followed us or been with us over the last four years, You know that there have been many fluctuations, and often we've traded above the target as well. Now as investors, many of you consider various things, and we know that you're thinking about the fact that our two largest rate divisions will file for rates in the next six to nine months, and we've had some challenges recently. Q1 weather was difficult on the gas side to wrestle with the Delcor and East Whiteland litigation, but remember, Despite our challenges, we have continued to deliver on our EPS targets. From a stock performance perspective, some have written that this has been the worst year for utilities in 40 years. While that current climate is challenging, we have remained focused on strong execution and enhanced shareholder value. I'll point you to our recent pruning of our small and underperforming West Virginia gas business. and the strong result of our sale of the energy projects to further refine our portfolio and offset equity needs. On a very positive note, we view the stock at its current price as a unique entry point and have been hearing from many new investors, potential investors, that previously viewed water utilities as too expensive. So at roughly 19 times 2023 earnings, with an almost 3.5% yield, coupled with our strong record of operational execution, our large capital program, along with continued water system consolidation, the company is poised for long-term success. I also want to emphasize that we don't need to close the Delcorra transaction to meet earnings guidance in 23 and 24. In fact, our earnings guidance, 23 and 24, is not dependent on any of the acquisitions that are currently in our materials. This includes East Whiteland too. Remember that most municipal transactions lose money or break even until we bring them through a rate case. And you'll recall that our Pennsylvania water case won't be out until 2024. Now, we'll use this window of time to work with regulators and stakeholders to improve the fair market value process and hopefully alleviate some of the headwinds that the sector has been facing related to municipal acquisitions, especially in Pennsylvania. We spent time on our last earnings call reminding investors about the primary source of earnings generation, the execution of our capital plan. Now make no mistake, our acquisition program is important to our long-term success. but is often not as impactful as the negative impact to our stock price performance if these opportunities hit speed bumps or don't fully materialize. Now, listen, we're going to continue to work hard on our growth or acquisition program and we're going to go look at improved methods to communicate those opportunities so that we adjust expectations from the onset. We've heard you clearly on that. And one other factor that I wanted to mention that's been impacting our share price was the need for equity. In September, we completed our financings for the year, removing any perceived equity overhang. We heard the feedback related to our new guidance approach regarding equity needs. And believe me, we're going to take into account as we finalize our future guidance plan. We've heard you loud and clear. All right, let's move on to some highlights from the quarter and a couple of company updates. With a dedicated focus on capital investment and operational efficiency, we had a strong third quarter with earnings per share of $0.30. Dan will take you through the financials in just a moment. We remain on track to invest $1.1 billion in capital projects this year and maybe even slightly higher than that, improving the service and reliability for our customers while adding substantial rate-based growth. In the first nine months of 2023, we've invested $874.5 million through our water, wastewater, and natural gas systems as compared to $719.7 million for the same period last year. Keep in mind that our capital budget is composed of thousands of projects, and it takes significant expertise to achieve success in those projects. We currently have Asset purchase agreements signed for five municipal acquisitions totaling nearly $354 million in purchase price and continue to have a robust pipeline of opportunities. I mentioned the sale of our West Virginia gas utility assets which was announced on October 2nd. This sale really enables management to focus on fewer states and specifically where we have larger bases of customers and growth opportunities. Then on October 3rd, we announced a $165 million binding agreement to sell three non-utility energy projects in Pittsburgh, including innovative microgrids and district energy system. And finally, in late October, the board appointed Rod West to the board of directors. Some of you may know Rod from the utility industry. He serves as the group vice, I'm sorry, the group president, utility operations at Entergy Corporation. The departure of Chris Womack from our board, we were looking for a seasoned executive with utility experience, much like the skills that Chris brought to the board. We're really excited about Rod's experience and his expertise, and we think it's a great match for the Essential Utilities Board. Rod will serve on the corporate governance and risk mitigation committees when he joins us in December. I also want to take a minute to discuss our recently published biannual environmental, social, and governance report, which covers our performance in 2022. The updated ESG report tracks key progress on our commitments to the environment, our employees, and the communities we serve. And while we made these commitments just a few years ago, I'm really proud to say that we've achieved our diverse supplier and employee commitments already, ensuring that the company's team and business reflects the communities we serve. We've reduced our Scope 1 and Scope 2 greenhouse gas emissions already by 25% from our 2019 baseline and are well on our way to our overall goal of a reduction of 60% by 2035. As a reminder, this is the equivalent of removing 80,000 cars from the road each year. This is significant. We were able to achieve this strong progress by successfully shifting to nearly 100% renewable electricity for our water segment in Pennsylvania, New Jersey, Ohio, and Illinois and by reducing stray methane emissions in our gas segment through our pipe replacement program. The report also highlights that the water segment outperformed the national average for water quality by nearly five times. I think this is a test to our technical and operational expertise. as an industry-leading utility and supports our proactive commitment to PFAS treatment. We continue to refine our numbers, so you'll notice that we have updated our capital investment estimates related to PFAS from approximately $350 million to now $450 million. Additionally, we estimate annual operating expenses will be in the 5% range of the overall capital expenditures. I'd encourage you to visit our ESG microsite where you can do a deep dive into the full report or just take a look at the supplemental reports for a brief overview. With that, let me hand it over to Dan to talk about our financial results.