Essential Utilities, Inc.

Hello and welcome to the Essential Utilities full year 2023 earnings call. Please note this conference is being recorded and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions. This can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any point, please press star 0. and you'll be connected to an operator. I will now hand you over to your host, Brian Dickerson, to begin today's conference. Thank you.

Thank you, Francois. Good morning, everyone, and thank you for joining us. 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 and the webcast of this event can be found on the website. 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. A reconciliation of any non-gap-to-gap financial measures is posted in the investor relations section of the website. We will begin the call today with Chris Franklin, our chairman and CEO, who will provide an update on the company. And then Dan Shuler, our CFO, will provide an overview of the financial results before Chris closes the call with an update on our guidance and overall company priorities. With that, I will turn the call over to Chris Franklin.

Hey, thanks, Brian. Good morning, everyone. Thanks for joining us. Let's start the call with some highlights from 2023 and some company updates. You know, despite the unusually warm winter weather in much of 2023, we remain focused on operational excellence and improving our water and natural gas systems by investing capital in continuous improvement measures. As a result of this good work, we're happy to report earnings per share of $1.86, which is in line with our 5% to 7% guidance. As Dan will discuss in a few moments in more detail, our team was able to really make up for the $43 million of weather-related net revenue shortfall versus budget and still meet our guidance range, which was quite an accomplishment in 2023. Now, last year, we invested nearly $1.2 billion in infrastructure improvements as compared to $1.06 billion in 2022 and Our commitment to investing in critical infrastructure across our footprint has led to the replacement, retirement, and installation of over 300 miles of pipe in 2023 alone. This improves service and reliability for our customers throughout the water, wastewater, and natural gas part of the platform. As I've mentioned in the past, this investment spans thousands of projects, and takes significant expertise to achieve. Excluding West Virginia, we reported year over year rate-based growth of more than 10% from organic capital investment alone. We also took two divestiture actions last year that will really allow us to place more focus on our core utilities with fewer distractions. You may recall in Q4, we closed the sale of our West Virginia Gas Utility, a very small unit with less than 15,000 customers. And we announced the sale of our three non-utility microgrid and district energy projects in Pittsburgh. We recently closed on the $165 million sale of those energy projects, which was, as you know, a very strong outcome. The proceeds of both were used to finance capital expenditures and and water and wastewater acquisitions in place of external funding from equity and debt issuances. During the year, we continue to build on our 30 plus year track record of consolidation in the US water and wastewater industry. Last year, we acquired seven systems, adding over 44 million in rate base and over 11,000 new customers. We currently have asset purchase agreements signed for six municipal acquisitions, totaling approximately $380 million in purchase price. This includes the recently signed agreement with North Versailles, and yes, it is the Versailles, to acquire their wastewater system in Pennsylvania. Later in the call, I'll update you on the latest acquisition-related activity. Lastly, on this slide, I'm pleased to tell you that we have been named to Newsweek's 2024 List of America's Most Responsible Companies. This is the third consecutive year that we've been on this list that recognizes the top 600 most responsible public companies headquartered in the United States that have demonstrated meaningful and impactful business practices. Now turning to the next slide, maybe it goes without saying, but at Essential, our focus is on quality and reliability for our customers and sustainable returns for our investors. Our 138-year history, 32 years of dividend increases, and many, many years of continuously delivering on our environmental commitments is made possible by an organization with several competitive advantages. First, I think of the importance of operating in constructive regulatory environments and Essential operates in nine states, most of which have received favorable regulatory rankings. Secondly, we want to operate where there is growth opportunity. We're well positioned to grow both organically, being in states with high population growth, like Texas and North Carolina, and through acquisition, and we've demonstrated our ability to do so. In the water and natural gas industry, there's a great advantage to possessing advanced technical and engineering expertise. We were and plan to continue to be leaders on issues like PFAS mitigation and lead remediation, safety issues, etc. Last but not least, operational excellence. We have 3,000-plus dedicated people working every day to manage the complexity of thousands of projects which have taken us to industry-leading quality and service levels. I want to share just a couple of those accomplishments of our operating team. By any measure, the numbers on this page make us a clear leader in both natural gas and water industries. The combination of operational excellence and capital investment have accelerated our quest to continue as leaders in the industry. Now, the backbone of our capital program in both water and gas is our pipe replacement program. The tightening of our water and gas mains improves compliance, reduces outages, and improves the environment. According to a report by the Pennsylvania Public Utility Commission, we are running a larger pipe replacement program than our peers. This large amount of gas pipe replacement combined with a refocused effort on addressing leaks has allowed us to shift to a find and fix approach to leaks. And to put this in context, when we announced the acquisition of Peoples just a few years ago, the company, like most gas LDCs, had a backlog of several hundred leaks. Over the period since we've acquired the company and run the company now, we have reduced outstanding leaks by 83%, so outstanding results. Our water business continues to operate at a 99.9% compliance rate, which is also outstanding. You can imagine the confidence that this builds in our customers' minds as they drink and cook with the water we provide. From a reliability standpoint, our systems rarely have outages, and when they experience that rare outage, it's typically because a storm disrupts the power to a plant. Now, of course, our larger plants are supported with generators and we continue to position our portable generation near our smaller systems, especially during storm prep. I am really proud of our operating team, and they continue to raise the bar on operational excellence in both gas and water. Now, speaking of operational excellence, on the next slide here, given the importance of the expected PFAS regulations from the US EPA and the impact on our customers, probably need to spend a few minutes on this topic. Now, we're diligently working so that we are aligned with the EPA's timeline and standards to ensure that our finished water does not exceed the federal maximum contaminant level of PFOA, PFAS, and PFNA compounds. Our most recent disclosure is that we expect to spend about $450 million or I should say at least $450 million, and that's included in the new capital investment guidance that we're providing today. Our capital spending on this mitigation effort is somewhat fluid, though, I have to point out, and we expect that the $450 million could increase as plans for construction are refined, the EPA and states' timelines for compliance is determined, and if any additional sites are pop up and require treatment as we move forward. Now, for clarity, if the EPA and the state environmental agencies require a three-year compliance timeline, we would expect our costs to rise because it may not fit with the timelines associated with applications for low-interest loans and grants. It could also cause us to work overtime and cause contractor costs to rise. Having said that, we are in the process of meeting with the heads of all the agencies involved to press for accelerated approval processes for loans and grants to protect our customers and, where appropriate, look for extensions in time to comply with this new regulation we expect in the coming month here or so. Now, the effort to comply with the four parts per trillion standard will be significant. There's no doubt about that. Each of our 300-plus sites that need mitigation must be engineered, permitted, procured, and constructed. To accomplish this in what is anticipated to be a three-year timeline will be a huge and very expensive effort. Now, make no mistake, our team is up to the task, and we will meet compliance deadlines. So with that, let me hand it over to Dan to talk about the year's financial results.