Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON DC 20549 FORM 10-Q (Mark One) S QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended March 31, 2023 £ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from_______________ to _______________ Commission File Number 1-6659 ESSENTIAL UTILITIES, INC. (Exact name of registrant as specified in its charter ...

PART I [Item 1. Business](index=4&type=section&id=Item%201.%20Business) Essential Utilities, Inc. is a holding company for regulated water, wastewater, and natural gas utilities, serving approximately five million people across ten states with a focus on acquisitions and market-based activities - Essential Utilities, Inc. operates as a holding company for regulated water, wastewater, and natural gas services under the Aqua and Peoples brands, serving an estimated **five million people** across ten states[15](index=15&type=chunk) - The company's business strategy expanded to include natural gas distribution with the Peoples Gas Acquisition in March 2020, continuing to pursue acquisitions in the U.S. regulated sector and growth ventures in market-based activities[17](index=17&type=chunk) Operating Revenues by Principal State (2022) | State | Operating Revenues (000's) | Operating Revenues (%) | | :----------------- | :------------------------- | :--------------------- | | Pennsylvania | $610,964 | 26.7% | | Ohio | $118,245 | 5.2% | | Texas | $86,802 | 3.8% | | Illinois | $92,545 | 4.0% | | North Carolina | $71,713 | 3.1% | | Other states (Water) | $102,703 | 4.5% | | **Regulated Water segment total** | **$1,082,972** | **47.3%** | | Pennsylvania (Gas) | $1,071,119 | 46.8% | | Other states (Gas) | $72,243 | 3.2% | | **Regulated Natural Gas segment total** | **$1,143,362** | **50.0%** | | Other and eliminations | $61,698 | 2.7% | | **Consolidated** | **$2,288,032** | **100.0%** | Operating Revenues by Utility Customer Class (2022) | Customer Class | Operating Revenues (000's) | Operating Revenues (%) | | :--------------- | :------------------------- | :--------------------- | | Residential water | $607,473 | 26.6% | | Commercial water | $168,460 | 7.4% | | Fire protection | $38,970 | 1.7% | | Industrial water | $32,581 | 1.4% | | Other water | $55,389 | 2.4% | | **Total water** | **$902,873** | **39.5%** | | Wastewater | $165,383 | 7.2% | | Customer rate credits | $- | 0.0% | | Other utility | $14,716 | 0.6% | | **Regulated Water segment total** | **$1,082,972** | **47.3%** | | Residential gas | $720,490 | 31.5% | | Commercial gas | $149,653 | 6.6% | | Industrial gas | $5,636 | 0.2% | | Gas transportation | $205,825 | 9.0% | | Customer rate credits | $- | 0.0% | | Other utility | $61,758 | 2.7% | | **Regulated Natural Gas segment total** | **$1,143,362** | **50.0%** | | Other and eliminations | $61,698 | 2.7% | | **Consolidated** | **$2,288,032** | **100.0%** | Utility Customer Growth Rate (2018-2022) | Year | Utility Customer Growth Rate | | :--- | :--------------------------- | | 2022 | 1.7% | | 2021 | 1.2% | | 2020 | 42.9% | | 2019 | 2.1% | | 2018 | 2.3% | - The company's revenue growth over the past five years is primarily attributed to the **2020 Peoples Gas Acquisition**, increases in water and wastewater rates, rising natural gas costs in 2021 and 2022, and customer growth[25](index=25&type=chunk) - The company completed **28 water/wastewater utility acquisitions** and the Peoples Gas Acquisition (adding approximately **750,000 gas customers**) during 2018-2022, expanding its utility operations[29](index=29&type=chunk) - Utility operations are subject to economic regulation by state utility commissions, significantly influencing profitability through timely and adequate rate allowances[42](index=42&type=chunk) Infrastructure Rehabilitation Surcharge Revenues (2020-2022) | Year | Surcharge Revenues | | :--- | :----------------- | | 2022 | $26,902,294 | | 2021 | $33,771,486 | | 2020 | $13,038,555 | - The company is committed to environmental protection and safety, aiming to reduce Scope 1 and 2 GHG emissions by **60% from its 2019 baseline by 2035**, consistent with the Paris Agreement[93](index=93&type=chunk)[94](index=94&type=chunk) - As of December 31, 2022, Essential Utilities employed **3,187 full-time employees**, with **1,619 covered by 20 labor agreements**, focusing on health, safety, development, and diversity initiatives[98](index=98&type=chunk)[104](index=104&type=chunk) [Item 1A. Risk Factors](index=22&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from acquisitions, health and safety concerns, and operational challenges that could materially impact its financial condition - Acquisition risks include intense competition, integration difficulties, potential dilutive equity issuances, debt incurrence, unanticipated capital expenditures, and the risk of not realizing full value from goodwill and other intangible assets[118](index=118&type=chunk)[119](index=119&type=chunk)[121](index=121&type=chunk)[123](index=123&type=chunk) - Health, safety, and environmental risks encompass increased weather volatility due to climate change, potential water supply contamination (e.g., PFAS, lead), operational hazards in natural gas transportation, and substantial costs of complying with evolving environmental regulations[126](index=126&type=chunk)[127](index=127&type=chunk)[130](index=130&type=chunk)[134](index=134&type=chunk)[137](index=137&type=chunk)[138](index=138&type=chunk) - Operational and regulatory risks include the impact of general economic conditions (inflation, interest rates, customer payment ability), regulatory lag in rate adjustments, potential impairment of natural gas supply, infrastructure failures, cybersecurity threats, and workforce-related challenges[139](index=139&type=chunk)[141](index=141&type=chunk)[142](index=142&type=chunk)[146](index=146&type=chunk)[148](index=148&type=chunk)[149](index=149&type=chunk)[152](index=152&type=chunk)[155](index=155&type=chunk)[156](index=156&type=chunk)[157](index=157&type=chunk)[158](index=158&type=chunk)[161](index=161&type=chunk)[165](index=165&type=chunk)[167](index=167&type=chunk)[169](index=169&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk)[173](index=173&type=chunk)[176](index=176&type=chunk)[177](index=177&type=chunk)[178](index=178&type=chunk)[181](index=181&type=chunk)[184](index=184&type=chunk) - Financial risks include substantial indebtedness from acquisitions, potential difficulties in debt repayment or refinancing, limitations on capital access for significant capital expenditures, and volatility in common stock price[188](index=188&type=chunk)[189](index=189&type=chunk)[191](index=191&type=chunk)[193](index=193&type=chunk)[194](index=194&type=chunk) [Item 1B. Unresolved Staff Comments](index=39&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reported no unresolved staff comments from the SEC - There are no unresolved staff comments[195](index=195&type=chunk) [Item 2. Properties](index=40&type=section&id=Item%202.%20Properties) Essential Utilities' properties include extensive water, wastewater, and natural gas infrastructure, with the majority of assets owned by subsidiaries and concentrated in Pennsylvania - The Regulated Water segment owns and operates approximately **14,350 miles of transmission and distribution mains**, **23 surface water treatment plants**, many well treatment stations, and **203 wastewater treatment plants**[196](index=196&type=chunk) - The Regulated Natural Gas segment properties include approximately **15,400 miles of natural gas distribution mains**, **1,700 miles of gathering pipeline**, and **300 miles of intrastate transmission/storage pipeline**[197](index=197&type=chunk) Net Property, Plant and Equipment by Principal State (2022) | State | Net Property, Plant and Equipment (thousands of dollars) | Percentage | | :------------ | :--------------------------------------- | :--------- | | Pennsylvania | $7,991,598 | 71.8% | | Ohio | $629,446 | 5.7% | | Illinois | $612,888 | 5.5% | | North Carolina | $507,503 | 4.6% | | Texas | $575,454 | 5.2% | | Other | $814,057 | 7.2% | | **Consolidated** | **$11,130,946** | **100.0%** | [Item 3. Legal Proceedings](index=40&type=section&id=Item%203.%20Legal%20Proceedings) Essential Utilities is involved in routine legal proceedings, none of which are considered material or expected to significantly harm the company's business or financial condition - The company is routinely involved in legal proceedings, but none are currently believed to be material or expected to materially harm its business, operating results, reputation, or financial condition[200](index=200&type=chunk) [Item 4. Mine Safety Disclosures](index=40&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Essential Utilities, Inc - Mine Safety Disclosures are not applicable to the company[201](index=201&type=chunk) PART II [Item 5. Market for the Registrant's Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=41&type=section&id=Item%205.%20Market%20for%20the%20Registrant's%20Common%20Stock%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Essential Utilities' common stock trades on the NYSE under WTRG, with a long history of increasing dividends, representing **62.0% of net income** in 2022, and the company repurchases shares for tax withholding purposes - Essential Utilities' common stock is traded on the New York Stock Exchange under the ticker symbol **WTRG**[203](index=203&type=chunk) Cash Dividends Per Share (2021-2022) | Year | Dividend Paid per Common Share | Dividend Declared per Common Share | | :--- | :----------------------------- | :--------------------------------- | | 2022 | $1.1104 | $1.3974 | | 2021 | $1.0378 | $1.0378 | - The company has paid dividends consecutively for **78 years** and increased its dividend in excess of **five percent for the 24th consecutive year**; in 2022, dividends paid represented **62.0% of net income**[203](index=203&type=chunk) Issuer Purchases of Equity Securities (Q4 2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--------------- | :------------------------------- | :--------------------------- | | October 1-31, 2022 | 118 | $42.70 | | November 1-30, 2022 | - | $- | | December 1-31, 2022 | 2,720 | $48.35 | | **Total** | **2,838** | **$48.12** | [Item 6. Reserved](index=42&type=section&id=Item%206.%20Reserved) This item is reserved and contains no information [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=43&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes Essential Utilities' financial condition and operational performance, detailing the impact of inflation, interest rates, and supply chain pressures in 2022, alongside its regulated utility business model, growth strategy, and key financial metrics - In 2022, the company experienced inflationary cost increases in materials, labor, and other operating costs, higher interest rates, and supply chain pressures, primarily due to the COVID-19 pandemic and global uncertainties, with natural gas prices substantially increasing and impacting the Regulated Natural Gas business[211](index=211&type=chunk) - The Inflation Reduction Act of 2022 (IRA) introduces a **15% minimum tax on book income** for certain large corporations and a **1% excise tax on net stock repurchases**, potentially affecting the company's gathering facility assets with an annual waste emissions charge starting in 2024[212](index=212&type=chunk) - The company signed an agreement in December 2022 to sell its regulated natural gas utility assets in West Virginia, serving approximately **13,000 customers**, to focus on growth in states with greater scale[213](index=213&type=chunk) - The company's rate base is estimated at **$9.3 billion** as of December 31, 2022, with **$8.1 billion filed** with regulatory commissions and **$1.2 billion not yet filed**, including **$6.4 billion** in the Regulated Water segment and **$2.9 billion** in the Regulated Natural Gas segment[216](index=216&type=chunk)[217](index=217&type=chunk) - The company's growth-through-acquisition strategy aims to expand utility operations and achieve economies of scale, with **eight signed purchase agreements** for water and wastewater systems totaling approximately **$380 million** as of December 31, 2022, expected to add **218,600 equivalent retail customers**[226](index=226&type=chunk)[230](index=230&type=chunk) - The company targets an annual customer increase of **2% to 3%** through acquisitions and organic growth[231](index=231&type=chunk) [Consolidated Results of Operations Comparison for 2022 and 2021](index=49&type=section&id=Consolidated%20Results%20of%20Operations%20Comparison%20for%202022%20and%202021) Consolidated operating revenues increased by **21.8%** in 2022, driven by growth in both Regulated Water and Natural Gas segments, while operations and maintenance expenses rose by **11.5%**, and purchased gas expense surged by **76.9%** Consolidated Financial and Operational Highlights (2020-2022) | Years ended December 31, | 2022 | 2021 | 2020 | 2022 vs. 2021 Change | 2021 vs. 2020 Change | | :----------------------- | :---------- | :---------- | :---------- | :------------------- | :------------------- | | Operating revenues | $2,288,032 | $1,878,144 | $1,462,698 | $409,888 | $415,446 | | Operations and maintenance expense | $613,649 | $550,580 | $528,611 | $63,069 | $21,969 | | Net income | $465,237 | $431,612 | $284,849 | $33,625 | $146,763 | | Capital expenditures | $1,062,763 | $1,020,519 | $835,642 | $42,244 | $184,877 | | Operations and maintenance (% of revenues) | 26.8% | 29.3% | 36.1% | -2.5% | -6.8% | | Net income (% of revenues) | 20.3% | 23.0% | 19.5% | -2.7% | 3.5% | | Return on Essential Utilities stockholders' equity | 8.7% | 8.3% | 6.1% | 0.4% | 2.2% | | Effective tax rate | (3.2%) | (2.3%) | (7.5%) | (0.9%) | 5.2% | - Consolidated operating revenues increased by **$409,888 (21.8%)** in 2022 compared to 2021, with Regulated Water segment revenues up by **$102,769** and Regulated Natural Gas segment revenues up by **$283,460**[244](index=244&type=chunk) - Operations and maintenance expenses increased by **$63,069 (11.5%)** in 2022, primarily due to a **$17,129 increase in employee-related costs**, **$6,339 in water/wastewater production costs**, **$6,872 in acquired utility operating costs**, and **$12,778 in customer assistance surcharge costs for natural gas**[245](index=245&type=chunk)[249](index=249&type=chunk) - Purchased gas expense increased by **$261,733 (76.9%)** in 2022, driven by higher natural gas prices, with a corresponding offset in revenue[246](index=246&type=chunk) - Net income increased by **$33,625** in 2022, reaching **$465,237**, and diluted net income per share rose to **$1.77** from **$1.67** in 2021[243](index=243&type=chunk)[256](index=256&type=chunk) [Segment Results of Operations Comparison for 2022 and 2021](index=51&type=section&id=Segment%20Results%20of%20Operations%20Comparison%20for%202022%20and%202021) The Regulated Water segment saw a **10.5% increase** in operating revenues and **7.0% in net income**, while the Regulated Natural Gas segment experienced a **33.0% increase** in operating revenues and **25.0% in net income** Regulated Water Segment Operating Results (2020-2022) | Years ended December 31, | 2022 | 2021 | 2020 | 2022 vs. 2021 Change | 2021 vs. 2020 Change | | :----------------------- | :---------- | :---------- | :---------- | :------------------- | :------------------- | | Total operating revenues | $1,082,972 | $980,203 | $938,540 | $102,769 | $41,663 | | Operations and maintenance expense | $370,850 | $332,598 | $309,608 | $38,252 | $22,990 | | Segment net income | $314,352 | $293,703 | $283,793 | $20,649 | $9,910 | | Total water and wastewater utility customers | 1,095,245 | 1,066,805 | 1,047,301 | 28,440 | 19,504 | - Regulated Water segment revenues increased by **$102,769 (10.5%)** in 2022, driven by **$63,367 from rate increases** (including surcharges) and **$16,145 from acquisitions**, with customer count growing by **28,440** in 2022[260](index=260&type=chunk) - Regulated Water operations and maintenance expense increased by **$38,252 (11.5%)** in 2022, mainly due to higher employee costs (**$7,279**), production costs (**$6,339**), and outside services/maintenance (**$17,196**)[263](index=263&type=chunk)[265](index=265&type=chunk) Regulated Natural Gas Segment Operating Results (2020-2022) | Years ended December 31, | 2022 | 2021 | 2020 | 2022 vs. 2021 Change | 2021 vs. 2020 Change | | :----------------------- | :---------- | :---------- | :---------- | :------------------- | :------------------- | | Total operating revenues | $1,143,362 | $859,902 | $506,564 | $283,460 | $353,338 | | Operations and maintenance expense | $239,506 | $226,194 | $198,383 | $13,312 | $27,811 | | Purchased gas | $551,009 | $313,390 | $154,103 | $237,619 | $159,287 | | Segment net income | $185,276 | $148,193 | $56,451 | $37,083 | $91,742 | | Total gas utility customers | 756,341 | 753,244 | 751,502 | 3,097 | 1,742 | | Heating Degree Days | 5,648 | 5,139 | 3,013 | 509 | 2,126 | - Regulated Natural Gas segment operating revenues increased by **$283,460 (33.0%)** in 2022, primarily due to a **$237,619 impact from higher gas costs** and **$27,237 from increased gas usage**, with purchased gas expense rising by **$237,619 (75.8%)** due to a **78.2% increase in average gas commodity prices**[267](index=267&type=chunk)[268](index=268&type=chunk)[269](index=269&type=chunk) - Regulated Natural Gas segment net income increased by **$37,083 (25.0%)** in 2022, reaching **$185,276**[266](index=266&type=chunk) [Liquidity and Capital Resources](index=55&type=section&id=Liquidity%20and%20Capital%20Resources) Essential Utilities' liquidity is supported by operating cash flows, credit facilities, and capital market issuances, with planned significant capital expenditures for infrastructure improvements and acquisitions financed through internal funds, credit facilities, and debt/equity issuances Consolidated Cash Flow and Capital Expenditures (2020-2022) | Year | Net Operating Cash Flows | Dividends | Capital Expenditures | Acquisitions | | :--- | :----------------------- | :-------- | :------------------- | :----------- | | 2020 | $508,024 | $232,571 | $835,642 | $3,501,835 | | 2021 | $644,679 | $258,650 | $1,020,519 | $36,326 | | 2022 | $600,306 | $288,632 | $1,062,763 | $116,891 | - Net cash flows from operating activities decreased from **$644,679 thousand** in 2021 to **$600,306 thousand** in 2022, mainly due to increases in accounts receivable, unbilled revenues, and gas stored inventory[274](index=274&type=chunk) - The planned 2023 capital program is estimated at approximately **$1.123 billion** for infrastructure improvements, with about **$747 million** allocated to infrastructure rehabilitation surcharge qualified projects[276](index=276&type=chunk) - Future utility construction for 2024-2025 is estimated to require aggregate expenditures of approximately **$2.115 billion**, with about half requiring external financing[277](index=277&type=chunk) - As of December 31, 2022, the company had a **$1 billion unsecured long-term revolving credit facility** (expiring December 2027) with **$490 million outstanding**, and **$435.5 million in short-term lines of credit**[286](index=286&type=chunk) - In October 2022, the company initiated an at-the-market (ATM) sales agreement to sell up to **$500 million in common stock**, issuing **1,321,994 shares for $63,040 thousand (net)** by December 31, 2022[288](index=288&type=chunk) Contractual Cash Obligations (as of December 31, 2022) | Obligation Type | Total | Less than 1 year | 1 – 3 years | 3 – 5 years | More than 5 years | | :------------------------------ | :----------- | :--------------- | :----------- | :----------- | :---------------- | | Long-term debt | $6,617,395 | $199,356 | $221,345 | $751,512 | $5,445,182 | | Interest on fixed-rate, long-term debt | $250,143 | $8,149 | $9,953 | $39,570 | $192,471 | | Operating leases | $60,348 | $8,923 | $17,233 | $13,429 | $20,763 | | Unconditional purchase obligations | $18,216 | $4,716 | $9,142 | $3,238 | $1,120 | | Gas purchase obligations | $2,813,168 | $234,950 | $485,784 | $485,507 | $1,606,927 | | Other purchase obligations | $84,632 | $84,632 | $- | $- | $- | | Pension plan obligations | $20,343 | $20,343 | $- | $- | $- | | Other obligations | $11,825 | $3,719 | $2,737 | $3,293 | $2,076 | | **Total** | **$9,876,070** | **$564,788** | **$746,194** | **$1,296,549** | **$7,268,539** | Capitalization (as of December 31) | December 31, | 2022 | 2021 | | :--------------------- | :---- | :---- | | Long-term debt | 55.2% | 53.4% | | Essential Utilities stockholders' equity | 44.8% | 46.6% | | **Total** | **100.0%** | **100.0%** | [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=63&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Essential Utilities is exposed to market risks from interest rate fluctuations, natural gas commodity price volatility, and equity price changes, which are managed through a mix of fixed and floating rate debt, purchased-gas cost adjustment mechanisms, and derivative instruments - The company is subject to market risks from changes in interest rates, gas commodity prices, and equity prices, with volatile equity markets potentially impacting pension and post-retirement plan asset values and increasing cash contributions[326](index=326&type=chunk) Long-term Debt Maturities and Weighted Average Interest Rate (as of December 31, 2022) | Category | 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total | Fair Value | | :------------ | :-------- | :------- | :------- | :------- | :-------- | :---------- | :---------- | :---------- | | Fixed rate | $199,356 | $71,785 | $149,560 | $21,605 | $239,907 | $5,445,182 | $6,127,395 | $5,038,131 | | Variable rate | $- | $- | $- | $- | $490,000 | $- | $490,000 | $490,000 | | **Total** | **$199,356** | **$71,785** | **$149,560** | **$21,605** | **$729,907** | **$5,445,182** | **$6,617,395** | **$5,528,131** | | Weighted average interest rate | 4.08% | 4.23% | 4.98% | 7.37% | 5.29% | 3.55% | 3.94% | | - Natural gas commodity price risk is mitigated by purchased-gas cost adjustment mechanisms and derivative instruments (requirements contracts, spot purchase contracts, and storage) to hedge anticipated purchases and offset market price volatility for customers[327](index=327&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=66&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the audited consolidated financial statements for 2020-2022, including the Independent Registered Public Accounting Firm's Report, Balance Sheets, Statements of Operations, Capitalization, Equity, Cash Flows, and comprehensive Notes detailing accounting policies and financial matters - PricewaterhouseCoopers LLP issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2022[334](index=334&type=chunk)[335](index=335&type=chunk) Consolidated Balance Sheets (as of December 31) | (In thousands of dollars) | 2022 | 2021 | | :------------------------ | :----------- | :----------- | | **Assets** | | | | Net property, plant and equipment | $11,130,946 | $10,251,866 | | Total current assets | $658,159 | $437,795 | | Regulatory assets | $1,342,753 | $1,429,840 | | Goodwill | $2,340,792 | $2,340,815 | | Total assets | **$15,719,107** | **$14,658,278** | | **Liabilities and Equity** | | | | Total stockholders' equity | $5,377,386 | $5,184,450 | | Long-term debt, excluding current portion, net of debt issuance costs | $6,371,057 | $5,779,504 | | Total current liabilities | $1,021,869 | $675,063 | | Total deferred credits and other liabilities | $2,338,541 | $2,423,151 | | Contributions in aid of construction | $610,254 | $596,110 | | Total liabilities and equity | **$15,719,107** | **$14,658,278** | Consolidated Statements of Operations and Comprehensive Income (Years ended December 31) | (In thousands, except per share amounts) | 2022 | 2021 | 2020 | | :--------------------------------------- | :---------- | :---------- | :---------- | | Operating revenues | $2,288,032 | $1,878,144 | $1,462,698 | | Total operating expenses | $1,626,845 | $1,275,435 | $1,028,012 | | Operating income | $661,187 | $602,709 | $434,686 | | Income before income taxes | $450,908 | $422,000 | $264,971 | | Income tax benefit | $(14,329) | $(9,612) | $(19,878) | | Net income | $465,237 | $431,612 | $284,849 | | Diluted net income per share | $1.77 | $1.67 | $1.12 | Consolidated Statements of Cash Flows (Years ended December 31) | (In thousands of dollars) | 2022 | 2021 | 2020 | | :------------------------ | :------------ | :------------ | :------------ | | Net cash flows from operating activities | $600,306 | $644,679 | $508,024 | | Net cash flows used in investing activities | $(1,178,302) | $(1,056,058) | $(4,333,666) | | Net cash flows from financing activities | $578,827 | $417,119 | $1,961,547 | | Net increase (decrease) in cash and cash equivalents | $831 | $5,740 | $(1,864,095) | | Cash and cash equivalents at end of year | $11,398 | $10,567 | $4,827 | - The company's critical accounting policies include regulatory assets and liabilities, revenue recognition, valuation of long-lived assets, post-retirement benefits, and income taxes, all requiring significant management judgment and estimates[306](index=306&type=chunk) - Goodwill, primarily from the Peoples Gas Acquisition, amounted to **$2,340,792 thousand (15% of total assets)** as of December 31, 2022, with the Regulated Natural Gas reporting unit having a **15% headroom** as of October 1, 2022, following annual impairment tests[184](index=184&type=chunk)[399](index=399&type=chunk)[316](index=316&type=chunk) - Regulatory assets totaled **$1.36 billion** and regulatory liabilities **$814 million** as of December 31, 2022, reflecting costs and credits recognized in the rate-making process, with a significant portion related to income taxes and post-retirement benefits[342](index=342&type=chunk)[444](index=444&type=chunk) - The effective income tax rate was **(3.2%)** in 2022, a benefit primarily due to tax deductions for qualifying infrastructure investments, with Pennsylvania's corporate income tax rate scheduled to decrease from **9.99% to 4.99% by 2031**[255](index=255&type=chunk)[457](index=457&type=chunk)[470](index=470&type=chunk) - The company's pension plan was **102.6% funded** (**$333,176 thousand assets vs $324,690 thousand obligations**) and other post-retirement benefits plan was **102.9% funded** (**$85,994 thousand assets vs $83,501 thousand obligations**) as of December 31, 2022[546](index=546&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=119&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reported no changes in or disagreements with its accountants on accounting and financial disclosure matters - There were no changes in or disagreements with accountants on accounting and financial disclosure[578](index=578&type=chunk) [Item 9A. Controls and Procedures](index=119&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of December 31, 2022, maintaining effective internal control over financial reporting, with a new ERP system implementation for the Regulated Water business leading to necessary control changes - Management concluded that disclosure controls and procedures were effective as of December 31, 2022, providing reasonable assurance for timely and accurate financial reporting[579](index=579&type=chunk) - The company maintained effective internal control over financial reporting as of December 31, 2022, based on criteria established by COSO[582](index=582&type=chunk) - A new enterprise resource planning (ERP) system was implemented in 2022 for the Regulated Water business segment, resulting in changes to internal controls over financial reporting to accommodate modified business processes and accounting procedures[584](index=584&type=chunk)[585](index=585&type=chunk) [Item 9B. Other Information](index=123&type=section&id=Item%209B.%20Other%20Information) No other information is reported under this item - No other information is reported under this item[586](index=586&type=chunk) [Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=123&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to Essential Utilities, Inc - Disclosure regarding foreign jurisdictions that prevent inspections is not applicable to the company[586](index=586&type=chunk) PART III [Item 10. Directors, Executive Officers and Corporate Governance](index=123&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) This section incorporates by reference information from the 2023 proxy statement regarding directors, executive officers, corporate governance, and Section 16(a) compliance, with corporate governance guidelines and committee charters available on the investor relations website - Information on directors, executive officers, corporate governance, and Section 16(a) beneficial ownership reporting compliance is incorporated by reference from the definitive Proxy Statement for the 2023 annual meeting of shareholders[588](index=588&type=chunk) - The company's Corporate Governance Guidelines, Board Committee Charters, and Code of Ethical Business Conduct are available on its investor relations website[589](index=589&type=chunk) Executive Officers of Essential Utilities (as of March 1, 2023) | Name | Age | Position with Essential Utilities | | :------------------- | :-- | 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Essential Utilities, Inc. (NYSE:WTRG) Q4 2022 Earnings Conference Call February 27, 2023 11:00 AM ET Company Participants Brian Dingerdissen - Vice President, Investor Relations and Treasurer Chris Franklin - Chairman and Chief Executive Officer Dan Schuller - Executive Vice President and Chief Financial Officer Conference Call Participants Ryan Connors - Northcoast Research Travis Miller - Morningstar Gregg Orrill - UBS Davis Sunderland - Baird Jonathan Reeder - Wells Fargo Operator Good day and welcome to ...

Financial Performance - Operating revenues for the nine months ended September 30, 2022, increased to $1,582,649, a rise of 17.8% compared to $1,342,457 for the same period in 2021[122] - Net income for the nine months ended September 30, 2022, was $350,305, reflecting an increase of 11.2% from $315,106 in the prior year[122] - Consolidated operating revenues increased by $240,192 or 17.9% for the nine months ended September 30, 2022, compared to the same period in 2021, driven by increases in the Regulated Water segment ($73,499), Regulated Natural Gas segment ($152,468), and Other business segment ($14,225) [129] - Revenues from the Regulated Water segment increased by $73,499 or 10.0% for the first nine months of 2022 compared to the same period in 2021 [143] - Operating revenues for the Regulated Natural Gas segment increased by $24,233 or 25.6% for the three months ended September 30, 2022, compared to the same period in 2021[151] - Net income for the three months ended September 30, 2022, was $(17,133), an improvement from $(28,292) in the same period of 2021[149] Expenses and Costs - Capital expenditures during the first nine months of 2022 totaled $719,688, with $104,383 allocated for the acquisition of wastewater utility systems[111] - The average gas commodity prices increased by 119.9% in Q3 2022 compared to the same period in the previous year, leading to a 104.2% rise in purchased gas expenses[124] - Operations and maintenance expenses for the nine months ended September 30, 2022, were $428,923, an increase of 9.4% from $391,945 in 2021[122] - Depreciation and amortization expense increased by $18,629 or 8.4% due to continued capital expenditures and acquisitions of new utility systems [132] - Interest expense, net of interest income, increased by $12,755 or 8.3% for the quarter, primarily due to higher average borrowings and interest rates on revolving lines of credit [133] - Purchased gas expense increased by $152,358 or 75.2%, primarily due to a 109.7% increase in average gas commodity prices during the first nine months of 2022 compared to the prior year [131] - Operations and maintenance expense increased by $36,978 or 9.4%, driven by higher employee-related costs ($14,185) and production costs for water and wastewater operations ($6,812) [130] - Purchased gas expenses rose by $20,738 or 101.7% due to a 119.9% increase in average gas commodity prices in Q3 2022 compared to the prior period[153] - Operations and maintenance expenses decreased by $2,104 or 3.9% for the three months ended September 30, 2022[151] Taxation - The effective tax rate for the nine months ended September 30, 2022, was 6.5%, compared to 3.2% in the previous year[122] - The effective income tax rate for the third quarter of 2022 was 6.5%, up from 3.4% in the same quarter of 2021, attributed to increased pretax income [128] - Effective income tax rate was a benefit of 42.6% in Q3 2022, compared to a benefit of 19.4% in Q3 2021[155] Financing Activities - The company issued $500,000 of long-term debt in May 2022, with a 5.30% interest rate, to repay existing borrowings and for general corporate purposes[114] - The company entered into at-the-market sales agreements for up to $500,000 in common stock to fund working capital and acquisitions[112] - As of September 30, 2022, the company had $23,366 in cash and cash equivalents, up from $10,567 at December 31, 2021[117] - Interest expense, net, increased by $4,021 or 7.2% due to additional borrowings and higher interest rates on the revolving line of credit[159] Other Income and Adjustments - Other income, including gain on sale of assets, increased by $1,327 or 65.8% compared to the same period in the prior year [134] - The increase in customer assistance surcharge costs in the Regulated Natural Gas segment was $8,668, which has an equivalent offsetting amount in revenues [130] - Gross margin (non-GAAP) for the three months ended September 30, 2022, was $77,861, compared to $74,366 in the same period of 2021[150] Regulatory and Legislative Impact - The company continues to assess the impact of the Inflation Reduction Act of 2022 on its financial statements and operations, particularly regarding methane emissions charges[108]

Financial Data and Key Metrics Changes - The company reported earnings per share (EPS) of $0.26 for Q3 2022, an increase from $0.19 in Q3 2021, representing a year-over-year growth of approximately 37% [26] - Year-to-date net income grew by 11.2% [6] - Revenues for Q3 2022 were $434.6 million, a 20% increase from the previous year [24] - Net income increased from $50.5 million in Q3 2021 to $68.6 million in Q3 2022 [26] Business Line Data and Key Metrics Changes - The regulated water segment contributed $301.3 million to revenues, while the regulated natural gas segment contributed $119 million [24] - Operations and maintenance (O&M) expenses rose to $151.4 million in Q3 2022, up from $139.4 million in Q3 2021 [26][30] - Gross margin increased by $46.2 million, driven by regulatory recoveries and customer growth [25] Market Data and Key Metrics Changes - The company experienced higher natural gas commodity prices, leading to an increase in purchased gas costs by $26.6 million year-over-year [25] - The company has a robust pipeline of opportunities, currently pursuing approximately 430,000 potential water and wastewater customers [46] Company Strategy and Development Direction - The company is focused on operational efficiency, infrastructure improvement, and service-related priorities [6] - A capital spending plan of approximately $1 billion for the year is on track, with significant investments in water, wastewater, and natural gas systems [8][50] - The company aims for rate base growth of 6% to 7% for water and 8% to 10% for natural gas [51] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving the 5% to 7% earnings growth per share expectation set at the beginning of the year [34] - The company remains optimistic about its ability to meet investor expectations despite delays in certain acquisitions [44] - Management highlighted the importance of addressing inflation and reducing lag in regulatory processes to maintain financial health [75] Other Important Information - The company received an upgrade to an AA ESG rating from MSCI, indicating strong governance and performance in environmental and social areas [11] - A hydrogen pilot project in partnership with the University of Pittsburgh was announced, focusing on the safe transportation of hydrogen through natural gas systems [12][14] Q&A Session Summary Question: Impact of cost-of-capital changes on municipal M&A - Management indicated that while financing costs have increased, it does not deter interest in municipal transactions, but may adjust the hurdle rates for acquisitions [59][60] Question: Appetite for higher ROEs in light of interest rates - Management noted that while ROEs were sticky during previous rate decreases, there may be a case for higher ROEs if high-interest rates persist [72][74] Question: Status of the Water Quality Accountability Act - Management mentioned that the bill has passed the Senate and is awaiting amendments in the House, with hopes for advancement next year [76] Question: Insights from the Bucks County acquisition outcome - Management reflected that clarity from sellers on the reasons for selling and the use of proceeds is crucial for successful transactions [80]

Part I – Financial Information [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited consolidated financial statements and detailed notes for Essential Utilities, Inc [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Metric (in thousands of dollars) | Metric (in thousands of dollars) | June 30, 2022 | December 31, 2021 | Change (%) | | :------------------------------- | :------------ | :---------------- | :--------- | | **Total Assets** | $15,046,164 | $14,658,278 | 2.65% | | Net property, plant and equipment | $10,592,365 | $10,251,866 | 3.32% | | Goodwill | $2,340,792 | $2,340,815 | -0.00% | | **Total Liabilities and Equity** | $15,046,164 | $14,658,278 | 2.65% | | Total stockholders' equity | $5,342,032 | $5,184,450 | 3.04% | | Long-term debt (net) | $6,087,736 | $5,779,504 | 5.33% | | Total current liabilities | $544,125 | $675,063 | -19.39% | - The company's total assets **increased** by **2.65%** from December 31, 2021, to June 30, 2022, **primarily due to** an **increase** in net property, plant, and equipment[7](index=7&type=chunk) - Total current liabilities **decreased significantly** by **19.39%**, **mainly due to** a **reduction** in loans payable and book overdrafts[9](index=9&type=chunk) [Consolidated Statements of Operations and Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) Three Months Ended June 30 (in thousands of dollars, except per share amounts) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :----- | :---------- | :---------- | :--------- | :--------- | | Operating revenues | $448,756 | $397,032 | $51,724 | 13.03% | | Total operating expenses | $311,020 | $267,704 | $43,316 | 16.18% | | Operating income | $137,736 | $129,328 | $8,408 | 6.50% | | Net income | $82,291 | $80,914 | $1,377 | 1.70% | | Basic EPS | $0.31 | $0.32 | -$0.01 | -3.13% | | Diluted EPS | $0.31 | $0.32 | -$0.01 | -3.13% | Six Months Ended June 30 (in thousands of dollars, except per share amounts) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :----- | :---------- | :---------- | :--------- | :--------- | | Operating revenues | $1,148,031 | $980,597 | $167,434 | 17.07% | | Total operating expenses | $782,666 | $618,917 | $163,749 | 26.46% | | Operating income | $365,365 | $361,680 | $3,685 | 1.02% | | Net income | $281,667 | $264,603 | $17,064 | 6.45% | | Basic EPS | $1.08 | $1.04 | $0.04 | 3.85% | | Diluted EPS | $1.07 | $1.04 | $0.03 | 2.88% | - For the three months ended June 30, 2022, operating revenues **increased** by **13.03%** year-over-year, but net income per common share (basic and diluted) slightly **decreased** by **$0.01**[11](index=11&type=chunk) - For the six months ended June 30, 2022, operating revenues **grew** by **17.07%**, and net income **increased** by **6.45%**, leading to a **rise** in both basic and diluted EPS[12](index=12&type=chunk) [Consolidated Statements of Capitalization](index=7&type=section&id=Consolidated%20Statements%20of%20Capitalization) Metric (in thousands of dollars) | Metric (in thousands of dollars) | June 30, 2022 | December 31, 2021 | Change ($) | Change (%) | | :------------------------------- | :------------ | :---------------- | :--------- | :--------- |\n| Total stockholders' equity | $5,342,032 | $5,184,450 | $157,582 | 3.04% |\n| Long-term debt (net) | $6,087,736 | $5,779,504 | $308,232 | 5.33% |\n| Total capitalization | $11,429,768 | $10,963,954 | $465,814 | 4.25% | - Total capitalization **increased** by **4.25%** from December 31, 2021, to June 30, 2022, **driven by** increases in both stockholders' equity and long-term debt[14](index=14&type=chunk) - Long-term debt, excluding the current portion and net of debt issuance costs, **increased** by **$308,232 thousand**, or **5.33%**[14](index=14&type=chunk) [Consolidated Statements of Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Equity) Six Months Ended June 30, 2022 (in thousands of dollars) | Metric | Balance at Dec 31, 2021 | Net Income | Dividends Paid | Stock Issuances/Repurchases | Other Equity Changes | Balance at Jun 30, 2022 | | :----- | :---------------------- | :--------- | :------------- | :-------------------------- | :------------------- | :---------------------- | | Total Stockholders' Equity | $5,184,450 | $281,667 | $(138,108) | $9,407 | $4,616 | $5,342,032 | Six Months Ended June 30, 2021 (in thousands of dollars) | Metric | Balance at Dec 31, 2020 | Net Income | Dividends Paid | Stock Issuances/Repurchases | Other Equity Changes | Balance at Jun 30, 2021 | | :----- | :---------------------- | :--------- | :------------- | :-------------------------- | :------------------- | :---------------------- | | Total Stockholders' Equity | $4,683,877 | $264,603 | $(123,104) | $9,062 | $3,377 | $4,836,815 | - Total stockholders' equity **increased** by **$157,582 thousand** from December 31, 2021, to June 30, 2022, **primarily due to** net income of **$281,667 thousand**, partially offset by dividends paid of **$138,108 thousand**[16](index=16&type=chunk) [Consolidated Statements of Cash Flow](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flow) Six Months Ended June 30 (in thousands of dollars) | Cash Flow Activity | 2022 | 2021 | Change ($) | | :----------------- | :---------- | :---------- | :--------- | | Operating activities | $416,302 | $412,868 | $3,434 | | Investing activities | $(474,013) | $(403,781) | $(70,232) | | Financing activities | $60,120 | $(5,510) | $65,630 | | Net change in cash and cash equivalents | $2,409 | $3,577 | $(1,168) | - Net cash flows from operating activities remained **stable**, **increasing** slightly by **$3,434 thousand** year-over-year[20](index=20&type=chunk) - Cash flows used in investing activities **increased significantly** by **$70,232 thousand**, **primarily due to higher** property, plant, and equipment additions and utility system acquisitions[20](index=20&type=chunk) - Net cash flows from financing activities **swung** from a net outflow of **$5,510 thousand** in 2021 to a net inflow of **$60,120 thousand** in 2022, **driven by** proceeds from long-term debt and **reduced** short-term debt repayments[20](index=20&type=chunk) [Notes to Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [Note 1 – Basis of Presentation](index=11&type=section&id=Note%201%20%E2%80%93%20Basis%20of%20Presentation) - The unaudited consolidated financial statements are prepared in accordance with GAAP for interim reporting and SEC rules, and should be read with the Company's 2021 Annual Report on Form 10-K[22](index=22&type=chunk) - Management believes major events like the COVID-19 pandemic and global geopolitical uncertainties did **not materially impact** financial estimates **due to** the essential nature of the business, but continues to monitor them[24](index=24&type=chunk) [Note 2 – Revenue Recognition](index=12&type=section&id=Note%202%20%E2%80%93%20Revenue%20Recognition) Three Months Ended June 30, 2022 (in thousands of dollars) | Customer Class | Water Revenues | Wastewater Revenues | Natural Gas Revenues | Other Revenues | | :------------- | :------------- | :------------------ | :------------------- | :------------- | | Residential | $149,542 | $30,653 | $95,942 | - | | Commercial | $41,025 | $6,973 | $18,853 | - | | Gas transportation & storage | - | - | $40,573 | - | | Consolidated Total | $224,181 | $41,404 | $168,341 | $14,830 | Six Months Ended June 30, 2022 (in thousands of dollars) | Customer Class | Water Revenues | Wastewater Revenues | Natural Gas Revenues | Other Revenues | | :------------- | :------------- | :------------------ | :------------------- | :------------- | | Residential | $280,830 | $57,148 | $381,048 | - | | Commercial | $76,145 | $13,038 | $75,893 | - | | Gas transportation & storage | - | - | $119,747 | - | | Consolidated Total | $424,929 | $76,779 | $614,553 | $31,770 | - Natural Gas revenues showed **significant growth**, with residential natural gas revenues **increasing** from **$83,760 thousand** in Q2 2021 to **$95,942 thousand** in Q2 2022, and from **$297,953 thousand** in H1 2021 to **$381,048 thousand** in H1 2022[26](index=26&type=chunk) [Note 3 – Acquisitions](index=12&type=section&id=Note%203%20%E2%80%93%20Acquisitions) - In March 2022, the Company acquired the Lower Makefield Township wastewater system for **$53,000 thousand**, serving approximately **11,000** customer connections[27](index=27&type=chunk) - The Company has several pending acquisitions, including the Bucks County Water and Sewer Authority's wastewater assets for an offer of **$885,000 thousand**, and other water/wastewater systems totaling over **25,000** customers[30](index=30&type=chunk)[31](index=31&type=chunk) - The acquisition of DELCORA's wastewater system for **$276,500 thousand** is still pending, subject to regulatory approval and ongoing litigation with Delaware County, with closing expected in late 2022 or early 2023[34](index=34&type=chunk)[37](index=37&type=chunk) [Note 4 – Goodwill](index=15&type=section&id=Note%204%20%E2%80%93%20Goodwill) Goodwill by Business Segment (in thousands of dollars) | Segment | December 31, 2021 | June 30, 2022 | Change ($) | | :-------------- | :---------------- | :------------ | :--------- | | Regulated Water | $58,527 | $58,504 | $(23) | | Regulated Natural Gas | $2,277,447 | $2,277,447 | $0 | | Other | $4,841 | $4,841 | $0 | | Consolidated | $2,340,815 | $2,340,792 | $(23) | - Consolidated goodwill remained largely **stable**, with a **minor** reclassification of **$23 thousand** from Regulated Water goodwill to utility plant acquisition adjustment[39](index=39&type=chunk) [Note 5 – Capitalization](index=15&type=section&id=Note%205%20%E2%80%93%20Capitalization) - The Company **fully settled** a forward equity sale agreement on August 9, 2021, issuing **6,700,000** shares and receiving **$299,739 thousand** in cash proceeds[41](index=41&type=chunk) - In April and May 2022, the remaining tangible equity units were settled, resulting in the issuance of **9,029,461** shares of common stock and the **complete pay-off** of amortizing notes[44](index=44&type=chunk) - On May 20, 2022, the Company issued **$500,000 thousand** in Senior Notes due 2052 with a **5.30%** interest rate, using proceeds to repay existing credit facilities and for general corporate purposes[45](index=45&type=chunk) - On June 30, 2022, revolving credit agreements for Peoples Natural Gas Companies and Aqua Pennsylvania were amended to **increase** the facility amount (Peoples) and update termination dates to June 29, 2023[46](index=46&type=chunk) [Note 6 – Financial Instruments](index=17&type=section&id=Note%206%20%E2%80%93%20Financial%20Instruments) - The fair value of loans payable and cash and cash equivalents approximates their carrying amounts, determined using Level 1 methods[50](index=50&type=chunk) Long-term Debt (in thousands of dollars) | Metric | June 30, 2022 | December 31, 2021 | | :----- | :------------ | :---------------- | | Carrying amount | $6,256,321 | $5,947,357 | | Estimated fair value | $5,545,498 | $6,482,499 | - The estimated fair value of long-term debt **decreased** by approximately **$937 million** from December 31, 2021, to June 30, 2022, while its carrying amount **increased**[51](index=51&type=chunk) [Note 7 – Net Income per Common Share](index=18&type=section&id=Note%207%20%E2%80%93%20Net%20Income%20per%20Common%20Share) Average Common Shares Outstanding (in thousands) | Period | Basic (2022) | Basic (2021) | Diluted (2022) | Diluted (2021) | | :----- | :----------- | :----------- | :------------- | :------------- | | Three Months Ended June 30 | 262,099 | 254,769 | 262,558 | 255,441 | | Six Months Ended June 30 | 262,026 | 254,667 | 262,545 | 255,268 | - Average common shares outstanding for both basic and diluted computations **increased** year-over-year for both the three and six-month periods ended June 30, 2022, reflecting new share issuances[53](index=53&type=chunk) - The dilutive effect of the forward equity sale agreement was **zero** for 2022 periods, as it was settled in August 2021, but contributed to diluted shares in 2021[53](index=53&type=chunk) [Note 8 – Stock-based Compensation](index=19&type=section&id=Note%208%20%E2%80%93%20Stock-based%20Compensation) - The Company's Amended and Restated Equity Compensation Plan authorizes **6,250,000** shares for issuance, with **1,804,222** shares still available at June 30, 2022[55](index=55&type=chunk) Stock-based Compensation Expense (in thousands of dollars) | Type | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Performance Share Units (PSUs) | $1,692 | $1,290 | $3,342 | $2,931 | | Restricted Stock Units (RSUs) | $727 | $761 | $1,504 | $1,365 | | Stock Options | $141 | $90 | $241 | $301 | | Restricted Stock | $13 | $12 | $25 | $106 | | Stock Awards | $165 | $175 | $357 | $350 | - PSU compensation expense **increased** by **31.16%** for the three months and **14.02%** for the six months ended June 30, 2022, compared to the prior year[56](index=56&type=chunk) - The weighted-average fair value of PSUs granted in H1 2022 was **$42.31**, and for RSUs was **$45.10**[57](index=57&type=chunk)[59](index=59&type=chunk) [Note 9 – Pension Plans and Other Postretirement Benefits](index=24&type=section&id=Note%209%20%E2%80%93%20Pension%20Plans%20and%20Other%20Postretirement%20Benefits) Net Periodic Benefit Cost (Credit) (in thousands of dollars) | Benefit Type | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Pension Benefits | $(1,415) | $(793) | $(2,833) | $(1,352) | | Other Postretirement Benefits | $(140) | $446 | $(279) | $892 | - Net periodic pension benefit cost **shifted** from a credit of **$(793) thousand** in Q2 2021 to a **larger** credit of **$(1,415) thousand** in Q2 2022, **primarily due to higher** expected return on plan assets[66](index=66&type=chunk) - Other postretirement benefits also **shifted** from a cost of **$446 thousand** in Q2 2021 to a credit of **$(140) thousand** in Q2 2022[66](index=66&type=chunk) - Cash contributions to the Pension Plan totaled **$14,564 thousand** during the first six months of 2022[67](index=67&type=chunk) [Note 10 – Rate Activity](index=25&type=section&id=Note%2010%20%E2%80%93%20Rate%20Activity) - Aqua Pennsylvania received an order in May 2022 allowing base rate increases of **$69,251 thousand** in annual operating revenues, with new rates effective May 19, 2022[68](index=68&type=chunk) - Kentucky's natural gas division received an order in January 2022 for a **$5,238 thousand** annual revenue **increase**, with an additional **$260 thousand** approved in June 2022[69](index=69&type=chunk) - Aqua North Carolina filed an application in June 2022 to **increase** rates by **$18,064 thousand** in the first year, with further increases in subsequent years[70](index=70&type=chunk) - Ohio's water and wastewater utility divisions are undergoing a base rate case expected to **increase** operating revenues by **$5,483 thousand** annually, with new rates anticipated in Q3 or Q4 2022[71](index=71&type=chunk) [Note 11 – Taxes Other than Income Taxes](index=26&type=section&id=Note%2011%20%E2%80%93%20Taxes%20Other%20than%20Income%20Taxes) Taxes Other than Income Taxes (in thousands of dollars) | Component | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Property | $8,239 | $9,570 | $16,253 | $17,284 | | Gross receipts, excise and franchise | $4,017 | $3,949 | $8,117 | $7,633 | | Payroll | $4,778 | $4,718 | $11,439 | $11,474 | | Regulatory assessments | $1,812 | $847 | $3,577 | $1,685 | | Pumping fees | $1,947 | $1,464 | $3,323 | $2,590 | | Other | $927 | $572 | $2,018 | $1,495 | | Total | $21,720 | $21,120 | $44,727 | $42,161 | - Total taxes other than income taxes **increased** by **$600 thousand** (**2.84%**) for the three months and **$2,566 thousand** (**6.09%**) for the six months ended June 30, 2022, compared to the prior year[74](index=74&type=chunk) - Regulatory assessments saw a **significant increase**, more than doubling for both the three and six-month periods[74](index=74&type=chunk) [Note 12 – Segment Information](index=26&type=section&id=Note%2012%20%E2%80%93%20Segment%20Information) - The Company operates in two reportable segments: Regulated Water (eight operating segments) and Regulated Natural Gas (one operating segment), plus an 'Other' category for non-regulated and corporate activities[75](index=75&type=chunk)[76](index=76&type=chunk) Operating Revenues by Segment (in thousands of dollars) | Segment | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Regulated Water | $269,355 | $248,177 | $508,553 | $476,530 | | Regulated Natural Gas | $167,729 | $141,562 | $612,912 | $484,677 | | Other | $11,672 | $7,293 | $26,566 | $19,390 | | Consolidated | $448,756 | $397,032 | $1,148,031 | $980,597 | Total Assets by Segment (in thousands of dollars) | Segment | June 30, 2022 | December 31, 2021 | | :------ | :------------ | :---------------- | | Regulated Water | $8,645,314 | $8,403,586 | | Regulated Natural Gas | $6,121,964 | $5,960,602 | | Other | $278,886 | $294,090 | | Consolidated | $15,046,164 | $14,658,278 | - Regulated Natural Gas segment showed **strong** revenue **growth**, **increasing** by **18.5%** for the three months and **26.5%** for the six months ended June 30, 2022, **primarily due to higher** gas costs passed through to customers[77](index=77&type=chunk) [Note 13 – Commitments and Contingencies](index=28&type=section&id=Note%2013%20%E2%80%93%20Commitments%20and%20Contingencies) - The Company has accrued **$16,941 thousand** for loss contingencies as of June 30, 2022, with an estimated **$2,255 thousand** probable of recovery through insurance[79](index=79&type=chunk) - A class action lawsuit related to a 'do not consume' advisory in Illinois is in the discovery phase; management believes the final resolution is **not expected to have a material adverse effect** on the Company's financial position[80](index=80&type=chunk)[81](index=81&type=chunk) - The Company self-insures its employee medical benefit program, with a reserve of **$2,470 thousand** for unpaid claims at June 30, 2022[82](index=82&type=chunk) [Note 14 – Income Taxes](index=29&type=section&id=Note%2014%20%E2%80%93%20Income%20Taxes) Effective Tax Rate | Period | 2022 | 2021 | | :----- | :---- | :---- | | Three Months Ended June 30 | 9.0% | 4.5% | | Six Months Ended June 30 | -3.4% | 3.1% | - The effective tax rate **increased** for the second quarter of 2022 (**9.0%** vs. **4.5%**) **due to decreased** amortization of regulatory liabilities associated with deferred taxes[83](index=83&type=chunk) - The effective tax rate **decreased** for the first half of 2022 (**-3.4%** vs. **3.1%**) **due to increased** income tax benefits from qualifying infrastructure deductions and amortization of a customer surcredit tax repair catch-up adjustment in the Regulated Natural Gas segment[83](index=83&type=chunk)[84](index=84&type=chunk) [Note 15 – Recent Accounting Pronouncements](index=30&type=section&id=Note%2015%20%E2%80%93%20Recent%20Accounting%20Pronouncements) - The FASB issued new guidance in October 2021 on accounting for acquired revenue contracts in business combinations, effective for fiscal years beginning after December 15, 2022, which the Company is currently evaluating[86](index=86&type=chunk) - The Company adopted updated FASB guidance on convertible instruments and contracts in an entity's own equity on January 1, 2022, which did **not** have a **material impact** on its consolidated financial statements[87](index=87&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's analysis of financial performance, condition, forward-looking statements, and segment results [Forward-looking Statements](index=31&type=section&id=Forward-looking%20Statements) - The report contains forward-looking statements regarding acquisitions, legal proceedings, accounting pronouncements, and management's plans, which are subject to risks and uncertainties including the COVID-19 pandemic, regulation, weather, and capital markets[91](index=91&type=chunk) [General Information](index=31&type=section&id=General%20Information) - Essential Utilities, Inc is a holding company for regulated utilities providing water, wastewater, and natural gas services to approximately **five million** people across ten states under the Aqua and Peoples brands[92](index=92&type=chunk) - The Company's strategy focuses on acquiring businesses in the U.S regulated water and wastewater utility industry, with opportunistic **growth** in market-based activities like utility service line protection[94](index=94&type=chunk) [COVID-19 Pandemic](index=32&type=section&id=COVID-19%20Pandemic) - The Company continues to monitor the COVID-19 pandemic, implementing protective measures for employees and customers, and has returned office employees to a hybrid flex schedule[96](index=96&type=chunk) - Management is monitoring customer utility account collections, supply chain risks, and **increased** expenses related to workforce supplies, security, and cleaning **due to** the pandemic[96](index=96&type=chunk) [Inflationary Cost Environment](index=32&type=section&id=Inflationary%20Cost%20Environment) - During the first six months of 2022, the Company experienced inflationary cost increases in materials, labor, and other operating costs, exacerbated by supply chain pressures and global geopolitical uncertainties[97](index=97&type=chunk) - The price of natural gas **substantially increased**, leading to **significant** revenue and expense increases in the Regulated Natural Gas business, with these pressures expected to continue through 2022[97](index=97&type=chunk) - The Company is reviewing the adequacy of its approved rates in response to **increasing** service costs and is working with suppliers to mitigate supply chain risks[97](index=97&type=chunk)[98](index=98&type=chunk) [Financial Condition](index=33&type=section&id=Financial%20Condition) - The Company historically maintains a negative working capital position but expects internally generated funds, existing credit facilities, and proceeds from debt/equity issuances to provide sufficient working capital for at least the next twelve months[99](index=99&type=chunk) - In the first six months of 2022, the Company incurred **$424,645 thousand** in capital expenditures and **$50,010 thousand** for acquisitions, financed by **$770,376 thousand** in long-term debt and internally generated funds[100](index=100&type=chunk)[103](index=103&type=chunk) - As of June 30, 2022, the Company had **$840,117 thousand** available under its **$1,000,000 thousand** unsecured revolving credit facility and **$430,797 thousand** available from short-term lines of credit totaling **$435,500 thousand**[104](index=104&type=chunk) [Results of Operations](index=34&type=section&id=Results%20of%20Operations) [Consolidated Results of Operations](index=34&type=section&id=Consolidated%20Results%20of%20Operations) Consolidated Financial Highlights (in thousands of dollars) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating revenues | $448,756 | $397,032 | $1,148,031 | $980,597 | | Operations and maintenance expense | $134,981 | $127,515 | $277,562 | $252,590 | | Purchased gas | $75,143 | $44,897 | $302,855 | $177,050 | | Net income | $82,291 | $80,914 | $281,667 | $264,603 | - Consolidated operating revenues **increased** by **13.0%** for Q2 2022 and **17.1%** for H1 2022, **driven by growth** in all segments, especially Regulated Natural Gas[108](index=108&type=chunk)[114](index=114&type=chunk) - Purchased gas expense **surged** by **67.4%** in Q2 2022 and **71.1%** in H1 2022, **primarily due to** a **190.7%** and **103.7% increase** in average gas commodity prices, respectively[109](index=109&type=chunk)[117](index=117&type=chunk) - Net income **increased** by **1.7%** in Q2 2022 and **6.45%** in H1 2022, despite **higher** operating expenses and interest costs[107](index=107&type=chunk) [Segment Results of Operations](index=38&type=section&id=Segment%20Results%20of%20Operations) [Regulated Water Segment](index=38&type=section&id=Regulated%20Water%20Segment) Regulated Water Segment Financial Highlights (in thousands of dollars) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating revenues | $269,355 | $248,177 | $508,553 | $476,530 | | Operations and maintenance expense | $92,815 | $77,801 | $178,903 | $156,148 | | Net income | $76,342 | $78,849 | $136,885 | $142,879 | - Regulated Water segment revenues **increased** by **8.5%** in Q2 2022 and **6.7%** in H1 2022, **driven by** rate increases (**$10,044 thousand** in Q2, **$15,904 thousand** in H1), **higher** volume consumption, and customer base **growth** from acquisitions[125](index=125&type=chunk)[130](index=130&type=chunk) - Operations and maintenance expense for the Regulated Water segment **increased** by **19.3%** in Q2 2022 and **14.6%** in H1 2022, **due to** acquired utility system costs, **higher** production costs, legal expenses, and outside services[125](index=125&type=chunk)[129](index=129&type=chunk) - Net income for the Regulated Water segment **decreased** by **3.18%** in Q2 2022 and **4.20%** in H1 2022, despite revenue **growth**, **primarily due to increased** operating expenses and a **higher** effective tax rate[124](index=124&type=chunk)[128](index=128&type=chunk)[132](index=132&type=chunk) [Regulated Natural Gas Segment](index=40&type=section&id=Regulated%20Natural%20Gas%20Segment) Regulated Natural Gas Segment Financial Highlights (in thousands of dollars) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating revenues | $167,729 | $141,562 | $612,912 | $484,677 | | Operations and maintenance expense | $44,907 | $52,334 | $104,359 | $103,660 | | Purchased gas | $63,392 | $39,788 | $280,698 | $162,676 | | Net income | $11,478 | $1,905 | $150,964 | $121,155 | - Regulated Natural Gas segment operating revenues **increased** by **18.5%** in Q2 2022 and **26.5%** in H1 2022, **primarily due to higher** gas costs passed through to customers (Q2: **$23,604 thousand**, H1: **$118,023 thousand**) and **increased** usage from colder weather in H1[137](index=137&type=chunk)[140](index=140&type=chunk) - Operations and maintenance expense **decreased** by **14.2%** in Q2 2022 but **increased** by **0.7%** in H1 2022, influenced by **higher** capitalization of general and administrative costs and changes in bad debt expense[137](index=137&type=chunk)[140](index=140&type=chunk) - Net income for the Regulated Natural Gas segment **significantly increased** by **502.5%** in Q2 2022 and **24.6%** in H1 2022, **benefiting from** a **substantial** income tax benefit related to qualifying infrastructure deductions and a customer surcredit tax repair catch-up adjustment[135](index=135&type=chunk)[139](index=139&type=chunk)[143](index=143&type=chunk) [Impact of Recent Accounting Pronouncements](index=44&type=section&id=Impact%20of%20Recent%20Accounting%20Pronouncements) - The Company refers to Note 15 for details on the impact of recent accounting pronouncements, including new guidance on acquired revenue contracts and adopted guidance on convertible instruments[145](index=145&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=45&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Details market risks from interest rate and equity price changes, referring to the 2021 Form 10-K - The Company is subject to market risks from changes in interest rates and equity prices[146](index=146&type=chunk) - Further details on market risks are available in Item 7A of the Company's 2021 Annual Report on Form 10-K[146](index=146&type=chunk) [Item 4. Controls and Procedures](index=45&type=section&id=Item%204.%20Controls%20and%20Procedures) Management confirms effective disclosure controls and procedures, noting ERP system updates - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of June 30, 2022[146](index=146&type=chunk) - A new ERP system was implemented for the Regulated Water business segment, leading to necessary updates in internal controls over financial reporting[147](index=147&type=chunk) - No other **material** changes in internal control over financial reporting occurred during the quarter ended June 30, 2022[148](index=148&type=chunk) Part II – Other Information [Item 1. Legal Proceedings](index=45&type=section&id=Item%201.%20Legal%20Proceedings) No material legal proceedings are expected to adversely affect the Company's financial position - The Company is routinely involved in legal proceedings, but none are **expected to have a material adverse effect** on its financial position, results of operations, or cash flows[150](index=150&type=chunk) [Item 1A. Risk Factors](index=45&type=section&id=Item%201A.%20Risk%20Factors) Refers to the 2021 Annual Report on Form 10-K for a comprehensive review of risk factors - Readers should refer to the Annual Report on Form 10-K for the year ended December 31, 2021, for a review of the Company's risk factors[151](index=151&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=46&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Summarizes common stock repurchases, primarily for employee stock-based compensation tax withholding Issuer Purchases of Equity Securities (Quarter Ended June 30, 2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :----- | :------------------------------- | :--------------------------- | | April 1 - 30, 2022 | 47 | $51.75 | | May 1 - 31, 2022 | 66 | $49.31 | | June 1 - 30, 2022 | 192 | $47.01 | | Total | 305 | $48.24 | - The Company repurchased **305** shares of common stock during the quarter ended June 30, 2022, at an average price of **$48.24** per share[153](index=153&type=chunk) - These repurchases were **primarily from** employees to cover withholding taxes upon the vesting of stock-based compensation, a feature available under the equity compensation plan[153](index=153&type=chunk) [Item 6. Exhibits](index=47&type=section&id=Item%206.%20Exhibits) Lists filed exhibits, including indentures, credit amendments, and CEO/CFO certifications - Exhibits include Fifth and Sixth Supplemental Indentures, Second and Sixth Amendments to Credit Agreements, and certifications from the CEO and CFO[154](index=154&type=chunk) - Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents) are also part of the exhibits[154](index=154&type=chunk) [Signatures](index=48&type=section&id=Signatures) Contains signatures of authorized officers, certifying the report's filing on August 9, 2022 - The report was duly executed on August 9, 2022, by Christopher H Franklin, Chairman, President and Chief Executive Officer, and Daniel J Schuller, Executive Vice President and Chief Financial Officer[156](index=156&type=chunk)

Financial Data and Key Metrics Changes - The company reported year-to-date net income growth of 6.5% and quarterly earnings per share (EPS) were in line with expectations, with net income increasing from $80.9 million to $82.3 million, a 1.7% year-over-year increase [9][28] - Revenues for the second quarter reached $448.8 million, up 13% from the previous year, driven by contributions from the regulated water segment ($269.4 million) and the regulated natural gas segment ($167.7 million) [26][29] - Operations and maintenance (O&M) expenses increased to $135 million from $127.5 million, attributed to recent acquisitions, increased maintenance expenses, and higher water production costs due to inflation [27][30] Business Line Data and Key Metrics Changes - The regulated water segment contributed $269.4 million to revenues, while the regulated natural gas segment contributed $167.7 million, with both segments experiencing increased volumes and customer growth [26][29] - The gross margin increased year-over-year by $21.5 million, primarily due to additional revenues from rates and surcharges, customer growth, and increased volumes from both segments [26][29] Market Data and Key Metrics Changes - The company has signed asset purchase agreements for seven municipal acquisitions totaling over $418 million, which are pending regulatory approval [10][35] - The company is engaged in exclusive negotiations to purchase substantial wastewater assets from the Bucks County Water and Sewer Authority, with a bid of $1.1 billion for the wastewater system assets [10][39] Company Strategy and Development Direction - The company aims to invest approximately $1 billion annually in infrastructure rehabilitation and strengthening through 2024, focusing on water, wastewater, and natural gas systems [43] - The company is committed to achieving its ESG targets and has reported a 14% reduction in Scope 1 and Scope 2 emissions, driven by a switch to nearly 100% renewable electric power for its water segment operations [12][21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving full-year guidance of $1.75 to $1.80 per share and a 5% to 7% earnings growth per share expectation through 2024 [33][43] - The management acknowledged inflationary pressures but emphasized efforts to mitigate cost increases through capital projects that reduce operating expenses [70][93] Other Important Information - The company approved a 7% increase in the quarterly dividend, marking the 31st consecutive year of dividend increases [9][42] - The company is actively pursuing approximately 410,000 potential water and wastewater customers, indicating a strong pipeline for growth [40] Q&A Session Summary Question: Update on the Bucks County discussions and potential acquisition - Management indicated that the Bucks County Water and Sewer Authority Board wanted to ensure an ongoing revenue stream, leading to a retained capacity agreement for wastewater treatment capacity [45] Question: Impact of the Inflation Reduction Act on the business - Management stated that the company does not qualify for the alternative minimum tax and does not foresee significant impacts from the Inflation Reduction Act at this time [54] Question: M&A pipeline and public narratives - Management discussed their communication strategy to ensure their value proposition is conveyed effectively to municipalities, despite pushback from external groups [57][60] Question: Timing and impact of the DELCORA acquisition - Management confirmed that they are comfortable with their assumptions around DELCORA and expect to include it in their guidance for full-year 2023 [85] Question: Tax rate expectations - Management expects a slight benefit on the tax line for full-year 2022, with adjustments based on state tax rate changes [66][79]

[Part I – Financial Information](index=2&type=section&id=Part%20I%20%E2%80%93%20Financial%20Information) [Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements%3A) This section presents the unaudited consolidated financial statements for Essential Utilities, Inc. as of March 31, 2022, and for the three months ended March 31, 2022 and 2021 [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) As of March 31, 2022, total assets increased to $14.88 billion from $14.66 billion at year-end 2021, primarily driven by an increase in net property, plant, and equipment Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | **$14,877,023** | **$14,658,278** | | Net property, plant and equipment | $10,394,684 | $10,251,866 | | Goodwill | $2,340,815 | $2,340,815 | | **Total Liabilities and Equity** | **$14,877,023** | **$14,658,278** | | Total stockholders' equity | $5,255,100 | $5,184,450 | | Long-term debt, excluding current portion | $5,910,363 | $5,815,211 | [Consolidated Statements of Operations and Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) For the three months ended March 31, 2022, operating revenues increased to $699.3 million from $583.6 million in the prior-year period, largely due to higher purchased gas costs Q1 Performance Comparison (in thousands, except per share amounts) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Operating revenues | $699,275 | $583,565 | | Operating income | $227,629 | $232,352 | | Net income | $199,376 | $183,689 | | Diluted EPS | $0.76 | $0.72 | [Consolidated Statements of Capitalization](index=6&type=section&id=Consolidated%20Statements%20of%20Capitalization) Total capitalization increased to $11.13 billion at March 31, 2022, from $10.96 billion at December 31, 2021, driven by growth in both total stockholders' equity and total long-term debt Capitalization Summary (in thousands) | Category | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total stockholders' equity | $5,255,100 | $5,184,450 | | Total long-term debt | $6,042,109 | $5,947,357 | | **Total capitalization** | **$11,127,060** | **$10,963,954** | [Consolidated Statements of Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Equity) For the three months ended March 31, 2022, total stockholders' equity increased from $5.18 billion to $5.26 billion, primarily driven by net income partially offset by dividends - In Q1 2022, net income of **$199.4 million** was the primary driver of the increase in stockholders' equity[15](index=15&type=chunk) - Dividends declared and paid during Q1 2022 amounted to **$135.7 million** ($67.8M paid, $67.9M declared)[15](index=15&type=chunk) [Consolidated Statements of Cash Flow](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flow) For the first three months of 2022, net cash from operating activities increased to $310.6 million, while net cash used in investing and financing activities were $233.2 million and $29.6 million respectively Cash Flow Summary (in thousands) | Activity | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net cash from operating activities | $310,604 | $255,481 | | Net cash used in investing activities | ($233,232) | ($177,712) | | Net cash used in financing activities | ($29,641) | ($64,550) | | **Net change in cash** | **$47,731** | **$13,219** | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed disclosure on the company's accounting policies and financial activities, including revenue recognition, acquisitions, capitalization, segment performance, and income tax accounting changes Q1 2022 Revenue by Segment (in thousands) | Segment | Water Revenues | Wastewater Revenues | Natural Gas Revenues | Other Revenues | | :--- | :--- | :--- | :--- | :--- | | Residential | $131,288 | $26,495 | $285,106 | - | | Commercial | $35,120 | $6,065 | $57,040 | - | | Gas transportation & storage | - | - | $79,174 | - | - In March 2022, the company acquired the Lower Makefield Township wastewater system for **$53 million**, serving approximately **11,000 customer connections**[34](index=34&type=chunk) - Several acquisitions are pending, including the DELCORA wastewater system for **$276.5 million**, with closing expected in late 2022 or early 2023, subject to regulatory approval and ongoing litigation[40](index=40&type=chunk)[43](index=43&type=chunk) - The company's effective tax rate was **(9.5)%** for Q1 2022, down from **2.5%** in Q1 2021, primarily due to an increased income tax benefit in the Regulated Natural Gas segment related to qualifying infrastructure deductions and a customer surcredit tax repair adjustment[88](index=88&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition and results of operations, highlighting a 19.8% increase in consolidated operating revenues for Q1 2022, driven primarily by the Regulated Natural Gas segment [Financial Condition](index=33&type=section&id=Financial%20Condition) The company maintains a negative working capital position but believes internally generated funds and existing credit facilities are sufficient for the next twelve months - In Q1 2022, capital expenditures totaled **$183.3 million** and acquisition spending was **$50.0 million**[105](index=105&type=chunk) - As of March 31, 2022, the company had **$570.3 million** available on its primary revolving credit facility and an additional **$155.8 million** on other short-term lines[108](index=108&type=chunk) [Consolidated Results of Operations](index=34&type=section&id=Consolidated%20Results%20of%20Operations) Consolidated operating revenues for Q1 2022 increased by 19.8% to $699.3 million, primarily due to a 72.3% increase in purchased gas costs, while net income rose 8.5% to $199.4 million Q1 2022 vs Q1 2021 Consolidated Operations (in thousands) | Metric | Q1 2022 | Q1 2021 | % Change | | :--- | :--- | :--- | :--- | | Operating revenues | $699,275 | $583,565 | 19.8% | | Operations and maintenance | $142,581 | $125,075 | 14.0% | | Purchased gas | $227,712 | $132,153 | 72.3% | | Net income | $199,376 | $183,689 | 8.5% | - The significant increase in purchased gas expense was primarily due to a **46.9% increase** in average gas commodity prices compared to the prior year[113](index=113&type=chunk) [Segment Results of Operations](index=35&type=section&id=Segment%20Results%20of%20Operations) This section provides a detailed performance review of the company's two main reportable segments, with Regulated Water seeing a 4.7% revenue increase and Regulated Natural Gas a 29.7% revenue increase Q1 2022 Segment Performance (in thousands) | Segment | Operating Revenues | Net Income (Loss) | | :--- | :--- | :--- | | Regulated Water | $239,198 | $60,543 | | Regulated Natural Gas | $445,183 | $139,486 | | Other | $14,894 | ($653) | [Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is subject to market risks, including changes in interest rates and equity prices, in the normal course of business - The company acknowledges exposure to market risks such as interest rate and equity price changes; further information is available in the **2021 Form 10-K**[137](index=137&type=chunk) [Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2022, with ongoing updates due to a new ERP system implementation - The CEO and CFO have certified that disclosure controls and procedures are effective as of the end of the reporting period[137](index=137&type=chunk) - The company is implementing a new ERP system for the Regulated Water business, leading to updates in internal controls; the customer billing system phase is planned for **H2 2023**[138](index=138&type=chunk) [Part II – Other Information](index=38&type=section&id=Part%20II%20%E2%80%93%20Other%20Information) [Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) The company is party to various legal proceedings in the ordinary course of business, none of which are expected to have a material adverse effect on its financial position - There are no pending legal proceedings that are expected to have a material effect on the company's financial condition or results[141](index=141&type=chunk) [Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) This section refers readers to the detailed risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - For a discussion of risk factors, readers are directed to the company's **2021 Annual Report on Form 10-K**[142](index=142&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the quarter ended March 31, 2022, the company acquired 21,290 shares of its common stock at an average price of $47.56 per share, primarily to cover withholding taxes upon vesting of stock-based compensation Issuer Purchases of Equity Securities (Q1 2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2022 | 256 | $53.61 | | Feb 2022 | 21,004 | $47.48 | | Mar 2022 | 30 | $47.93 | | **Total** | **21,290** | **$47.56** | - The shares were acquired from employees to satisfy tax withholding obligations related to vested stock-based compensation[144](index=144&type=chunk) [Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications pursuant to Rule 13a-14(a) and Section 1350, as well as Inline XBRL documents - Exhibits filed include CEO and CFO certifications and Inline XBRL data files[146](index=146&type=chunk) [Signatures](index=41&type=section&id=Signatures) The report is duly signed on May 10, 2022, by Christopher H. Franklin, Chairman, President and Chief Executive Officer, and Daniel J. Schuller, Executive Vice President and Chief Financial Officer - The report was signed and authorized by the CEO, Christopher H. Franklin, and the CFO, Daniel J. Schuller[148](index=148&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) þ ANNUAL REPORT PURSUANT TO SECTION 13 or 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 Or ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File number 1-6659 ESSENTIAL UTILITIES, INC. (Exact name of registrant as specified in its charter) Pennsylvania 23-1702594 (St ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON DC 20549 FORM 10-Q (Mark One) S QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended September 30, 2021 £ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from_______________ to _______________ Commission File Number 1-6659 ESSENTIAL UTILITIES, INC. (Exact name of registrant as specified in its cha ...