Essential Utilities(WTRG) - 2022 Q1 - Quarterly Report

Part I – Financial Information Financial Statements 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 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 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 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 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] - Dividends declared and paid during Q1 2022 amounted to $135.7 million ($67.8M paid, $67.9M declared)[15] Consolidated Statements of Cash Flow 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 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] - 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][43] - 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] Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - 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] Consolidated Results of Operations 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] Segment Results of Operations 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 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] Controls and Procedures 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] - 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] Part II – Other Information Legal Proceedings 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] Risk Factors 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] Unregistered Sales of Equity Securities and Use of Proceeds 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] Exhibits 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] 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]