Essential Utilities(WTRG) - 2020 Q3 - Quarterly Report

Part I – Financial Information Financial Statements Presents unaudited consolidated financial statements, highlighting the impact of the Peoples Gas Acquisition Consolidated Balance Sheets Total assets increased to $13.4 billion, primarily due to the Peoples Gas Acquisition, raising long-term debt to $5.15 billion Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $13,399,488 | $9,361,985 | | Net property, plant and equipment | $9,260,460 | $6,345,790 | | Goodwill | $2,333,627 | $63,822 | | Cash and cash equivalents | $8,494 | $1,868,922 | | Total Liabilities and Equity | $13,399,488 | $9,361,985 | | Long-term debt, net | $5,152,973 | $2,943,327 | | Total stockholders' equity | $4,635,753 | $3,880,860 | Consolidated Statements of Operations and Comprehensive Income Operating revenues rose significantly due to the Peoples Gas Acquisition, impacting Q3 and nine-month net income trends Q3 Performance (in thousands, except per share) | Metric | Q3 2020 | Q3 2019 | | :--- | :--- | :--- | | Operating Revenues | $348,647 | $243,626 | | Operating Income | $105,233 | $106,470 | | Net Income | $55,732 | $88,489 | | Diluted EPS | $0.22 | $0.38 | Nine-Month Performance (in thousands, except per share) | Metric | YTD 2020 | YTD 2019 | | :--- | :--- | :--- | | Operating Revenues | $988,700 | $663,650 | | Operating Income | $301,849 | $254,858 | | Net Income | $182,142 | $160,316 | | Diluted EPS | $0.71 | $0.76 | Consolidated Statements of Cash Flow Net cash from operations increased, while investing activities used $4.02 billion for the Peoples Gas Acquisition Cash Flow Summary - Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash from operating activities | $420,655 | $228,029 | | Net cash used in investing activities | ($4,019,645) | ($397,520) | | Net cash from financing activities | $1,738,562 | $2,196,432 | | Net change in cash and cash equivalents | ($1,860,428) | $2,026,941 | Notes to Consolidated Financial Statements Detailed notes explain financial statements, focusing on the $3.47 billion Peoples Gas Acquisition and its impact - The Peoples Gas Acquisition was completed on March 16, 2020, for cash consideration of $3.47 billion, expanding the company's business to include natural gas distribution[25][41] - As a result of the acquisition, the company now has two reportable segments: Regulated Water and Regulated Natural Gas[115] - The acquisition was financed through a series of transactions including common stock offerings, a private placement, tangible equity units, and debt issuances[42] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses financial condition and results, emphasizing the transformative Peoples Gas Acquisition and COVID-19 impact Financial Condition Financial condition altered by $3.47 billion Peoples Gas Acquisition, financed by equity and debt, with $837.6 million credit - Completed the Peoples Gas Acquisition on March 16, 2020, for cash consideration of $3.47 billion[161] - In April 2020, issued $1.1 billion of long-term debt to repay short-term debt assumed in the acquisition and borrowings under the revolving credit facility[170] - As of September 30, 2020, the company had $837.6 million available for borrowing under its $1 billion unsecured revolving credit facility[167] Consolidated Results of Operations Revenues significantly increased due to the Peoples Gas Acquisition, impacting both Q3 and nine-month results, alongside COVID-19 effects - Q3 2020 revenues increased by $105.0 million (43.1%), primarily due to $92.1 million in natural gas revenues from the Peoples Gas Acquisition[172] - Q3 2020 operations and maintenance expenses increased by $54.2 million (66.0%), with $62.2 million attributable to the Peoples Gas Acquisition[172] - Nine-month 2020 revenues increased by $325.1 million (49.0%), with $280.3 million from the Peoples Gas Acquisition[183] - Nine-month 2020 operations and maintenance expenses increased by $123.6 million (49.9%), with $123.7 million from the Peoples Gas Acquisition[184] Results of Operations – Regulated Natural Gas Segment The new Regulated Natural Gas segment contributed $280.3 million in revenues and $6.1 million in earnings Regulated Natural Gas Segment Performance (in thousands) | Metric | Q3 2020 | Nine Months 2020 | | :--- | :--- | :--- | | Operating revenues (GAAP) | $88,880 | $273,798 | | Purchased gas | $14,841 | $68,807 | | Gross margin (non-GAAP) | $74,039 | $204,991 | - Since the acquisition date of March 16, 2020, the natural gas operations contributed operating revenues of $280.3 million and earnings of $6.1 million to consolidated results[202] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rates and equity prices, potentially impacting pension plan assets - The company is subject to market risks from changes in interest rates and equity prices[206] - Volatile equity markets due to the COVID-19 pandemic could negatively affect pension and post-retirement plan asset values, potentially increasing future funding requirements[206] Controls and Procedures Disclosure controls were effective, but the Peoples Gas Acquisition caused a material change in internal controls - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the reporting period[207] - The Peoples Gas Acquisition is considered a material event that has affected internal control over financial reporting, and the integration of its controls is ongoing[208] Part II – Other Information Legal Proceedings The company is involved in ordinary course legal proceedings, none expected to materially affect financial position - The company states that there are no pending legal proceedings expected to have a material adverse effect on its financial position, operations, or cash flows[210] Risk Factors Key risks include stock price volatility from equity issuances and the natural gas business's sensitivity to weather - The sale or issuance of substantial amounts of common stock, including from stock purchase contracts and forward sale agreements, could adversely affect the market price[212] - The natural gas business is seasonal and temperature-sensitive, with warmer-than-normal weather potentially harming demand and financial results[213] Unregistered Sales of Equity Securities and Use of Proceeds The company acquired 44 common shares from employees in Q3 2020 to satisfy tax obligations from stock compensation Issuer Purchases of Equity Securities (Q3 2020) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 1-31, 2020 | 11 | $42.86 | | August 1-31, 2020 | 32 | $45.31 | | September 1-30, 2020 | 1 | $45.31 | | Total | 44 | $44.69 | - The shares were acquired from employees to pay withholding taxes upon the vesting of stock-based compensation[216] Exhibits This section lists filed exhibits, including CEO and CFO certifications and Inline XBRL data files - Lists filed exhibits, including CEO and CFO certifications (Rule 13a-14(a) and Section 1350) and Inline XBRL documents[218]