Essential Utilities(WTRG) - 2025 Q1 - Quarterly Report

Part I – Financial Information Financial Statements The company's financial statements for the quarter ended March 31, 2025, show a significant increase in operating revenues to $783.6 million from $612.1 million year-over-year, driven by both the Regulated Water and Natural Gas segments. Net income rose to $283.8 million, or $1.03 per diluted share, compared to $265.8 million, or $0.97 per diluted share, in the prior year. Total assets grew to $18.33 billion from $18.03 billion at the end of 2024. Cash flow from operations increased to $299.5 million from $240.7 million in the prior-year period Condensed Consolidated Statements of Operations Highlights (Unaudited) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Operating revenues | $783,626 thousand | $612,069 thousand | | Operating income | $338,905 thousand | $230,666 thousand | | Net income | $283,789 thousand | $265,772 thousand | | Diluted EPS | $1.03 | $0.97 | Condensed Consolidated Balance Sheets Highlights (Unaudited) | Metric | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $18,327,161 thousand | $18,026,554 thousand | | Total Liabilities | $11,177,612 thousand | $11,138,900 thousand | | Total Stockholders' Equity | $6,460,091 thousand | $6,198,809 thousand | Condensed Consolidated Statements of Cash Flow Highlights (Unaudited) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash flows from operating activities | $299,517 thousand | $240,713 thousand | | Net cash flows used in investing activities | ($287,880) thousand | ($86,483) thousand | | Net cash flows used in financing activities | ($9) thousand | ($123,642) thousand | | Cash and cash equivalents at end of period | $20,784 thousand | $35,200 thousand | Note 2 – Revenue Recognition Total revenues from contracts with customers for the three months ended March 31, 2025, were $773.4 million, a significant increase from $602.4 million in the same period of 2024. The Natural Gas segment was the largest contributor with $472.0 million, followed by the Water segment with $247.2 million Revenues from Contracts with Customers by Segment (Three Months Ended March 31) | Segment | 2025 Revenue (in thousands) | 2024 Revenue (in thousands) | | :--- | :--- | :--- | | Water | $247,227 | $227,698 | | Wastewater | $51,303 | $48,743 | | Natural Gas | $471,985 | $323,180 | | Other | $2,891 | $2,810 | | Total | $773,406 | $602,431 | Note 3 – Water and Wastewater Utility Acquisitions In Q1 2025, the company completed two acquisitions: the Village of Midvale's water system in Ohio for $2.95 million and Greenville Sanitary Authority's wastewater assets in Pennsylvania for $18 million. Several other acquisitions are pending, including the significant DELCORA wastewater system for $276.5 million. The East Whiteland acquisition remains under appeal at the Pennsylvania Supreme Court - Completed the acquisition of Greenville Sanitary Authority's wastewater assets for $18 million, serving 2,300 customers, and the Village of Midvale's water system for $2.95 million, serving 1,000 customers[25] - The acquisition of the Delaware County Regional Water Quality Control Authority (DELCORA) for $276.5 million is pending, subject to regulatory approval and ongoing litigation[32] - The acquisition of East Whiteland Township's wastewater assets is currently under appeal at the Pennsylvania Supreme Court, with arguments scheduled for May 2025[31] Note 4 – Dispositions In January 2024, the company completed the sale of its interest in three non-utility local microgrid and distributed energy projects for $165 million, recognizing a gain of $91.2 million in the first quarter of 2024 - The company sold its interest in three non-utility microgrid projects for $165 million in January 2024[33] - A gain of $91.2 million was recognized from this sale during Q1 2024[33] Note 6 – Capitalization The company raised approximately $63 million in net proceeds during Q1 2025 through its at-the-market (ATM) equity program. In March 2025, a new $1 billion commercial paper program was established to support general corporate purposes, though no notes were outstanding as of March 31, 2025. The company remained in compliance with all debt covenants - Issued 1,627,009 shares under its at-the-market (ATM) program for net proceeds of approximately $63 million in Q1 2025[35] - Established a new $1 billion commercial paper program in March 2025, reinforced by the company's revolving credit facility[37] - The company was in compliance with all debt covenants as of March 31, 2025[39] Note 11 – Rate Activity During Q1 2025, the company implemented approved base rate increases and surcharges expected to increase annual operating revenues by a total of $89.6 million. This includes a major $73 million increase for Aqua Pennsylvania. A rate case is pending in Kentucky, and a new application was filed in North Carolina in April 2025 - In February 2025, Aqua Pennsylvania received approval for a base rate increase designed to boost annual operating revenues by $73 million[56][57] - In Q1 2025, other rate increases in Ohio and North Carolina, plus infrastructure surcharges in Pennsylvania, Ohio, and Kentucky, are expected to add a combined $16.6 million in annual revenues[58] - A rate case is pending in Kentucky seeking a $10.9 million annual increase, and a new multi-year rate case was filed in North Carolina in April 2025[64][65] Note 13 – Segment Information For Q1 2025, the Regulated Natural Gas segment generated the highest operating revenue at $470.8 million and net income of $189.5 million. The Regulated Water segment reported revenues of $300.8 million and net income of $107.9 million. Capital expenditures were primarily split between the Regulated Water segment ($155.7 million) and the Regulated Natural Gas segment ($114.9 million) Segment Performance (Three Months Ended March 31, 2025) | Segment | Total Operating Revenues (in thousands) | Net Income (Loss) (in thousands) | Capital Expenditures (in thousands) | | :--- | :--- | :--- | :--- | | Regulated Water | $300,848 | $107,922 | $155,688 | | Regulated Natural Gas | $470,797 | $189,505 | $114,851 | | Other and Elims | $11,981 | ($13,638) | $0 | | Consolidated | $783,626 | $283,789 | $270,539 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 28.0% increase in Q1 2025 consolidated operating revenues primarily to higher rates and increased volume in the Regulated Natural Gas segment due to colder weather, alongside rate increases in the Regulated Water segment. Net income grew 6.8% despite the absence of a significant asset sale gain recorded in Q1 2024. The company invested $270.5 million in capital expenditures and plans to invest approximately $7.8 billion through 2029. Liquidity remains strong, supported by operating cash flow, an at-the-market equity program, and a new $1 billion commercial paper program - The company plans to invest approximately $7.8 billion from 2025 through 2029 to improve its water and natural gas systems[100] - Operating cash flow increased by $58.8 million to $299.5 million in Q1 2025, driven by higher revenues from regulatory recoveries and increased gas volumes[102] - In January 2024, the company sold its interest in three non-utility microgrid projects for $165 million, resulting in a pre-tax gain of $91.2 million, which impacts year-over-year comparisons[92] Regulatory Developments In the first three months of 2025, the company secured regulatory approvals for base rate increases that are expected to add $78.8 million in annualized revenue. The most significant of these was a combined $73 million increase for water and wastewater services in Pennsylvania Annualized Revenue Increases from Base Rate Cases in 2025 | State | Segment | Annualized Revenue Increase (in thousands) | | :--- | :--- | :--- | | Pennsylvania | Water & Wastewater | $73,000 | | North Carolina | Water & Wastewater | $4,130 | | Ohio | Water | $1,690 | | Total | | $78,820 | Growth Through Acquisitions and Capital Investment The company is actively pursuing growth through acquisitions, with six signed purchase agreements for water and wastewater systems pending, totaling approximately $340 million in purchase price. This includes the major DELCORA acquisition. In Q1 2025, the company invested $270.5 million in capital expenditures to improve its regulated infrastructure - Six signed purchase agreements for water and wastewater systems are pending, expected to add approximately 211,000 equivalent retail customers for a total purchase price of about $340 million[99] - Invested $270.5 million in Q1 2025 to improve regulated water and natural gas infrastructure[100] Liquidity and Capital Resources The company maintains a strong liquidity position, with $299.5 million in operating cash flow for Q1 2025. Financing activities included raising $63 million from its ATM program and establishing a new $1 billion commercial paper program. As of March 31, 2025, the company had $417.4 million available under its revolving credit facility and $310.7 million under short-term lines of credit. Credit ratings remain at investment grade levels, though S&P lowered its rating to A- in March 2024 - Net cash from operations was $299.5 million for Q1 2025, up from $240.7 million in Q1 2024[102] - Issued 1.6 million shares via its ATM program for $63 million in net proceeds in Q1 2025[104] - S&P lowered the company's credit rating from A to A- in March 2024, citing inflationary pressures and significant capital spending, but maintained a stable outlook[109] Results of Operations Consolidated operating revenues for Q1 2025 increased by 28.0% to $783.6 million, while net income rose 6.8% to $283.8 million. The revenue growth was driven by rate increases and higher volumes in the natural gas segment due to colder weather. The increase in net income was achieved despite the absence of a $91.6 million gain on asset sale that benefited the prior-year period. The Regulated Water segment saw net income increase by 68.9% due to rate increases and a significant income tax benefit, while the Regulated Natural Gas segment's net income decreased by 9.7% due to the aforementioned asset sale gain in 2024 Consolidated Results of Operations (Three Months Ended March 31) | Metric (in thousands) | 2025 | 2024 | % Change | | :--- | :--- | :--- | :--- | | Operating revenues | $783,626 | $612,069 | 28.0% | | Operations and maintenance | $137,824 | $136,900 | 0.7% | | Purchased gas | $184,641 | $129,675 | 42.4% | | Net income | $283,789 | $265,772 | 6.8% | - The increase in purchased gas cost by $55.0 million was due to a combination of higher average gas costs ($27.0 million) and higher usage ($28.3 million) from colder weather[114] - The effective income tax rate was a benefit of 7.8% in Q1 2025, compared to a 4.2% benefit in Q1 2024, primarily due to the release of a $22.6 million income tax reserve regulatory liability in the Regulated Water segment[120] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks, including changes in interest rates and equity prices. There were no material changes to the market risk disclosures from the company's 2024 Annual Report on Form 10-K - The company is subject to market risks from changes in interest rates and equity prices. No significant changes were reported for the quarter[139] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2025. No material changes to internal control over financial reporting occurred during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the reporting period[139] - No material changes in internal control over financial reporting were identified during the quarter ended March 31, 2025[140] Part II – Other Information Legal Proceedings The company is involved in various legal matters. Key proceedings include an ongoing class action lawsuit related to a 2019 'do not consume' advisory in Illinois, for which an accrual has been made. The company is also a party in multi-district litigation against PFAS manufacturers, with several defendants having agreed to settle - The company is defending a class action lawsuit in Illinois related to a 2019 'do not consume' advisory. An accrual for probable and estimable loss has been recorded[75] - The company is part of a multi-district litigation (MDL) against PFAS manufacturers and has submitted claims under approved settlement agreements with DuPont and 3M, though the recovery amount is uncertain[77] Risk Factors There were no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - Investors are directed to review the risk factors in the 2024 Annual Report on Form 10-K[141] Other Information During the quarter, Christopher Luning, Executive Vice President & General Counsel, adopted a Rule 10b5-1(c) trading plan on March 14, 2025, for the potential sale of up to 24,224 shares - Christopher Luning, EVP & General Counsel, adopted a Rule 10b5-1 trading plan on March 14, 2025, to sell up to 24,224 shares between June 13, 2025, and December 15, 2025[143] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL data files - Filed exhibits include CEO and CFO certifications under Rule 13a-14(a) and Section 1350, as well as Inline XBRL documents[144]