Essential Utilities(WTRG) - 2025 Q2 - Quarterly Report

Part I – Financial Information Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements and accompanying notes for the reporting periods Condensed Consolidated Balance Sheets (unaudited) – June 30, 2025 and December 31, 2024 Key Balance Sheet Metrics | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Total Assets | $18,554,285 | $18,026,554 | +$527,731 | | Net Property, Plant and Equipment | $13,579,450 | $13,143,476 | +$435,974 | | Total Stockholders' Equity | $6,720,202 | $6,198,809 | +$521,393 | | Long-term Debt (net) | $7,622,994 | $7,368,381 | +$254,613 | | Total Liabilities and Equity | $18,554,285 | $18,026,554 | +$527,731 | Condensed Consolidated Statements of Operations and Comprehensive Income (unaudited) – Three Months Ended June 30, 2025 and 2024 Q2 2025 vs Q2 2024 Performance | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | Change | YoY % Change | | :--- | :--- | :--- | :--- | :--- | | Operating Revenues | $514,907 | $434,406 | +$80,501 | +18.5% | | Operating Expenses | $329,636 | $289,119 | +$40,517 | +14.0% | | Operating Income | $185,271 | $145,287 | +$39,984 | +27.5% | | Net Income | $107,827 | $75,385 | +$32,442 | +43.0% | | Basic EPS | $0.38 | $0.28 | +$0.10 | +35.7% | Condensed Consolidated Statements of Operations and Comprehensive Income (unaudited) – Six Months Ended June 30, 2025 and 2024 H1 2025 vs H1 2024 Performance | Metric | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | Change | YoY % Change | | :--- | :--- | :--- | :--- | :--- | | Operating Revenues | $1,298,533 | $1,046,475 | +$252,058 | +24.1% | | Operating Expenses | $774,357 | $670,522 | +$103,835 | +15.5% | | Operating Income | $524,176 | $375,953 | +$148,223 | +39.4% | | Net Income | $391,616 | $341,157 | +$50,459 | +14.8% | | Basic EPS | $1.41 | $1.25 | +$0.16 | +12.8% | Condensed Consolidated Statements of Capitalization (unaudited) - June 30, 2025 and December 31, 2024 Capitalization Summary | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Total Stockholders' Equity | $6,720,202 | $6,198,809 | +$521,393 | | Total Long-term Debt | $7,801,933 | $7,559,096 | +$242,837 | | Total Capitalization | $14,343,196 | $13,567,190 | +$776,006 | Condensed Consolidated Statements of Equity (unaudited) – Three and Six Months Ended June 30, 2025 H1 2025 Equity Roll-Forward | Metric | Balance at Dec 31, 2024 (in thousands) | Net Income (6 months) (in thousands) | Issuance of Common Stock (6 months) (in thousands) | Dividends Declared (6 months) (in thousands) | Balance at Jun 30, 2025 (in thousands) | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Stockholders' Equity | $6,198,809 | $391,616 | $208,576 (ATM) + $7,569 (DRP) | $(180,713) | $6,720,202 | Condensed Consolidated Statements of Equity (unaudited) – Three and Six Months Ended June 30, 2024 H1 2024 Equity Roll-Forward | Metric | Balance at Dec 31, 2023 (in thousands) | Net Income (6 months) (in thousands) | Issuance of Common Stock (6 months) (in thousands) | Dividends Declared (6 months) (in thousands) | Balance at Jun 30, 2024 (in thousands) | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Stockholders' Equity | $5,896,183 | $341,157 | $7,672 (DRP) + $423 (options) | $(167,930) | $6,163,234 | Condensed Consolidated Statements of Cash Flow (unaudited) – Six Months Ended June 30, 2025 and 2024 H1 2025 vs H1 2024 Cash Flow | Cash Flow Activity | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Net Cash from Operating Activities | $571,834 | $426,426 | +$145,408 | | Net Cash Used in Investing Activities | $(632,829) | $(382,111) | $(250,718) | | Net Cash from (Used in) Financing Activities | $76,910 | $(30,108) | +$107,018 | | Net Change in Cash and Cash Equivalents | $15,915 | $14,207 | +$1,708 | | Cash and Cash Equivalents at End of Period | $25,071 | $18,819 | +$6,252 | Notes to Condensed Consolidated Financial Statements (unaudited) Note 1 – Basis of Presentation - Interim financial statements are prepared under GAAP for interim reporting and SEC rules, and should be read in conjunction with the 2024 Annual Report on Form 10-K[22] - Future events and macroeconomic conditions may cause actual results to differ materially from current estimates[23] - No changes to significant accounting policies previously identified in the 2024 Annual Report on Form 10-K[24] Note 2 – Revenue Recognition Revenue by Source (3 Months Ended June 30, 2025) | Revenue Source (3 Months Ended June 30, 2025) | Amount (in thousands) | | :--- | :--- | | Water Revenues | $273,636 | | Wastewater Revenues | $55,962 | | Natural Gas Revenues | $177,321 | | Other Revenues | $7,988 | | Consolidated Total | $514,907 | Revenue by Source (6 Months Ended June 30, 2025) | Revenue Source (6 Months Ended June 30, 2025) | Amount (in thousands) | | :--- | :--- | | Water Revenues | $520,558 | | Wastewater Revenues | $106,997 | | Natural Gas Revenues | $648,118 | | Other Revenues | $22,860 | | Consolidated Total | $1,298,533 | Note 3 – Water and Wastewater Utility Acquisitions - Completed acquisitions in 2025 include Beaver Falls, PA wastewater system ($37.75M, 3,200 customers), Midvale, OH water system ($2.95M, 1,000 customers), and Greenville, PA wastewater assets ($18M, 2,300 customers)[26][27] - Pending acquisitions include Integra Water Texas, LLC's wastewater system ($4.4M, 1,100 customers), private water/wastewater assets in Harris County, TX ($1.125M, 400 customers), and Greenville Municipal Water Authority's water system ($18M, 3,000 customers)[31][32] - The acquisition of DELCORA's wastewater system ($276.5M, 198,000 retail customers) is subject to regulatory approval and ongoing litigation[36] - The East Whiteland Wastewater Assets acquisition ($54.374M) is currently awaiting a decision from the Pennsylvania Supreme Court after a lower court reversed the PUC approval[34][35] Note 4 – Dispositions - Sale of interest in three non-utility local microgrid and distributed energy projects completed in January 2024 for $165 million[37] - Recognized a gain of $91.236 million from the disposition, included in other expense (income) during the first quarter of 2024[37] Note 5 – Goodwill Goodwill by Segment | Segment | December 31, 2024 (in thousands) | June 30, 2025 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Regulated Water | $58,425 | $58,421 | $(4) | | Natural Gas | $2,277,447 | $2,277,447 | $0 | | Other | $4,841 | $4,841 | $0 | | Consolidated Total | $2,340,713 | $2,340,709 | $(4) | - A mechanism in the Regulated Water segment allows reclassification of goodwill to utility plant acquisition adjustment, recoverable through customer rates upon achieving specific objectives[38] Note 6 – Capitalization - Established a new At-the-Market (ATM) equity sales program on August 13, 2024, allowing issuance of common stock up to $1 billion[39] ATM Program Activity | ATM Program Activity | 3 Months Ended June 30, 2025 | 6 Months Ended June 30, 2025 | | :--- | :--- | :--- | | Shares Issued | 3,664,762 | 5,291,771 | | Net Proceeds (approx.) | $145,500 | $208,600 | | Equity Available (as of June 30, 2025) | N/A | $753,000 | - Established a $1 billion commercial paper program on March 19, 2025, for short-term unsecured notes, backed by the revolving credit facility[40] - As of June 30, 2025, outstanding commercial paper borrowings were $566.543 million with a weighted average interest rate of 4.69% and a 13-day remaining term[41] - Aqua Pennsylvania issued $100 million in first mortgage bonds in May 2025 to repay existing debt and for general corporate purposes[43] - The company was in compliance with all debt covenants as of June 30, 2025[44] Note 7 – Financial Instruments - Fair value of loans payable, cash and cash equivalents, and deferred compensation assets approximate their carrying values, determined using Level 1 methods[46] Long-term Debt Fair Value | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--- | :--- | :--- | | Long-term Debt (Carrying Amount) | $7,801,933 | $7,559,096 | | Long-term Debt (Estimated Fair Value) | $6,802,766 | $6,431,777 | - Fair value of long-term debt is determined by discounting future cash flows using current market interest rates for similar instruments (Level 2 methods)[48] Note 8 – Net Income per Common Share Earnings Per Share | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Basic EPS | $0.38 | $0.28 | $1.41 | $1.25 | | Diluted EPS | $0.38 | $0.28 | $1.41 | $1.25 | | Basic Shares Outstanding (thousands) | 280,275 | 273,567 | 277,748 | 273,472 | | Diluted Shares Outstanding (thousands) | 280,725 | 273,953 | 278,335 | 273,869 | - Employee stock options that were anti-dilutive and thus excluded from diluted EPS calculation were 441 thousand for both three and six months ended June 30, 2025; and 265 thousand for the same periods in 2024[49] Note 9 – Stock-based Compensation - 694,331 shares were available for issuance under the Amended and Restated Equity Compensation Plan as of June 30, 2025[50] - Performance Share Units (PSUs) for 2025 grants are based on TSR (40%), three-year average ROE (30%), and consolidated O&M expense target (30%)[52] Stock-based Compensation Expense | Stock-based Compensation Expense (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | PSUs (O&M expense) | $1,831 | $1,082 | $3,247 | $1,188 | | RSUs (O&M expense) | $1,621 | $724 | $2,528 | $1,570 | | Stock Options (O&M expense) | $840 | $71 | $1,109 | $202 | | Restricted Stock (O&M expense) | $12 | $12 | $24 | $24 | | Stock Awards (O&M expense) | $0 | $840 | $0 | $840 | Note 10 – Pension Plans and Other Postretirement Benefits Pension Benefits Net Periodic Benefit Cost | Pension Benefits Net Periodic Benefit Cost (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Service cost | $304 | $357 | $608 | $714 | | Interest cost | $3,991 | $3,908 | $7,982 | $7,816 | | Expected return on plan assets | $(4,266) | $(4,696) | $(8,532) | $(9,392) | | Amortization of prior service cost | $78 | $81 | $156 | $162 | | Amortization of actuarial loss | $833 | $751 | $1,666 | $1,502 | | Net periodic benefit cost | $940 | $401 | $1,880 | $802 | Other Postretirement Benefits Net Periodic Benefit Cost | Other Postretirement Benefits Net Periodic Benefit Cost (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Service cost | $372 | $363 | $744 | $726 | | Interest cost | $1,132 | $1,112 | $2,264 | $2,224 | | Expected return on plan assets | $(1,071) | $(1,105) | $(2,142) | $(2,210) | | Amortization of actuarial gain | $(401) | $(267) | $(802) | $(534) | | Net periodic benefit cost | $32 | $103 | $64 | $206 | - The company intends to make cash contributions of $3.945 million to its Pension Plan later in 2025, with no contributions made in the first half of the year[59] Note 11 – Rate Activity - Kentucky natural gas subsidiary received approval for a $7.7 million (11.2%) annual revenue increase, effective July 1, 2025[60] - Aqua Pennsylvania received PAPUC approval for a $73 million base rate increase, effective February 22, 2025, with an aggregate annual increase of $110.94 million including DSIC reset[61] - Ohio water and North Carolina water/wastewater divisions implemented approved base rate increases totaling $5.82 million annually in H1 2025[62] - Peoples Natural Gas received PAPUC approval for a $93 million (11.1%) annual revenue increase, effective September 27, 2024, with an aggregate annual increase of approximately $111 million including DSIC reset and other adjustments[65] - Pending base rate cases include Aqua Virginia ($7.927M annually), Aqua Ohio ($14.653M annually), Aqua Texas ($29.149M annually), and Aqua North Carolina ($32.847M in year 1, with further increases in years 2 and 3)[67][68][69] Note 12 – Taxes Other than Income Taxes Taxes Other than Income Taxes by Type | Tax Type (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Property | $9,085 | $8,535 | $18,156 | $17,411 | | Gross receipts, excise and franchise | $4,600 | $4,297 | $7,486 | $8,600 | | Payroll | $5,405 | $5,009 | $12,366 | $12,520 | | Regulatory assessments | $2,017 | $1,925 | $4,052 | $3,825 | | Pumping fees | $1,964 | $1,882 | $3,304 | $3,377 | | Other | $(2,199) | $585 | $(1,613) | $1,524 | | Total | $20,872 | $22,233 | $43,751 | $47,257 | - Decrease in taxes other than income taxes for Q2 2025 largely due to a favorable adjustment on sales and use tax accruals in the Regulated Natural Gas segment[127] - Decrease for H1 2025 largely due to a decrease in Illinois subsidiary's invested capital tax and lower sales and use tax and property taxes in the Regulated Natural Gas segment[135] Note 13 – Segment Information - The company has two reportable segments: Regulated Water (eight operating segments aggregated by state) and Regulated Natural Gas (one operating segment)[72][73] - The "Other" category includes non-regulated natural gas operations, Aqua Resources, and unallocated corporate costs (general & administrative, interest expense)[74] Segment Revenues (3 Months Ended June 30, 2025) | Segment Revenues (3 Months Ended June 30, 2025) | Amount (in thousands) | | :--- | :--- | | Regulated Water | $332,282 | | Regulated Natural Gas | $177,321 | | Other and Elims | $5,304 | | Consolidated Total | $514,907 | Segment Revenues (6 Months Ended June 30, 2025) | Segment Revenues (6 Months Ended June 30, 2025) | Amount (in thousands) | | :--- | :--- | | Regulated Water | $633,130 | | Regulated Natural Gas | $648,118 | | Other and Elims | $17,285 | | Consolidated Total | $1,298,533 | Note 14 – Commitments and Contingencies - Accrued $22.63 million for loss contingencies as of June 30, 2025, with $769 thousand estimated as probable of insurance recovery[80] - A class action lawsuit in Illinois related to a "do not consume" advisory was dismissed by a state court in December 2024, but plaintiffs have appealed; the company received $5.602 million in related insurance proceeds in February 2025[81] - The company is a party to multi-district litigation (MDL) against PFAS manufacturers; received an initial $7.125 million settlement share from 3M in July 2025[83] - Management believes the final resolution of these matters is not expected to have a material adverse effect on the company's financial position, results of operations, or cash flows[81][84] Note 15 – Income Taxes Effective Tax Rate | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Effective Tax Rate | 4.1% (expense) | 2.4% (expense) | -4.3% (benefit) | -2.6% (benefit) | - Q2 2025 increase in income tax expense attributed to increased earnings and decreased state tax benefit/amortization of tax repairs surcredit in Regulated Natural Gas segment[86] - H1 2025 increase in income tax benefit primarily due to the release of $22.575 million income tax reserve regulatory liability in the Regulated Water segment[86] - Statutory Federal tax rate is 21.0%; State corporate net income tax rates range from 2.25% to 9.50%[88] - The recently enacted H.R.1 – One Big Beautiful Bill Act (OBBBA) is not anticipated to have a significant impact on consolidated financial statements[90] Note 16 – Recent Accounting Pronouncements and Disclosure Rules - Evaluating ASU 2024-03, "Expense Disaggregation Disclosures," effective for annual periods beginning after December 15, 2026[91] - Plans to adopt ASU 2023-09, "Improvements to Income Tax Disclosures," in its 2025 annual report, not expecting a significant impact[92] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, liquidity, capital resources, and results of operations for the reporting periods Forward-looking Statements - Forward-looking statements address expected timing of acquisitions, impact of legal proceedings, effects of accounting pronouncements, and management's plans[95] - Statements are subject to risks and uncertainties including regulation, abnormal weather, geopolitical forces, inflation, cyber-attacks, and changes in capital requirements[95] - The company undertakes no obligation to update or revise forward-looking statements[95] General Information - Essential Utilities, Inc provides regulated water, wastewater, or natural gas services to an estimated 5.5 million people in nine states[96] - Operates under Aqua (water/wastewater) and Peoples (natural gas) brands[96] - Focuses on acquiring businesses in the U.S regulated sector, particularly water and wastewater utilities, and opportunistically pursuing supplementary market-based activities[96][97] - Completed the sale of three non-utility local microgrid and distributed energy projects in January 2024 for $165 million, recognizing a $91.236 million gain, to focus on core business and finance capital expenditures and acquisitions[98] Recent Developments Macroeconomic Factors - Business is subject to macroeconomic conditions, including inflation and interest rate volatility[100] - Evaluating impacts from government fiscal policies, tariffs, and potential changes to environmental regulations[100] - Timely and adequate rate relief is crucial for continued profitability and fair shareholder returns, with ongoing efforts to enhance regulatory practices for efficient cost recovery[100] Regulatory Developments 2025 Base Rate Case Authorizations | State | Segment | Effective Date | Annualized Revenue Increase (in thousands) | | :--- | :--- | :--- | :--- | | Kentucky | Natural Gas | 7/1/2025 | $7,700 | | Pennsylvania | Water | 2/22/2025 | $58,400 | | Pennsylvania | Wastewater | 2/22/2025 | $14,600 | | North Carolina | Water | 1/1/2025 | $2,820 | | North Carolina | Wastewater | 1/1/2025 | $1,310 | | Ohio | Water | 1/1/2025 | $1,690 | | Total Base Rate Case Authorizations in 2025 | | | $86,520 | - Pending rate applications include Aqua Virginia ($7.927M annually), Aqua Ohio ($14.653M annually), Aqua Texas ($29.149M annually), and Aqua North Carolina ($29.857M in year 1, with further increases in years 2 and 3)[103][104][105] Growth Through Acquisitions and Capital Investment - Completed acquisitions in January and April 2025, adding approximately 3,300 customers in Greenville, PA (wastewater) and 1,000 customers in Midvale, OH (water); Acquired Beaver Falls, PA wastewater system in July 2025, serving 3,200 customers[106] - Five signed purchase agreements for additional water and wastewater systems, totaling approximately $338 million in purchase price and serving 210,000 equivalent retail customers, including DELCORA ($276.5M, 198,000 customers)[106] - Invested $612.629 million in capital expenditures during the first half of 2025 for infrastructure improvements[107] - Plans to invest approximately $7.8 billion from 2025 through 2029 to improve water and natural gas systems and enhance customer service[107] Liquidity and Capital Resources - Net cash flows from operating activities increased by $145.408 million to $571.834 million for the first half of 2025, driven by increased operating income and higher gas volumes due to colder weather[109] - In H1 2025, incurred $612.629 million in capital expenditures, obtained $876.525 million from borrowings, made $1.29 billion in revolving credit facility repayments, obtained $567.4 million net proceeds from commercial paper, and $208.576 million from ATM common stock sales[110][21] - As of June 30, 2025, the $1 billion unsecured revolving credit facility had $420.033 million available, and short-term lines of credit of $400 million had $381.960 million available[117] - Credit ratings remain at investment grade (S&P: A-, Moody's: Baa2), though S&P lowered its rating in March 2024 and Moody's changed its outlook to negative in October 2024, citing financial measures and capital spending[118] - Management continues to enhance regulatory practices to address regulatory lag and recover capital project and operating costs efficiently[119] Results of Operations (Consolidated) Three months ended June 30, 2025 compared with three months ended June 30, 2024 Q2 2025 vs Q2 2024 Consolidated Performance | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | Change | YoY % Change | | :--- | :--- | :--- | :--- | :--- | | Operating Revenues | $514,907 | $434,406 | +$80,501 | +18.5% | | Operations and Maintenance Expense | $148,510 | $142,512 | +$5,998 | +4.2% | | Purchased Gas | $56,735 | $33,728 | +$23,007 | +68.2% | | Depreciation and Amortization | $99,542 | $89,578 | +$9,964 | +11.1% | | Taxes Other than Income Taxes | $20,872 | $22,233 | $(1,361) | -6.1% | | Interest Expense, Net | $79,809 | $73,045 | +$6,764 | +9.3% | | Net Income | $107,827 | $75,385 | +$32,442 | +43.0% | - Operating revenues increased across Regulated Water (+$29.803M), Regulated Natural Gas (+$49.133M), and Other (+$1.565M) segments[122] - Operations and maintenance expense increased primarily due to higher employee-related costs (+$6.129M), bad debt expense (+$2.175M), and purchased gas (+$23.007M)[123][125][131] - Depreciation and amortization increased due to capital expenditures, acquisitions, and new depreciation rates[126] - Taxes other than income taxes decreased due to a favorable adjustment on sales and use tax accruals in the Regulated Natural Gas segment[127] - Effective income tax rate was an expense of 4.1% in Q2 2025, up from 2.4% in Q2 2024, due to increased earnings and decreased state tax benefit/amortization in the Regulated Natural Gas segment[130] Six months ended June 30, 2025 compared with six months ended June 30, 2024 H1 2025 vs H1 2024 Consolidated Performance | Metric | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | Change | YoY % Change | | :--- | :--- | :--- | :--- | :--- | | Operating Revenues | $1,298,533 | $1,046,475 | +$252,058 | +24.1% | | Operations and Maintenance Expense | $286,334 | $279,412 | +$6,922 | +2.5% | | Purchased Gas | $241,376 | $163,403 | +$77,973 | +47.7% | | Depreciation and Amortization | $196,306 | $178,294 | +$18,012 | +10.1% | | Taxes Other than Income Taxes | $43,751 | $47,257 | $(3,506) | -7.4% | | Interest Expense, Net | $161,874 | $146,318 | +$15,556 | +10.6% | | Gain on Sale of Other Assets | $493 | $91,828 | $(91,335) | -99.5% | | Net Income | $391,616 | $341,157 | +$50,459 | +14.8% | - Operating revenues increased across Regulated Water (+$50.758M), Regulated Natural Gas (+$195.599M), and Other (+$5.701M) segments[132] - Operations and maintenance expense increased due to higher employee-related costs (+$11.012M), customer assistance surcharge costs (+$9.250M), and production costs (+$3.060M), partially offset by an insurance recovery (+$5.602M) and decreased bad debt expense (+$5.223M)[133][135] - Purchased gas increased due to higher average cost of gas (+$45.879M) and higher gas usage (+$32.480M) from colder weather[133] - Taxes other than income taxes decreased due to lower Illinois invested capital tax and reduced sales/use and property taxes in Regulated Natural Gas[135] - Gain on sale of other assets significantly decreased due to the Q1 2024 sale of non-utility microgrid projects ($91.236M gain)[138] - Effective income tax rate was a benefit of 4.3% in H1 2025, up from 2.6% in H1 2024, primarily due to the release of $22.575 million income tax reserve regulatory liability in the Regulated Water segment[139] Segment Results of Operations Regulated Water Segment - The Regulated Water segment consists of eight operating segments organized by state, aggregated into one reportable segment due to similar economic characteristics and services[140][72] Regulated Water Segment Performance | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Operating Revenues | $332,282 | $302,479 | $633,130 | $582,372 | | Operations and Maintenance Expense | $100,149 | $95,575 | $189,567 | $186,258 | | Segment Net Income | $100,480 | $87,679 | $208,402 | $151,583 | Three months ended June 30, 2025 compared with three months ended June 30, 2024 - Revenues increased by $29.803 million (9.9%) due to water/wastewater rate increases (+$30.573M) and customer base growth (+$2.056M), offset by decreased volume consumption ($-2.637M)[142][144] - Operations and maintenance expense increased by $4.574 million (4.8%) due to employee-related costs (+$1.561M), bad debt expense (+$344K), and production costs (+$376K)[142][144] - Depreciation and amortization increased by $7.106 million (12.3%) due to capital investment, new depreciation rates, and acquisitions[142] - Interest expense, net, increased by $2.582 million (7.5%) due to higher push-down debt and operating company debt issuances[143] Six months ended June 30, 2025 compared with six months ended June 30, 2024 - Revenues increased by $50.758 million (8.7%) due to water/wastewater rate increases (+$52.909M) and customer base growth (+$3.554M), offset by decreased volume consumption ($-5.631M)[147][150] - Operations and maintenance expense increased by $3.309 million (1.8%) due to employee-related costs (+$2.448M), production costs (+$3.060M), and management fees (+$1.810M), offset by a decrease in bad debt expense ($-6.022M) from a favorable regulatory asset adjustment[147][150] - Depreciation and amortization increased by $10.541 million (9.2%) due to capital investment, depreciation rate changes, and acquisitions[147] - Effective income tax rate decreased to an expense of 6.0% from 18.9% due to the release of $22.575 million income tax reserve regulatory liability[149] Regulated Natural Gas Segment - Natural gas sales are seasonal, with higher demand in colder months; a weather normalization adjustment (WNA) mechanism minimizes weather effects on revenues for residential and small/medium commercial customers[151] Regulated Natural Gas Segment Performance | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Operating Revenues | $177,321 | $128,188 | $648,118 | $452,519 | | Operations and Maintenance Expense | $49,786 | $49,709 | $105,461 | $95,626 | | Purchased Gas | $53,532 | $32,680 | $230,491 | $158,222 | | Segment Net Income (Loss) | $17,516 | $(1,717) | $207,021 | $208,223 | Three months ended June 30, 2025 compared with three months ended June 30, 2024 - Operating revenues increased by $49.133 million (38.3%) due to higher purchased gas costs (+$20.852M), higher rates/surcharges (+$12.885M), increased volumes from colder weather (+$5.179M), and a weather normalization adjustment (+$4.551M)[153][158] - Purchased gas increased by $20.852 million (63.8%) due to higher average cost (+$18.988M) and higher gas usage (+$1.864M) from colder weather (514 HDDs in Q2 2025 vs 336 HDDs in Q2 2024)[154] - Taxes other than income taxes decreased by $2.612 million (51.2%) due to a favorable adjustment on sales and use tax accruals[155] - Interest expense, net, increased by $4.964 million (23.8%) due to higher push-down debt borrowings for capital projects[156] Six months ended June 30, 2025 compared with six months ended June 30, 2024 - Operating revenues increased by $195.599 million (43.2%) due to higher purchased gas costs (+$72.269M), higher rates/surcharges (+$60.034M), increased volumes from colder weather (+$34.700M), and a weather normalization adjustment (+$2.562M)[159][161] - Purchased gas increased by $72.269 million (45.7%) due to higher average cost (+$45.856M) and higher gas usage (+$26.799M) from colder weather (3,244 HDDs in H1 2025 vs 2,616 HDDs in H1 2024)[160] - Operations and maintenance expense increased by $9.835 million (10.3%) due to customer assistance surcharge costs (+$9.250M), labor/employee benefits (+$4.503M), and legal expenses (+$2.163M), offset by decreased materials/supplies ($-1.561M)[159][161] - Taxes other than income taxes decreased by $4.078 million (33.1%) due to a favorable adjustment on sales and use tax accruals[161] - Gain on sale of assets was $0 in H1 2025, compared to $91.581 million in H1 2024, due to the prior year's sale of non-utility microgrid projects[163] Impact of Recent Accounting Pronouncements - Refer to Note 16 for details on recent accounting pronouncements[166] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from changes in interest rates and equity prices, with further details in its 2024 Annual Report - The company is subject to market risks from changes in interest rates and equity prices[167] - Additional information on market risks can be found in Item 7A of the Annual Report on Form 10-K for the year ended December 31, 2024[167] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2025[167] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[168] Part II – Other Information Item 1. Legal Proceedings Details on legal proceedings are referenced in Note 14 of the condensed consolidated financial statements - Refer to Note 14 of the condensed consolidated financial statements for a discussion of legal proceedings[168] Item 1A. Risk Factors Applicable risks are detailed in the "Risk Factors" section of the company's 2024 Annual Report on Form 10-K - Review risks disclosed in "Part 1, Item 1A – Risk Factors" of the Annual Report on Form 10-K for the year ended December 31, 2024[169] Item 5. Other Information This section details executive leadership changes and confirms no new security trading plans were adopted by insiders - Robert A. Rubin retired as Senior Vice President, Chief Accounting Officer on July 31, 2025[170] - Bradley J. Palmer was promoted to Vice President, Chief Accounting Officer upon Mr. Rubin's retirement[170] - No security trading plans by directors or executive officers were adopted, modified, or terminated during the quarter ended June 30, 2025[173] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including credit agreements, certifications, and XBRL documents - Exhibits include Second Amended and Restated Revolving Credit Agreement (Aqua Pennsylvania), Amended and Restated Credit Agreement (PNG Companies, LLC), Bond Purchase Agreement (Aqua Pennsylvania), CEO/CFO Certifications, and Inline XBRL documents[174] Signatures Signatures The report was duly executed on August 4, 2025, by the company's CEO and CFO - Report executed on August 4, 2025, by Christopher H. Franklin (Chairman, President and CEO) and Daniel J. Schuller (EVP and CFO)[177]