Essential Utilities(US:WTRG)2022-11-08 04:08Financial 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]