Essential Utilities(US:WTRG)2022-08-04 20:05Financial Data and Key Metrics Changes - The company reported year-to-date net income growth of 6.5% and quarterly earnings per share (EPS) were in line with expectations, with net income increasing from $80.9 million to $82.3 million, a 1.7% year-over-year increase [9][28] - Revenues for the second quarter reached $448.8 million, up 13% from the previous year, driven by contributions from the regulated water segment ($269.4 million) and the regulated natural gas segment ($167.7 million) [26][29] - Operations and maintenance (O&M) expenses increased to $135 million from $127.5 million, attributed to recent acquisitions, increased maintenance expenses, and higher water production costs due to inflation [27][30] Business Line Data and Key Metrics Changes - The regulated water segment contributed $269.4 million to revenues, while the regulated natural gas segment contributed $167.7 million, with both segments experiencing increased volumes and customer growth [26][29] - The gross margin increased year-over-year by $21.5 million, primarily due to additional revenues from rates and surcharges, customer growth, and increased volumes from both segments [26][29] Market Data and Key Metrics Changes - The company has signed asset purchase agreements for seven municipal acquisitions totaling over $418 million, which are pending regulatory approval [10][35] - The company is engaged in exclusive negotiations to purchase substantial wastewater assets from the Bucks County Water and Sewer Authority, with a bid of $1.1 billion for the wastewater system assets [10][39] Company Strategy and Development Direction - The company aims to invest approximately $1 billion annually in infrastructure rehabilitation and strengthening through 2024, focusing on water, wastewater, and natural gas systems [43] - The company is committed to achieving its ESG targets and has reported a 14% reduction in Scope 1 and Scope 2 emissions, driven by a switch to nearly 100% renewable electric power for its water segment operations [12][21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving full-year guidance of $1.75 to $1.80 per share and a 5% to 7% earnings growth per share expectation through 2024 [33][43] - The management acknowledged inflationary pressures but emphasized efforts to mitigate cost increases through capital projects that reduce operating expenses [70][93] Other Important Information - The company approved a 7% increase in the quarterly dividend, marking the 31st consecutive year of dividend increases [9][42] - The company is actively pursuing approximately 410,000 potential water and wastewater customers, indicating a strong pipeline for growth [40] Q&A Session Summary Question: Update on the Bucks County discussions and potential acquisition - Management indicated that the Bucks County Water and Sewer Authority Board wanted to ensure an ongoing revenue stream, leading to a retained capacity agreement for wastewater treatment capacity [45] Question: Impact of the Inflation Reduction Act on the business - Management stated that the company does not qualify for the alternative minimum tax and does not foresee significant impacts from the Inflation Reduction Act at this time [54] Question: M&A pipeline and public narratives - Management discussed their communication strategy to ensure their value proposition is conveyed effectively to municipalities, despite pushback from external groups [57][60] Question: Timing and impact of the DELCORA acquisition - Management confirmed that they are comfortable with their assumptions around DELCORA and expect to include it in their guidance for full-year 2023 [85] Question: Tax rate expectations - Management expects a slight benefit on the tax line for full-year 2022, with adjustments based on state tax rate changes [66][79]