Essential Utilities Reports Financial Results for Q1 2020
Essential closes on Peoples acquisition and secures financing
First Quarter Highlights
On
During the first quarter, Essential also filed the DELCORA wastewater acquisition application with the Pennsylvania PUC, for a municipal acquisition that will be the largest in both the company’s history and that of the
“The first quarter of 2020 will be remembered as a significant milestone in the company’s history. While the company changed its name and closed on a transformative acquisition, Essential was able to provide continuous water, wastewater and natural gas service to the five million people we serve during the challenging COVID-19 pandemic,” said Essential’s Chairman and CEO
Operating Results
Essential reported net income for the first quarter 2020 of
Essential’s revenues for the quarter were
Essential’s regulated water segment reported revenues for the quarter of
Essential’s regulated natural gas segment reported revenues for the period since Peoples was acquired, between
In March, the company elected the repair tax accounting method change, as permitted under
Dividend
On
Financing
As a preventive measure to address liquidity concerns related to COVID-19 and its potential economic and capital markets impacts, the company secured and borrowed an additional
On
“In the face of uncertain economic and capital markets conditions, we took the prudent action of securing the term loan, and then, after the credit markets normalized, issued
Water utility acquisition growth
Essential’s continued acquisition growth allows the company to provide safe and reliable water and wastewater service to an even larger customer base. On
Essential also has signed purchase agreements for other municipal water and wastewater acquisitions that are expected to add the equivalent of over 205,000 water and wastewater retail customers and approximately
In April, fair market value legislation was passed in
Capital expenditures
Essential invested
Rate activity
To date in 2020, Essential’s regulated water segment has received rate awards or infrastructure surcharges in
“The company is pleased that despite the difficult economic environment, we are able to reaffirm the guidance we provided earlier this year,” said Franklin.
Reaffirms 2020 Essential guidance highlights
The company is monitoring the global outbreak of COVID-19 and will update guidance impacts from the outbreak in the future if needed. At this time, the following continues to be the 2020 full-year guidance:
-
Adjusted income per diluted common share (non-GAAP) of
$1.53 to$1.58 - Earnings growth CAGR of 5 to 7 percent for 2019 through 2022
-
Regulated water segment infrastructure investments of approximately
$550 million in 2020 -
Regulated natural gas segment infrastructure investments of approximately
$400 million in 2020 on full-year basis (adjusted to include capital invested in 2020 prior to Essential’s ownership) -
Infrastructure investments of approximately
$2.8 billion through 2022 in existing operations to rehabilitate and strengthen water, wastewater, and natural gas systems (including regulated natural gas segment capital invested in 2020 prior to Essential’s ownership) - Regulated water segment rate base compound annual growth rate of 6 to 7 percent through 2022
- Regulated natural gas segment rate base compound annual growth rate of 8 to 10 percent through 2022
- Total annual regulated water segment customer growth of between 2 and 3 percent on average depending upon regulatory approval
- Gas customer count expected to be relatively stable for 2020
Please refer to the reconciliation of GAAP and non-GAAP financial measures later in this press release for additional information on Essential’s use of non-GAAP financial measures as a supplement to its GAAP results.
Earnings Call Information
Date:
Time:
Webcast and slide presentation link: https://www.essential.co/events-and-presentations/events-calendar
Confirmation code: 3971811
The company’s conference call with financial analysts will take place
About Essential
Essential is one of the largest publicly traded water, wastewater and natural gas providers in the
Forward-looking statements
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, among others: the guidance range of adjusted income per diluted common share for the fiscal year ending in 2020; the 3-year earnings growth from 2019 to 2022; the projected total regulated water segment customer growth for 2020; the anticipated amount of capital investment in 2020; the anticipated amount of capital investment from 2020 through 2022; and the company’s anticipated rate base growth from 2020 through 2022. There are important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements including: disruptions in the global economy, the spread of the COVID-19 virus resulting in business disruptions, the continuation of the company's growth-through-acquisition program; the company’s continued ability to adapt itself for the future and build value by fully optimizing company assets; general economic business conditions; the company’s ability to fund needed infrastructure; housing and customer growth trends; unfavorable weather conditions; the success of certain cost-containment initiatives; changes in regulations or regulatory treatment; availability and access to capital; the cost of capital; disruptions in the credit markets; the success of growth initiatives; the company’s ability to successfully close municipally owned systems presently under agreement; the company’s ability to continue to deliver strong results; the company’s ability to continue to pay its dividend, add shareholder value and grow earnings; municipalities’ willingness to privatize their water and/or wastewater utilities; the company’s ability to control expenses and create and maintain efficiencies; the company’s ability to acquire municipally owned water and wastewater systems listed in its “pipeline”; and other factors discussed in our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q, which are filed with the
WTRGF
Selected Operating Data | ||||||
(In thousands, except per share amounts) | ||||||
(Unaudited) | ||||||
Quarter Ended |
||||||
|
||||||
2020 |
2019 |
|||||
Operating revenues |
$ |
255,585 |
$ |
201,132 |
||
Operations and maintenance expense |
$ |
106,637 |
$ |
79,314 |
||
Net income |
$ |
51,781 |
$ |
16,924 |
||
Basic net income per common share |
$ |
0.22 |
$ |
0.09 |
||
Diluted net income per common share |
$ |
0.20 |
$ |
0.09 |
||
Basic average common shares outstanding |
|
236,122 |
|
178,213 |
||
Diluted average common shares outstanding |
|
255,054 |
|
178,552 |
||
Consolidated Statement of Operations | ||||||||
(In thousands, except per share amounts) | ||||||||
(Unaudited) | ||||||||
Quarter Ended |
||||||||
|
||||||||
2020 |
2019 |
|||||||
Operating revenues |
$ |
255,585 |
|
$ |
201,132 |
|
||
Cost & expenses: | ||||||||
Operations and maintenance |
|
106,637 |
|
|
79,314 |
|
||
Purchased gas |
|
12,770 |
|
|
- |
|
||
Depreciation |
|
45,566 |
|
|
39,074 |
|
||
Amortization |
|
679 |
|
|
336 |
|
||
Taxes other than income taxes |
|
16,436 |
|
|
14,969 |
|
||
Total |
|
182,088 |
|
|
133,693 |
|
||
Operating income |
|
73,497 |
|
|
67,439 |
|
||
Other expense (income): | ||||||||
Interest expense |
|
35,122 |
|
|
27,869 |
|
||
Interest income |
|
(5,035 |
) |
|
(19 |
) |
||
Allowance for funds used during construction |
|
(2,948 |
) |
|
(4,056 |
) |
||
Change in fair value of interest rate swap agreements |
|
- |
|
|
34,782 |
|
||
Gain on sale of other assets |
|
(105 |
) |
|
(220 |
) |
||
Equity loss (earnings) in joint venture |
|
127 |
|
|
(543 |
) |
||
Other |
|
1,679 |
|
|
872 |
|
||
Income before income taxes |
|
44,657 |
|
|
8,754 |
|
||
Provision for income tax benefit |
|
(7,124 |
) |
|
(8,170 |
) |
||
Net income |
$ |
51,781 |
|
$ |
16,924 |
|
||
Net income per common share: | ||||||||
Basic |
$ |
0.22 |
|
$ |
0.09 |
|
||
Diluted |
$ |
0.20 |
|
$ |
0.09 |
|
||
Average common shares outstanding: | ||||||||
Basic |
|
236,122 |
|
|
178,213 |
|
||
Diluted |
|
255,054 |
|
|
178,552 |
|
||
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except per share amounts)
(Unaudited)
The Company is providing disclosure of the reconciliation of the non-GAAP financial measures to the most comparable GAAP financial measures. The Company believes that the non-GAAP financial measures "adjusted income" and "adjusted income per common share" provide investors the ability to measure the Company’s financial operating performance by adjustment, which is more indicative of the Company’s ongoing performance and is more comparable to measures reported by other companies. The Company further believes that the presentation of these non-GAAP financial measures is useful to investors as a more meaningful way to compare the Company’s operating performance against its historical financial results.
This reconciliation includes a presentation of the non-GAAP financial measures “adjusted income” and “adjusted income per common share” and have been adjusted for the following items:
(1) Transaction-related expenses for the Company's Peoples acquisition that closed on
(2) In order to illustrate the full-year 2020 effects of the Peoples acquisition as if this transaction closed on
(3) The income tax impact of the non-GAAP adjustments described above.
These financial measures are measures of the Company’s operating performance that do not comply with
The following reconciles our GAAP results to the non-GAAP information we disclose :
Quarter Ended |
||||||||
|
||||||||
2020 |
2019 |
|||||||
Net income (GAAP financial measure) |
$ |
51,781 |
|
$ |
16,924 |
|
||
Adjustments: | ||||||||
(1) Transaction-related expenses for the Peoples transaction closed |
|
25,573 |
|
|
41,428 |
|
||
(2) Adjustments to provide full-year 2020 run rate of Peoples operating results, including additional net interest expense |
|
108,132 |
|
|
- |
|
||
(3) Income tax effect of non-GAAP adjustments |
|
(31,803 |
) |
|
(8,628 |
) |
||
Adjusted income (Non-GAAP financial measure) |
$ |
153,683 |
|
$ |
49,724 |
|
||
Net income per common share (GAAP financial measure): | ||||||||
Basic |
$ |
0.22 |
|
$ |
0.09 |
|
||
Diluted |
$ |
0.20 |
|
$ |
0.09 |
|
||
Adjusted income per common share (Non-GAAP financial measure): | ||||||||
Basic |
$ |
0.65 |
|
$ |
0.28 |
|
||
Diluted |
$ |
0.60 |
|
$ |
0.28 |
|
||
Average common shares outstanding: | ||||||||
Basic |
|
236,122 |
|
|
178,213 |
|
||
Diluted |
|
255,054 |
|
|
178,552 |
|
||
Reconciliation of GAAP to Non-GAAP Financial Measure
(Unaudited)
The Company is providing disclosure of the reconciliation of the Company's outlook of the non-GAAP financial measure "adjusted diluted income per common share" to the most comparable GAAP financial measure "diluted net income per common share." The diluted income per share guidance for 2020 reflects the completion of the Peoples acquisition
This reconciliation includes a presentation of the non-GAAP financial measure “adjusted diluted income per common share” for Essential's 2020 full-year guidance and has been adjusted for the following items:
(1) Excludes transaction-related expenses for the Company's Peoples acquisition completed in
(2) Excludes the impact of Peoples transaction-related rate credits of
(3) In order to illustrate the full-year 2020 effects of the Peoples acquisition as if this transaction closed on
(4) Excludes the income tax impact of the non-GAAP adjustments described above.
This financial measure is a measure of the Company’s operating performance that does not comply with
The following reconciles Essential's 2020 full-year guidance GAAP outlook to the non-GAAP information that we have provided:
Diluted net income per common share for Essential's full year 2020 guidance (GAAP financial measure) |
|
|
Adjustments on a per share basis: | ||
(1) Transaction-related expenses for Peoples transaction completed in |
|
|
(2) Peoples transaction-related commitment to grant rate credits to utility customers |
|
|
(3) Adjustment to provide full-year run rate of Peoples operating results, including additional net interest expense |
|
|
(4) Income tax effect of non-GAAP adjustments |
( |
|
Adjusted diluted income per common share for Essential's full year 2020 guidance (Non-GAAP financial measure) |
|
Condensed Consolidated Balance Sheets | ||||||
(In thousands of dollars) | ||||||
(Unaudited) | ||||||
|
|
|||||
2020 |
2019 |
|||||
Net property, plant and equipment |
$ |
8,889,836 |
$ |
6,345,790 |
||
Current assets |
|
368,008 |
|
2,015,127 |
||
Regulatory assets and other assets |
|
3,671,142 |
|
1,001,068 |
||
$ |
12,928,986 |
$ |
9,361,985 |
|||
Total equity |
$ |
4,613,163 |
$ |
3,880,860 |
||
Long-term debt, excluding current portion, net of debt issuance costs |
|
4,729,034 |
|
2,943,327 |
||
Current portion of long-term debt and loans payable |
|
496,016 |
|
130,775 |
||
Other current liabilities |
|
331,358 |
|
192,686 |
||
Deferred credits and other liabilities |
|
2,759,415 |
|
2,214,337 |
||
$ |
12,928,986 |
$ |
9,361,985 |
|||
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Investor Relations
O: 610.645.1191
BJDingerdissen@Essential.co
Communications and Marketing
484.368.4816
Media@essential.co
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