UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): February 27, 2018
Aqua America, Inc.
(Exact Name of Registrant Specified in Charter)
| Pennsylvania | 001-06659 | 23-1702594 | ||
| (State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
| 762 West Lancaster Avenue Bryn Mawr, Pennsylvania |
19010-3489 | |||||
| (Address of Principal Executive Offices) | (Zip Code) | |||||
Registrant’s telephone number, including area code: (610) 527-8000
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 2.02 | Results of Operations and Financial Condition. |
On February 27, 2018, Aqua America, Inc. issued a press release announcing its financial results for the fourth quarter ended and year ended December 31, 2017. The full text of such press release is furnished as Exhibit 99.1 to this Form 8-K.
| Item 7.01 | Regulation FD Disclosure. |
On February 28, 2018, Aqua America, Inc. is holding an Earnings Guidance Call via phone and webcast. As disclosed in its press release, dated February 27, 2018, the Earnings Guidance Call will begin at 12:15 p.m. on February 28, 2018. The presentation to be used during the Earnings Guidance Call is furnished as Exhibit 99.2 to this Form 8-K.
The information in this Form 8-K and the exhibits attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall this Form 8-K or its exhibits be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in any such filing.
| Item 9.01 | Financial Statements and Exhibits. |
| (d) | Exhibits. |
| 99.1 | Press Release issued by Aqua America, Inc., February 27, 2018 | |
| 99.2 | Corporation Presentation of Aqua America, Inc., February 28, 2018 | |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| AQUA AMERICA, INC. | ||
| By: | /s/ Christopher P. Luning | |
| Christopher P. Luning | ||
| Senior Vice President, General Counsel and Secretary | ||
Dated: February 27, 2018
Exhibit 99.1
| For release: Feb. 27, 2018 | Contact: Brian Dingerdissen |
Investor Relations
O: 610.645.1191
BJDingerdissen@AquaAmerica.com
Stacey Hajdak
Marketing & Communications
O: 610.520.6309
SMHajdak@AquaAmerica.com
Aqua America reports earnings for 2017, announces 2018 guidance
| • | Reported earnings per share of $1.35 vs. $1.32 in 2016 |
| • | Tax Cuts and Jobs Act results in $3.1 million charge in 2017 |
| • | Invested a record $478 million to improve infrastructure systems |
| • | Announces 2018 guidance range of $1.37 to $1.42 earnings per diluted common share |
Bryn Mawr, PA – Aqua America Inc. (NYSE: WTR) today reported results for the fourth quarter and year ended Dec. 31, 2017, and announced its earnings guidance for 2018.
Full-year 2017 Operating Results
Aqua reported total operating revenues of $809.5 million in 2017 compared to $819.9 million in the prior year. Regulated segment revenues increased to $804.9 million, compared to $800.1 million in 2016. Rates and surcharges, regulated growth and other items increased regulated revenue by approximately $14.4 million compared to 2016. A decrease in water consumption and market-based activities lowered revenue by $9.4 and $15.3 million, respectively.
Operations and maintenance expenses were $287.2 million for 2017, compared to $304.9 million in 2016. Reduced market-based activities and lower production costs decreased operations and maintenance expenses by $21.9 million. Higher costs associated with regulated acquisitions and other expenses offset the reduction in expenses by $8.0 million.
For the full-year 2017, Aqua reported net income of $239.7 million, or $1.35 per share, compared to $234.2 million, or $1.32 per share, in 2016. The Tax Cuts and Jobs Act enactment in December 2017 resulted in a non-cash charge to income tax expense of $3.1 million.
“In 2017, Aqua continued to deliver on our long-term growth strategy by making significant investment in rehabilitating aged infrastructure and by building our pipeline of pending municipal acquisitions,” said Aqua America Chairman and CEO Christopher Franklin. “By focusing on the company’s core strengths, Aqua continues to be part of the solution to our nation’s deteriorating infrastructure, while also delivering long-term value to shareholders.”
Fourth Quarter 2017 Operating Results
Revenues increased to $203.3 million in the fourth quarter compared to $196.8 million in the same quarter of 2016. Rates and surcharge revenue, consumption growth, regulated growth and other factors increased revenue by $8.8 million. Lower revenue from market-based activities offset the increase by $2.3 million.
Operations and maintenance expenses were $79.2 million for the fourth quarter of 2017, compared to $77.6 million in the fourth quarter of 2016. Reduced market-based activities and lower production costs decreased operations and maintenance expenses by $6.0 million. Increasing costs associated with employee-related expenses, regulated acquisitions and other factors offset the reduction in expenses by $7.7 million.
For the fourth quarter of 2017, Aqua reported net income of $53.5 million, or $0.30 per share, compared to $49.6 million, or $0.28 per share, in 2016. Reported results reflect the enactment of the Tax Cuts and Jobs Act which resulted in a non-cash charge to income tax expense of $3.1 million in the fourth quarter of 2017.
Capital Expenditures
In 2017, Aqua invested a record of $478 million to improve its infrastructure systems. The company expects to invest approximately $500 million in 2018 and approximately $1.4 billion from 2018 to 2020. The capital investments made to rehabilitate and expand the infrastructure of the communities Aqua serves are paramount to helping the company to protect and provide Earth’s most essential resource.
Dividend
On Feb. 5, 2018 Aqua America’s board of directors declared a quarterly cash dividend of $0.2047 per share of common stock. This dividend is payable on March 1, 2018, to all shareholders of record on Feb. 16, 2018. The March dividend marks the 73rd year Aqua has paid a consecutive quarterly dividend.
Rate Activity
In 2017, Aqua America’s regulated subsidiaries received rate awards and infrastructure surcharges in Indiana, Illinois, New Jersey, North Carolina, Pennsylvania, Ohio, and Virginia, estimated to increase annualized revenues by approximately $21.6 million.
To date in 2018, the company’s state subsidiaries in Pennsylvania, North Carolina and Ohio have received rate awards or infrastructure surcharges totaling $11 million. Additionally, the company currently has rate proceedings pending in Illinois, New Jersey and Virginia of $15.8 million. The timing and extent to which the rate increases might be granted can vary by the applicable regulatory agency, and the outcome of these filings are expected to consider the effects of the recently enacted Tax Cuts and Jobs Act.
Acquisition Growth in Regulated Operations
In 2017, the company invested $5.9 million to acquire four water and wastewater systems. Acquisitions added approximately 1,000 new customers to the company’s operating footprint. Coupled with organic growth, the company increased its customer base by 1 percent with 10,584 new customer connections. The company currently has six purchase agreements with municipal systems, which are expected to close in 2018 and represent more than 16,000 new customers. The company expects overall customer growth to be between 2 and 3 percent for 2018.
“In 2017, we continued to build on our consistent record of serving more customers each year which allows us greater economies of scale throughout our footprint. The six pending acquisitions along with organic growth would add more than 25,000 customers to our customer base in 2018,” said Franklin. “We remain very optimistic about the prospect of being a water and wastewater solution for an increasing number of customers.”
Financial Information
At year-end 2017, Aqua America’s weighted average cost of fixed-rate long-term debt was 4.36 percent and the company had $302 million available on its credit lines.
Tax Cuts and Jobs Act
In December 2017, the Tax Cuts and Jobs Act, which included a reduction to the corporate federal income tax rate to 21 percent effective January 1, 2018, was signed into law. As a result, in the fourth quarter of 2017, in accordance with accounting standards Aqua America revalued its deferred income tax assets and liabilities at the new 21 percent federal income tax rate. This revaluation resulted in the recognition of both regulatory liabilities, to the extent that the tax savings over time will be passed back to customers in utility customer rates, and a non-cash adjustment was recognized to record additional income tax expense of $3.1 million to the extent revalued deferred income taxes are not believed to be recoverable in utility customer rates.
2018 Guidance Highlights
Aqua America has issued the following 2018 full-year guidance and expects to achieve the following results:
| • | Earnings per diluted common share of $1.37 to $1.42 |
| • | Infrastructure investments of approximately $500 million in 2018 for communities served by Aqua |
| • | Infrastructure investments of approximately $1.4 billion through 2020 in existing operations to improve and strengthen systems |
| • | Total customer growth of between 2 and 3 percent |
| • | Aqua Pennsylvania files a rate case in 2018 with resolution in 2019 |
“Our 2018 guidance reflects the strong environment for growth that we are seeing as many municipalities recognize the benefits that can be attained by partnering with a large, professional water and wastewater provider,” Franklin said. “We expect this trend to continue as a result of the adoption of fair market value legislation and the national need for companies with our scale, expertise and capital to address the country’s pressing need for infrastucture improvements.”
Aqua America does not guarantee future results of any kind. Guidance is subject to risks and uncertainties, including, without limitation, those factors outlined in the “Forward Looking Statements” of this release and the “Risk Factors” section of the company’s annual and quarterly reports filed with the Securities and Exchange Commission (SEC).
Earnings and Guidance Event Information
Date: Feb. 28, 2018
Time: 12:15 p.m. EST
Webcast and slide presentation link: http://ir.aquaamerica.com/events.cfm
The presentation will be webcast live so that interested parties may listen over the Internet by logging on to AquaAmerica.com and following the link for Investor Relations. The webcast and a transcript will be archived in the investor relations section of the company’s website for 90 days following the call. Additionally, the call will be recorded and made available for replay at 4 p.m. on February 28, 2018 for 10 business days following the call. To access the audio replay in the U.S., dial 888.203.1112 (pass code 4661873). International callers can dial +1 719.457.0820 (pass code 4661873).
About Aqua America
Aqua America is one of the largest U.S.-based, publicly traded water utilities and serves nearly 3 million people in Pennsylvania, Ohio, North Carolina, Illinois, Texas, New Jersey, Indiana and Virginia. Aqua America is listed on the New York Stock Exchange under the ticker symbol WTR. Visit AquaAmerica.com for more information.
Caution Concerning 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 expected earnings per share for the fiscal year ending in 2018; the expected increase in customer base for the fiscal year ending in 2018; and the company’s filing of a Pennsylvania DSIC case in 2018 and a Pennsylvania rate case in 2018 and the expected outcome of the Pennsylvania rate case in 2019. There are important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements including: the continuation of the company’s growth-through-acquisition program; the desire of municipalities to sell their water and/or wastewater systems; 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, including a change in federal tax policy; availability and access to capital; the cost of capital; disruptions in the credit markets; the success of growth initiatives; the company’s ability to grow its dividend, add shareholder value and to grow earnings; municipalities willingness to privatize its water and/or wastewater utilities; the ability of the Company to successfully close and integrate the 6 municipal acquisitions in 2018; changes in policies in regulated commissions; changes in law in water and /or wastewater acquisitions; and other factors discussed in our Annual Report on Form 10-K, which is filed annually with the Securities and Exchange Commission. For more information regarding risks and uncertainties associated with Aqua America’s business, please refer to Aqua America’s annual, quarterly and other SEC filings. Aqua America is not under any obligation - and expressly disclaims any such obligation - to update or alter its forward-looking statements whether as a result of new information, future events or otherwise.
# # #
WTRF
The company’s results stated here are unaudited. The final audited financial statements will be filed with the company’s annual report on Form 10-K. The following statements and tables show selected operating data for the quarter and year ended December 31, 2017 and 2016 (in thousands, except per share data) for Aqua America, Inc. and subsidiaries.
Aqua America, Inc. and Subsidiaries
Selected Operating Data
(In thousands, except per share amounts)
(Unaudited)
| Quarter Ended | Year Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Operating revenues |
$ | 203,312 | $ | 196,799 | $ | 809,525 | $ | 819,875 | ||||||||
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| Operations and maintenance expense |
$ | 79,243 | $ | 77,550 | $ | 287,206 | $ | 304,897 | ||||||||
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| Regulated segment: |
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| Operating revenues |
$ | 202,564 | $ | 193,784 | $ | 804,905 | $ | 800,107 | ||||||||
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| Net income |
$ | 53,473 | $ | 49,649 | $ | 239,738 | $ | 234,182 | ||||||||
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| Basic net income per common share |
$ | 0.30 | $ | 0.28 | $ | 1.35 | $ | 1.32 | ||||||||
| Diluted net income per common share |
$ | 0.30 | $ | 0.28 | $ | 1.35 | $ | 1.32 | ||||||||
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| Basic average common shares outstanding |
177,697 | 177,365 | 177,612 | 177,273 | ||||||||||||
| Diluted average common shares outstanding |
178,247 | 177,880 | 178,175 | 177,846 | ||||||||||||
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Aqua America, Inc. and Subsidiaries
Consolidated Statement of Income
(In thousands, except per share amounts)
(Unaudited)
| Quarter Ended | Year Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Operating revenues |
$ | 203,312 | $ | 196,799 | $ | 809,525 | $ | 819,875 | ||||||||
| Cost & expenses: |
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| Operations and maintenance |
79,243 | 77,550 | 287,206 | 304,897 | ||||||||||||
| Depreciation |
34,794 | 33,342 | 136,302 | 130,987 | ||||||||||||
| Amortization |
64 | 654 | 422 | 2,021 | ||||||||||||
| Taxes other than income taxes |
12,238 | 13,291 | 56,628 | 56,385 | ||||||||||||
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| Total |
126,339 | 124,837 | 480,558 | 494,290 | ||||||||||||
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| Operating income |
76,973 | 71,962 | 328,967 | 325,585 | ||||||||||||
| Other expense (income): |
||||||||||||||||
| Interest expense, net |
23,217 | 20,458 | 88,341 | 80,594 | ||||||||||||
| Allowance for funds used during construction |
(4,641 | ) | (2,369 | ) | (15,211 | ) | (8,815 | ) | ||||||||
| (Gain) loss on sale of other assets |
(162 | ) | 12 | (484 | ) | (378 | ) | |||||||||
| Equity loss (earnings) in joint venture |
71 | 167 | (331 | ) | (976 | ) | ||||||||||
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| Income before income taxes |
58,488 | 53,694 | 256,652 | 255,160 | ||||||||||||
| Provision for income taxes |
5,015 | 4,045 | 16,914 | 20,978 | ||||||||||||
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| Net income |
$ | 53,473 | $ | 49,649 | $ | 239,738 | $ | 234,182 | ||||||||
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| Net income per common share: |
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| Basic |
$ | 0.30 | $ | 0.28 | $ | 1.35 | $ | 1.32 | ||||||||
| Diluted |
$ | 0.30 | $ | 0.28 | $ | 1.35 | $ | 1.32 | ||||||||
| Average common shares outstanding: |
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| Basic |
177,697 | 177,365 | 177,612 | 177,273 | ||||||||||||
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| Diluted |
178,247 | 177,880 | 178,175 | 177,846 | ||||||||||||
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Aqua America, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands of dollars)
(Unaudited)
| December 31, | December 31, | |||||||
| 2017 | 2016 | |||||||
| Net property, plant and equipment |
$ | 5,399,860 | $ | 5,001,615 | ||||
| Current assets |
131,246 | 128,650 | ||||||
| Regulatory assets and other assets |
801,357 | 1,028,726 | ||||||
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| Total assets |
$ | 6,332,463 | $ | 6,158,991 | ||||
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| Total equity |
$ | 1,957,621 | $ | 1,850,068 | ||||
| Long-term debt, excluding current portion, net of debt issuance costs |
2,007,753 | 1,737,605 | ||||||
| Current portion of long-term debt and loans payable |
117,419 | 157,206 | ||||||
| Other current liabilities |
167,069 | 144,330 | ||||||
| Deferred credits and other liabilities |
2,082,601 | 2,269,782 | ||||||
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| Total liabilities and equity |
$ | 6,332,463 | $ | 6,158,991 | ||||
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February 28, 2018 Aqua America 2017 Full Year Earnings Report & Analyst Update NYSE: WTR Exhibit 99.2
Forward Looking Statement This presentation contains in addition to historical information, forward looking statements based on assumptions made by management regarding future circumstances over which the company may have little or no control, that involve risks, uncertainties and other factors that may cause actual results to be materially different from any future results expressed or implied by such forward-looking statements. These factors include, among others, the following: general economic and business conditions; weather conditions affecting customers’ water usage or the company’s cost of operations; costs arising from changes in regulations; regulatory treatment of rate increase requests; availability and cost of capital; the success of growth initiatives, including pending acquisitions; the ability to generate earnings from capital investment; and other factors discussed in our Form 10-K for the fiscal year ended December 31, 2017, which is on file with the SEC. We undertake no obligation to publicly update or revise any forward-looking statement. Non-GAAP Reconciliation For reconciliation of non-GAAP financial measures, see the Investor Relations section of the company’s Web site at www.aquaamerica.com
Today’s Presenters Christopher Franklin Chairman, Chief Executive Officer and President Dave Smeltzer Executive Vice President & Chief Financial Officer Brian Dingerdissen Vice President, Chief of Staff & Investor Relations Rick Fox Executive Vice President & Chief Operating Officer Dan Schuller Executive Vice President, Strategy & Corporate Development Kim Joyce Vice President, Regulatory, Government and External Affairs
Christopher Franklin Chairman, Chief Executive Officer and President Introduction NYSE: WTR
Today’s Agenda Operations Overview Growth Strategy Update Legislative and Regulatory Update Financial Update Company Overview Summary and Outlook Company Overview
Company Overview Large multi-state water & wastewater company Proven growth model History of industry leading profitability Above average dividend growth
U.S. Regulated Water and Wastewater Industry Overview Water 53,000 systems in the U.S. 85% of U.S. population served by municipalities Aqua serves 1% of U.S. population Aqua serves 0.1% of U.S. population 97% of U.S. population served by municipalities 16,000 systems in the U.S. Wastewater
EPA’s Estimate of the National Need for Infrastructure Investment Water Wastewater American Society of Civil Engineers Grade for Drinking Water and Wastewater Infrastructure = D
2017 Full Year Highlights (in millions) Net Income Per Share Infrastructure Investment Acquisitions Dividend Growth 73 years of consecutive years of quarterly dividends Municipal pipeline expands with six pending acquisitions due to close in 2018 Dividend CAGR of 7.9% since 2012 Four water and wastewater deals representing over 1,000 new customers 7% year-over-year dividend growth
Dave Smeltzer Executive Vice President and Chief Financial Officer Financial Update NYSE: WTR
2017 Full Year Financial Results In millions except per share FY 2017 FY 2016 Variance Revenue $809.5 819.9 (1.3%) Regulated Segment Revenue $804.9 $800.1 0.6% Operations and Maintenance Expense $287.2 $304.9 (5.8%) Regulated Segment Operations and Maintenance Expense $287.0 $285.3 0.6% Net Income $239.7 $234.2 2.4% Net Income per Share $1.35 $1.32 2.3%
Operating Revenues FY 2017 vs. FY 2016
Operations & Maintenance Expenses FY 2017 vs. FY 2016
Earnings per Common Share FY 2017 vs. FY 2016
Tax Reform Implications 2018 Tax savings typically being deferred for future return to customers Exceptions Negative impact in PA due to NOL status Positive impact in Market Based and negotiated / divisions 2017 Write-off of $3.1M Typically related to deferred comp, goodwill and deferred gains $303 million Deferred Income Tax reclassified to Regulatory Liability Ultimately be refunded to customers 2017 $303 DIT million reclassified to Reg Liab Typically related to deferred comp, goodwill and deferred gains 2018 Tax savings typically being deferred for future return to customers Exceptions Negative impact in PA due to NOL status Positive impact in Market Based and negotiated / divisions Write-off of $3.1M Ultimately be refunded to customers
Accounting for Tax Reform Regulatory Liability To be refunded to customers based on specific state requirements Reduction in Revenue (DR) Accrue 21% for Federal Income Tax @ 1/1/2018 Remaining 14%, will be recorded as: Recognition of Regulatory Liability (CR )
Change in Corporate Tax Rate 35% Tax Rate 21% Tax Rate Revenue $1.00 $.88 Expenses $(0.35) $(0.35) Pre-Tax Income $0.65 $0.53 Federal Tax Rate 35% 21% Federal Income Tax $(0.23) $(0.11) Net Income $0.42 $0.42 (Illustrative Example)
Taxability of Capital Contributions (CAC / CIAC) Estimated $27 Million in CAC/CIAC Additions Taxes estimated to be $6 million Balance Sheet only Some states will recognize deferred tax asset in rate base
Reduces rates / bills without impacting profitability Helps comparability to municipal bills Reduces the future increases required related to Capital additions 7:1 projects become 8:1 projects Permits more system improvements in a typical 5% infrastructure surcharge Key Benefits
PA Rate Case Summary Timeframe: File: Summer 2018 Complete: Spring 2019 Case Summary/Issues: First case filed in 7 years Over $2 billion of capital Consolidated Water & WW Over 20 Acquisitions First filing using Fully Projected Future Test Year Tax Act and Tax Repair Year PA CAPX ($000’s) 2012 $129,923 2013 $212,721 2014 $214,155 2015 $248,354 2016 $251,373 2017 $308,006 ‘18 and ‘19 (est.) $650,000 Total $2,014,532
PA Rate Case Summary November 2011: Aqua PA filed its 2011 Rate Case October 2012: Implemented Repair Deduction 2019: Rates projected to be in effect June 2012: Rates went into effect October 2017: Re-implemented DSIC 2018: Projected to file Rate Case January 2013: DSIC Reduced to 0% 2011 2012 2017 2018 2019 2013 - 2016
*Additional rate activity information provided in Appendix Rate Activity 2017 Completed Rate Cases and Infrastructure Surcharges Base rate cases or infrastructure surcharges completed in IN, IL, NJ, NC, PA, OH, and VA $22 million in additional annualized revenue 2018 Completed Rate Cases and Surcharges Base rate cases or infrastructure surcharges completed in NC, OH and PA $11 million in additional annualized revenue
*Additional rate activity information provided in Appendix Rate Activity (Continued from previous page) Pending Rate Cases and Surcharges Base rate cases or infrastructure surcharges in IL, NJ and VA with requested annualized revenue increase of $16 million
Rick Fox Executive Vice President and Chief Operating Officer Operations Overview NYSE: WTR
Infrastructure Footprint as of December 31, 2017 $4.1 Billion in Total Rate Base + 12,825 Miles of Water Main 187 Wastewater Treatment Plants 21 Surface Water Filtration Plants ~ 3,300 Wells +866 Water Storage Tanks ~1,100 Vehicles
Infrastructure Investment Regulated Operations 3 YEAR TOTAL= $1.4 billion
State by State Comparison as-of December 31, 2017 State Rate Base ($millions) Water Connections Wastewater Connections PA $2,831 437,985 21,306 OH 287 145,000 6,719 IL 276 63,699 9,821 TX 241 63,046 16,869 NJ 172 53,115 6,125 NC 165 79,906 18,293 IN 74 1,169 26,371 VA 77 25,676 7,749 Total $4,123 869,596 113,253
Energy Optimization Reduce Costs Operational Excellence Increase Accountability
Safety at Aqua
Kim Joyce Vice President, Regulatory, Government and External Affairs Legislative and Regulatory Update NYSE: WTR
2/14/12 1. PA WW DSIC 2. Forward Test Year 3. WW Consolidation 10/23/12 4. NJ DSIC 6/6/13 8. NC W&WW DSIC 3/27/14 10. IN WW DSIC 3/27/13 5. OH Expanded DSIC 6. Forward Test Year 7/1/15 14. IN DSIC Increase to 10% 8/9/13 9. IL Fair Market Value 2/5/15 11. NJ Fair Market Value 5/5/15 12. IN Distressed Utility 4/30/13 7. IN Forward Test Year 6/13/16 15. PA Fair Market Value 6/29/16 16. IL Expanded QIPS Water & Wastewater Regulatory Trends 7/21/17 17. NJ Water Quality Accountability Act 3/22/16 13. IN Expands FMV 2013 2012 2014 2015 2016 2017
State Allowed Surcharge IL 2.5% Avg. Annual Increase IN 10% NC 5% NJ** 5% OH 12.75% water 9% wastewater PA 7.5% water 5% wastewater Aqua States with Infrastructure Surcharges * 16 additional states have water infrastructure surcharges ** Water only
DSIC Applications Then Now Hydrants Meters Water Mains Water Mains Hydrants Meters Wastewater Infrastructure Equipment Supporting Water Quality Valves Filters Pumps
Benefits of Fair Market Value Legislation Allows municipalities to receive fair value for their assets Provides municipalities with options for their aging systems Voluntary process Acquisitions approved by the state commission Increases regionalization of the water and wastewater industry Success Snapshot! Completed FMV Acquisitions in IL North Main (Water) $18,590,000 North Main (Wastewater) $3,410,000 Crystal Clear (Water) $785,000 Eastwood Manor (Water) $785,000 Nunda Utilities (Water) $715,000
Customer Communications
Helping Communities & Employees Enjoy More Good!
Dan Schuller Executive Vice President, Strategy and Corporate Development Growth Strategy Update NYSE: WTR
Aqua America Growth Strategy Driver of growing our foundational water/wastewater business Our primary focus today Municipal Initiative Strategic M&A MBAs Opportunistic pursuit of large, regulated utility/infrastructure targets Complementary to our regulated business Capitalizes on broader infrastructure renewal Three-Pronged Growth Strategy Infrastructure Investment (pipes, plants, etc.) Operational Excellence Regulatory Affairs Core Competencies Leads To
Aqua America Investment Committee Our Investment Committee (IC) process is a “well-oiled machine” through which the company’s executives review, shape, and approve/reject acquisition opportunities. Prospect Identification Due Diligence Acquisition Model Development Investment Committee Review Refinements Additional Investment Committee Review (if required) Approval Meeting(s) Advisory Meeting Follow-Up (If Necessary) Number of “Kitchen Cabinet” Meetings: 11 meetings Number of IC Meetings and Follow-Up Calls: 21 regularly scheduled and seven follow-up meetings to further assess acquisitions Total potential acquisitions reviewed: 37 2017 Total Activity “Kitchen Cabinet” Meeting: Prior to presenting to full IC, states use the “Kitchen Cabinet” for guidance
Historical Growth Performance If we include our 2018 projections, from 2015 to 2018, we will average a total of ~17,000 new customers per year , with an average of ~8,600 from acquisitions. 2015 2016 2017 2018P Total New: EOY Total Aqua: YoY Growth %: 17,747 957,866 1.9% 14,399 972,265 1.5% 10,584 982,849 1.1% 25,325 1,008,174 2.6% Organic Growth Acquisitions Two transactions that were expected to close in 2017 shifted to 2018.
2018 Municipal Acquisition Activity Acquisition1 Type Approx. Number of Customers Approx. Purchase Price ($000s) Expected to Close in 2018 System A WW 5,400 $75,100 System B WW 2,100 $29,500 System D W 600 $3,600 System E W / WW 2,987 $12,300 System F WW 3,838 $25,200 System G WW 1,400 $5,000 Total 16,325 $150,700 We have six municipal acquisitions that are signed and slated to close in 2018. 1) System C (Tobyhanna, PA) closed in 2017
Large Municipal Acquisitions in Development Target Approx. # of Customers Type System 1 85,000 W System 2 50,000 W System 3 45,000 W System 4 30,000 W / WW System 5 25,000 W / WW System 6 25,000 WW System 7 10,000 WW System 8 8,000 W / WW System 9 7,000 WW System 10 4,600 WW Total 289,600 - Our 10 largest municipal potential acquisitions total over 289,000 connections. These large targets are in four of our states.
Christopher Franklin Chairman, Chief Executive Officer and President Summary and Outlook NYSE: WTR
2018 Guidance Earnings Full-year earnings per share between $1.37 – $1.42 Capex Infrastructure investment of approximately $500 million in 2018 Rate Activity Customer growth of 2% to 3% year-over-year Customer Growth Aqua Pennsylvania, expects to file a rate case in 2018 Rate base growth of approximately 7% Infrastructure investment of approximately $1.4 billion through 2020 in existing operations
Q&A Session NYSE: WTR
For more information contact: Brian Dingerdissen Vice President, Chief of Staff and Investor Relations 610.645.1191 BJDingerdissen@AquaAmerica.com
Appendix NYSE: WTR
In millions except per share Q4 2017 Q4 2016 Variance Revenue $203.3 $196.8 3.3% Regulated Segment Revenue $202.6 193.8 4.5% Operations and Maintenance Expense $79.2 $77.6 2.2% Regulated Segment Operations and Maintenance Expense $80.7 $75.3 7.2% Net Income $53.5 $49.6 7.7% Net Income per Share $0.30 $0.28 7.1% 2017 Fourth Quarter Financial Results Unfavorable Change Favorable Change
Operating Revenues Q4 2017 vs. Q4 2016
Operations & Maintenance Expenses Q4 2017 vs. Q4 2016
Earnings per Common Share Q4 2017 vs. Q4 2016
Dividend History 7.0% Increase to Annualized Dividend Rate of $0.8188 Effective 9/1/2017
Rates and Infrastructure Surcharges Completed as of December 31, 2017 Rates or Surcharges Received in 2017 State Docket Number Type Awarded Annualized Revenue Increase ($thousands) Indiana 44752 Rate Case (ww) $1,896 Illinois 17-0131 Surcharge (w) $454 17-0131 Surcharge (w) $660 17-0131 Surcharge (ww) $42 17-0131 Surcharge (w) $64 17-0131 Surcharge (ww) $116 17-0131 Surcharge (ww) $128 17-0131 Surcharge (ww) $5 New Jersey N/A Surcharge (w) $1,246 N/A Surcharge (w) $706 Rates and Surcharges differentiated by water (w) and wastewater (ww) systems (Continued on next page)
Rates and Infrastructure Surcharges Completed as of December 31, 2017 (continued from previous page) Rates or Surcharges Received in 2017 State Docket Number Type Awarded Annualized Revenue Increase ($thousands) North Carolina W-215-Sub-363A Surcharge (w) $482 W-215-Sub-363A Surcharge (ww) $57 W-215-Sub-363A Surcharge (w) $25 W-218-Sub-363A Surcharge (w) $269 W-218-Sub-363A Surcharge (ww) $55 W-218-Sub-363A Surcharge (w) $28 W-218-Sub-363A Surcharge (w) $(1) W-218-Sub-363A Surcharge (ww) $31 Ohio Ordinance # 22-2013 Rate Case (w) $731 Ordinance # 14-041 Rate Case (w) $534 16-0907-WW-AIR Rate Case (w) $4,242 Pennsylvania M-2017-2625811 Surcharge (w) $9,651 M-2017-2605860 Surcharge (w) (9) M-2017-2635523 Surcharge (w) $37 Rates and Surcharges differentiated by water (w) and wastewater (ww) systems (Continued on next page) (Continued on next page)
Rates and Infrastructure Surcharges Completed as of December 31, 2017 (Continued from previous page) Rates or Surcharges Received in 2017 State Docket Number Type Awarded Annualized Revenue Increase ($thousands) Virginia PUR-2017-00017 Rate Case (w) $67 PUR-2017-00017 Rate Case (ww) $88 Total $21,604 Rates and Surcharges differentiated by water (w) and wastewater (ww) systems
Rates and Infrastructure Surcharges Completed as of February 23, 2018 Rates or Surcharges Received in 2018 State Docket Number Type Awarded Annualized Revenue Increase ($thousands) North Carolina W-218, Sub 363A Surcharge (ww) $56 W-218, Sub 363A Surcharge (w) $14 W-218, Sub 363A Surcharge (ww) $9 Ohio Ordinance # 22-2013 Rate Case (w) $769 Ordinance # 14-041 Rate Case (w) $564 Pennsylvania M-2017-2638898 Surcharge (w) $9,651 Total $11,063 Rates and Surcharges differentiated by water (w) and wastewater (ww) systems
Rates and Infrastructure Surcharges Pending as of February 23, 2018 Rates Pending in 2018 State Docket Number Type Requested Annualized Revenue Increase ($thousands) Virginia PUR-2017-00082 Rate Case (w) $1,489 PUR-2017-00082 Rate Case (ww) $399 Illinois 17-0259 Rate Case (w) $10,542 17-0259 Rate Case (ww) $1,458 New Jersey WR16010090 Surcharge (w) $1,913 Total $15,801 Rates and Surcharges differentiated by water (w) and wastewater (ww) systems