Aqua America. Investor Presentation NYSE: WTR

Transcription

1 Aqua America Investor Presentation Christopher Franklin, President and CEO November 2, 2017

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, 2016, 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 2

3 Mission: Protecting and Providing Earth s Most Essential Resource Sustainability Customers Communities Employees Shareholders Compliance Near 100% Reliability Responsible Rate Increases Trusted Partner Top of Class Customer Service Regulatory Innovation Civic Involvement Steward of Environment Rebuild Infrastructure Promote Economic Growth Concern for Work Life Balance Ensure a Safe Working Environment Demonstrate Fair Pay / Benefits Growth and Development Opportunities Utilize Technology to Improve Efficiency Above Industry Average Longterm Growth Stable (Utility) Risk Profile Above Average Dividend Growth Buyback Opportunities Labor/ Mgmt. Partnership 3

4 Company Overview Large multi-state water & wastewater company Strong balance sheet Proven growth model History of industry leading profitability Above average dividend growth 4

5 Growth in Income from Continuing Operations per Share $1.40 Adjusted Income from Continuing Operations per Share (diluted) $1.30 $1.26 $1.32 $1.20 $1.15 $1.20 $1.10 $1.04 $1.00 $0.90 $ * 2016 Source: Aqua Annual Reports *2015: Income from Continuing Operations adjusted for Joint Venture Impairment Charge (a Non-GAAP Financial Measure) 2015 Income from Continuing Operations per Share was $1.14 5

6 Dividend History 7.0% Increase to Annualized Dividend Rate of $ Effective 9/1/2017 Dividend per Share (annualized) $ $0.80 $0.75 $0.70 $0.65 $0.60 $ $0.50 $0.45 $ Stock Split 6

7 Infrastructure Footprint as-of December 31, ,500 Miles of Water Main 21 Surface Water Filtration Plants 187 Wastewater Treatment Plants +3,000 Wells +860 Water Storage Tanks +1,100 Vehicles (50 powered by CNG) $3.75 Billion in Total Rate Base 7

8 U.S. Regulated Water and Wastewater Industry Overview Water 53,000 systems 85% of population served by municipalities Aqua serves 1% of U.S. population Wastewater 16,000 systems 97% of population served by municipalities Aqua serves 0.1% of U.S. population 8

9 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 9

10 $450,000 Building for the Future Regulated Operations Average Annual Capital Investment ($thousands) $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $ * *2017 to 2019: forecasted annual capital investments +$1.2 Billion Planned for Next 3 Years 10

11 States with Infrastructure Surcharges State OH Allowed Surcharge 12.75% water 9% wastewater IN 10% PA 7.5% water 5% wastewater NJ* 5% IL** 2.5% NC 5% *Water only **The average percentage amount allowed each year 11

12 Capitalizing on Our Competencies Capital Investment Regulatory Affairs Operational Excellence Growth 12

13 Avenues for Acquisition Growth Municipal Acquisitions We see three primary avenues for acquisition growth Strategic M&A Market-based Activities (MBA) 13

14 Valuation Legislation Illinois appraisal value legislation effective August 2013 Indiana legislation to facilitate acquisition of distressed utilities approved May 2015 New Jersey legislation to facilitate acquisition of troubled systems effective February 2015 Pennsylvania fair market valuation approved April

15 Top 70 Prospects As of July 24, 2017 On this Top 70 list, ~94% of prospective customers are from systems serving more than 2,500 customers, thus demonstrating that the shift toward larger targets has largely taken hold. 160, , Cumulative Customer Connections 120, ,000 80,000 60,000 40,000 20, < 1,000 1,000-2,499 2,500-4,999 5,000-9,999 10,000-14,999 15,000-24,999 25,000 System Size (# of connections) Total of ~500K connections 15

16 2017 Acquisitions As of October 31, 2017 State Acquisitions Closed Customers Purchase Price ($thousands) PA $5,640 IN $220 Total 4 1,003 $5, % Total Customer Growth LEGEND Aqua State with 2017 Acquisition (as of 10/31/2017) Aqua State 78% of Acquired Customers from Wastewater Systems Expected 2017 total customer growth of 1.5 to 2 percent 16

17 Pending and Completed Municipal Acquisition Activity As of October 31, 2017 Municipal Acquisitions System Type Customers Purchase Price ($thousands) 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 (Signed Q3) WW 3,838 $25,200 Closed Total 14,925 $145,700 Tobyhanna, PA (System C) WW 740 $5,545 Total 740 $5,545 17

18 Market-Based Activities Decisions by Segment Segment Transportation Services Construction Tri-State Grouting Field Services Cross-connection Consulting/Training Limited O&M Home Services Outcome Divested Contract Ended Divested Divested Divested Divested Maintain Maintain $35M of Revenue in 2015 vs. $4M Annual Contribution, with a Positive Contribution to Net Income 18

19 2017 Guidance Earnings Operations and Maintenance Expense Capex Rate Activity Customer Growth Full-year earnings per share between $1.34 $1.39 Same-system O&M increase of less than 2% for full year More than $450 million in 2017 More than $1.2 billion through 2019 in existing operations Rate base growth of approximately 6 7% Aqua Pennsylvania, as expected, filed and initiated a distribution system improvement charge effective October 1, 2017 and a rate case filing remains likely in 2018, with resolution expected in % year-over-year customer growth 19

20 What Aqua Represents to the Investor Aqua is one of the largest publicly traded water and wastewater companies, poised to address the nation s significant infrastructure needs Aqua is a balanced growth investment with a long trackrecord of dividend growth and strong performance Aqua s commitment to a strategic approach to growth Strong Balance Sheet Capital structure 50:50 Substantial Debt Capacity Room on balance sheet for growth 20

21 Differentiators Scarcity of publicly traded water utilities of size Strong regulatory relations DSIC limits regulatory lag Capital spend is discretionary No fuel or commodity expense Customer & market share growth potential Footprint in 8 states More than 95% of revenue derived from regulated operations Long-term earnings growth history Consistent long-term dividend growth Monopoly status/regulated model Strong metric comparisons Success of acquisition strategy Nominal goodwill on books 21

22 For more information contact: Brian Dingerdissen Vice President, Chief of Staff and Investor Relations

23 Appendix

24 2017 Third Quarter Highlights Operations and Maintenance Expense ($ millions) New 3,800-connection municipal system under agreement Net Income per Common Share 0.8% customer growth from organic growth and acquisitions Continues to be in line with expected 1.5-2% growth 24

25 2017 Third Quarter Financial Results In millions except per share Q Q Variance Revenue $215.0 $226.6 (5.1%) Regulated Segment Revenue $214.0 $222.2 (3.7%) Operations and Maintenance Expense $68.0 $79.8 (14.8%) Regulated Segment Operations and Maintenance Expense $70.8 $73.1 (3.1%) Net Income $76.2 $ % Net Income per Share $0.43 $ % Favorable Change Unfavorable Change 25

26 Payout Ratio 65% Payout Ratio on Income from Continuing Operations per Share (Annualized Dividend Rate) 60% 55% 53.8% 52.9% 55.0% 56.5% 58.0% 50% 45% 40% 35% * 2016 *2015 Based on Adjusted Income from Continuing Operations per Share of $1.26 (Non-GAAP Measurement) 26

27 Operating Revenues Q vs. Q

28 Operations & Maintenance Expenses Q vs. Q

29 Earnings per Common Share Q vs. Q

30 Emerging Water Regulatory Trends 4/30/13 7. IN Forward Test Year 3/27/ IN WW DSIC 7/1/ IN DSIC Increase to 10% 10/23/12 4. NJ DSIC 6/6/13 8. NC W&WW DSIC 4/14/ PA Fair Market Value /14/12 1. PA WW DSIC 2. Forward Test Year 3. WW Consolidation 3/27/13 5. OH Expanded DSIC 6. Forward Test Year 2/5/ NJ Fair Market Value 6/29/ IL Expanded DSIC 8/9/13 9. IL Fair Market Value 5/5/ IN Fair Market Value Additional information provided in appendix 30

31 Capital Investment Spending Regulated Operations 3 Year Total = +$1.2 Billion 31

32 Rate Activity 2017 Completed Rate Cases and Infrastructure Surcharges Base rate cases or infrastructure surcharges completed in IN, IL, NJ, NC, PA and OH $21.4 million in additional annualized revenue 2017 Pending Rate Cases and Surcharges Base rate cases or infrastructure surcharges in IL, NC and VA with requested annualized revenue increase of $14.1 million *Additional rate activity information provided in Appendix 32

33 Rates and Infrastructure Surcharges Completed as-of October 31, 2017 Rates or Surcharges Received in 2017 State Docket Number Type Awarded Annualized Revenue Increase ($thousands) Indiana Rate Case (ww) $1,896 Illinois Surcharge (w) $ Surcharge (w) $ Surcharge (ww) $ Surcharge (w) $ Surcharge (ww) $ Surcharge (ww) $ 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) 33

34 Rates and Infrastructure Surcharges Completed as-of October 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 (w) $55 W-218-Sub-363A Surcharge (ww) $28 W-218-Sub-363A Surcharge (w) $(1) W-218-Sub-363A Surcharge (ww) $31 Ohio Ordinance # Rate Case (w) $731 Ordinance # Rate Case (w) $ WW-AIR Rate Case (w) $4,242 Pennsylvania M Surcharge (w) $9,651 M Surcharge (w) $(9) Total $21,410 Rates and Surcharges differentiated by water (w) and wastewater (ww) systems 34

35 Rates and Infrastructure Surcharges Pending as-of October 31, 2017 Rates Pending in 2017 State Docket Number Type Requested Annualized Revenue Increase ($thousands) Virginia PUR Rate Case (w) $67 PUR Rate Case (ww) $88 PUR Rate Case (w) $1,489 PUR Rate Case (ww) $399 Illinois Rate Case (w) $10, Rate Case (ww) $1,458 North Carolina W-218, Sub 363A Surcharge (w) $14 W-218, Sub 363A Surcharge (ww) $60 W-218, Sub 363A Surcharge (ww) $9 Total $14,126 Rates and Surcharges differentiated by water (w) and wastewater (ww) systems 35

36 State by State Comparison as-of December 31, 2016 State Rate Base ($millions) Water Connections Wastewater Connections PA $2, ,787 20,440 OH ,308 6,693 IL ,494 9,753 TX ,755 16,241 NJ ,590 6,049 NC ,835 17,585 IN ,661 VA 69 25,489 7,686 Total $3, , ,108 36

37 Aqua SE PA Main Break Averages Number of Breaks per 100 miles AWWA Nationally Acceptable Main Breakage Range: breaks per 100 miles of pipe Aqua SEPA Break Rates 37

38 Repair Tax Deduction Benefits 38

39 Weighted Average Cost of Long-term Fixed-rate Debt as-of Dec. 31, % Weighted Average Cost of Long-term Fixed-rate Debt 7.0% 7.20% 7.00% 6.5% 6.60% 6.0% 6.19% 6.00% 5.5% 5.74% 5.72% 5.61% 5.59% 5.49% 5.36% 5.30% 5.0% 5.06% 5.00% 4.85% 4.5% 4.57% 4.0% % 39