Market Overview

Aqua America Reports Financial Results for Q2 2018

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  • Earnings per share increased 8.8 percent to $0.37 vs. $0.34 in Q2
    2017
  • Eight municipal acquisitions signed or recently closed represent
    approximately 27,000 new customers
  • 7.0 percent quarterly cash dividend increase to $0.219

Aqua America Inc. (NYSE:WTR) today reported results for the second
quarter ending June 30, 2018.

Operating results

For the second quarter 2018, net income was $66.6 million, a 9.2 percent
increase compared to $61.0 million reported in the same quarter of 2017.
Earnings per diluted common share were $0.37 for the quarter, an
increase of 8.8 percent compared to $0.34 in 2017. Rates and regulated
growth drove the increase in earnings.

Revenue for the quarter was $211.9 million, an increase of 4.2 percent
compared to $203.4 million in the second quarter of 2017. Rate activity,
largely driven by additional revenue from infrastructure surcharge
mechanisms, and regulated growth led to the revenue increase in the
quarter.

Operations and maintenance expenses increased to $73.5 million for the
second quarter of 2018 compared to $69.6 million in the second quarter
of 2017. The effects of a favorable contract settlement and other
nonrecurring items in the prior year account for over half of the
increase.

"Thus far in 2018, Aqua continued to deliver operational excellence,
providing quality water and wastewater service across our eight states,
while growing the company through the purchase of municipal water and
wastewater utilities. We currently have eight municipal transactions
that have either recently closed or where we have reached agreements,
which is the most we have ever had at one time," said Aqua America
Chairman and CEO Chris Franklin. "Our strong financial performance will
enable us to continue to make significant investments in infrastructure
while also growing to serve more customers."

For the first six months of 2018, the company reported revenues of
$406.2 million compared to $391.2 million in the first half of 2017.
Operations and maintenance expenses for the first half of 2018 increased
to $147.5 million compared to $137.5 million in 2017.

As of June 30, Aqua reported year-to-date net income of $117.4 million
compared to $110.0 million reported through the same period of 2017, an
increase of 6.7 percent. Earnings per diluted common share were $0.66 in
the first six months compared to $0.62 in the same period last year.

Acquisition growth in regulated operations

In July, Aqua completed two wastewater system acquisitions: the Village
of Manteno, Illinois, serving approximately 3,800 customers, and
Limerick, Pennsylvania, which serves approximately 5,400 customers.
Including organic growth, the company has added more than 14,000
customers or 1.4 percent customer growth in 2018 and is on track to meet
its expectation of 2 to 3 percent customer growth for the year.

The company has six additional purchase agreements in place with
municipalities. As Aqua announced in July, this includes a signed $50.25
million asset purchase agreement with Cheltenham Township, Pennsylvania
to purchase its wastewater system serving approximately 10,500
connections. In Pennsylvania, the company also has agreements to
purchase the wastewater systems of East Bradford and New Garden, and the
water system of one other township. Additionally, the company has
agreements with two towns in Illinois. These include an agreement with a
town for its water and wastewater system serving a combined 3,000
connections and a town whose wastewater system serves over 500
connections. When all eight of these acquisitions are complete, the
company will welcome over 27,000 new customer connections to the Aqua
family from municipalities.

The company's municipal growth strategy will also benefit from new fair
market value legislation recently enacted in North Carolina that will
enable municipalities to sell their systems to regulated utilities and
generate increased infrastructure investment in those communities.

Franklin added, "We are proud to have the opportunity to be the water
and wastewater solution for so many new communities and customers. By
receiving fair market valuations for water and wastewater systems,
municipal leaders can greatly improve their communities' financial
position and address their most pressing local and municipal needs. We
are pleased with recent legislation enacted in North Carolina, where we
look forward to helping more communities as we have across our
operational footprint."

Dividend

On July 20, 2018, Aqua America's board of directors declared a quarterly
cash dividend of $0.219 per share of common stock, an increase of 7.0
percent or $0.0143, compared to the $0.2047 cash dividend the company
paid in June of this year. This dividend will be payable on September 1,
2018 to shareholders of record on August 17, 2018. This marks the 28th
dividend increase in the past 27 years, and the company has paid a
consecutive quarterly cash dividend for more than 73 years.

Capital expenditures

Aqua invested $216.6 million in the first six months of the year to
improve its infrastructure systems. The company expects to invest
approximately $500 million in 2018 and more than $1.4 billion through
2020. The capital investments made to rehabilitate and expand the
infrastructure of the communities Aqua serves are paramount to helping
it continue to protect and provide Earth's most essential resource.

Rate activity

To date in 2018, the company's state subsidiaries in Illinois, Indiana,
New Jersey, North Carolina, Ohio, Pennsylvania and Texas have received
rate awards or infrastructure surcharges totaling an estimated net
increase to annualized revenues of $20 million.

The company expects to file a rate case in Pennsylvania for the first
time since 2011 and expects to complete the filing in August.
Additionally, Aqua currently has rate or surcharge proceedings pending
in Indiana, North Carolina, Ohio, and Virginia collectively totaling a
net $8.8 million.

2018 guidance

Aqua America continues to affirm guidance for 2018, which remains
unchanged from last quarter:

  • Earnings per diluted common share of $1.37 to $1.42
  • Approximately $500 million in infrastructure improvements in 2018 for
    communities served by Aqua
  • Approximately $1.4 billion in infrastructure improvements planned
    through 2020 in existing operations to improve and expand systems
  • Aqua Pennsylvania expects to file a rate case in August 2018 with
    resolution expected in 2019
  • Total customer growth of between 2 and 3 percent

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.

Earnings Call Information

Date: Aug. 2, 2018
Time: 11 a.m. EDT (please dial in by 10:45 a.m.)
Webcast
and slide presentation link: http://ir.aquaamerica.com/events.cfm
Replay
Dial-in #: 888.203.1112 (U.S.) & +1 719.457.0820 (International)
Confirmation
code: 3083159

The company's conference call with financial analysts will take place on
Thu., Aug. 2, 2018 at 11 a.m. Eastern Daylight Time. The call and slide
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 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
2 p.m. on Aug. 2, 2018 for 10 business days following the call. To
access the audio replay in the U.S., dial 888.203.1112 (pass code
3083159). International callers can dial +1 719.457.0820 (pass code
3083159).

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.

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 earnings per share for the fiscal year
ending in 2018; the projected total customer growth for 2018; the
anticipated amount of capital investment in 2018; the anticipated amount
of capital investment from 2018 through 2020; and, the company's
expected filing of a Pennsylvania rate case in 2018. 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
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 the six
municipally owned systems presently under agreement; the company's
ability to continue to deliver strong results; the company's ability to
grow its dividend, add shareholder value and to 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 success in its Pennsylvania rate
filing; the company's ability to successfully complete its Pennsylvania
rate filing in a timely manner; and other factors discussed in our
Annual Report on Form 10-K and our Quarterly Report on Form 10-Q, which
is filed 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

 
Aqua America, Inc. and Subsidiaries
Selected Operating Data
(In thousands, except per share amounts)
(Unaudited)
               
Quarter Ended Six Months Ended

June 30,

June 30,

2018

2017

2018

2017

 
Operating revenues $ 211,860     $ 203,418 $ 406,207     $ 391,205
Operations and maintenance expense $ 73,515     $ 69,615 $ 147,461     $ 137,505
 
Net income $ 66,590     $ 60,968 $ 117,429     $ 110,040
 
Basic net income per common share $ 0.37 $ 0.34 $ 0.66 $ 0.62
Diluted net income per common share $ 0.37     $ 0.34 $ 0.66     $ 0.62
 
Basic average common shares outstanding 177,901 177,609 177,852 177,545

Diluted average common shares outstanding

  178,273       178,045   178,299       178,042
 
 

Aqua America, Inc. and Subsidiaries

Consolidated Statement of Income

(In thousands, except per share amounts)

(Unaudited)

 
    Quarter Ended     Six Months Ended

June 30,

June 30,

2018

   

2017

2018

   

2017

 
Operating revenues $ 211,860 $ 203,418 $ 406,207 $ 391,205
 
Cost & expenses:
Operations and maintenance 73,515 69,615 147,461

 

137,505
Depreciation 36,613 33,407 72,580 67,244
Amortization 149 127 279 316
Taxes other than income taxes   14,829         14,419     29,796         29,156  
Total   125,106         117,568     250,116         234,221  
 
Operating income 86,754 85,850 156,091 156,984
 
Other expense (income):
Interest expense, net 23,723 21,387 47,194 42,713
Allowance for funds used during construction (2,577 ) (3,463 ) (5,444 ) (6,656 )
Gain on sale of other assets (141 ) (10 ) (337 ) (279 )
Equity (earnings) loss in joint venture (911 ) 161 (1,293 ) 191
Other   437         1,238     1,040         2,476  
Income before income taxes 66,223 66,537 114,931 118,539
Provision for income taxes   (367 )       5,569     (2,498 )       8,499  
Net income $ 66,590       $ 60,968   $ 117,429       $ 110,040  
 
Net income per common share:
Basic $ 0.37 $ 0.34 $ 0.66 $ 0.62
Diluted $ 0.37 $ 0.34 $ 0.66 $ 0.62
 
Average common shares outstanding:
Basic   177,901         177,609     177,852         177,545  
Diluted   178,273         178,045     178,299         178,042  
 
 
Aqua America, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands of dollars)
(Unaudited)
       
June 30, December 31,

2018

2017

 
Net property, plant and equipment $ 5,541,973 $ 5,399,860
Current assets 189,374 131,246
Regulatory assets and other assets   838,998       801,357
Total assets $ 6,570,345     $ 6,332,463
 
 
Total equity $ 2,004,352 $ 1,957,621
Long-term debt, excluding current portion, net of debt issuance costs 2,181,361 2,007,753
Current portion of long-term debt and loans payable 118,540 117,419
Other current liabilities 135,442 167,069
Deferred credits and other liabilities   2,130,650       2,082,601
Total liabilities and equity $ 6,570,345     $ 6,332,463
 

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