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Aqua America Reports Financial Results for Q1 2019

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Aqua America Inc. (NYSE:WTR) today reported results for the first
quarter ending March 31, 2019.

Operating results

Revenues for the quarter were $201.1 million, an increase of 3.5 percent
compared to $194.3 million in the first quarter of 2018. Rates and
surcharges and new customers from acquisitions and organic growth were
the largest contributors to the increase.

Operations and maintenance expenses increased to $79.3 million for the
first quarter of 2019 compared to $73.9 million in the first quarter of
2018. Charges related to the Peoples transaction and integration
increased expenses by $6.6 million. Excluding the impact of the Peoples
transaction, operations and maintenance expenses declined primarily due
to lower insurance claims.

For the first quarter 2019, net income was $16.9 million or $0.09 per
share (GAAP). GAAP earnings were impacted by a mark-to-market adjustment
on interest rate swaps of $34.8 million and transaction expenses related
to the Peoples transaction of $6.6 million. Excluding the Peoples
transaction-related expenses, adjusted income (non-GAAP) was $49.7
million or $0.28 per share. Please refer to the reconciliation of GAAP
to non-GAAP financial measures later in this press release for
additional information on our use of non-GAAP financial measures as a
supplement to our GAAP results.

"In the first quarter, we remained on track for another year of strong
municipal acquisition growth, record infrastructure investment and
operational excellence. Regarding the Peoples acquisition, we received
regulatory approval in Kentucky in March. In April we received
regulatory approval in West Virginia and successfully completed our
equity and debt offerings," said Aqua America Chairman and CEO Chris
Franklin. "With the Peoples integration progressing smoothly towards
closing mid-year, we are excited to be able to leverage our core
strengths on a broader platform."

Peoples acquisition update

In November 2018, Aqua filed for regulatory approval from the public
utility commissions in the three states where Peoples operates:
Pennsylvania, West Virginia and Kentucky. In March Aqua received
approval from Kentucky, and in April the company received approval in
West Virginia. In Pennsylvania, Aqua received direct testimony from the
intervenors and initiated settlement discussions.

In March, Aqua announced a $750 million investment from the Canada
Pension Plan Investment Board (CPPIB) at $34.62 per share, which
initiated Aqua's permanent financing for the Peoples transaction. The
CPPIB investment will result in Aqua issuing 21.7 million shares of
common stock and closing on this issuance, subject to certain
conditions, is expected to occur when the Peoples transaction closes. On
April 23, 2019, Aqua completed an underwritten secondary offering of
37.4 million shares of common stock at a public offering price of $34.62
per share, and the issuance of 13.8 million tangible equity units. The
aggregate proceeds of the offerings of common equity and tangible equity
units of $1.9 billion, after estimated underwriting fees and issuance
expenses, are intended to be used to fund a portion of the pending
acquisition of Peoples and pay related transaction expenses.

On April 26, the company completed a public offering of debt to fund a
portion of the pending Peoples transaction, refinance existing Aqua
notes, and fund general corporate purposes. In this offering, the
company issued $900 million of 10-year and 30-year senior notes with a
weighted average interest rate of 3.96% and a weighted average maturity
of 21 years. These senior unsecured notes received strong
investment-grade credit ratings from S&P and Moody's. In completing this
offering, the company was able to lock in long-term financing at a rate
lower than expected when the transaction was announced in October. While
the first quarter of 2019 earnings were impacted by the mark-to-market
fair value adjustment on the interest rate swaps, the interest rate
swaps were settled on April 24, concurrent with the pricing of the
senior notes and resulted in a payment by Aqua of $83.5 million as
compared to the March 31, 2019 fair value of $94.6 million. Thus, in the
second quarter of 2019, a beneficial change in fair value of $11.1
million will be recorded as income. Despite the settlement payment, the
lower debt costs for the long-term debt are ultimately beneficial for
shareholders. As a result of the completion of the secondary public
offerings of equity and debt in April, the unsecured acquisition bridge
loan commitment was reduced to $750 million. This bridge commitment was
secured in October 2018 to backstop the financing of the Peoples
acquisition.

Franklin added, "We are excited to welcome more than 740,000 customers
and 1,500 employees to our family upon the closing of the Peoples
transaction in mid-2019. We will become a much larger force in providing
essential natural resources and addressing the problem of deteriorating
infrastructure in the communities we serve. We also look forward to long
relationships with the new investors who participated in our equity and
debt offerings to support this transformational transaction."

Water utility acquisition growth

Aqua acquired three water and wastewater systems, two small systems in
Ohio and one in Virginia, totaling approximately 572 customer
connections in the first quarter of 2019. Aqua has signed agreements for
municipal acquisitions with over $100 million in expected rate base and
more than 19,000 customers that are expected to close in 2019.
Additionally, the pipeline of potential water and wastewater municipal
acquisitions that the company is actively pursuing includes
approximately 400,000 total customers in four of our existing states.
The company remains on track to grow customers between 2 and 3 percent
in 2019.

Capital expenditures

Aqua invested $133.8 million in the first three months of the year to
improve its infrastructure systems. To replace and expand its water
utility infrastructure, the company expects to invest more than $550
million in 2019 and approximately $1.4 billion through 2021. 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 2019, the company's state subsidiaries in Ohio, Illinois, and
Pennsylvania have received rate awards or infrastructure surcharges
totaling an estimated increase to annualized revenues of $4.9 million.

In August 2018, Aqua Pennsylvania filed a water and wastewater rate
case, its first in seven years. The company filed a joint settlement
agreement on Feb. 8, 2019. Rates from this settlement are designed to
add approximately $47 million in revenue and are expected to go into
effect in May 2019. The administrative law judges reviewed the
settlement and have recommended approval, and the settlement is awaiting
approval by the Pennsylvania Public Utility Commission.

Additionally, the company currently has rate or surcharge proceedings
pending in New Jersey, North Carolina and Ohio collectively totaling
$6.3 million. The timing and extent to which rate increases may be
granted by the regulatory agencies will vary by state.

Dividend

On May 2, 2019, Aqua America's board of directors declared a quarterly
cash dividend of $0.2190 per share of common stock. This dividend will
be payable on June 1, 2019 to shareholders of record on May 17, 2019.
Aqua has paid a consecutive quarterly dividend for the last 74 years.

Affirms 2019 Aqua stand-alone guidance highlights (excluding Peoples
transaction-related items and earnings impacts from Peoples post-closing)

The following is the 2019 full-year guidance:

  • Adjusted income per diluted common share of $1.45 to $1.50
  • Infrastructure investments of approximately $550 million in 2019 for
    communities served by Aqua
  • Infrastructure investments of approximately $1.4 billion through 2021
    in existing operations to rehabilitate and strengthen systems
  • Rate base compound annual growth rate of 7 percent through 2021
  • Total customer growth of between 2 and 3 percent
  • Closing of Peoples acquisition expected in mid-2019

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: May 3, 2019

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: 8691833

The company's conference call with financial analysts will take place on
Fri., May 3, 2019 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 May 3, 2019 for 10 business days following the call. To access
the audio replay in the U.S., dial 888.203.1112 (pass code 8691833).
International callers can dial +1 719.457.0820 (pass code 8691833).

About Aqua America

Aqua America is the second-largest publicly traded water utility based
in the U.S., and serves more than 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 2019; the projected total customer growth rate for 2019; the
anticipated amount of capital investment in 2019; the anticipated amount
of capital investment from 2019 through 2021; the company's anticipated
rate base growth from 2019 through 2021; the company's expected
Pennsylvania rate case order; the expected result from the company's New
Jersey, North Carolina, and Ohio rate and surcharge filings; the
company's pipeline of 400,000 potential customers; the beneficial change
in the fair value of the company's interest rate swaps; the company's
expected closing of the Peoples acquisition in mid-2019; and, the
company's anticipated strong municipal growth, infrastructure
investment, and continued operational excellence. 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 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, New Jersey,
North Carolina, and Ohio rate and surcharge filings; the company's
ability to successfully complete its acquisition of Peoples 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
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 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 "adjusted income"
and "adjusted income  per common share."  Both of these amounts
have been adjusted to exclude transaction-related expenses for the
Company's Peoples transaction, which consists of costs of $6,646
primarily representing expenses associated with obtaining
regulatory approvals, investment banking fees, legal expenses, and
integration planning.  Additionally, mark-to-market fair value
adjustments of $34,782 associated with our interest rate swap
agreements for debt issued related to this transaction are
included in transaction-related expenses.  The subsequent change
in the fair value of our interest rate swap agreements will be
included in our second quarter 2019 earnings as the interest rate
swap agreements were settled on April 24, 2019, which coincided
with the debt financings to partially fund the Peoples
acquisition.  This acquisition is expected to close in mid-2019,
once regulatory approval is obtained.

 

These financial measures are measures of the Company's operating
performance that do not comply with U.S. generally accepted
accounting principles (GAAP), and are thus considered to be
"non-GAAP financial measures" under applicable Securities and
Exchange Commission regulations.  These non-GAAP financial
measures are derived from our consolidated financial information,
and should only be used as a supplement to our GAAP disclosures.

 

The following reconciles our GAAP results to the non-GAAP
information we disclose :

 
Quarter Ended

March 31,

2019

 

2018

 
Net (loss) income (GAAP financial measure) $ 16,924 $ 50,839
Plus: transaction-related expenses for the Peoples transaction 41,428 -
Less: tax effect   (8,628 )     -
Adjusted income (Non-GAAP financial measure) $ 49,724     $ 50,839
 
Net (loss) income per common share (GAAP financial measure):
Basic $ 0.09 $ 0.29
Diluted $ 0.09 $ 0.29
 
Adjusted income per common share (Non-GAAP financial measure):
Basic $ 0.28 $ 0.29
Diluted $ 0.28 $ 0.29
 
Average common shares outstanding:
Basic   178,213       177,801
Diluted   178,552       178,238
 
 
Aqua America, Inc. and Subsidiaries
Selected Operating Data
(In thousands, except per share amounts)
(Unaudited)
   
Quarter Ended

March 31,

2019

2018

 
Operating revenues $ 201,132   $ 194,347
Operations and maintenance expense $ 79,314   $ 73,946
 
Net income $ 16,924   $ 50,839
 
Basic net income per common share $ 0.09 $ 0.29
Diluted net income per common share $ 0.09   $ 0.29
 
Basic average common shares outstanding 178,213 177,801
Diluted average common shares outstanding   178,552     178,238
 
 
Aqua America, Inc. and Subsidiaries
Consolidated Statement of Operations
(In thousands, except per share amounts)
(Unaudited)
   
Quarter Ended

March 31,

2019

2018

 
Operating revenues $ 201,132 $ 194,347
 
Cost & expenses:
Operations and maintenance 79,314 73,946
Depreciation 39,074 35,967
Amortization 336 130
Taxes other than income taxes   14,969       14,967  
Total   133,693       125,010  
 
Operating income 67,439 69,337
 
Other expense (income):
Interest expense, net 27,850 23,471
Allowance for funds used during construction (4,056 ) (2,867 )
Change in fair value of interest rate swap agreements 34,782 -
Gain on sale of other assets (220 ) (196 )
Equity earnings in joint venture (543 ) (382 )
Other   872       603  
Income before income taxes 8,754 48,708
Provision for income tax benefit   (8,170 )     (2,131 )
Net income $ 16,924     $ 50,839  
 
Net income per common share:
Basic $ 0.09 $ 0.29
Diluted $ 0.09 $ 0.29
 
Average common shares outstanding:
Basic   178,213       177,801  
Diluted   178,552       178,238  
 
 
Aqua America, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands of dollars)
(Unaudited)
   
 
 
March 31, December 31,

2019

2018

 
Net property, plant and equipment $ 6,020,340 $ 5,930,326
Current assets 143,775 147,172
Regulatory assets and other assets   916,835     886,998
$ 7,080,950   $ 6,964,496
 
 
Total equity $ 1,992,585 $ 2,009,364
Long-term debt, excluding current portion, net of debt issuance costs 2,462,855 2,398,464
Current portion of long-term debt and loans payable 189,018 159,994
Other current liabilities 245,081 238,983
Deferred credits and other liabilities   2,191,411     2,157,691
$ 7,080,950   $ 6,964,496
 

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