Essential Utilities, Inc. Q2 FY2025 earnings call

• Delivered GAAP earnings per share of $0.38, a 35% increase year-over-year. Both Water and Gas businesses performed well.
• Expect GAAP EPS above $2.07 to $2.11 guidance range due to nonrecurring benefits. Reaffirmed capital investment plan of approximately $1.4 billion for 2025, with $613 million deployed by June 30.
• Participated in Pennsylvania Energy and Innovation Summit, showcased hydrogen pilot project. Addressed Texas flood recovery, restored service to customers quickly. Wrapped up employee engagement survey with increased participation, satisfaction, and improved scores. Board approved 5.25% dividend increase.
• Concluded fourth annual Essential Earth Day, honored as one of Greater Philadelphia's most community-minded businesses. Chairman-elect of Philadelphia Chamber of Commerce.
• Aqua has strong growth in rate base, O&M efficiency top quartile, outperforms in violations and safety, and has a PFAS proprietary solution with distribution agreement. Texas has significant growth and future test year legislation passed.
• Q2 revenues up 18.5% to $514.9 million. Purchased gas costs up due to higher prices and usage. O&M expenses up ~$6 million, driven by employee costs, bad debt, and legal expenses.
• Finalized $37.75 million purchase of Beaver Falls wastewater system, plan to invest $10 million. 2025 acquisitions serve ~10,300 customers for $58 million, with four more signed in PA and TX. DELCORA remains stalled.

The Gas business had net income of $17.5 million for the quarter. The Water business (Aqua) has a 140-year history, serves over 1 million customers in 8 states with over $7 billion in rate base. It expects annual rate base growth of 6% through 2029 (excluding acquisitions). Aqua's O&M efficiency is in the top quartile, outperforms nationally in water violations and safety, and has an industry-leading PFAS commitment with over 50 sites mitigated and 50 under construction. Aqua Texas has grown by nearly 25,000 connections to over 100,000 and has 90,000 under contract/negotiation.

• Expect GAAP EPS above $2.07 to $2.11 guidance range due to nonrecurring benefits.
• Reaffirmed capital investment plan of approximately $1.4 billion for 2025.
• Project combined utility rate base growth at about 8% compounded annual growth rate, Water segment ~6%, Gas segment ~11%.
• Reaffirmed 5%-7% multiyear EPS guidance through 2027, excluding DELCORA. Aim to maintain payout ratio 60%-65%.

• Regulatory challenges: Municipal systems slow to meet PFAS regulations, potential delays.
• Interest rates higher than expected, inflation impacting costs.
• Delays in DELCORA due to federal bankruptcy court stay.

Q: Nuanced question on quarterly earnings timing and FFO trends, PFAS settlement timing A: GAAP EPS above guidance range due to gas revenue, tax items, but headwinds from wet weather, interest rates. PFAS proceeds expected ~$45-46 million this year.

Q: Pennsylvania consumer advocate approach, small business advocate impact, fair market value A: Positive engagement with OCA, constructive relationships expected. Small business advocate open to conversation. May pay above RRR for rate base growth.

Q: Hyperscalers in Pennsylvania, PFAS EPA rule pushout A: Pennsylvania prime location for hyperscalers, quick turnaround expected. No change in PFAS approach, acquisitions still viable as municipalities start monitoring.