WTRG

• Merger Progress & Integration

  • The proposed merger has received regulatory approvals from Kentucky, Ohio, and Virginia; a settlement in principle has been reached in Texas, public input hearings are scheduled for August in New Jersey, the North Carolina review continues with testimony recently filed, the Illinois case is with the ALJ and scheduled to conclude by November 2026, and evidentiary hearings are ongoing in Pennsylvania with ongoing negotiations.
  • Management continues to expect merger finalization in Q1 2027, and pre-closing integration planning is well underway; cross-company collaboration between Essential and the merger partner has exceeded management expectations.

• Capital Investment & Customer Growth

  • Year-to-date 2026 capital investment totals $662 million, and the company remains on track to reach a full-year record $1.7 billion in infrastructure improvements and upgrades to regulated water and natural gas systems.
  • The company recently closed the acquisition of Integra Water LLC for $4.9 million, adding 1,100 customers in Texas; signed purchase agreements for multiple small systems across several states will add ~200,000 total customers for an aggregate purchase price of ~$282 million.
  • The pipeline of potential future water and wastewater acquisitions stands at ~400,000 customers, and management expects the merged entity to accelerate acquisition activity.
  • The Del Cora acquisition remains stalled due to a federal bankruptcy court stay related to the city of Chester bankruptcy, but the enforceable purchase agreement is assumable by the merged company with no expected negative impact from the pending merger.

• Regulatory & Shareholder Commitments

  • The company is engaging constructively with Pennsylvania regulators and the Governor's office on the pending natural gas rate case and upcoming end-of-year water rate filing, and remains committed to balancing critical infrastructure investment with customer affordability while operating within the state's statutory framework.
  • The Board of Directors approved a 5.25% increase in the quarterly cash dividend (matching last year's increase), extending the company's 80-year track record of consecutive quarterly dividend payments; the dividend is payable September 1, 2026 to shareholders of record August 11, 2026.
  • Management maintains a target payout ratio of 60% to 65% and prioritizes a strong balance sheet and solid cash position.

• Management reaffirms the multi-year 5% to 7% annual normalized non-GAAP earnings per share growth guidance through 2027, anchored to the 2024 non-GAAP EPS baseline of $1.97; the outlook includes 2026 expected acquisitions but excludes the stalled Del Cora transaction.
• Full-year 2026 effective tax rate is expected to remain in the low single digits (around or less than 5%), consistent with YTD results, with a previously disclosed one-time beneficial tax item expected to be realized later in the year that supports staying within the 5% to 7% growth guidance range.
• Merger close timing remains guided for Q1 2027, with no changes to this forward expectation based on current regulatory progress.

The company reports two core regulated segments: Water and Wastewater, and Natural Gas. For Q2 2026, overall GAAP earnings per share was 37 cents, and non-GAAP adjusted earnings per share was $0.38, compared to $0.38 non-GAAP EPS in Q2 2025. Positive drivers of EPS included a $0.06 increase from regulatory recoveries and surcharges, $0.02 from higher water volumes, and $0.01 from water segment customer growth (driven by organic expansion and acquisitions). Offsetting these gains were $0.02 from higher operating expenses, $0.02 from lower natural gas volumes, and $0.06 from other items (including $0.03 from higher depreciation and $0.03 from higher interest and lower AFUDC). YTD 2026, finalized rate cases and surcharges generated $56.6 million in annualized revenue, 78% from Water and Wastewater operations (≈$44.15 million annualized) and 22% from Natural Gas (≈$12.45 million annualized). Pending rate requests total $79.7 million annualized for Water and Wastewater across 5 cases and 1 surcharge proceeding, and $163.2 million annualized for the Pennsylvania natural gas base rate case.

• The merger regulatory approval process across multiple U.S. states carries inherent timing uncertainty; while current progress aligns with the Q1 2027 close target, unexpected delays in any state (most notably, potential extended review timelines in Pennsylvania) could shift the closing date.
• Higher fuel costs driven by geopolitical conflict in the Middle East are creating ongoing upward pressure on operating expenses for the company's fleet of 3,000+ vehicles and equipment, which are reflected in current results and expected to continue until market conditions stabilize.
• The Pennsylvania regulatory environment has heightened focus on capital investment necessity and customer affordability, introducing uncertainty around the outcome of pending and upcoming rate cases.
• Certain water-related capital expenditures (such as PFAS remediation) are currently not eligible for recovery under Pennsylvania's DISC mechanism, creating uncertainty around cost recovery for mandated investments.
• The Del Cora acquisition remains delayed due to external bankruptcy proceedings, though management does not expect a lasting negative outcome.

Q: How is Essential adjusting the upcoming Aqua Pennsylvania rate case filing in response to the Governor's office focus on ROE and capital structure? / A: The company made the strategic decision to delay the Aqua Pennsylvania filing to year-end to accommodate the ongoing merger review and existing natural gas rate case in the state. It will follow all statutory requirements for filing, consistent with past practice while respecting the Governor's position. Management notes that rate cases always include multiple stakeholder positions, expects the Pennsylvania Public Utility Commission to determine a fair return for all parties, and views the 9.7% DISC ROE adjudicated in the recent American Water case as a reasonable starting point for discussions.

Q: What share of 2026 Pennsylvania capital expenditures qualifies for DISC cost recovery versus GRC recovery? / A: Approximately 55% of 2026 Pennsylvania capital investment is currently DISC eligible, lower than historical levels that were higher in years with more pipe replacement work and less general plant investment. Management has stated it will continue to advocate for expanding the DISC mechanism to include more capital items (such as PFAS remediation), which would extend the period between required rate case filings.

Q: What factors could shift the current Q1 2027 merger close date, and are any processes currently off plan? / A: All regulatory processes are largely proceeding according to plan, with all states holding to their existing procedural timelines. While minor bumps are typical in multi-state regulatory reviews, there are no major unexpected delays to date. The only potential variable noted is the timing of the Administrative Law Judge recommendation in Pennsylvania, which could move the timeline slightly earlier or later, but current information comfortably supports the Q1 2027 close target.

Q: Are there any unusual cost pressures or one-time items to expect for the remainder of 2026 beyond the disclosed tax one-timer? / A: Higher fuel costs driven by the ongoing conflict in the Middle East are the only notable unusual input cost pressure, as the company operates over 3,000 vehicles and pieces of equipment that are affected by fuel price increases. This pressure is already incorporated into current results and is expected to remain in place through the rest of the year until geopolitical and market conditions calm; there are no other material unusual items to note for the remainder of 2026.