Essential Utilities, Inc. Q4 FY2024 earnings call

• Regulatory Accomplishments: Successful water and natural gas rate cases in Pennsylvania, including weather normalization implementation, fair market value statute reform. The board raised the dividend by 6% in 2024.
• Capital Investments: Installed 30,000 Intellus meters, replaced over 370 miles of water and natural gas mains, spent $27 million on PFAS mitigation in 2024.
• Acquisitions: Closed Greenville Wastewater acquisition in Pennsylvania, with six signed asset purchase agreements adding over 210,000 customer equivalents.
• PFAS Mitigation: Spent $27 million on capital to mitigate PFAS in 13 plants, with a four-year goal to mitigate ~300 plants at an estimated $450 million capital spend.

Operating revenues were up due to rates, surcharges, and increased water volume, offset by lower natural gas commodity prices. On a GAAP basis, EPS was $2.17 for 2024, up from $1.86 in 2023. Adjusted non-GAAP EPS was $1.97, which is in line with the 2024 guidance range of $1.96 to $2.00. Operating expenses grew by only 2% year over year, and the $1.3 billion capital plan was completed on target.

• 2025 EPS guidance: $2.07 to $2.11.
• 2025-2027 EPS compounded annual growth rate guidance: 5% to 7% (excluding Delcora).
• 2025 capital expenditures: $1.4 to $1.5 billion.
• 2025-2029 regulated infrastructure investments: ~$7.8 billion, with water segment rate base growth CAGR ~6% and natural gas segment rate base growth CAGR ~11% through 2029.

• Receiverships: Pennsylvania had ten water and wastewater systems placed in receivership due to undercapitalization by former owners.
• Stock Performance: Disappointing stock valuation despite strong operational performance.
• Data Center Impact: Uncertainty around the financial implications of data center growth in the natural gas service territory.
• PFAS Mitigation: Potential litigation risks and uncertainty around the timing and cost of PFAS mitigation.

Q: With M&A activity picking up, how do you think about the cadence of your $1 billion long-term net long Delcora or are there some new factors now driving it?

A: Delcora is not expected to close in 2024. The $1 billion program could last ~three years, with flexibility depending on the acquisition program's development.

Q: Can you expand on the consumer advocate situation in Pennsylvania, including timeline for a permanent nomination?

A: Tanya McCloskey was never confirmed; the acting consumer advocate Daryl is in place with similar power to a fully approved one. The timeline for a permanent nomination is undetermined, with the attorney general conducting interviews.

Q: Are you seeing any change in your PFAS strategy or capital plans, and any color on the patent-pending technology being earnings accretive?

A: No slowdown in PFAS installation anticipated. The $450 million plan is net of lawsuits and grants. The patent-pending solution is modular and cost-effective, potentially revenue-generative for other utilities.