Q3 2019 Earnings Call
We will be referencing in a webcast of this event can also be found on our site.
As a reminder, some of the matters discussed during this call may include forward looking statements that involve risks uncertainties and other factors that may cause the actual results to be materially different from any future results expressed or implied by such forward looking statements.
Please refer to our most recent 10- Q1 0-K and other SEC filings for a description of such risks and uncertainties.
During the course of this call reference may be made to certain non-GAAP financial measures.
A reconciliation of these non-GAAP to GAAP financial measures is included at the end of the present.
The section of the website after the presentation, we will open the call up for questions.
Before handing the call over to Chris I would like to formally introduce a new addition to the IR team at Aqua.
Rene marquee, who has been with the company for five years in various financial roles has recently been promoted to director of Investor Relations. She has hit the ground running and you will start to see her on the road at various investor and beds at this time I'd like to turn the call over Chris Franklin Hey, Thanks, Brian . Thank you everyone for joining I'll add my warm welcome to renew as wells as Brian said is real.
Hit the ground running and happy to have her on our team.
Now, let's start today's call with a couple of highlights from the quarter followed by.
A brief update on the People's transaction that Dan is going to discuss the financial results as well as our rate activity macros of you've heard from before our executive Vice President strategy and corporate development.
An overview of our recent progress on municipal growth.
And finally ill conclude the call with a review of our guidance for 2019, and then open the call for questions.
So the third quarter was certainly an exciting one.
In summary, we continue to deploy a large amount of capital we reached a significant milestone with the People's acquisition.
And we saw the People's rate case go into what effect.
And we also announced the largest municipal acquisition in our 133 year company history, so quite a quarter.
Let me give you a little bit more details.
We remain on track for record capital spending of about $550 million this year.
And in the first three quarters of the year, we've already invested over 400 million in infrastructure renewal, which as you know consistently delivers value to our customers communities in the shareholders.
Investing infrastructure is at the core of our mission to deliver safe and reliable service. We're also helps to drive earnings growth.
On the financial front, our non-GAAP earnings per share increased by over 9% compared to the same period last year.
On the growth front, our municipal acquisition strategy continues to deliver results in September .
We announced a signed purchase agreement with Dell Cora, which many of you know as a large municipal wastewater authority in southeastern Pennsylvania, and Masco to give you more details on that having slides.
And finally, we received the much anticipated decision from the Pennsylvania administrative law judge and the recommendation was in favor of the People's transaction, which I'll talk a little bit more on the next slide here.
Your slide eight provides an overview of the transaction timeline related to the regulatory process for People's.
As reported on the last earnings call. We received the Kentucky approval in March and West Virginia back in April and then more recently here on October 20, Eightth, we received the proposed decision.
The ale Jay recommending that the public utility Commission here in Pennsylvania issue, all approvals necessary for the company to carry out the acquisition of peoples.
So in terms of next steps.
The parties, who don't agree with the settlement agreement can file exceptions disagreeing with the ALJ recommendation and the PC, we'll consider those arguments.
A formal vote will take place by all five you see commissioners at a public meeting likely in December or January based on our projected timeline.
Not say that.
We are pleased with the ALJ recommendation.
And respect the process and the procedure, which now allows a full review by the public utility Commission.
As such we now anticipate the closing of the People's trend the transaction or acquisition in late 2019 or early 2020.
With that let me turn the call over to Dan to discuss our financials for the third quarter.
Thanks, Chris Good morning, everyone.
Let's begin with the third quarter financial highlights were again reporting non-GAAP numbers this quarter that adjusts for the impact of the People's transaction and integration.
We reported revenues of 243.6 million in the third quarter 2019, 7.7% compared to 226.1 million in the third quarter of 2018.
Operations and maintenance expenses were 82 million in the third quarter compared to 68.6 million in last year's third quarter.
Moving on to GAAP net income, which includes items related to People's transaction, We reported 88.5 million compared to 78.2 million in a third quarter of 2013.
GAAP earnings per share, including People's related expenses and incremental shares were 38 cents in the third quarter compared to 44 cents in 2018.
So.
Good for People's related charges income was up 9.4% from 78.2 million to 85.6 million.
And as you can see it on the bottom ROE the table adjusted income per share was up 9.1% to 48 cents per share from 44 cents per share in the third quarter 2018. This non-GAAP measure removes people's related items, including the equity raise to complete the transaction.
Now, let's move onto the revenue waterfall on slide 11, breaking down the 7.7% revenue increase you'll see that rates and surcharges was the main driver at over $15 million with Pennsylvania, Brean being the primary contributor.
Growth at an additional almost 2 million. This was driven primarily by acquisitions in Pennsylvania, and Illinois inorganic growth in Pennsylvania, North Carolina and Texas.
Volume was up by 429000, driven by wastewater and other items increased revenue by 216000.
Next we'll discuss the OEM waterfall on slide 12.
Operations and maintenance expenses were $82 million for the third quarter compared to 68.6 million in the third quarter of 2018.
The main contributors were the 2018 nonrecurring items and cost from the People's transaction and integration, which increased LM by 5.8 million and 2.5 million respectively.
That 5.8 million $3.9 million was the favorable reduction to a regulatory liability that we mentioned on last year's third quarter call.
Walking through the other drivers other items increased by approximately 2.4 million employee related costs increased by less than 2.1 million growth both from acquisitions and organic growth added 684000 expense.
Excluding the nonrecurring items and transaction related expenses OEM growth would have been inline with our historical expectations.
Next let's review the drivers of EPS on slide 13.
In walking through the EPS waterfall from left to right you can see that rates in surcharges increased EPS materially with an incremental 6.4 cents.
Gross volume and other also contributed.
Expenses were higher which reduced EPS by 4.6 cents. This.
This brings the adjusted income per share for the third quarter 248 cents up over 9% from last year's Q3 EPS.
GAAP EPS included two additional items from the People's transaction.
7.4 cents to adjust for the dilutive effect of the equity offering as well as 2.4 cents per transaction and financing expenses. This price GAAP EPS to 38 cents for the third quarter.
Moving on to rate activity on slide 14 in 2019, so far we've completed rate cases are surcharges in Illinois, New Jersey, North Carolina, Ohio, and Pennsylvania totaling annualized revenue of 59.8 million.
We saw the impact of these increases when we discuss the revenue waterfall few minutes ago.
In the coming months, we expect about water wastewater rate cases in North Carolina, New Jersey and Indiana.
On slide 15, I'd like to give you a brief update on the People's Pennsylvania rate case, given its importance.
You'll recall that people style, the Pennsylvania rate case in January requesting 94.9 million in additional annualized revenue.
This case was the first consolidated case for the People's and equitable divisions and supported the largest infrastructure rehabilitation program in the company's history.
A settlement agreement was filed in this case in July and following a commission order new rates went into effect on October 29, totaling approximately 59 in half million in additional annualized revenue.
As mentioned previously people has not elected repair tax in Pennsylvania, yet and we're evaluating how to implemented. This takes a fair amount of work is there are several factors, including defining the unit of property identifying how much of the capital is repair eligible and conducting repair study to determine the catch up deduction.
As you'd expect this is something we anticipate implementing in 2020 once we own the company given the success that we've had with this mechanism for our Pennsylvania water customers.
Where we were able to invest over 2 billion in infrastructure without raising rates from 2012 until may of 2019.
We'll be prepared to speak about the potential impact repair during our upcoming analyst day.
With that ill hand, it over executive Vice President strategy and corporate development, Matt roads.
Thank you Dan.
As Chris previously mentioned in September we announced the signed asset purchase agreement with the Delaware County Regional water quality control authority known as del Cora. This is highlighted on slide 17.
The purchase price of the transaction is 276.5 million.
This municipal waste water authority is located in southeastern Pennsylvania, surged 42 municipalities and approximately 500000 people and marks the largest municipal acquisition and our company's history is also largest every munis municipal deal in the state of Pennsylvania.
Estimates that core provides wastewater serve as to approximately 165000 retail customer equivalents.
Now for system includes over 180 miles of pipe and as a customer base, consisting of retail commercial and industrial customers as well as large wholesale agreements with municipal authorities.
Post acquisition, there are approximately 50 million gallon per day wastewater treatment plant in the western portion of their service territory will be the largest wastewater treatment plant that we own and operate the eastern service territory currently conveys waste water to the Philadelphia water department or PWT through a contract that is set to expire in two.
28.
Given this delcor as responsible for a portion of PWT use in Philadelphia is EPA mandated costs to separate its combined storm and sewer.
If I look forward to stay with Pwc over the long term, it's total expected cost related to the Philadelphia EPA mandated costs its own EPA mandated costs related to combine storm and sanitary sewer and the city of Chester and other workforce wastewater plant and pipeline rehabilitation rehabilitation.
Our expected to be 1.2 billion through 2042. This is expected to increase delcor a customer aid substantially over the long term.
To mitigate this delcor plans to build the infrastructure to divert the waste water flows from Pwc D, which also requires the expansion of delcor as existing plant to approximately 100 million gallons per day.
Our goal is uniquely positioned to make these investments given its extensive expertise in large and complex projects totaled delcor, our capex under our ownership through 2028 is estimated to be approximately 700 million.
With the majority to be spent in 2026 to 2028.
Delcor intends to use all net proceeds from the sale to establish a rate stabilization plan, which will help to offset customer rate increases in the future due to the large capital cost a delcor faces. So we feel that the combination with Doe Cora is a win win for both parties involved.
We expect the transaction to close in late 2020, we plan to fund the Delcor acts acquisition with a combination of debt and equity and as we've discussed on previous calls. This could include an aftermarket equity program.
In addition, Aqua already operates in many of the same community. These as though Cora as you can see on slide 18, there are significant overlap in the two foot footprints between Aquas water service territory and Delcor as wastewater service territory Aqua is deeply entrenched in the local communities were Delcor operates.
As well position to effectively service customers and these communities as a whole.
Moving to the next slide as we've noted in the last several calls we continue to see a strong strong municipal deal flow, especially in our seven states with fair market value loss. This slide details, our 10 signed agreements, including nine with municipals for approximately 188000 customer connections.
This includes the Delcor acquisition, assuming it serves a 165000 retail customer equivalents, which I mentioned earlier.
Just recently on October 24th this Google and Shelton Ham acquisitions were also approved by the Pennsylvania Public Utility Commission and these deals are expected to close before year end the tool and net Illinois transaction shown in the table are also expected to close this year.
Although some of these transactions are expected to close in 2020, we still expect a total new customers added in 2019, along with organic growth to be within our targeted customer growth range of 2% to 3%.
Also as noted in the last call. It is important to note that for every 100 million in rate base from acquisitions that are added through municipals, we expect approximately 5 million in additional earnings to be generated from this increased rate base, excluding any pursuit costs.
In addition to our signed acquisitions in recent quarters. We have also highlighted some of the opportunities are pursuing that are still in the earlier stages. As slide 20 demonstrates we are actively pursuing acquisition opportunities in several of our existing states totaling approximately 275000 customers. We're also seeing more and more larger opportunity.
These many over 25000 connections now I'd like to pass the call back to Chris.
Thanks, Matt.
Lets conclude with a quick review of our 19 guidance then we'll open it up for questions.
We are reaffirming our standalone 2019 guidance for Aqua, along with an updated timeframe, where the expected closing of the People's transaction.
We expect Aqua Standalone adjusted income to be $1.45 to $1.50 per share. This excludes the impact of the people's transaction, including the associated equity offering.
We are on track to spend approximately $550 million on replacing an improving pipes and plants and other infrastructure.
This would be another record year of infrastructure spending across the jaco platform and through 2021.
Expect to invest approximately 1.4 billion.
And this will help drive our rate base growth of about 7%.
As mentioned earlier, we have 10 signed acquisition agreements and together with organic growth growth, our customer count will increase by 2% to 3% this year.
Finally, we've passed most of the important milestones in the regulatory process and in our integration planning for the People's acquisition and explode expect to close in late 2019 or early 2020. After the PPA you see carefully considers the acquisition case.
Given the new closing expectations for People's we are going to delay the investor day that was planned for December we now plan to hold that Investor day, when we announce our full year earnings in New York on February 27th at that event, it's our intention to provide longer term guidance.
And as I said boot previous calls, we'll provide that longer term guidance only after we finished the awkward rate case, which is now complete so people's rate case again, not complete close the People's transaction. We've discussed at roughly 19 early 20 and do the analysis of the repair tax that Dan discussed in his.
Comments today.
So with that I'd like to open the call for questions.
At this point.
Thank you if he would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speakerphone. Please make sure you're the attraction and turn up till now you're still not to reach our equipment again press star one to ask a question, we'll pause for just a moment if you want an opportunity to signal for questions.
Our first question comes from Durgesh Chopra of Evercore.
International.
Good morning team.
Hey, guys Sharia.
Good. Thank you for taking my question good quarter here, so im clearance from the drivers.
Can you just talk about the wiki settlement and peoples gas, how does that compared to.
You might have had in your models when you were kind of looking at the deals.
In the U.S for fewer.
Of course full year of accretion of the combined company how does it how does it fit.
We're seeing internal projections.
Yes, so digress simply said that so we're pleased with the rate case outcome and the revenue outcome. There is right in the landing zone that we expected in our modeling for the transaction, so very very comfortable with that where that came out.
Yes, Weve continued you as the as we've talked.
This is an expected to be this will be an accretive transaction for us in that first full year of ownership.
So no change from that and obviously, we'll give more guidance on that when we have our analyst day now in February .
Okay Awesome and then just.
Maybe just walk us through and I apologize if you've done this in the previous calls, but just walk us through sort of the gating items on the repairs tax election. So.
So you have to make a decision whether economic sense and then go to the regulators for approval how does that I was a process work and just sort of the and the gating items to get to getting there.
Yes, the primary gating item is.
This repair study in the repair study durgesh, but that really does is it has us look back at at capital that has been extended over the past several years.
To determine how much of that capital would have been repair eligible and that's really the establishment of that that catch up deduction.
And so that's one piece of this which is a gating item, which take time obviously.
Another item is obviously the the decision for determining what the frame Merck is what that unit of property yet.
Yes, what the threshold.
Related to that is and.
How much of the capital would be repair outlive Cuba.
But in terms of the actual kind of course the events one we have that repair study.
Lead Ed.
We can file with the IRS to allow us to implement the repair tax deduction.
So we can go ahead and do that.
And then.
We would we would then look to the commission in terms of.
How do we think about and how do we adjudicate that that catch up deduction. So that's a staff per piece that comes after that.
Youll recall that Frackville, Pennsylvania, we had processes that allowed us to.
To to amortize that catch up deduction in over a 10 year period at time.
So we'll look for something here to be helpful with that that catch a production as well, but the actual implementation of the repair tax comes from that IRS filing will do.
Right and then just on on on Dell core.
Well.
Should we think about the timeline or were you getting too close there.
So yes, so I guess, so we're going to expects to file our PC applications. Some time in early 2020.
And then.
It would take six to nine months from that point. So we're looking at a Lee.
2020 closing for though core.
So you guys we've already begun work.
And we barb and working on.
The assignment of contract through the number of contracts associated with the with the core.
So some of those public meetings have already in place.
Contracts have been.
Going well so.
As Matt said that leads so filing at the PMC.
Under the fair market value legislation.
Okay.
We were six yeah, we would expect it to be yes.
Okay. Okay. So then I give my follow on to that was.
This whole idea of the trust account the money going into a trust for rate payers to offset future rate increases I mean.
That ducts that sounds like a much different.
You know look than the prevailing logic of back 12, which was the selling municipality.
Maximizing.
No there their own financial benefit by by being able to so above book value. So.
How does a how does how did the square those things that we're going into it.
Trust and yet it is a 12 deal.
And who are the only thing.
While this was curious how the.
At all played out.
Well I think don't core.
Most focused on on keeping customer rates when the reason a really started talking not quite as they're facing a lot of capital cost over the coming years, which would on a standalone basis would increase their customer rates pretty substantially.
Over over the next.
Several years.
And a lot of anarchist offset customer rates.
For as long as possible and as you know Ryanne Needham.
In some of these transactions municipal transactions can have implications for for what future aid set to municipal B and so so delcor was looking for a purchase price that optimize was it was a fair purchase price.
It also helps mitigate longer term rates. After this trust was the is exhausted. So now is really the a lot of the rationale for the purchase price and the discussion with October .
This trust will be administered fully by dual core.
Going forward, but its sole purpose will be to offset any future rate increases that opco may have for these customers right at all.
Yeah.
I'll just add what Matt said with.
Until a core.
First talk to US you talked about three principles right, one one and rates to remain low there won't be able to address this vast capital need generated by the the the exit from.
Philadelphia water apartment and they want to take care of their employees long term.
And started to core was.
It's from the scale standpoint, I mean, obviously the pipeline is solid as you talked about them out but it does seem like it's kind of a barbell the of this very low so.
And a lot of slots Paul or one.
I mean, what does is still core sort of a one off and that size, so there or anything or is there anything approaching.
You know that magnitude out there should we just really over the next several years more be looking for.
I don't know the standards smaller type transactions.
Hi, I think with careful and how we answer that Ryan as you would just back.
But I I think.
You know as we talked about it in here, we have some large things that are.
Her in the pipeline and and some medium.
Or but I I would not say that Oh, we see delcor as a that's a one off.
Other possibilities that seems sided range.
That week.
Thank you Bob.
Across our footprint.
Or maybe.
Specifically in the areas you already exist for water.
Yeah, I mean, it that's probably the easiest one.
Give me a thought knowing a kick it Matt but.
You know if you look across our water platform Oh, we have a whole lot of opportunities when we think about the the creative writing.
Pipeline that we purchased about a year ago.
There are certainly some interest in that area.
As well as a in some other areas, where we currently serve the water.
And that's.
You know, where we where are we should look first frankly and so that's that's a lot of the work we've done not only here in Pennsylvania, but.
But but across the footprint and I would say this generally.
I think Tim we've talked about this before.
But the politics are.
So at least slightly easier when it comes to wastewater because there is not the same affinity that people fine with their water source and so I think you'll see a lot more waste water in the coming years.
A recent deals that we've we've done in Pennsylvania, and other places and and then if you look at our pipeline. We're sorry, we do see a lot of waste water wastewater opportunities in front of us and.
As Chris said, there's there's less affinity for wastewater compared to water and also it it can be more difficult to operate in some cases, there can be more violations that somebody's munis bat mean municipalities have related to their wastewater and so.
It makes more sense for them to to look to or another.
Option and to sell to talk was so we're really seeing a pick up and wastewater.
I expect that to continue over the coming years.
Now do you guys have you believe this sort of social our news.
ER that rates across the water and waste water.
You know for like.
Mmm uniform results or something that age or the.
Okay. So the need for rate increases improved their situations like this.
<unk> or.
Well, let's think about it in two ways right one is.
Out of the Pennsylvania, Tim that that ability thousand doesn't exist in other states like knowledge.
Okay. Thank you guys.
You bet. Thank you.
At this time, we have no further questions in queue. Thanks to return the call Fritz back todays speakers.
Well as always were were available for up for follow up but the thank you for joining the call today and are.
See you soon.
Thank you ladies and gentlemen, this concludes todays teleconference. You may now.
Yeah.
Good day and welcome to the Aqua Americas third quarter 2019 to earnings call.
Today's conference is being recorded at the time I'd like to turn the conference over to Mr., Brian Dingerdissen. Please go ahead Sir.
Thank you Cassidy good morning, everyone and thank you for joining us for Aqua Americas third quarter 2019 earnings call.
If you did not receive a copy the press release, you can find it by bids in the Investor Relations section of our website.
And our core market Dot com.
The slides will we we will be Bradford CNN a webcast of this event can also be found on our site.
As a reminder, some of the matters discussed or in this call.
May include forward looking statements doesn't involve risks uncertainties and.
And other factors that may cause the actual results to be materially different from any future results expressed or implied by such forward looking statements.
Please refer to our most recent 10- Q1 0-K.
And other S T SEC filings for a description of such risks and uncertainties.
During the course of this call reference may be made discharge non-GAAP financial measures.
A reconciliation of these non-GAAP to GAAP financial measures.
Included at the ended the presentation and also posted in the Investor Relations section of the web site.
After the presentation, we will open the call up for questions.
Before handing the call over to Chris I would like to formally introduce a new addition to the IR team at Aqua.
Rene Marquee, who has been went the company for five years in various financial roles has recently been promoted to director of Investor Relations.
She has hit the ground running and you will start to see her on the road at various investor that's.
At this time I like to turn the call over current Franklin.
Hey, Thanks, Brian . Thank you everyone joining I'll add my warm welcome to Rene as well as cheap as Brad said, it's you really hit the ground running.
Happy to have her on our team.
I want to start today's call with a couple of highlights from the quarter.
Bye.
A brief update on the people transaction.
Dan it's going to discuss the financial results as well as our rate activity.
Matt Rose.
You've heard from before our executive Vice President strategy corporate development.
You know you have a recent progress on municipal growth.
And finally, I'll conclude the call with a review of our guidance for 2019.
And then open the call.
Question.
So the third quarter was certainly an exciting one.
In summary, we.
We continued to deploy a large amount of capital.
We reached a significant milestone with the People's acquisition.
When we solve of People's rate case go into what effect.
We also announced the largest municipal acquisition.
In our 133 your company history.
So quite a quarter.
Let me give you a little bit more details [noise].
[noise] remain on track or record capital spending of about $550 million this year.
And in the first three quarters of the year, we've already invested over 400 million.
And infrastructure renewal.
It's a it's you know consistently delivers value to our customers.
Immunity to the shareholders.
Investing in infrastructure is at the core of our mission to deliver safe and reliable service.
Also helps to drive a earnings growth.
On the financial fraud.
Our non-GAAP earnings per share increased by over 9% compared to the same period last year.
On the growth from our municipal acquisition strategy continues to deliver results.
In September .
We announced a signed purchase agreement.
With Dell Cora.
Which many of you know as a large municipal wastewater authority in south Eastern Pennsylvania, and Vasco you'd be more details on that.
Yes.
And finally, we received.
The let's say dissipated decision from the Pennsylvania administrative law judge.
And the recommendation was in favor of the People's transaction.
I'll talk Cold War on the next slide here.
Sure a slide eight provides an overview of the transaction timeline related to the regulatory process for People's.
As reported on the last earnings call.
We received the Kentucky approval in March.
In West Virginia back in April .
And then more recently here on October 28.
Received the proposed decision.
The Lj recommending that the public utility Commission here in Pennsylvania.
Issue all approvals necessary.
For the company to carry out the acquisition of peoples.
So in terms of next steps.
The parties, who don't agree with the settlement agreement can file exceptions.
Disagreeing with the L. James recommendation and the P. you see we'll consider those arguments.
A formal vote will take place by all five who you see commissioners at a public meeting.
Well likely in December or January based on our projected timeline.
Now I'd say that.
We are pleased with the L. James recommendation.
And respect the process and the procedure, which now allows a full review.
The public utility Commission.
And as such.
We now anticipate the closing of the People's trend transaction or acquisition in the late 2019.
Early in 20 Twond.
With that.
Let me turn the call over to Dan to discuss our financials for the third quarter Dan.
Thanks, Chris Good morning, everyone.
Let's begin with third quarter financial highlight.
We are again reporting non-GAAP numbers this quarter, there just for the impact to the People's transaction and integration.
Reported revenues of 243.6 million in the third quarter 29 team.
7.7 per cent compared to 226.1 million in the third quarter 2018.
Operations and maintenance expenses were 82 million in the third quarter compared to 68.6 million in last year's third quarter.
Moving on to <unk> GAAP net income, which includes items related to the People's transaction, We reported 88.5 million compared to 78.2 million in a third quarter of 28.
GAAP earnings per share, including People's related expenses and incremental shares.
Were 38 cents in the third quarter compared to 44 cents in 28 team.
When adjusted for People's related charges income was up 9.4% from 70.2 million to 85.6 million.
And as you can hit on the bottom rolled off the table.
Adjusted income per share was up 9.1% to 48 cents per share from 44 cents per share in the third quarter 2018.
This non-GAAP measure removes people's related items, including the equity raise to complete the transaction.
Now, let's move on to the revenue waterfall on slide 11.
Breaking down the 7.7% revenue increased you'll see that rates and surcharges was the main driver and over 15 million.
Pennsylvania breed being the primary contributor.
Growth, adding an additional almost 2 million.
To ensure primarily by acquisitions in Pennsylvania, and Illinois, inorganic growth in Pennsylvania, North Carolina and taxes.
Volume was up by 429000 driven by wastewater.
And other items increased revenue by 216000.
Next we'll discuss T O one m. waterfall on slide to file.
Operations and maintenance expenses were 82 million for the third quarter compared to 68.6 million in the third quarter of 20 team.
The main contributors were the 2018 nonrecurring items and costs from the People's transaction integration, which increased a one m. by 5.8 million and 2.5 million respectively.
Oh that 5.8 million.
3.9 million was the favorable reduction to a regulatory liability that we mentioned on last year's third quarter call.
Walking through the other drivers.
Other items increased by approximately 2.4 million employee related costs increased by less than 2.1 million.
Growth, both from acquisitions and organic growth.
As it 684000 of expense.
Excluding the nonrecurring items and transaction related expenses, Oh, one m. growth would have been inline with our historical expectation.
Next let's review the drivers of eat yes on slide 13.
[noise] in walking through the MPS waterfall from left to right you can see that rate since her charges increased as materially with an incremental 6.4 cents.
Gross volume and are there also contributed.
Expenses were higher which reduced EPS by 4.6 cents.
It's bringing the adjusted income per share for the third quarter 248 cents.
Up over 9% from last years Q3, yeah.
GAAP EPS included two additional items from the People's transaction.
7.4 cents to adjust for the dilutive effect of the equity offering as well as 2.4 cents per transaction and financing expenses.
This price gap as to 38 cents for the third quarter.
Moving on to rate activity on slide 14 in 2019, so far we completed a rate cases are surcharges in Illinois, New Jersey, North Carolina, Ohio, and Pennsylvania.
Totaling annualized revenue of 59.8 million.
We saw the impact of these increases when we discuss the revenue waterfall few minutes ago.
In the coming months, we expect to file water wastewater rate cases in North Carolina, New Jersey and Indiana.
[noise] [noise] onsite 15, I'd like to give you a brief update on the People's Pennsylvania rate case, given its importance.
Your call that people style, the Pennsylvania rate case in January requesting 94.9 million additional annualized revenue.
This case was the first consolidated case for the people and I put a little division and supported the largest infrastructure rehabilitation program in the company's history.
That's a settlement agreement was filed in this case in July .
And following a commission order new rates went into effect on October 29.
Totaling approximately 59 and a half million an additional annualized revenue.
As mentioned previously People's has not.
Elect to repair tax in Pennsylvania, yet and we're evaluating how to implement it.
It takes a fair amount of work is there are several factors, including defining the unit a property.
Identifying how much of the capital is repair eligible and conducting repairs today due to determine the catch up deduction.
As you do expect it's something we anticipate implementing in 2020 once we own the company given the success that we've had with this mechanism for our Pennsylvania water customers.
Where we were able to invest over 2 billion in infrastructure without raising rate from 2012 until may of 29 team.
Well be prepared to speak about the potential impact to repair during our upcoming analyst day.
With that I'll hand, it over to executive Vice President strategy and corporate development macros.
Thank you Dan.
As Chris previously mentioned in September we announced the find the asset purchase agreement with the Delaware County region old water quality control authority known as Bell Cora. This is highlighted on slide 17.
The purchase price of the transaction is 276.5 million.
This meaningful waste water authority is located in southeastern Pennsylvania serves 42 municipalities and approximately 500000 people add marks the largest municipal acquisition and our company's history.
It is also the largest severed munis municipal deal and the state of Pennsylvania.
Ocho estimates that Doug core provides wastewater service to approximately 165000 retail customer equivalents.
No core system includes over 180 miles of pipe and have a customer base, consisting of retail commercial and industrial customers as well as large wholesale agreements with municipal authorities.
Post acquisition, there are approximately 15 million gallon per day wastewater treatment plant in the western portion of their service territory will be the largest waste water treatment plant that we own and operate.
The Eastern service territory currently conveys wastewater.
To the Philadelphia water Department or PW D to a contract that is set to expire in 2028.
Given this go core is responsible for a portion.
P. diabetes in Philadelphia is EPA mandated cost.
To separate its combine storm and sewer.
Yeah, So coral were to stay with Pete EVD over the long term.
Total expected cost related to the Philadelphia EPA mandated costs.
Its own the EPA mandated costs related to combine storm and sanitary sewer and the city of Chester.
And the other work for its waste water plant and pipeline rehabilitation rehabilitation are expected to be 1.2 billion through 2040 to.
This is expected to increase del core customer aid substantially over the long term.
To mitigate this delcor plans to build the infrastructure to divert the waste water flows from P to P. D, which also requires the expansion of del cores that existing plan to approximately 100 million gallons per day.
I quoted uniquely positioned to make these investments.
Given that its extensive expertise and large and complex projects.
No there they'll core a capex under our ownership through 2028 is estimated to be approximately 700 million.
With the majority to be spent.
In 2026 to 20 to 28.
So core intends to use all net proceeds from the sale to establish a rate stabilization plan, which will help to offset customer rate increases in the future due to the large capital costs that they'll core face.
So we feel that the combination with Doe core is a win win for both parties involved.
We expect that transaction to close in late 2020.
We plan to fund the Doe core acts acquisition.
With a combination of debt and equity.
And as we've discussed on previous calls this could include an aftermarket.
Equity program.
In addition, Aqua already operates in many of the same communities as though core.
As you can see I'm fly at 18, there a significant overlap in the two for footprints between Octopus water service territory, and Dell core as wastewater service territory.
Our goal is deeply entrenched in the local communities were Delcor operates.
Is well positioned to effectively serve its customers and these communities as a whole.
[noise] moving to the next slide.
As we've noted in the last several calls we continue to see a strong strong municipal deal flow, especially in our seven states with fair market value loss.
This slide details are 10 signed agreements, including nine would be knispel. Those for approximately 188000 customer connections. This includes the Dell core acquisition, assuming it serves a 165000 retail costs.
Summer equivalents, which I mentioned earlier.
Just recently on October 24th the school and Shelton Ham acquisitions were also approved by the Pennsylvania Public Utility Commission and these deals are expected to close before year end.
The to fill unmet, Illinois transaction shown in the table are also expected to close this year.
Although some of the transactions are expected to close in 2020.
We still expect a total new customers added in 29 team along with organic growth to be within our targeted.
Customer growth range of 2% to 3%.
Also as noted in the last call. It is important to note that for every 100 million in rate base from acquisitions that are added through Minas Bulls, we expect approximately 5 million in additional earnings to be generated from this increased rate base.
Excluding any pursuit cost.
<unk>.
In addition to our signed acquisitions in recent quarters. We have also highlighted some of the opportunities are pursuing that are still on the earlier stages.
Slide 20 demonstrates we are actively pursuing acquisition opportunities in sample our existing states totaling approximately 275000 customers.
We're also seeing more and more larger opportunities many over 25000 connections.
Now I'd like to pass the call back to Chris.
Thanks, Matt.
Lets conclude with a quick review aboard 19 guidance.
And we'll open up for questions.
We are reaffirming our standalone 2019 guidance for Aqua, along with an updated timeframe.
The expected closing of the People's transaction.
We expect Aqua Standalone adjusted income to be $1.45 to $1.50 per share.
It's excludes the impact of the People's transaction.
Moving the associated equity offering.
We are on track to spend approximately 550 million minute on replacing an improving pipes implants and other infrastructure.
This would be another record year of infrastructure spending across the jaco platform.
Through 2021 <unk>.
We expect it wouldn't best approximately 1.4 billion.
And this will help drive our rate base growth of about 7%.
As mentioned earlier.
We have 10 signed acquisition agreements.
Together with organic growth growth.
Customer count will increase by 2% to 3% this year.
Finally.
Weve passed most of the important milestones in the regulatory process.
And in our integration planning for the People's acquisition and explode expect to close in late 2019 or early 2020.
After the game here you see carefully considers the acquisition case.
Given the new closing expectations for People's we are going to delay the investor day that was planned for December .
We now plan to hold that Investor day, when we announced our full year earnings in New York on February 27.
At that event, it's our intention to provide longer term guidance.
And as I said on previous calls, we'll provide that longer term guidance only after we finished the OCC or rate case, which is now complete.
Oh People's rate case again not complete.
Close to the People's transaction discussed that really 19 early 20.
And do the analysis of the repair tax.
And discussed.
His comments today.
With that I'd like to open the call for questions.
At this point [noise].
Thank you.
I would like to ask a question. Please take note by pressing star one on your telephone keypad.
Yeah, you think guest speaker phone. Please make sure your position, it's true Oh, right now to recharge quit.
Hi, Good press Star one.
Question.
Patrick just moments like doing one enough opportunity to take now for questions.
[noise] I first question comes from tear, yes Chopra of Evercore.
Inter gosh.
Good morning team.
Hi, there gosh car yeah.
Good. Thank you for taking my question.
Quarter years, so yeah [laughter] drivers.
Can you choose.
Talk about the Riki Selman at peoples gas, how does that compared to.
You know what you might have had in your models. When you were kind of looking at the do you.
And a you know you sort of your.
First full year of accretion of the combined company how does it how does it fit you know.
We're seeing an internal projections.
Yes, so durgesh simply sad that so you know we're pleased with the rate case out and the revenue outcome. There is right in the landing zone that we expected in our modeling for the transaction so.
Very very comfortable with that where that came out.
Yeah, we can can you eat as Weve talked.
That said and it is expected to be this will be a an accretive transaction for us than that first full year about ownership.
So no change from that and Oh, but it will give more guidance doesn't that when we have our analyst day now in February .
Okay awesome.
And then just.
Maybe just walk us through and I apologize if you've done this from the previous calls.
Walk through sort of eating items.
On the repairs tax collection.
So.
You know obviously you have to make a decision whether I mean I'm expense and then.
Quoted the regulators for approval, how does though how does that process work and just sort of the.
The.
Gating items to get to getting there.
Yeah. So you know the primary gating item is.
It's a repair study in nerve repair that either gosh, but that really does.
It has us look back at capital that had an expanded over the past several years.
Hi to determine how much of that capital would have been repair eligible and that's really they establish element of that that catch up deduction.
And so that that's one piece of this which is the gating item, which take time obviously.
Another item is obviously the the decision for determining what the framework is what's that unit a property is that you discussed what rush called <unk>.
Related to that is and us how much of the capital would be repair eligible.
But in terms of the actual kind of course smoke event once we have that repair god. He.
Lead Ed.
We can file with the IRS to allow us to implement the repair tax deduction.
So we can go ahead and Q that.
And then we would we would then look to the commission in terms of.
How do we think about and how do we adjudicate that that catch up to adoption. So that's a separate piece that comes after that.
No you will recall that from Pennsylvania, We we had a process that allowed us to.
Hi to Tamarix tied that catch a good direction over a 10 year period of time.
Well, we'll look for something here.
To be helpful with that that catch up to duck and as well, but the actual implementation of the repair attack.
It's from that IRS.
Hi, I like that will do.
Right and then just on on on Delcor Ah.
Well.
How should we think about the timelines for you bid into the close there.
Oh no yeah. So I do you guys. So we're going to a expects to file our PC applications. Some time in early 2020.
And then.
It would take six to nine months from that point. So we're looking at a late.
2020 closing for the core.
Oh, so good we've already been award.
And we borrowed been working on you sign with contracts for the number of contracts associated with though or so some of those public meetings have already begun taking place and they decide the contracts have been I'm going well so.
Yeah, as Matt said that lead to up to the filing at the PC.
Okay. Thanks, Chris I'm, a great quarter guys. Thank you for taking my questions.
[laughter] extra gosh.
Our next question comes from Ryan Connors have owning and static.
[laughter].
Yeah. Thank you everybody, Florida.
Hi.
One of the actually continue on the topic of have done core for a minute.
It is first of all just just a housekeeping item tell core my understanding is that that's not a.
12 fair market value deals that correct.
Yeah, we would likely a file for that.
Under the fair market value legislation, Oh, you know what do I thought we would Ics yeah, we would expect it to be yes.
Okay. Okay.
Okay. So then I guess my my follow on because I was.
You know this whole idea of the trust account the money going into a trust for rate payers to offset future rate increases I mean.
That that's that's sounds like a much different.
You know <unk> than the prevailing logic of back 12 disclose the selling municipality.
Maximizing you know there their own financial benefit by by being able to sell above book value. So.
How does a how does it have you square those things that we're going into it.
Rust and yet it is a 12 deal.
And you know who are the owning municipalities, but was curious how that.
That all played out.
Well I think don't Corp.
He was most focused on on keeping customer rates. When the reason they really started talking to Aqua is they're facing a lot of capital cost over the coming years liquid honest standalone basis would increase their customer rates pretty substantially.
Ah over over.
The next.
Several years.
And I'm a lot of their customers are these large me no other municipal authorities if they serve they have large industrial customers now flat. That's serves some retail customers in the and the city of.
Chester.
But all these customers are facing pretty large increases given make big capital plan of del core over the coming years.
And so they'll core its main.
Objective and doing a deal a lock laws to keep freight slow and so.
It made sense for them to take the proceeds that our CLO paid and put those into a trust, which will be used to offset customer rates.
For as long as possible.
And as you know right and you know.
Some of these transactions municipal transactions can have implications for for what future age set to municipal B and so so del Corp was looking for a purchase price. It optimize was there was a fair purchase price put off.
Also helps mitigate longer term rates. After this trust was the is exhausted.
So now is really the a lot of the rationale for the purchase price and the discussion with Aqua.
This trust will be administered fully by Delcor up.
Going forward, but it's sole purpose will be offset any future rate increases that are who may have for these customers right at all about it at all.
I'll just add to what Matt said with is that when delve core <unk> first talk to us.
It's about three principles right. They want they want and raised remain low they wanted to be able to address this best capital need generated by the to the exit from Philadelphia water apartment and and they wanted to take or employees.
Long term.
And so admirably and as we've discussed before.
You know to take all the proceeds after the debt is really net proceeds.
And put it customer rates, we've not seen before so this is really using a lot of the tools and.
Centered in created over the last several years too.
A really nice outcome for customers.
In the long run and for that matter the combined company.
Yeah, no that a fleet.
Oh cleared up no mail the man on the other follow on regard adult core was.
It's from a scale standpoint, I mean, obviously the pipeline is solid as you talked about them out but it does seem like it's kinda barbelled yeah.
Yes, very large star wars.
A lot of so much smaller one.
I mean [noise].
What does it is still core a sort of a lot off and that side is there anything is there anything approaching.
You know a that magnitude <unk> out there should we just really over the next several years more be looking for.
Kinda the standards smaller type transactions.
Hi, I I think with me careful in how we answer to that Ryan as you probably wouldn't this back.
But I I think.
You know as we talk about it in here, we have some large things that our Ah that are in the pipeline and and some medium and smaller but I I would not say, but.
We see delcor as a whole lot all.
Other possibilities that seems size range.
That that week.
Think about.
Across our footprint.
Okay.
Very helpful. Thanks for your time.
[noise].
I was there a manager he was like ask your question. Please press Star Keith <unk> one key.
Star one to ask a question.
Our next question comes from Tim Let <unk> Capelli.
[noise].
Aqua America's third quarter 2019 earnings call. Today's conference is being recorded at this time I'd like to turn the conference over to Mr., Brian Dingerdissen. Please go ahead Sir.
Thank you Cassidy good morning, everyone and thank you for joining us Rocco Marcus third quarter 2019 earnings call.
If you did not receive a copy the press release, you can find it by visiting the Investor Relations section of our website and Aqua America Dot com dislike little we will be referencing in a webcast of this event can also be found on our site.
As a reminder, some of the matters discussed during this call may include forward looking statements that involve risks uncertainties and other factors that may cause the actual results to be materially different from any future results expressed or implied by such forward looking statements.
Please refer to our most recent 10- Q1 0-K and other SEC filings for a description of such risks and uncertainties.
During the course of this call reference may be made to certain non-GAAP financial measures.
A reconciliation of these non-GAAP to GAAP financial measures is included at the end of the presentation and also posted in the Investor Relations section of the website. After the presentation, we will open the call up for questions.
Before handing the call over to Chris I would like to formally introduce a new addition to the IR team at Aqua.
Your name our key who has been with the company for five years in various financial roles has recently been promoted to director of Investor Relations. She has hit the ground running and you will start to see her on the road at various investor in beds. At this time I'd like to turn the call over Chris Franklin Hey, Thanks, Brian . Thank you everyone for joining I'll add my warm welcome to Rene as wells as Brian said is really.
Ground running and happy to have her on our team.
Now, let's start today's call with a couple of highlights from the quarter followed by a brief update on the People's transaction than dance going to discuss the financial results as well as our rate activity.
Matt rows of you've heard from before our executive Vice President strategy in corporate development give you an overview of our recent progress on municipal growth.
And finally, I will conclude the call with a review of our guidance for 2019, and then open the call for questions.
So the third quarter was certainly an exciting one.
In summary, we continue to deploy a large amount of capital we reached a significant milestone with the People's acquisition.
And we saw the People's rate case go into what effect.
We also announced the largest municipal acquisition.
133 year company history, so quite a quarter.
Let me give you a little bit more details.
We remain on track for record capital spending of about $550 million this year.
And in the first three quarters of the year, we've already invested over 400 million in infrastructure renewal, which as you know consistently delivers value to our customers communities and the shareholders.
Investing infrastructure is at the core of our mission to deliver safe and reliable service. It also helps to drive earnings growth.
On a financial front, our non-GAAP earnings per share increased by over 9% compared to the same period last year.
And on the growth front, our municipal acquisition strategy continues to deliver results in September .
We announced a signed purchase agreement with Dell Cora, which many of you know as a large municipal wastewater authority in southeastern Pennsylvania Basket and give you more details on that but having slides.
And finally, we received the much anticipated decision from the Pennsylvania administrative law judge and the recommendation was in favor of the People's transaction, which ill talk a little bit more on the next slide here.
Your slide eight provides an overview of the transaction timeline related to the regulatory process for People's.
As reported on the last earnings call.
We received the Kentucky approval in March and West Virginia back in April and then more recently here on October 20, Eightth. We received the proposed decision of the ale Jay recommending that the public utility Commission here in Pennsylvania issue, all approvals necessary for the company to carry out the acquisition of.
Apples.
So in terms of next steps.
Parties, who don't agree with the settlement agreement can file exceptions disagreeing with the ALJ recommendation and the PC, we'll consider those arguments.
A formal vote will take place by all five you see commissioners at a public meeting likely in December or January based on our projected timeline.
Not say that.
We are pleased with the ALJ recommendation.
And respect the process and the procedure, which now allows a full review while the public utility Commission.
And as such we now anticipate the closing of the People's trend transaction or acquisition in late 2019 or early 2020.
With that.
I'll turn the call over to Dan to discuss our financials for the third quarter.
Thanks, Chris Good morning, everyone.
And with the third quarter financial highlights were again reporting non-GAAP numbers this quarter that adjusts for the impact of the People's transaction and integration.
We reported revenues of 243.6 million in the third quarter of 2019, 7.7% compared to 226.1 million in the third quarter of 2018.
Operations and maintenance expenses were 82 million in the third quarter compared to 68.6 million in last year's third quarter.
Moving on to GAAP net income, which includes items related to People's transaction, We reported 88.5 million compared to 78.2 million in a third quarter of 2013.
GAAP earnings per share, including People's related expenses and incremental shares were 38 cents in the third quarter compared to 44 cents in 2018.
When adjusted for People's related charges income was up 9.4% from 78.2 million to 85.6 million.
And as you can see it on the bottom rolled at the table adjusted income per share was up 9.1% to 48 cents per share from 44 cents per share in the third quarter 2018. This non-GAAP measure removes people's related items, including the equity raise to complete the transaction.
Now, let's move onto the revenue waterfall on slide 11, breaking down the 7.7% revenue increase you'll see that rates and surcharges was the main driver at over $15 million with Pennsylvania brink being the primary contributor.
Growth, adding that additional almost 2 million. This was driven primarily by acquisitions in Pennsylvania, and Illinois inorganic growth in Pennsylvania, North Carolina and Texas.
Volume was up by 429000, driven by wastewater and other items increased revenue by 216000.
Next we'll discuss the Onem waterfall on slide 12.
Operations and maintenance expenses were $82 million for the third quarter compared to 68.6 million in the third quarter of 2018.
The main contributors were the 2018 nonrecurring items and costs from the People's transaction and integration, which increased LM by 5.8 million and 2.5 million respectively.
That 5.8 million $3.9 million was the favorable reduction to a regulatory liability that we mentioned on last year's third quarter call.
Walking through the other drivers other items increased by approximately 2.4 million employee related costs increased by less than 2.1 million growth both from acquisitions and organic growth added 684000 expense.
Excluding the nonrecurring items and transaction related expenses OEM growth would have been inline with our historical expectations.
Next let's review the drivers of EPS on slide 13.
In one to the EPS waterfall from left to right you can see that rates in surcharges increased EPS materially with an incremental 6.4 cents.
Gross volume and other also contributed.
Expenses were higher which reduced EPS by 4.6 cents. This.
This brings the adjusted income per share for the third quarter 248 cents up over 9% from last year's Q3 EPS.
GAAP EPS included two additional items from the People's transaction.
7.4 cents to adjust for the dilutive effect of the equity offering as well as 2.4 cents per transaction and financing expenses. This project GAAP EPS to 38 cents for the third quarter.
Moving on to rate activity on slide 14 in 2019, so far we've completed rate cases are surcharges in Illinois, New Jersey, North Carolina, Ohio, and Pennsylvania totaling annualized revenue of 59.8 million.
We saw the impact of these increases when we discuss the revenue waterfalls few minutes ago.
In the coming months to expect about water wastewater rate cases in North Carolina, New Jersey and Indiana.
On slide 15, I'd like to give you a brief update on the People's Pennsylvania rate case, given its importance.
You'll recall that People's mildly, Pennsylvania rate case in January requesting $94.9 million, an additional annualized revenue.
This case was the first consolidated case for the People's an equitable divisions and supported the largest infrastructure rehabilitation program in the company's history.
A settlement agreement was filed in this case in July and following a commission order new rates went into effect on October 29, totaling approximately 59 in half million dollars, an additional annualized revenue.
As mentioned previously people has not elected repair tax in Pennsylvania, yet and we're evaluating how to implement it. This takes a fair amount of work is there are several factors, including defining the unit a property identifying how much of the capital is repair eligible and conducting repair study to determine the catch up deduction.
As you'd expect this is something we anticipate implementing in 2020 once we own the company given the success that we've had with this mechanism for our Pennsylvania water customers.
Where we were able to invest over 2 billion in infrastructure without raising rates from 2012 until may of 2019.
We'll be prepared to speak about the potential impact repair during our upcoming analyst day.
With that ill hand, it over executive Vice President strategy and corporate development, Matt roads.
Thank you Dan.
As Chris previously mentioned in September we announced the signed the asset purchase agreement with the Delaware County Regional water quality control authority known as del Cora. This is highlighted on slide 17.
The purchase price of the transaction is 276.5 million.
This municipal waste water authority is located in southeastern Pennsylvania serves 42 municipalities and approximately 500000 people and marks the largest municipal acquisition in our company's history is also largest every munis municipal deal in the state of Pennsylvania.
Estimates that core provides wastewater service to approximately 165000 retail customer equivalents.
Now for system includes over 180 miles of pipe and have a customer base, consisting of retail commercial and industrial customers as well as large wholesale agreements with municipal authorities.
Post acquisition. They are approximately 50 million gallon per day wastewater treatment plant in the western portion of their service territory will be the largest wastewater treatment plant that we own and operate the eastern service territory currently conveys waste water to the Philadelphia water department or PWT through a contract that is set to expire in two.
28.
Given this delcor is responsible for a portion of PWT fees in Philadelphia EPA mandated costs to separate its combined storm in sewer.
If I look forward to stay with Pwc over the long term, it's total expected cost related to the Philadelphia EPA mandated costs its own EPA mandated costs related to combine storm and sanitary sewer in the city of Chester and other work force wastewater plant and pipeline rehabilitation rehabilitation.
Our expected to be 1.2 billion through 2042. This is expected to increase still core a customer aid substantially over the long term.
To mitigate this delcor plans to build the infrastructure to divert the waste water flows from Pwc D, which also requires the expansion of delcor as existing plant to approximately 100 million gallons per day.
It was uniquely positioned to make these investments given its extensive expertise in large and complex projects.
Well there delcor, our capex under our ownership through 2028 is estimated to be approximately 700 million.
With the majority to be spent in 2026 to 2028.
Delcor intends to use all net proceeds from the sale to establish a rate stabilization plan, which will help to offset customer rate increases in the future due to the large capital cost a delcor faces. So we feel that the combination with Doe Cora is a win win for both parties involved.
We expect the transaction to close in late 2020, we plan to fund the Delcor acts acquisition with a combination of debt and equity and as we've discussed on previous calls. This could include an aftermarket equity program.
In addition, Aqua already operates in many of the same communities as though Cora as you can see on slide 18, there are significant overlap in the two for footprints between Aquas water service territory and Delcor as wastewater service territory Aqua is deeply entrenched in the local communities were Delcor operates and.
Is well positioned to effectively service customers and these communities as a whole.
Moving to the next slide as we've noted in the last several calls we continue to see a strong strong municipal deal flow, especially in our seven states with fair market value loss. This slide details, our 10 signed agreements, including nine with municipals for approximately 188000 customer connections.
This includes Adele core acquisition, assuming it serves a 165000 retail customer equivalents, which I mentioned earlier.
Just recently on October 24th this Google and Shelton Ham acquisitions were also approved by the Pennsylvania Public Utility Commission and these deals are expected to close before year end the tool and net Illinois transaction shown in the table are also expected to close this year.
Although some of these transactions are expected to close in 2020, we still expect a total new customers added in 2019, along with organic growth to be within our targeted customer growth range of 2% to 3%.
Also as noted in the last call. It is important to note that for every 100 million in rate base from acquisitions that are added through municipals, we expect approximately 5 million in additional earnings to be generated from this increased rate base, excluding any pursuit costs.
In addition to our signed acquisitions in recent quarters. We have also highlighted some of the opportunities are pursuing that are still in the earlier stages. As slide 20 demonstrates we are actively pursuing acquisition opportunities in several of our existing states totaling approximately 275000 customers. We're also seeing more and more larger opportunity.
These many over 25000 connections now I'd like to pass the call back to Chris.
Thanks, Matt, Let's conclude with a quick review of our 19 guidance then we'll open it up for questions.
We are reaffirming our standalone 2019 guidance for Aqua, along with an updated timeframe, where the expected closing of the People's transaction.
We expect Aqua Standalone adjusted income to be $1.45 $1.50 per share. This excludes the impact of the people's transaction, including the associated equity offering.
We are on track to spend approximately $550 million on replacing an improving pipes and plants and other infrastructure.
This would be another record year of infrastructure spending across the jaco platform and through 2021, we expect to invest approximately 1.4 billion.
And this will help drive our rate base growth of about 7%.
As mentioned earlier, we have 10 signed acquisition agreements and together with organic growth growth, our customer count will increase by 2% to 3% this year.
Finally, we've passed most of the important milestones in the regulatory process and in our integration planning for the People's acquisition and explode expect to close in late 2019 or early 2020. After the PPA you see carefully considers the acquisition case.
Given the new closing expectations for People's we are going to delay the investor day that was planned for December we now plan to hold that Investor day, when we announce our full year earnings in New York on February 27.
At that event, it's our intention to provide longer term guidance.
And as I said on previous calls, we'll provide that longer term guidance only after we finished the awkward rate case, which is now complete so people's rate case again, not complete close the People's transaction, we've discussed that fleet 19 early 20.
And do the analysis of the repair tax Dan discussed in his comments today.
With that I'd like to open the call for questions at this point.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
We are using a speakerphone, please make sure you're the attraction and turned out to allow you to reach our equipment.
When press Star one to ask a question, we'll pause for just a moment to laughing when an opportunity to signal for questions.
Our first question comes from Durgesh Chopra of Evercore.
International Good morning team.
Hey, guys Sharia.
Good. Thank you for taking my question good quarter years Im clear.
The drivers.
Can you just talk about the Riki settlement and peoples gas how does that compare to.
What you might have had in your models. When you were kind of looking at the deals in the U.S for fewer.
First full year of accretion of the combined company how does it how does it fit.
We're seeing internal projections.
Yes, so direct simply said that so we're pleased with the rate case outcome and the revenue outcome. There is right in the landing zone that we expected in our modeling for the transactions, so very very comfortable with that where that came out.
Yes, Weve continued you as the as we've talked to.
This is an expected to be this will be a and accretive transaction for us in that first full year of ownership.
So no change from that and obviously, we'll give more guidance on that when we have our analyst day now in February .
Okay Awesome and then just.
Maybe just walk us through and I apologize if you've done this in the previous calls, but just walk us through sort of the gating items on the repairs tax election. So.
So you have to make a decision whether it makes sense and then quoted the regulators for approval how does that I was a process work in just through the end of the gating items to get to getting there.
Yes, the primary gating item is.
This repair study in the repair study durgesh, but that really does is it has us look back at at capital that has been extended over the past several years.
To determine how much of that capital would have been repair eligible and thats related divestment of that that catch up deduction.
And so thats one piece of this which is the gating item, which take time obviously.
Another item is obviously the the decision for kind of determining what the framework is what that unit of property as as we discussed what the threshold.
Related to that is and thus how much of the capital would be repair eligible.
But in terms of the actual kind of course of events. Once we have that repair study completed we can file with the IRS to allow us to implement the repair tax deduction. So we can go ahead and do that.
And then we would we would then look to the commission in terms of how do how do we think about and how do we adjudicate to that that catch up deduction. So that's a separate piece that comes after that now you'll recall, if Rocco, Pennsylvania, we we had a process that allowed us to.
To amortize that catch a deduction over a 10 year period of time. So we'll look for something here to be helpful with that that ketchup deduction as well, but the actual implementation of the repair tax comes from that IRS filing that will do.
Great and then just on on on Delcor.
How should we think about the timeline for you getting to the closer.
[noise]. So yes, so I guess, so we're going to I expect to file our PC applications sometime in early.
Early 2020.
And then it would take six to nine months from that point. So we're looking at a late.
2020 closing for no core.
Once again, we've already been working.
And we've always been working on the assignment of contracts with a number of contracts associated with a with delcor. So some of those public meetings have already begun to take place in these Simon the contracts have been going well. So you know as Matt said that leads us to the filing at the PTC.
Okay. Thanks, Chris I'm, a great quarter guys. Thank you for taking my questions.
Thanks for cash.
Our next question comes from Ryan Connors happening its advocate.
Yes, thanks, good morning.
Right.
Wanted to actually continue on the topic of Delcor for minute.
It does first of all just just a housekeeping item Dell core my understanding that's not a.
12 fair market value deals that correct.
Now, we would likely file for that under the fair market value legislation.
Okay, We would Ics yeah, we would expect it to be yes. Okay. Okay. So then I get my follow on to that was.
This whole idea of the trust account the money going into a trust for rate payers to offset future rate increases I mean.
That does that sounds like a much different.
So.
Then the prevailing logic of back 12, which was the selling municipality maximizing their their own financial benefit by by being able to sell above book value. So how does that how does how do you square those things that we're going into a trust and yet it is an act 12 deal.
And who are the owning municipalities I'm, just curious how that that'll played out.
Well I think.
Don't correlate was most focused on keeping customer rates went on the reason a really started talking to aqua is they're facing a lot of capital cost over the coming years, which would on a standalone basis would increase their customer rates pretty substantially.
Over over the next several years and a lot of their customers are these large mean other municipal authorities that they serve they have large industrial customers now flat a serve some retail customers on this in the city of Chester.
But all these customers were facing pretty large increases given the capital plan of delcor over the coming years, and so therefore as Maine.
Objective and doing a deal will close to keep rates low and so it made sense for them to take the proceeds that OCC low paid and put those into a trust, which will be used to offset customer rates.
For as long as possible and as you know Ryan.
In some of these transactions municipal transactions can have implications for for what future eight said to municipal will be and so so delcor was looking for a purchase price at optimized was it was a fair purchase price, but also helps mitigate longer term rates. After this trust was he is exhausted so that was really the.
Lot of the rationale for the purchase price and the discussions with Aqua.
This trust will be administered fully by del Cora going forward, but it's sole purpose will be to offset any future rate increases that OCC will may have for these customers right all got it add.
Outside of what Matt said was that when they'll courts for those first talk to US you talked about three principles right. They want they want and rates to remain low they want to be able to address this vast capital need generated by the the exit from.
Philadelphia Water Department and they wanted to take care of their employees long term and so admirably and as we've discussed before.
So take all the proceeds after after the debt is it really net proceeds.
And put it the customer rates, we've not seen before so this is really using a lot of the tools that have been.
Considered and created over the last several years to to have a really nice outcome for customers and the long run and for that matter the combined company.
Yep no that's definitely.
Helps cleared up now mail that man one other follow on regarding Delcor. It was just from a scale standpoint, I mean, obviously the pipeline as solid as you talked about map, but it does seem like it's kind of Barbelled you have this very large double or triple action with a lot of much smaller ones. I mean, what does is still cora sort of a one off and that size.
So there anything is there anything approaching.
With that magnitude out there or should we just really over the next several years more be looking for kind of the standard smaller type transactions.
I think with me careful how we answer that Ryan as you would suspect.
But I I think.
As we talked about in here, we have some large things that are those that are in the in the pipeline and and some medium and smaller but I would not say.
But we see delcor as a as a one off we think there's other possibilities in that seems size range.
Good that we could you think about.
Across our footprint.
Okay very helpful. Thanks for your time.
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Our next question comes from Tim what you're asking belly buttons.
Hey, Jim.
Hello, guys. Good morning. Thanks for taking my question I was wondering if you could talk a little bit more about.
The potential for waste water opportunities seems like they might be a little bit easier to acquire maybe specifically in the areas you already serve water.
Yeah, I mean, it's that's probably the easiest one.
Ill give you thought knowing a kick it to Matt but.
You know as we look across our water platform, we have a lot of opportunities. When we think about the the true different pipeline that we purchased about a year ago. There are certainly some interest in that area.
As well as a in some other areas, where we currently serve the water and that's.
Where we where we should look first frankly and so that's that's a lot of the work we've done not only here in Pennsylvania, but across the footprint and I would say this generally.
Tim we've talked about this before but the politics are you know at least slightly easier when it comes to wastewater because there was not the same affinity that people fine with their water source and so I think you'll see a lot more waste water in the coming years I also would say this.
Given our new size with the Delcor acquisition, but even before that I mean, we have.
But 130000.
Wastewater customers before Delcor. So we've got now developing an existing at a developing a level of expertise in wastewater that would make us a strong competition in any transaction or potential transaction with wastewater. Matt you may Yeah, I would say as you look at our.
Recent deals that we've we've done in Pennsylvania, and other places and then if you look at our pipeline. We're starting we do see a lot of waste water wastewater opportunities in front of us and as Chris said Theres less affinity for wastewater compared to water and also it can be more difficult to operate in in some cases, there can be more violations that some of these munis.
Mean municipalities have related to their wastewater and so it makes more sense for them to look to another option and to sell to Aqua. So we're really seeing a pickup in wastewater I expect that to continue over the coming years.
No do you guys have the ability this sort of socialize.
The rates across water and waste Warner's, it's you know for like.
Uniform rates or something of that nature to.
Offset the need for rate increases improve their situations like this.
Rick Delcor.
Well, let's think about it in two ways right one is.
We think bustan retire, where we where we would have a single rate for wastewater which were moving toward we are single parent pricing is a is a goal.
But secondly, then in Pennsylvania the law allows for.
Some subsidy of wastewater customers by the water customers, but with that is that is solely determined by the plus Pennsylvania public utility commission and and that the level of that subsidy if any.
Terminal threw off in a normal rate rate procedure at the commission, but outside of Pennsylvania, Tim that that ability doesn't doesn't exist in other states.
Okay.
Okay. Thank you guys.
You bet. Thank you.
At this time, we have no further questions and Kevin I would like to return the conference back to today's speakers.
Well as always were were available for off for follow up but thank you for joining the call today and look forward to season.
Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.