ESSENTIAL UTILITIES, INC. FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands of dollars, except per share amounts)Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking Statements
This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Quarterly Report contain, in addition to
historical information, forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements address, among other things: the expected timing of closing of our
acquisitions; the projected impact of various legal proceedings; the projected
effects of recent accounting pronouncements; prospects, plans, objectives,
expectations and beliefs of management, as well as information contained in this
report where statements are preceded by, followed by or include the words
"believes," "expects," "estimates," "anticipates," "plans," "future,"
"potential," "probably," "predictions," "intends," "will," "continue," "in the
event" or the negative of such terms or similar expressions. Forward-looking
statements are based on a number of assumptions concerning future events, and
are subject to a number of risks, uncertainties and other factors, many of which
are outside our control, which could cause actual results to differ materially
from those expressed or implied by such statements. These risks and
uncertainties include, among others, the effects of the COVID-19 pandemic, the
effects of regulation, abnormal weather, changes in capital requirements and
funding, our ability to close acquisitions, changes to the capital markets, and
our ability to assimilate acquired operations, as well as those risks,
uncertainties and other factors discussed in our Annual Report on Form 10-K for
the fiscal year ended
General Information
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ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
closing, Aqua Infrastructure does not provide any services to the natural gas drilling industry. Aqua Resources offers, through a third party, water and sewer service line protection solutions and repair
services to households.
The non-regulated subsidiaries of Peoples provide utility service line protection solutions and repair services to households and operates gas marketing and production entities.
The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes.
COVID-19 PandemicWe provide a critical service to our customers, which means that it is paramount that we keep our employees who operate the business safe and informed. We continue to monitor the outbreaks of COVID-19 and continue to take steps to mitigate the potential risks to our employees. We also continue to work with our suppliers to monitor potential impacts to our supply chain. At this time, no material risks to our supply chain have been identified. We continue to implement strong physical and cyber-security measures in an effort to ensure that our systems remain functional in order to both serve our operational needs with a remote workforce, if needed, and maintain uninterrupted service to our customers.
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ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
We will continue to monitor developments affecting our business, workforce, and suppliers and take additional precautions as we believe are warranted. We are actively monitoring our utility billings and have noticed increases in residential customer usage offset by decreases in commercial and industrial usage. In response to concerns about customer economic hardship and affordability during the COVID-19 pandemic health crisis, our state regulators mandated the temporary curtailment of certain collection practices, such as disconnections from utility service. In addition, we are monitoring collections of customer utility accounts as to potential impacts on cash flows, and increased expenses for costs associated with workforce-related expenses, security and cleaning of company offices and operating facilities, as well as other one-time expenses above the expense amounts included in general rates. In most of the states where we operate, regulators have allowed utilities to resume disconnections from utility service for certain customers who have unpaid balances. In eight of the ten states in which we operate regulated utilities, public utility commissions issued guidance for utilities to defer COVID-19 expenses in anticipation of seeking recovery in a future rate proceeding, and we continue to evaluate the impact of this guidance. We are continuing with our capital investment program, and based on the current situation, continue to believe we are able to complete the planned projects and improvements to our utility infrastructure. Despite our efforts, the ultimate impact to the Company of the COVID-19 pandemic also depends on factors beyond our knowledge, control, or ability to predict, including the duration and severity of this pandemic, the emergence of new variants of the virus, the resurgence of positive cases, the development and availability of effective treatments and vaccines, the speed at which such vaccines are delivered, as well as third party actions taken to contain its spread and mitigate its public health effects. Although some of our customers are facing economic hardships due to various impacts of the COVID-19 pandemic and may be unable to pay for our utility services, we do not currently anticipate a significant impact to our financial position, results of operations or cash flows as a result of the COVID-19 pandemic.
Financial ConditionThe Company's consolidated balance sheet historically has had a negative working capital position whereby our current liabilities routinely exceed our current assets. Management believes that internally generated funds along with existing credit facilities, and the proceeds from the issuance of long-term debt and equity will be adequate to provide sufficient working capital to maintain normal operations and to meet our financing requirements for at least the next twelve months.
During the first three months of 2021, we incurred
In
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ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
lenders and sold the borrowed shares to the public. We will not receive any proceeds from the sale of our common stock by the forward purchaser until settlement of all or a portion of the forward equity sale agreement. The actual proceeds to be received by us will vary depending upon the settlement date, the number of shares designated for settlement on that settlement date and the method of settlement. We intend to use any proceeds received by us upon settlement of the forward equity sale agreement for general corporate purposes, including for water and wastewater utility acquisitions, working capital and capital expenditures.
On
Associated with the approval of the Peoples Gas Acquisition from the
At
At
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ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
On
Consolidated Results of Operations
Analysis of First Quarter of 2021 Compared to First Quarter of 2020
Revenues increased by
?additional natural gas revenues of
?an increase in water and wastewater rates, including infrastructure
rehabilitation surcharges, of
?additional water and wastewater revenues of
?an increase in customer water consumption associated with increased residential
usage, which is offset by a decrease in customer water consumption for
commercial customers; offset by foregone water revenue of
Operations and maintenance expenses increased by
?incremental operating costs of
?additional expenses of
?additional operating costs associated with acquired and pending acquisitions of
water and wastewater utility systems of
?expenses of
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ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
?lower insurance expense of
?the prior year effect of transaction expenses of
Purchased gas increased by
Depreciation expense increased by
Amortization increased by
Taxes other than income taxes increased by
Interest expense increased by
?an increase in average borrowings; and
?interest on debt assumed in the Peoples Gas Acquisition; offset by
?a decrease in our effective interest rate.
Interest income decreased by
Equity loss (earnings) in joint venture was
Other expense decreased by
Our effective income tax rate was 2.5% in the first quarter of 2021 and (16.0)% in the first quarter of 2020. The effective income tax rate increased due to an increase in the pre-tax income, offset by an increase in the income tax benefit recognized due to additional tax deductions for qualifying
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ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
infrastructure investments recognized in the first quarter of 2021. The Company's provision for income taxes represented an income tax benefit in the first quarter of 2020 due to the effects of tax deductions recognized for certain qualifying infrastructure improvements and lower pre-tax income during the period.
Net income increased by
Results of Operations - Regulated Water SegmentOur Regulated Water segment is comprised of eight operating segments representing its water and wastewater regulated utility companies which are organized by the states where the Company provides water and wastewater services. The Regulated Water segment is aggregated into one reportable segment and for a discussion and analysis of the segment operating results, refer to the consolidated results of operations.
Results of Operations - Regulated Natural Gas Segment
Upon closing on the Peoples Gas Acquisition on
The operating results of Peoples is reported for the period after acquisition,
such that the first quarter of 2020 only represented 16 days of operating
results, compared to the full period in the first quarter of 2021. Refer to Note
13 - Segment Information to the consolidated financial statements in this report
for a summary of the operating results of the
Our
?
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ESSENTIAL UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
Three Months Ended
March 31,
2021 2020
Operating revenues (GAAP) $ 343,115 $ 38,544
Purchased gas 122,888 12,770
Gross margin (non-GAAP) 220,227 25,774
The term gross margin is not intended to represent operating revenues, the most comparable GAAP financial measure, as an indicator of operating performance. In addition, our measurement of gross margin is not necessarily comparable to similarly titled measures reported by other companies.
On
Impact of Recent Accounting Pronouncements
We describe the impact of recent accounting pronouncements in Note 16, Recent Accounting Pronouncements, to the consolidated financial statements in this report.
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