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Date

Thursday, May 7, 2026 at 11 a.m. ET

Call participants

  • Chairman and Chief Executive Officer — Christopher H. Franklin
  • Chief Financial Officer — Daniel J. Schuller

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Takeaways

  • GAAP Earnings per Share -- $0.79, including $0.04 of merger-related costs.
  • Adjusted Non-GAAP Earnings per Share -- $0.83 when excluding merger-related expenses.
  • O&M Expense Increase -- $38 million, driven primarily by $16.3 million of merger costs and the absence of $5.6 million in insurance proceeds from the prior year.
  • Capital Investments -- $269 million allocated to water, wastewater, and natural gas infrastructure in the quarter.
  • Full-Year Capital Target -- Management targets $1.7 billion in infrastructure investment, as planned.
  • PFAS Regulatory Projects -- 5 projects completed, 45 under construction, targeting 106 completions this year.
  • Water Division Operational Metrics -- 12 out of 15 tracked metrics at green status, 3 at yellow.
  • Gas Division Intellis Meter Installations -- 71,000 units installed last year, with a 2026 target of at least 80,000 more.
  • Annualized Revenue from Regulatory Recoveries -- $15.1 million completed year-to-date; one third from water/wastewater, remainder from gas.
  • Pending Water and Wastewater Rate Cases -- $102 million in annualized requested increases across five cases, with several nearing completion.
  • Pennsylvania Gas Base Rate Case -- $163.2 million filing pending, supporting infrastructure and emission reduction strategy.
  • EPS Growth Guidance -- Management reaffirms 5%-7% annual EPS growth based on $1.97 adjusted 2024 baseline through 2027.
  • Merger with American Water -- Kentucky PSC regulatory approval received; management states closing is on track by end of 2027.
  • Customer Additions via Acquisitions -- Closed $18 million Greenville Water purchase in March (3,000 customers); signed agreements for 201,000 additional customers at $285 million, including but not limited to DELCORA, across multiple states.
  • Equity and Debt Capital -- $500 million debt offering completed during the quarter; equity-raising will proceed opportunistically via ATM program.

Summary

Management confirmed disciplined infrastructure investment and continued execution on cost and regulatory recovery initiatives despite operational headwinds from severe winter weather. Regulatory filings, including a substantial $163.2 million Pennsylvania gas rate case and $102 million of pending water/wastewater cases, support the company’s capital plan. Integration planning for the merger with American Water (NYSE: AWK) is moving forward, with Kentucky approval secured and hearings concluding in Pennsylvania and North Carolina. Acquisition momentum continues, with the Greenville Water deal closed and agreements to add more than 200,000 customers, though the DELCORA transaction remains stalled due to external legal developments. Essential Utilities (WTRG +0.43%) maintains focus on operational metrics and capital allocation toward regulatory-driven projects that reinforce long-term EPS and dividend growth guidance.

  • Christopher H. Franklin said, "we are very confident that we will meet our 5% to 7% annual growth in earnings per share compared to the non-GAAP 2024 earnings per share of $1.97."
  • Daniel J. Schuller stated the only adjustment between $0.79 GAAP and $0.83 adjusted EPS is merger-related expenses such as financial advisory, legal, and filing fees.
  • Public hearings related to the merger with American Water are now complete in Pennsylvania and North Carolina, which management characterized as "very positive."
  • Management does not expect any "unexpected" regulatory delays in the merger process, and ongoing discussions with the Pennsylvania governor's office focus on affordability with no change anticipated in rate case processing.

Industry glossary

  • PFAS: Per- and polyfluoroalkyl substances—regulated contaminants requiring significant water treatment investment to meet federal and state standards.
  • DELCORA: Delaware County Regional Water Quality Control Authority—a wastewater authority whose acquisition by Essential Utilities, Inc. is currently delayed due to legal proceedings.
  • ATM Program: At-the-market equity issuance program allowing the company to sell shares incrementally over time as market conditions permit.
  • PSC: Public Service Commission—the regulatory body overseeing utility mergers and rate cases at the state level.
  • Intellis Meters: Advanced metering infrastructure for gas utilities enabling enhanced safety and operational data collection.

Full Conference Call Transcript

Christopher H. Franklin: All right. Thanks, Brian, and good morning, everyone. Let's begin with a few updates on slide five. First, on the merger. As you likely saw in a press release we put out two weeks ago, we accomplished our first milestone regarding regulatory approval. The Kentucky Public Service Commission officially approved our merger request. This is our first regulatory green light and it is a big step toward bringing our two companies together. This momentum follows the clear “yes” we received from both sets of shareholders back in February, where the transaction was approved by an overwhelming margin of 95%. Now for the quarter, we reported GAAP earnings per share of $0.79, which includes about $0.04 of merger-related costs.

While the quarter itself was up against a difficult comparison, with the previously discussed nonrecurring items from the first quarter of last year and merger-related costs this year, when we look at 2026 overall, we are very confident that we will meet our 5% to 7% annual growth in earnings per share compared to the non-GAAP 2024 earnings per share of $1.97. And Daniel is going to cover this in a lot more detail in a few moments. While the quarter was a bit challenging, largely due to the extreme weather we faced in some parts of our service territory, we are continuing to invest capital prudently and where it matters most.

This quarter, we invested $269 million in our water, wastewater, and natural gas infrastructure. These investments help us to meet federal and state regulations—things like PFAS and lead—and boost reliability and safety for our employees and our communities. Our current trajectory indicates that we will meet our plan this year to make $1.7 billion in critical improvements by year’s end. Our customer rates remain affordable, and our planned investments and associated financing are built to meet our affordability goals. I have to tell you, I am really proud of the team in both gas and water for maintaining service for our customers during what were pretty challenging winter weather conditions this year, especially in January and February.

Lastly, in March, we closed the Greenville Water acquisition. You may recall that we closed Greenville Wastewater in 2025. I will provide an update on our overall acquisition program in a few moments. If you turn to slide six, you will see a road map of what is ahead for completing our merger with American Water, which, by the way, is still on track to close by the end of 2027. Once we cross the finish line, the combined company will serve more than 4.7 million water and wastewater customers and more than 740 thousand natural gas customers. It really is an exciting path forward and we are moving full steam ahead.

Slide seven shows the heavy lifting behind the scenes. Integration planning efforts are continuing with both Essential and American Water employees involved as part of the integration management office, the core integration teams, as well as subject matter experts. The focus is simple: ensuring we are ready to hit the ground running as a world-class organization the day after we close this transaction. These work streams and the partnership between leaders and subject matter experts from both companies are meant to ensure that the best practices of both companies are melded together in the combined company. We will have a lot more to say on this as we make progress.

Now let us shift to the next slide—slide eight—to provide an update on our utility operations this year. Our continued mantra internally here to employees and everyone else is that we will conclude our time as an independent company with the same level of operational excellence we have enjoyed for nearly a century and a half. If you reviewed our proxy statement, you have seen the strength of our operating metrics—meeting and exceeding our targets and achieving many first- and second-quartile rankings versus our peers. I will mention that extreme cold causes challenges for both natural gas and water utilities. For gas utilities, it can cause increased leaks and more difficulty completing capital projects.

And in the water business, it can cause treatment issues, especially in wastewater, increased main breaks, and, across the board, there is the added cost of things like snow removal. Despite all of these challenges, our year-to-date water quality, safety, gas leaks, among other metrics, are all on track for another strong year. Through 2026, five more PFAS projects have been completed and another 45 PFAS projects are under construction. We are on track for 106 PFAS project completions this year. Company-wide, in our water division, the 15 operational metrics we track include things like construction, safety, main breaks, leaks, and average time to address unplanned disruptions. Twelve have a green status, and only three are in yellow.

The team is, of course, focused on moving the three that are yellow over to green. On the gas side, we are installing Intellis gas meters, which are advanced meters designed for enhanced safety. Last year, we installed 71 thousand Intellis meters and this year have a target to install at least 80 thousand more. Our gas division is focused on metrics associated with safety, construction, responsiveness, leaks, and damages. Of the 16 metrics we focus on, all but three are green, and we would expect them all to be green by year end. Despite winter weather and potential distractions associated with the merger with American Water, I remain very proud of our team’s continued focus on operational excellence.

And with that, Daniel will now take us on a deeper dive into the results for the quarter.

Daniel J. Schuller: Thanks, Chris, and good morning, everyone. Today, I am going to focus our conversation on our earnings performance and its drivers. There is some complexity due to nonrecurring items, both in Q1 last year and in Q1 this year, and I will discuss those items to provide clarity. Let us turn to slide 10 to walk through the bridge from last year. We are starting with our Q1 2025 earnings of $1.03 per share, which includes some positive one-time items.

In terms of revenue drivers, earnings per share this quarter were positively impacted by $0.07 in regulatory recoveries and surcharges, $0.01 from higher water volume, and $0.01 due to a larger customer base thanks to both our recent acquisitions and organic growth. This was partially offset by a $0.01 impact from lower gas volumes, but overall, the top-line drivers remain solid. Now looking at the $0.10 decrease in earnings per share due to expenses, O&M increased by about $38 million, with the largest driver being $16.3 million in merger-related expenses. Also, last year we had $5.6 million of insurance proceeds that positively impacted earnings for the quarter, which did not recur this year.

In terms of operational expenses, due to the extremely cold weather early in the year, we incurred about $2 million in incremental outside services costs and an additional $1 million in overtime related to water main breaks, snow removal, and callouts in our gas business. Cold weather also resulted in a slower start on our capital work, which resulted in less capitalization in Q1 of this year versus Q1 of last year. For the full year, though, we expect to achieve our capital targets for both water and gas totaling $1.7 billion. When adjusting for nonrecurring items and abnormal weather, we expect our year-over-year O&M expense increase to be in line with historic norms.

Finally, we have the “other” bar with a $0.22 negative impact on earnings per share. This bar reflects the impact of a $22.6 million favorable tax reserve adjustment in the first quarter of last year due to the conclusion of the Aqua Pennsylvania rate case, as well as increases in depreciation and amortization due to additional rate base and some higher depreciation rates; increases in interest expense due to higher borrowings; and some weather normalization and tax impact. Together, this takes us to $0.79 for the quarter on a GAAP basis. If you back out the nonrecurring merger-related costs for financial advisory, legal, and other fees, our adjusted non-GAAP earnings come out to $0.83.

You can find the full reconciliation on our website or in the appendix of this deck. As Chris mentioned earlier, the big picture has not changed. We are fully committed to our long-term goal of 5% to 7% EPS growth from our non-GAAP 2024 base of $1.97 through 2026 and 2027. I will wrap up on slide 11 touching on our regulatory activity. So far this year, we have completed regulatory recoveries totaling $15.1 million in annualized revenue, with about a third of that coming from water and wastewater and the rest from our gas business. Looking forward, the pipeline is active. Our water and wastewater segment has five cases pending for roughly $102 million in annualized increases.

A few of these cases are nearing completion, and we will have updates on those in August if you are not watching the state regulatory dockets directly. Meanwhile, our gas subsidiary has a base rate case pending here in Pennsylvania for $163.2 million, which is critical for supporting our long-term infrastructure improvement plan, thereby enhancing the safety and reliability of our system and further reducing emissions. As always, our focus is on balance. We are maintaining these filings to ensure we are providing safe, reliable service and earning a fair return on our capital, all while keeping a very close eye on affordability for our customers. And with that, I will turn the call back over to Chris. Chris?

Christopher H. Franklin: Hey. Thanks, Dan. Let us move to slide 13 to recap our growth-through-acquisition program. On March 4, we closed on our $18 million purchase of the Greenville Municipal Water Authority in Mercer County, Pennsylvania. The system serves 3 thousand customers in Greenville Borough, as well as Hempfield Township and West Salem Township, right here in Pennsylvania. We remain excited about our continued growth in Pennsylvania and welcome our new customers in Greenville. Now, aside from the selected opportunities on the slide, looking forward, we have signed purchase agreements for several small systems in Pennsylvania, Texas, North Carolina, and New Jersey, many of which we expect to close in 2026.

Including these signed purchase agreements, in total we are adding about 201 thousand customers with a purchase price of approximately $285 million. This includes our DELCORA transaction. I will remind you again that the progress on our DELCORA transaction continues to be stalled by a stay put in place by a federal bankruptcy court judge related to the bankruptcy of the City of Chester. The pipeline of potential water and wastewater municipal acquisitions stands at approximately 400 thousand customers, and we remain very optimistic about the consolidation of water and wastewater systems in the United States and look forward to leveraging the combined resources of Essential and American Water to accelerate our business development work.

I will wrap up our prepared remarks here on slide 14. As we have discussed before, we are reaffirming our 5% to 7% multiyear earnings per share guidance through 2027. Upon announcement of the transaction with American Water, we informed investors that we would continue growing EPS by 5% to 7% annually using our adjusted 2024 earnings per share of $1.97 as the base. As a reminder, this outlook includes the acquisitions we expect to close this year but does not include DELCORA. Beyond the numbers, our priorities have not changed. We are focused on keeping the balance sheet strong, improving our cash position, and growing the dividend while keeping our payout ratio between 60-65%.

As part of our strong focus on customers, we are investing $1.7 billion in regulated infrastructure this year. With that, I will hand it back to the operator so we can take your questions.

Operator: We will now open the call for questions. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Paul Zimbardo with Jefferies. Paul, your line is open. Please go ahead.

Paul Zimbardo: Hi. Good morning, team. Thank you for the time. First, I just wanted to check in. Pennsylvania has been very topical, and you all sit locally. I am curious if you have any thoughts on the latest affordability headlines and feedback on the Pennsylvania governor’s letter. Do you think that impacts your pending rate case, and just overall thoughts would be useful?

Christopher H. Franklin: First of all, I think we would all agree we are aligned with the governor on the issue of affordability. Clearly, every utility is trying to accomplish pretty significant capital improvements while figuring out strategies to keep rates affordable for our customers. That is noble work, and we are aligned on that. In terms of the governor’s specific initiatives in his letter, I would say we are in ongoing conversations with the governor’s team. Daniel and I were on the phone with them as recently as yesterday. The conversation continues. We are trying to get real direction on how they are thinking about these issues. We know the issues; he outlines them pretty specifically in the letter.

But how they will be applied and how they will actually materialize in terms of the Public Utility Commission, I think, is still being worked out. In terms of our filed case at Peoples, so far we are proceeding as though there is no change given we are already filed. We have a water case yet to file this year, and we are working through that case—preparation of that case—as we digest this new information from the governor.

Paul Zimbardo: Thank you for that background. And then, with the adjusted EPS to exclude the merger charges, prospectively, should we think about adjusted EPS just adjusting out the merger items, or is there anything else that you think about adjusting at this point? Looking at the $0.79 going to $0.83, what is included there?

Daniel J. Schuller: At this point, when we look at the $0.79 going to $0.83, the only adjustment in there is merger-related expenses. You will see that in the non-GAAP table—think bank fees, legal fees, filing fees, things of that nature. Prospectively, just those types of items adjusted out.

Paul Zimbardo: Great. Thank you very much.

Operator: Your next question comes from the line of Travis Miller with Morningstar Inc. Travis, your line is open. Please go ahead.

Travis Miller: Hi, everyone. Just following up real quick on the Pennsylvania topic. I understand your comments in terms of your rate cases. What about the merger approval? Have you had conversations with the governor’s office on that, and how do you think that might impact the review of the merger? And then, more generally, how is the pending merger impacting discussions you are having with municipalities, and are you having discussions alongside your American Water colleagues?

Christopher H. Franklin: I would say there is ongoing dialogue, but I cannot say we are in specifics on the merger. I would expect the governor would let the Commission adjudicate that case as they see fit. We just completed, as of today, the last of 14 public hearings throughout Pennsylvania, and I would position those as very positive. Very few people actually had anything to say, and several who did were positive. So I would say very successful hearings in Pennsylvania, and for that matter in North Carolina, where we have completed hearings as well.

I would not expect the governor to give specific thoughts on the merger at this point, but generally people seem to think it makes sense, though I do not want to pigeonhole anyone into a position because nobody has actually staked out a position at this point. On municipalities, there are legal rules that would prohibit us from jointly marketing or coordinating with American Water pre-close. Interestingly, in at least two places we are still competing with American, which is a strange circumstance, but until the transaction is completed, we both have to do business as usual. Sellers—municipals in large part—understand that we will be one company within about a year, and they recognize that.

It is part of their considerations, but we are business as usual out there, knocking on doors and trying to do as many transactions as possible. I cannot say that the transaction has inhibited our ability to pursue opportunities in any way, and I have not sensed any negativity at all from potential sellers. It is generally business as usual.

Daniel J. Schuller: And, Travis, recall we are in some states that American is not in, and certainly in some states we are in different geographies. As Chris said, we are doing everything we can to continue to drive useful acquisition growth.

Travis Miller: Okay. Great. I appreciate the thoughts.

Operator: Your next question comes from the line of Davis B Sunderland with Baird. Davis, your line is open. Please go ahead.

Davis B Sunderland: Good morning. Thanks very much for the time. Maybe a follow-up to the first question on the merger and the backdrop in Pennsylvania. I am sure, as far as states go, this will be the heaviest lift. Could you expand a bit more on what there is still to be done in the back half of this year and whether it is just time, or if there are any other potential road bumps we should consider as the process moves forward? And then, a two-parter for Dan: any thoughts on the shaping for Q2 and the rest of the year, and any considerations for equity issuance or other sources of capital through the year?

Christopher H. Franklin: Regulatory process is generally one that we have to address as we go. We know who the parties to the case are at this point. We have seen filings already and will work through those through the summer. As we conclude the public hearings today and move to the more formal Commission process over the summer, we will get a good sense of where we can settle, and we are still optimistic that we will be able to settle with most of the parties. We will see how people come to the table. So far there has been nothing that we would put in the “unexpected” category.

It seems to be proceeding as normal—plenty of interrogatories being asked and answered by the company and by the intervenors. I do not want to paint an overly rosy picture, but there has been nothing that has come up that we would say is unexpected.

Daniel J. Schuller: For capital, you probably saw we did a $500 million debt offering earlier in the year. We will continue to raise equity when it is opportune using our ATM program. As we think about earnings for the year, as we said in the prepared remarks, we do expect to hit our target level of earnings per share based on the 2024 adjusted baseline of $1.97 with 5% to 7% growth off of that.

In terms of quarterly shaping, it is difficult to give a precise breakdown, but I would point you to the same quarterly percentage ranges we have provided in the past—the chart showing the four quarters with a percentage of annual earnings, a range for each quarter—and use that as your guide here.

Davis B Sunderland: That is very helpful. Thank you.

Operator: We have reached the end of the Q&A session. I will now turn the call back to Christopher H. Franklin for closing remarks.

Christopher H. Franklin: Thanks, everyone, for joining us today. As always, Daniel, Brian, and I are available for questions and follow-up afterwards. Thanks for joining us today.

Operator: This concludes today’s call. Thank you for attending. You may now disconnect.