Essential Utilities Q1 2026 Earnings Call Transcript

Quartr
Provided by Quartr
May 7, 2026

Key Takeaways

  • Positive Sentiment: Company cleared a key regulatory milestone with the Kentucky Public Service Commission approval and earlier shareholder votes (95%), and management says the merger with American Water remains on track to close by end of Q1 2027 with active integration planning underway.
  • Positive Sentiment: Q1 GAAP EPS was $0.79 (including ~$0.04 of merger costs) and adjusted non‑GAAP EPS was $0.83, and management reaffirmed its 5%–7% annual EPS growth target through 2027 off a 2024 base of $1.97.
  • Positive Sentiment: Operationally they invested $269 million in Q1 and remain on track for $1.7 billion of 2026 capital spending to address PFAS/lead, reliability and safety (targeting 106 PFAS project completions) and are accelerating gas safety upgrades like Intelis meter installations.
  • Neutral Sentiment: Acquisition program continues: closed the Greenville Water deal and has signed agreements adding about 201,000 customers for ~$285 million, with a broader pipeline of ~400,000 customers — though the DELCORA transaction remains stalled by a bankruptcy stay.
  • Negative Sentiment: Regulatory and political risk in Pennsylvania could pressure outcomes: the company booked $15.1 million of regulatory recoveries but has pending water/wastewater cases (~$102M annualized) and a Pennsylvania gas base rate case (~$163.2M), while the governor’s affordability initiative could complicate rate and merger reviews.
AI Generated. May Contain Errors.
Earnings Conference Call
Essential Utilities Q1 2026
00:00 / 00:00

Transcript Sections

Skip to Participants
Operator

Hello, everyone. Thank you for joining us and welcome to Essential Utilities Inc. Q1 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one on your keypad to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Brian Dingerdissen. Brian, please go ahead.

Brian Dingerdissen
Brian Dingerdissen
VP of Financial Planning and Analysis, Treasury and Investor Relations at Essential Utilities

Thank you. Good morning, everyone, thank you for joining us for our 1st quarter 2026 earnings call. If you did not receive a copy of the press release, you can find it on our investor relations website. The slides can also be found on the website along with a webcast. As a reminder, some of the matters discussed today may include forward-looking statements that involve risk, 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-Q, 10-K and other SEC filings for a description of such risks and uncertainties. References may be made to certain non-GAAP financial measures. Reconciliation of any non-GAAP to GAAP financial measures is posted in the investor relations section of our website.

Brian Dingerdissen
Brian Dingerdissen
VP of Financial Planning and Analysis, Treasury and Investor Relations at Essential Utilities

We will begin with Chris Franklin, our chairman and CEO, who will provide an update on the company. Dan Schuller, our Chief Financial Officer, will provide an overview of the financial results. With that, I will turn it over to Chris Franklin.

Chris Franklin
Chris Franklin
Chairman and CEO at Essential Utilities

All right. Thanks, Brian. 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. It's 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, 95%. 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 comp with the previously discussed non-recurring items from the first quarter of last year and merger-related costs this year.

Chris Franklin
Chris Franklin
Chairman and CEO at Essential Utilities

Now, when we look at the 2026 overall, we're very confident that we will meet our 5%-7% annual growth in earnings per share compared to the non-GAAP 2024 earnings per share of $1.97. Dan Schuller's going to cover this in a lot more detail in a few moments. While the quarter was a bit challenging, largely due to extreme weather we faced in some parts of our service territory, we're 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.

Chris Franklin
Chris Franklin
Chairman and CEO at Essential Utilities

Our current trajectory indicates that we'll 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'm 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'll provide an update on our overall acquisition program in a few moments.

Chris Franklin
Chris Franklin
Chairman and CEO at Essential Utilities

If you turn to slide six, you'll see a roadmap of what's ahead for completing our merger with American Water, which, by the way, is still on track to close by the end of the first quarter 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 740,000 natural gas customers. It really is an exciting path forward and we're 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're ready to hit the ground running as a world-class organization the day after we close this transaction.

Chris Franklin
Chris Franklin
Chairman and CEO at Essential Utilities

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'll have a lot more to say on this as we make progress. Let's shift to the next slide eight, to provide an update on our utility operations this year. Our continued mantra internally here is to employees and everyone else is that we will conclude our time as an independent company with the same level of operational excellence we've enjoyed for nearly a century and a half. If you reviewed our proxy statement, you've seen the strength of our operating metrics, meeting and exceeding our targets and achieving many first and second quartile rankings versus our peers. I'll mention that extreme cold causes challenges for both natural gas and water utilities.

Chris Franklin
Chris Franklin
Chairman and CEO at Essential Utilities

For gas utilities, it can cause increased leaks and more difficulty completing capital projects. In the water business, it can cause treatment issues, especially in wastewater, increased main breaks, and then across the board, there's 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 the first quarter of 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, which include things like construction, safety, main breaks, leaks, and average time to address unplanned disruptions, 12 have a green status and only three are in yellow.

Chris Franklin
Chris Franklin
Chairman and CEO at Essential Utilities

The team is, of course, focused on moving the three that are yellow over to green. On the gas side, we're installing Intelis gas meters, which are advanced meters designed for enhanced safety. Last year, we installed 71,000 Intelis meters, and this year we have a target to install at least 80,000 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'd expect them all to be green by year-end. Now, 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. With that, Dan will now take us on a deeper dive into the results for the quarter.

Dan Schuller
Dan Schuller
CFO at Essential Utilities

Thanks, Chris, and good morning, everyone. Today, I'm going to focus our conversation on our earnings performance and its drivers. There's some complexity due to non-recurring items both in Q1 last year and in Q1 this year. I'll discuss those items to provide clarity. Let's turn to slide 10 to walk through the bridge from last year. We're 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. Overall, the top-line drivers remain solid.

Dan Schuller
Dan Schuller
CFO at Essential Utilities

Looking at the $0.10 decrease in EPS due to expenses, O&M increased by about $38 million, with the largest driver being $16.3 million in merger-related expenses. 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 call-outs 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.

Dan Schuller
Dan Schuller
CFO at Essential Utilities

When adjusting for non-recurring 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 EPS. 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 expenses 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 non-recurring merger-related costs for financial advisory, legal, and other fees, our adjusted non-GAAP earnings come out to $0.83.

Dan Schuller
Dan Schuller
CFO at Essential Utilities

You can find the full reconciliation on our website or in the appendix of this deck. As Chris mentioned earlier, the big picture hasn't changed. We're fully committed to our long-term goal of 5%-7% EPS growth from our non-GAAP 2024 base of $1.97 through 2026 and 2027. I'll wrap up on slide 11, touching on our regulatory activity. Far this year, we've 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.

Dan Schuller
Dan Schuller
CFO at Essential Utilities

A few of these cases are nearing completion, and we'll have updates on those in August if you're 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're maintaining these filings to ensure we're providing safe, reliable service and earning a fair return on our capital, all while keeping a very close eye on affordability for our customers. With that, I'll turn the call back over to Chris. Chris?

Chris Franklin
Chris Franklin
Chairman and CEO at Essential Utilities

Thanks, Dan. Let's move to slide 13 to recap our growth through acquisition program. On March 4th, we closed on our $18 million purchase of the Greenville Municipal Water Authority in Mercer County, Pennsylvania. The system serves 3,000 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. 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 201,000 customers with a purchase price of approximately $285 million. This includes our DELCORA transaction.

Chris Franklin
Chris Franklin
Chairman and CEO at Essential Utilities

I'll 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 400,000 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'll wrap up our prepared remarks here on slide 14. As we've discussed before, we are reaffirming our 5%-7% multiyear earnings per share guidance through 2027.

Chris Franklin
Chris Franklin
Chairman and CEO at Essential Utilities

Upon announcement of the transaction with American Water, we informed investors that we would continue growing EPS by 5%-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're focused on keeping the balance sheet strong, improving our cash position, and growing the dividend while keeping our payout ratio between 60% and 65%. As part of our strong focus on customers, we're investing $1.7 billion in regulated infrastructure this year. With that, I'll wrap things up and hand it back to the operator so we can take your questions.

Operator

We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one 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-

Chris Franklin
Chris Franklin
Chairman and CEO at Essential Utilities

Hey, Paul.

Operator

your line is open. Please go ahead.

Paul Zimbardo
Paul Zimbardo
Analyst at Jefferies

Hi. Good morning, team.

Chris Franklin
Chris Franklin
Chairman and CEO at Essential Utilities

Good morning.

Dan Schuller
Dan Schuller
CFO at Essential Utilities

Good morning.

Paul Zimbardo
Paul Zimbardo
Analyst at Jefferies

You know, thank you for the time. First, I just wanted to check in. Pennsylvania has been very topical, and you guys sit locally. Curious if you have any thoughts on the latest kind of 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?

Chris Franklin
Chris Franklin
Chairman and CEO at Essential Utilities

Yeah. First of all, I think we probably all agree we're aligned with the governor on the issue of affordability. Clearly, every utility is trying to accomplish pretty significant capital improvements, while, you know, figuring out strategies to keep rates affordable for our customers. Noble, you know, work and we're aligned on that. In terms of the governor's specific initiatives in his letter, I would say, Paul, we're in ongoing conversations with the governor's team. Dan and I were on the phone with them as recently as yesterday. The conversation continues. We're trying to get, I would say, real direction on how they're thinking about these issues. We know the issues. He outlines them pretty specifically in the letter.

Chris Franklin
Chris Franklin
Chairman and CEO at Essential Utilities

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

Paul Zimbardo
Paul Zimbardo
Analyst at Jefferies

Okay. No, thank you for that background. I know you have a unique lens sitting there. Then the other one, just, again, smaller detail, but with the adjusted EPS to exclude the merger charges prospectively, should we think about the adjusted EPS just adjusting out the merger items or, like, anything else that you'd think about adjusting, like gains and things of that nature?

Chris Franklin
Chris Franklin
Chairman and CEO at Essential Utilities

At this point, when we look at the $0.79 going to $0.83, the only thing in there, Paul, is merger related expenses. You'll see that non-GAAP table. Think of that as like bank fees, legal fees, filing fees, things of that nature.

Paul Zimbardo
Paul Zimbardo
Analyst at Jefferies

Okay. Perspectively, just kind of those type of items adjusted out.

Chris Franklin
Chris Franklin
Chairman and CEO at Essential Utilities

Yes.

Paul Zimbardo
Paul Zimbardo
Analyst at Jefferies

Okay. Thank you very much, team.

Chris Franklin
Chris Franklin
Chairman and CEO at Essential Utilities

Yeah. Thanks, Paul.

Operator

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

Travis Miller
Travis Miller
Analyst at Morningstar

Hi, everyone. Hey. Thank you.

Chris Franklin
Chris Franklin
Chairman and CEO at Essential Utilities

Hi, Travis.

Travis Miller
Travis Miller
Analyst at Morningstar

Just following up here real quick on the Pennsylvania thing. Understand that in terms of your rate cases, what about the merger approval? Have you had conversations with the governor's office, or does that come up? How do you think that might impact the review of the merger?

Chris Franklin
Chris Franklin
Chairman and CEO at Essential Utilities

Yeah, I mean, you know, I would say ongoing dialogue. I can't say we're into specifics on the merger. I would expect the governor would let the commission adjudicate that case as they see fit. I would say, Travis, we just got through Well, today is the last day of 14 hearings throughout Pennsylvania. I would position those as very positive. Very few people actually had anything to say. The several that came, a number of them were positive. I would say very successful hearings in Pennsylvania and for that matter, in North Carolina, where we've largely completed the hearings there too.

Chris Franklin
Chris Franklin
Chairman and CEO at Essential Utilities

You know, I wouldn't expect the governor to give specific thoughts on the merger at this point, but generally, I think people seem to think it makes sense. I don't wanna, you know, pigeonhole anybody into a position because nobody has actually staked out a position at this point.

Travis Miller
Travis Miller
Analyst at Morningstar

Sure. Okay. I understand. Then also more generally, how's the pending merger discussions around that impacting the discussions you're having with municipalities? Perhaps are you having discussions with municipalities along with the American Water Works colleagues?

Chris Franklin
Chris Franklin
Chairman and CEO at Essential Utilities

No, unfortunately, there's, you know, legal rules that would prohibit us from doing that. Matter of fact, interestingly, Travis, at least in a, in two places, we are still competing with American, which is a sort of a strange thing given the circumstances. Until the transaction is completed, we both have to do business as usual. I, I think, you know, just from general discussions, sellers, municipals in large case, understand that we will be one in, you know, within about a year. They recognize that and, I think it's in the considerations. We're business as usual, out there knocking on doors and trying to do as many transactions as possible.

Chris Franklin
Chris Franklin
Chairman and CEO at Essential Utilities

I can't say that the transaction has inhibited our ability to, you know, look, you know, turn over those rocks and look for opportunities in any way. I haven't sensed any negativity at all from potential sellers. I think it's generally business as usual.

Dan Schuller
Dan Schuller
CFO at Essential Utilities

Travis recall, you know, we're in some states that American's not in, and then certainly in some states we're in different geographies. You know, as Chris said, we're doing everything we can to continue to drive useful acquisition growth.

Travis Miller
Travis Miller
Analyst at Morningstar

Okay. Great. I appreciate the thoughts.

Operator

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

Chris Franklin
Chris Franklin
Chairman and CEO at Essential Utilities

Hey, Davis.

Dan Schuller
Dan Schuller
CFO at Essential Utilities

Morning, Davis.

Davis Sunderland
Davis Sunderland
Analyst at Baird

Thank you very much for the time. Yeah, good morning. Maybe if I could just ask, kind of a follow-up, I guess, to Travis's first question, just about the merger and the backdrop in Pennsylvania. I am sure as far as states go, this will obviously be the heaviest lift, but wondering, Chris, if you can just expand a bit more on what there is still to be done in the back half of this year and if it is just time or if there are any other potential road bumps or things that we should just consider as the process moves forward.

Chris Franklin
Chris Franklin
Chairman and CEO at Essential Utilities

Yeah. You know, I would say, Davis, the regulatory process is generally, you know, one that, you know, we have to kind of address as we go. So we know who the parties to the case are at this point. We've seen, you know, filings already, and we'll work through those through this summer. We've got, as we conclude the public hearings today, and then move to the more formal commission process over the summer, we'll get a good sense of where we can settle and, I think we're still optimistic that we'll be able to settle with most of the parties. We'll see how people come to the table.

Chris Franklin
Chris Franklin
Chairman and CEO at Essential Utilities

So far, I would say there has been nothing that we would put in the unexpected category. It seems to be proceeding as normal. Plenty of interrogatories and questions that are being asked and answered by the company and by the interveners. You know, I don't wanna paint, you know, an overly rosy picture, but I would say there's nothing that has come up that we've thought, "This is unexpected.

Davis Sunderland
Davis Sunderland
Analyst at Baird

That's super helpful and thank you for that. Maybe just as a second question, I guess it's a two-parter for you, Dan, but just appreciate the details on the earnings bridge as per usual, and just wondering if you could talk a bit through the shaping for Q2, I guess really through the rest of the year, just how we think about that. Then any considerations for equity issuance or other sources of capital through the year. Thank you.

Dan Schuller
Dan Schuller
CFO at Essential Utilities

Yeah, for sure. You probably saw it, you know, we did do a debt offering earlier in the year, a $500 million debt offering. You know, we'll look to continue to raise equity when it's opportune using our ATM program. As we think about earnings for the year in terms of that, as we said in the call in our prepared remarks, both Chris and myself, you know, we do expect to hit our target level of earnings per share. The way we've determined that is based on that 2024 adjusted baseline of $1.97 with 5%-7% growth off of that. In terms of the quarters, probably difficult to give you a lot on that.

Dan Schuller
Dan Schuller
CFO at Essential Utilities

I would look to the same set of sort of quarterly percentages that we provided in the past. Last year I'm sure we had a chart that had, you know, kind of four quarters with a percentage of annual earnings, sort of a range for each of the four quarters. I'd really go back to use that as your guide here.

Davis Sunderland
Davis Sunderland
Analyst at Baird

That's perfect. Helpful. Thank you so much, guys. Appreciate the time.

Dan Schuller
Dan Schuller
CFO at Essential Utilities

Yeah, you bet. Take care

Operator

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

Chris Franklin
Chris Franklin
Chairman and CEO at Essential Utilities

Thanks everyone for joining us today, and as always, Dan, 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.

Executives
    • Brian Dingerdissen
      Brian Dingerdissen
      VP of Financial Planning and Analysis, Treasury and Investor Relations
    • Chris Franklin
      Chris Franklin
      Chairman and CEO
    • Dan Schuller
      Dan Schuller
      CFO
Analysts
Powered by Quartr