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Aqua America Inc. (WTR)

Q2 2012 Earnings Call

July 31, 2012 11:00 AM ET


Brian Dingerdissen – Director, IR

Nick DeBenedictis – Chairman and President

David Smeltzer – CFO


Michael Roomberg – Ladenburg Thalmann Investments

Spencer Joyce – Hilliard Lyons

Jonathan Reeder – Wells Fargo



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Good day, welcome to the Aqua America Second Quarter 2012 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Brian Dingerdissen. Please go ahead, sir.

Brian Dingerdissen

Thank you, Alicia. Good morning everyone. Thank you for joining us for Aqua America’s second quarter 2012 earnings conference call. If you did not receive a copy of the press release, you can find it by visiting the Investor Relations section of our website at, or call Fred Martino at 610-645-1196. There will also be a webcast of this event available on our website. Presenting today is Nicholas DeBenedictis, Chairman and President of Aqua America, along with David Smeltzer, the company’s Chief Financial Officer.

As a reminder, some of the matters discussed during this call may include forward-looking statements that involved 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.

During the course of this call, reference may be made to certain non-GAAP financial measures. Reconciliation of these non-GAAP to GAAP financial measures are posted in the Investor Relations section of the company’s website.

At this time, I would like to turn the call over to Nick for his formal remarks, after which we will open the call up for questions.

Nick DeBenedictis

Thank you, Brian, and good morning, everyone. Pleased to report another solid quarter with GAAP EPS up 11% at 30 versus 27 last year, we experienced strong revenue growth of 11% in this quarter broken down 5% of that’s from rates, 4% from acquisitions, the fact that the Ohio purchase and the Texas purchase last year were up against less the robust results from the other states that we used to have.

And also seven new smaller acquisitions. And the remaining 2% from better than expected weather chiefly in the Mid West. But the main story of this solid financial performance in the quarter, I believe is execution, execution, execution. Thanks for just clicking.

Our operating expenses from continuing ops and interest expenses were both flat, and that allowed the GAAP earnings on a continuing basis to actually go up even faster 30 versus 26 or 15% increase in EPS.

On the interest front, financing we held onto our coveted A+ rating in Pennsylvania, which makes us one of the higher rank utilities by S&P. And that’s allowing us to borrow at unprecedented low rates, we did $50 million in May a 15 year note for 3.57.

We have about 55% of our $300 million revolver used, so we still have quite a bit of space on it, and we’re averaging 1% a year on that borrowing. And we have – we already took out this year a $5 million issue at 9%, who can remember 9% money that was 30 years ago, I guess and $25 million that is 6%. And we have over $100 million in tax freeze ranging from 4.5 to 5.5 that we plan to call in the second half there after 10 year time period.

And if we just stay with the same length of maturity, which should be 20 year maturity, we think we might be able to do as well as 75 to 100 pips saving on those – on that 100 million. So you can see, we continue to do financial engineering, but in the very positive way because of the solid financial foundation of the company and its strong S&P rating and timing is everything and where some of these notes are coming due or callable and we are taking advantage of today’s historic low interest rates.

On the O&M front, for the trailing 12 months ending 6/30/2012, we posted a O&M to revenue what we call our efficiency ratio of 37.3 versus 37.8 in the year prior period. Just to refresh you, we had a nice run of tightening margins, improving margins and actually lowering the efficiency ratio, which is the inverse, we just reached some numbers and you can see the trend line these are yearend numbers.

But for yearend 2007, our O&M to revenue or efficiency ratio was 42.2, in 2008 it dropped to 41.8, in 2009 it dropped to 40.2, in 2010 it dropped to 38.7, in 2011, we achieved 38.

And we’re hopeful with these six months in the bag now already we’re hopeful to squeeze another 50 basis points to maybe 75 basis points or more in the margin out of this benchmark for yearend 2012, there was some confusion after my last call, we measure our efficiency ratio slightly different than the other large water company American Water who is also giving these kind of tracking results and they are doing very good with their net results also.

If we use the same metrics as American, which is the regulated division O&M, not all O&M including are unregulated. And we just purchased water, which as they do and that’s a legitimate thing to do. Our trailing 12 months 6/30/2012 number would not be 37.3, it would be 34.3. And I think, whichever we want to use, I believe it’s the best in the entire utility industry.

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