Aqua America's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Aqua America (WTR)

Q1 2012 Earnings Call

May 03, 2012 11:00 am ET

Executives

Brian Dingerdissen - Director Investor Relations

Nicholas DeBenedictis - Chairman, Chief Executive Officer, President, Chairman of Consumers Water Company, Chief Executive Officer of Consumers Water Company, Chairman of Pennsylvania Suburban Water Company, Chief Executive Officer of Pennsylvania Suburban Water Company, Director of Consumers Water Company, Director of Pennsylvania Suburban Water Company and Chairman of Executive Committee

Analysts

Michael G. Roomberg - Ladenburg Thalmann & Co. Inc., Research Division

Heike M. Doerr - Robert W. Baird & Co. Incorporated, Research Division

Stewart Scharf - S&P Equity Research

Presentation

Operator

Good day, and welcome to the Aqua America, Inc. First Quarter 2012 Earnings Conference Call. As a reminder today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Brian Dingerdissen. Please go ahead.

Brian Dingerdissen

Thank you, Lisa. Good morning, everyone. Thank you for joining us for Aqua America's First 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 aquaamerica.com or by calling 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 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-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 up the call for questions.

Nicholas DeBenedictis

Thank you, Brian, and good morning, everyone. Pleased to report another solid quarter of growing revenue, earnings, cash generation as distinguished by EBITDA and proud to say we're continuing to invest in our water systems and growth opportunities at a pace of 2.5x our depreciation. So we're still investing in our economy. Confident that we're on our way to our 13th straight year of record earnings as we continue as one of the nation's most efficient, profitable, financially sound, and fastest-growing water utilities.

As I start my 21st year as CEO this year, the first 4 months of 2012 has been among the busiest I've had. Let me just recap for you. We began '12 with a new organization and a succession plan. My contract was extended till 2015 and 3 new executive vice president positions were established and filled with experienced Aqua executives, so we can prepare for the company's future. Since that time, a number of key management positions have been reestablished with a focus on increased efficiency in our operations and future growth potential.

We've taken some major governance initiatives through the board as we move towards our annual meeting, which is coming up next week. The board has recommended a declassified board, which the vote is overwhelming to date. We adopted -- the board adopted a policy for majority voting. We recommended a new compensation plan, which is being voted on by the shareholders, which is geared towards total shareholder return and earnings growth. And we recommend a renewal of our employee stock purchase plan and have already recommended our existing shelf renewed -- I'm sorry our existing shelf registration, which is done by the board individually. And that's even though we have no plans -- and I don't want to give anybody the impression we do, we have no plans for any equity issuance in our current 5-year plan.

We completed the state portfolio transformation that we began back in 2011. And just like to recap all of the results of that. We sold operations in our smallest, and both, unfortunately, were unprofitable states, Missouri and South Carolina, completely exited those. We profitably expanded in Texas by purchasing operations of American Water in Texas. And Texas is our fastest-growing state. We sold our Maine operations with only 6-month regulatory process, which is remarkable, to Connecticut Water for basically 2x book value, and much of that gain was taken in this quarter as the official closing was January 1. And the increased equity generated by the transaction to Aqua was immediately invested in higher earning states and is already accretive.

On May 1, we sold our New York Water operations, representing $46 million in rate base and 51,000 water customers. We sold it at book for $39 million and $23 million of assumed debt to American Water. And we simultaneously purchased American Water's operation in Ohio. We purchased 57,000 water and wastewater customers in Ohio, representing $95 million in rate base, basically for book value, $95 million in book for $101 million in cash plus $11 million in assumed debt. And of course, all the regulatory and liabilities and assets were assumed by each company.

I think this is a very constructive transaction as was the Maine transaction with the other water companies in our small unit space, where we're rationalizing and getting bigger in states where we already are concentrated allows for more efficiency, shedding unprofitable operations. It's good for the consumer and it's good for our shareholders. We also had a very busy year reissuing and expanding our corporate and Pennsylvania-based revolvers. Both have been renewed at the Pennsylvania for a year, the Aqua corporate for 5 years. The corporate is at 65 over LIBOR, 1 month LIBOR, and the Pennsylvania is 70 over LIBOR. Both pretty reasonable. And between those 2 alone, we have over $250 million in capacity and then we also had our state subs at probably another $70 million, $80 million, which is now unused.

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