Business context and reporting period
The supplied filing is Aqua America, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2015, filed November 6, 2015. It is not filed under the name Essential Utilities, Inc.; investors should confirm the requested company and filing match. Aqua America provided regulated water and wastewater services to almost 3 million people across eight states, alongside smaller market-based businesses.
Financial performance and position
Amounts below are in millions of dollars, except per-share data, percentages and ratios.
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $221.1 | $210.5 | $617.1 | $588.5 |
| Operating income | $95.1 | $95.1 | $246.5 | $241.8 |
| Net income attributable to common shareholders | $67.4 | $68.0 | $173.4 | $166.4 |
| Diluted EPS | $0.38 | $0.38 | $0.98 | $0.94 |
| Operating margin | 43.0% | 45.1% | 39.9% | 41.1% |
For the nine-month period, net cash from operations was $282.4 million, versus $274.4 million. Capital expenditures were $257.5 million, up from $220.7 million; cash used for utility acquisitions was $26.3 million. Cash and cash equivalents were $4.1 million at September 30, 2015. Current assets of $168.3 million compared with current liabilities of $216.0 million (current ratio approximately 0.78); management noted that negative working capital is customary for the company.
Long-term debt, including current maturities, totaled $1.729 billion, versus $1.619 billion at December 31, 2014; loans payable were another $28.0 million. Total equity was $1.729 billion. The company reported $73.7 million available under its $200 million revolving credit facility and $132.5 million available under short-term credit lines.
Changes versus comparable periods
- Third-quarter revenue rose 5.0%, but continuing-operations income edged down 0.4%; net income fell 0.8%, partly because the prior-year quarter included discontinued-operation income.
- Nine-month revenue increased 4.9%, and continuing-operations income rose 5.1%; diluted EPS increased from $0.93 to $0.98. Growth reflected acquired customers and businesses, higher rates, increased water consumption and market-based activity.
- Nine-month operating and maintenance expense increased 7.9%, faster than revenue, including acquisition-related costs, higher water production costs, leadership-transition costs and legal expenses. Taxes other than income taxes rose 13.5%.
- Capital spending and acquisition outlays exceeded operating cash flow combined by approximately $1.4 million; debt issuance and repayments funded much of the investment and other cash needs. Dividends declared were $0.508 per share for the first nine months, versus $0.469.
Outlook, commentary, risks and unusual items
- No quantified earnings or revenue guidance is provided. Management said internal funds, credit facilities and long-term debt proceeds should be adequate for working capital and financing needs for at least 12 months, while warning that short-term credit lines require annual renewal and renewal is not assured.
- In October 2015, the company gave notice to redeem $100.0 million of bonds and anticipated refinancing them with long-term debt in the fourth quarter.
- Rate increases and infrastructure surcharges approved during the first nine months were designed to add $3.3 million and $1.8 million, respectively, to annual revenue.
- Reported risks include regulation, abnormal weather, capital requirements and funding, acquisitions and integration, and capital-market conditions. Management reported no material change to the risk factors in the 2014 Form 10-K and no significant change in market-risk exposure.
- Operations and maintenance expense included a $1.6 million third-quarter legal contingency reserve; nine-month expense also included a $1.9 million reserve for water rights held for future use. Total accrued loss contingencies were $13.4 million; management did not expect their resolution to materially adversely affect financial position, results or cash flows.
- The CEO transition occurred July 1, 2015. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Confirm the issuer identity: the supplied filing names Aqua America, Inc., not Essential Utilities, Inc.
- Review the drivers and sustainability of revenue growth, particularly acquired operations, consumption, rate changes and market-based activities.
- Assess whether rising operating costs, taxes and investment needs may continue to pressure margins and free cash flow.
- Verify debt maturities, refinancing of the announced bond redemptions, and renewal and availability of short-term credit facilities.
- Review the legal contingency accrual, water-rights reserve, tax-position exposures and regulatory recovery mechanisms.