Aqua America Reports Earnings for 2018, Announces Guidance for 2019

Aqua America Inc. (NYSE: WTR) today reported results for the fourth
quarter and year ended Dec. 31, 2018.

Full-year 2018 operating results

Aqua reported total operating revenues of $838.1 million in 2018
compared to $809.5 million in the prior year, which is an increase of
3.5 percent. The increase was driven by rates and surcharges, regulated
growth and other items, offsetting lower revenue from market-based
activities.

Operations and maintenance expenses were $308.5 million for 2018,
compared to $282.3 million in 2017. The increase was driven primarily by
the Peoples transaction costs in addition to higher employee-related
costs. This was offset by lower costs from market-based activities. Excluding
$14.2 million of expenses related to the Peoples transaction, operations
and maintenance expense growth was more in line with historic norms.

For the full year 2018, Aqua reported net income (GAAP) of $192.0
million, or $1.08 per share, compared to $239.7 million, or $1.35 per
share, in 2017. The decrease in GAAP earnings was a result of a
mark-to-market adjustment on interest rate swaps and other transaction
expenses related to the Peoples transaction. Excluding the Peoples
transaction-related expenses, adjusted income (non-GAAP) was $250.8
million or $1.41 per share, compared to $1.35 per share in 2017, an
increase of 4.4 percent. Higher earnings from rate cases and regulated
growth contributed favorably to earnings growth. Please refer to the
reconciliation of GAAP to non-GAAP financial measures later in this
press release for additional information on our use of non-GAAP
financial measures as a supplement to our GAAP results.

Aqua America Chairman and CEO Christopher Franklin outlined the
company’s major milestones in 2018.

“2018 was a historic year for Aqua, with six closed municipal water and
wastewater acquisitions that helped us reach our 1 million customer
milestone, record infrastructure investment of nearly $500 million, and
the announcement of our transaction with Peoples,” Franklin said. “All
these advancements are positioning Aqua to play a more significant role
in solving the problem of deteriorating infrastructure facing many
communities.”

Fourth quarter 2018 operating results

Revenues increased to $205.7 million in the fourth quarter compared to
$203.3 million in the same quarter of 2017. Rates and surcharge revenue,
regulated growth and other items increased revenue and were offset by
lower consumption.

Operations and maintenance expenses were $92.4 million for the fourth
quarter of 2018, compared to $78.0 million in the fourth quarter of
2017. The Peoples transaction costs were the largest driver of
this increase.

For fourth quarter 2018, Aqua reported a net loss (GAAP) of $3.7
million, or $0.02 per share, compared to net income of $53.5 million, or
$0.30 per share, in 2017. The decrease in GAAP earnings was a result of
a mark-to-market adjustment on interest rate swaps and other transaction
expenses related to the Peoples transaction. For the fourth quarter of
2018, Aqua reported adjusted income (non-GAAP) of $55.2 million or $0.31
per share, excluding the impact of the Peoples transaction. Higher
earnings from rate cases and regulated growth and lower expenses
contributed favorably to earnings growth.

Water utility acquisition growth

In 2018, the company invested over $100 million to acquire six municipal
water and wastewater systems. These acquisitions added more than 13,700
new customers to the company’s operating footprint. Coupled with organic
growth, the company increased its customer base by 2.3 percent with
22,726 new customer connections. Aqua currently has eight pending water
and wastewater acquisitions under agreement that are expected to close
in 2019, totalling approximately 20,000 new customer connections. The
company expects overall water and wastewater customer growth to be
between 2 and 3 percent for 2019.

In December, Aqua announced the acquisition of East Bradford Township’s
wastewater system for $5 million and Treddyfrin Township Municipal
Authority’s Valley Creek Trunk Sewer System for $28.3 million. Both
systems are in Pennsylvania. The Valley Creek system serves five area
municipalities and consists of 49,000 linear feet of gravity sewers, as
well as two pump stations and force mains.

“We continue to see vast opportunity in the municipal water and
wastewater market,” said Franklin. “With fair market value legislation
now in six of our states after it recently passed in Ohio, local
officials in these states have an important new option if they want to
seek relief from the large capital needs associated with running water
and wastewater systems and use their sale proceeds for important
community priorities.”

Peoples acquisition update

On Oct. 23, 2018 Aqua America announced an agreement to acquire Peoples,
a natural gas distribution utility, in an all-cash transaction that
reflects an enterprise value of $4.275 billion, including the assumption
of approximately $1.3 billion of debt. This combination will create a
new infrastructure company well-positioned to make significant impacts
on infrastructure improvement. This transaction aligns with Aqua’s
stated growth strategy and core competencies of sound investment in
infrastructure, continued regulatory credibility and operational
excellence. Both Aqua and Peoples have over 130 years of service and
will remain dedicated to the customers and communities we serve. Peoples
is the largest natural gas distribution company in Pennsylvania, and
serves approximately 740,000 customers in Western Pennsylvania, Kentucky
and West Virginia. Closing is expected to occur in mid-2019 once
regulatory approvals are obtained.

On Jan. 28, Peoples Natural Gas, LLC filed a rate case with the
Pennsylvania Public Utility Commission (PA PUC) for $94.9 million to
support the removal and replacement of aging pipelines to improve
infrastructure while substantially decreasing greenhouse gas emissions.
The request requires approval by the PA PUC, and it is expected that
rates will go into effect in the fall of 2019.

In October 2018, Aqua entered into interest rate swap agreements to
hedge the underlying interest rate risk associated with the long-term
debt for funding a portion of the Peoples transaction. Given the decline
in swap rates since signing, the company is reporting a non-cash
mark-to-market charge to earnings for the interest rate swaps during the
fourth quarter of 2018, and subsequent changes in fair value of these
swaps will be recognized in earnings. These swaps are expected to be
settled when permanent debt financing is issued as the transaction
approaches closing. Despite the charge, the company expects lower debt
costs for the long-term debt to be issued, which would ultimately be
beneficial for shareholders.

In November 2018, Aqua filed for regulatory approval in the three states
where Peoples operates: Pennsylvania, West Virginia and Kentucky.

As previously reported, Aqua intends to pursue offerings of equity,
equity-linked securities and debt prior to the closing of the Peoples
transaction. The company anticipates completing such offerings once
there is a line of sight to regulatory approval.

Capital expenditures

In 2018, Aqua invested a record of $495.7 million to rehabilitate and
strengthen its infrastructure systems. The company expects to invest
approximately $550 million in 2019 and approximately $1.4 billion from
2019 to 2021. This capital investment will result in growth in water and
wastewater rate base of approximately 7 percent. The 2018 capital
investments made to improve the infrastructure in the communities Aqua
serves are paramount to helping the company protect and provide Earth’s
most essential resource.

Rate activity

In 2018, Aqua America’s regulated subsidiaries received rate awards or
infrastructure surcharges in all eight states, estimated to increase
annualized revenues by approximately $22.5 million.

To date in 2019, the company’s state subsidiaries in Illinois, Ohio and
Pennsylvania have received rate awards or infrastructure surcharges
totaling $4.4 million. Additionally, the company currently has rate
proceedings pending in New Jersey, Ohio and Pennsylvania of $75.1
million.

In August 2018, Aqua Pennsylvania filed a water and wastewater rate
case, its first in seven years. On Feb. 8, 2019, the company filed a
joint settlement agreement for its Pennsylvania rate case. Rates from
this settlement are designed to add approximately $47 million in revenue
and are expected to go into effect in May 2019. The settlement is
subject to review and approval by the assigned administrative law judges
and the PA PUC.

“Aqua’s recent Pennsylvania rate case settlement, if approved, is a fair
outcome for our customers and our company,” Franklin said. “We take
these requests seriously and always look to ensure we’re investing
prudently and operating our business efficiently. Reliability and
quality are essential, and these periodic increases ensure both of these
important aspects of service.”

Dividend

On Feb. 4, 2019, Aqua America’s board of directors declared a quarterly
cash dividend of $0.219 per share of common stock. This dividend is
payable on March 1, 2019, to all shareholders of record on Feb. 15,
2019. The March dividend marks the 74th year Aqua has paid a consecutive
quarterly dividend.

2019 Aqua stand-alone guidance highlights (excluding Peoples
transaction-related items and earnings impacts from Peoples post-closing)
The
following is the 2019 full-year guidance:

• Adjusted income of $1.45 to $1.50 per share
• Infrastructure investments of approximately $550 million in 2019
  for communities served by Aqua
• Infrastructure investments of approximately $1.4 billion through
  2021 in existing operations to rehabilitate and strengthen systems
• Rate base growth of 7 percent through 2021
• Total customer growth of between 2 and 3 percent
• Closing of Peoples acquisition expected in mid-2019

Aqua America does not guarantee future results of any kind. Guidance is
subject to risks and uncertainties, including, without limitation, those
factors outlined in the “Forward Looking Statements” of this release and
the “Risk Factors” section of the company’s annual and quarterly reports
filed with the Securities and Exchange Commission (SEC).

Earnings call information
Date: Feb. 19, 2019
Time:
11:00 a.m. EST
Webcast and slide presentation link: http://ir.aquaamerica.com/events.cfm

The presentation will be webcast live so that interested parties may
listen over the Internet by logging on to AquaAmerica.com
and following the link for Investor Relations. The webcast and a
transcript will be archived in the investor relations section of the
company’s website for 90 days following the call. Additionally, the call
will be recorded and made available for replay at 2 p.m. on February 19,
2019 for 10 business days following the call. To access the audio replay
in the U.S., dial 888.203.1112 (pass code 1128860). International
callers can dial +1 719.457.0820 (pass code 1128860).

About Aqua America

Aqua America is the second-largest publicly traded water utility based
in the U.S., and serves more than 3 million people in Pennsylvania,
Ohio, North Carolina, Illinois, Texas, New Jersey, Indiana and Virginia.
Aqua America is listed on the New York Stock Exchange under the ticker
symbol WTR. Visit AquaAmerica.com
for more information.

Caution concerning forward-looking statements

This release contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995, including, among
others: the expected earnings per share for the fiscal year ending Dec.
31, 2019, the expected infrastructure investment by the company in water
and wastewater infrastructure in 2019 and through 2021, the amount of
rate base growth in the company’s water and wastewater operations
through 2021, the expected increase in customer base for fiscal year
2019; the expected timing of the closing of the Peoples acquisition; the
company’s expected ability to participate in solving communities’
infrastructure needs; the potential timing and the amount of the Peoples
Pennsylvania rate case; the ability to settle the interest rate swaps
with the placement of permanent debt financing; the company’s increased
opportunity in the municipal market; the results of the company’s
Pennsylvania water and wastewater rate case; and the timing of the
company’s projected common equity and equity-linked securities
offerings. There are important factors that could cause actual results
to differ materially from those expressed or implied by such
forward-looking statements including: the continuation of the company's
growth-through-acquisition program; the desire of municipalities to sell
their water and/or wastewater systems; the company's continued ability
to adapt itself for the future and build value by fully optimizing
company assets; general economic business conditions; the company's
ability to fund needed infrastructure; housing and customer growth
trends; unfavorable weather conditions; the success of certain cost
containment initiatives; changes in regulations or regulatory treatment,
including a change in federal tax policy; availability and access to
capital; the cost of capital; disruptions in the credit markets; the
success of growth initiatives; the company's ability to grow its
dividend, add shareholder value and to grow earnings; the ability of the
company to successfully close and integrate the anticipated municipal
acquisitions and the Peoples acquisition in 2019; changes in policies in
regulated commissions; changes in law in water and /or wastewater
acquisitions; the ability to receive favorable approval from the
Pennsylvania, Kentucky and West Virginia utility commissions for the
Peoples acquisition; and other factors discussed in our Annual Report on
Form 10-K, which is filed annually with the Securities and Exchange
Commission. For more information regarding risks and uncertainties
associated with Aqua America's business, please refer to Aqua America's
annual, quarterly and other SEC filings. Aqua America is not under any
obligation - and expressly disclaims any such obligation - to update or
alter its forward-looking statements whether as a result of new
information, future events or otherwise.

WTRF

Financial Results

The company’s results stated here are unaudited. The final audited
financial statements will be filed with the company's annual report on
Form 10-K. The following statements and tables show selected operating
data for the quarter and year ended Dec. 31, 2018 and 2017 (in
thousands, except per share data) for Aqua America Inc. and subsidiaries.

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