Brian Dingerdissen - Director, IR Nick DeBenedictis - Chairman Chris Franklin - President, CEO Dave Smeltzer - CFO.

Richard Verdi - Ladenburg Thalmann Jonathan Reeder - Wells Fargo Spencer Joyce - Hilliard Lyons.

Good day everyone and welcome to the Aqua America, Inc. Second Quarter 2015 Earnings Call. Today’s conference is being recorded. At this time I would like to turn the conference over to Mr. Brian Dingerdissen, chief of staff. Please go ahead, sir..

Thank you, Dana. Good morning, everyone. Thank you for joining us for Aqua America's second quarter 2015 earnings conference call. If you did not receive a copy of the press release you can find it by visiting the investor relation section of our Web site at aquaamerica.com or by calling Scott Siegel at (610) 520-6361.

The slides we will be referencing can be found on our Web site. There will also be a webcast of this event available on our site. We may be experiencing technical difficulty on the Web version of the slides, so please refer to the PDF if that happens.

As a reminder, some of the matters discussed during this call 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. 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 Web site.

Presenting today is Nick DeBenedictis, Chairman of Aqua America; along with Chris Franklin, the Company's Chief Executive Officer and Dave Smeltzer, the Company’s Chief Financial Officer. After the presentation, we will open the call up for questions. At this time, I would like to hand the call over to Nick..

Thanks, Brian and thanks to everyone for joining us today. This is an exciting time as it marks the transfer of leadership to Chris Frankly, Aqua’s new CEO and I am very excited with the direction he plans to take this great Company, which Chris will present later in the call.

I’ll note this call will be slightly longer than usual for Chris to be able to discuss the team he is establishing, his philosophy and his views on growth.

I’ll start with by commenting on the second quarter’s results, Chris will then discuss the progress of the transition, the CEO transition and the Company operational performance, Dave Smeltzer, our CFO, will then review the Company’s financial results and then Chris will recap our guidance for the remainder of ’15 and then we’ll open the call up for questions.

Let me start with the quarter. Pleased to announce another strong quarter and we expect as we’ve predicted in the past another strong solid year.

On the acquisition pipeline, we’re continuing to build off our strong start for the year and have acquired eight system year-to-date which when coupled with organic growth increased year-to-date number of customer growth to 1.2% for the first six months.

For the quarter, we reported $0.32 in income from continuing operations which compared favorable to the $0.31 in the second quarter of ’14. And operating revenue of $2.05 represents an increase of 5.4% from the $1.95 reported in 2014.

Yesterday at our Board meeting, directors declared an increase to the quarterly dividend of 8% to $0.1708 a quarter and that will be effective September 1.

And as you the Company looks to reward its shareholders with quarterly dividends and we’re now in our 70th year of paying consecutive quarterly dividend and the September 1 increase will be 25th increase in the dividend in the last 24 years, something we are very proud of.

Now, I’d like to hand the call over to Chris who will discuss the progress of the transition and the performance of Aqua’s operations.

Chris?.

Thanks very much Nick and good morning everyone. I appreciate both Nick’s confidence and the confidence that the Board has placed in me and more recently with my new team.

The first 30 days have been extremely busy and through that time I’ve had the opportunity to meet with some of you and good interactions, and also looking forward to meeting rest of you and building strong relationships as we move forward.

We, I mean, the team and I, are looking forward to continuing the success that we’ve experienced under Nick’s leadership over the past 23 years. And I am personally happy that Nick has agreed to stay in this role at non-Executive Chairman of the Board.

Now, if you turn to the next slide, I’d like to discuss some of these organizational changes we’ve made during my first month as CEO. The chart shows the reporting structure for our senior management team. Let’s start with Dave Smeltzer.

You all know Dave and in addition to Dave’s current responsibilities, he now has three additional Vice Presidents reporting to him. And his responsibility for the Company will include supply chain management, customer operations and the IT departments in addition to what he already had.

Earlier this month, we also announced that Rick Box was appointed to replace me and my previous role as Chief Operating Officer of Regulated Operations. In his new role, Rick will be responsible for managing our states day to day operations, which includes field services, engineering and environmental compliance.

Prior to accepting this position, Rick served as Regional President of Aqua’s Midwest and Southern operations. He’s been a very close colleague of mine for nearly a decade and half and is playing a key role in the success of this Company. Rick’s former education was in chemical engineering, so he’s well suited in many ways for his new job.

Next is Chris Luning. Chris is our General Counsel and a key part of the management team for almost 12 years now. He’ll continue to oversee the Company’s legal group and support the entire business providing thoughtful leadership.

Chris has also been an integral part of our corporate development effort and he’ll play an important role continuing in that area. Finally, Dan Schuller, our most recent appointed manager, accepted newly created position of Executive Vice President of Strategy and Corporate Development.

Dan will assist me with developing and communicating and executing our strategic initiatives. He will also be responsible for overseeing our Company’s regulated end market based roads and strategies. Prior to serving in his role, Dan worked at J.P. Morgan Asset Management in the Infrastructure Investments Group. And while J.P.

Morgan, Dan developed his technical background and expertise and experience that we believe is necessary for our corporate development team to be successful. By the way Dan is also an engineer, in fact has a Ph.D. in engineering.

I am confident that both Rick and Dan will be valuable to new assets to the leadership team as we continue to look to continue our excellence in operations and our strong growth. Now if we turn to the next slide, I’d like to share with you some of my early expectations for the Company and where we’re placed our focus.

I firmly believe that sustainability is one of the foundational elements on which the Company’s success is built. To be sustainable, we must be customer centric. This means continuously optimizing our overall service and our service reliability which as you probably already know is near 100%.

I expect to maintain the Company’s role in environmental stewardship with both water and waste water operations. Our business is unique in the quarter with the only utility that delivers a product which is ingested. It’s our responsibility to produce and treat water so that it meets the EPA standards for drinking.

Now we also take waste water into our plants and filter it to proper standards so that we can safely return it to our environment. These will continue to be among 30 top priorities. Next slide. We expect to continue to develop and foster the depth of talent that we have in this company.

We have a great highly profession team that I am very proud to lead. We strive to continue to provide opportunity for professional development for all of our newly 1,700 employees. Initially I expect to continue to invest the needed capital as required to improve our water and wastewater infrastructure throughout Aqua's footprint.

And finally, I expect to grow the business so that we can provide even more people with our high quality utility service by employing our well known operational efficiencies and being the results our shareholders have come to spend. So let's discuss a little bit of the Aqua's growth platform.

Aqua has a proven earnings growth model built on three pillars; capital investment; customer growth, both organically and from acquisitions; and growth from our market based activities. The capital investments we make and the fair rate of return that we earn on those investments really helps drive the success of Aqua's growth strategy.

In a few minutes I am going to show you a slide that shows the company's investments in the past and the projected investments in the next three years demonstrating two decades of substantial investments in our communities. Customer growth is a key driver of our revenue increases each year.

While our customers are growing organically, let's call it between a half and three quarters represent each year, the bulk of our customer growth comes from acquisitions of both private and municipal water and wastewater systems.

Not only do these acquisitions add customers but they also provide the opportunity to invest additional capital and improve water and wastewater infrastructure. Our market based activities also play the factor in the company's growth strategy.

While still only a small portion of the total revenue, let's call it 4%, our market based activities provide complementary services to our water wastewater units.

Our history of success has been strong and the new leadership team is reviewing our current market based portfolio in addition to new potential investments to further enhance our performance on the market based side. Now with that said, let's turn to the next slide and talk about the company's operational performance.

Year-to-date we have invested a 150 million in our capital investments to improve our [EG] infrastructure and better serve customers. I will go deeper into our rate activity in just a minute but thus far for the year we have received rate awards and infrastructure surcharges that are projected to provide $5.2 million in annual revenue.

Additionally we are having a strong year in terms of acquisitions which coupled with organic growth represents a total increase to our customer count of 1.2% year-to-date. Finally, we are continually working to optimize both our regulated and market based activities by managing expenses and maximizing profitability.

As we have said before we are leader in the industry space in our industry with an adjusted regulated segment efficiency ratio of 34.2%, an improvement of 60 basis points from last year same time where we were 34.8%. This is something management will continue to focus on and it's really part of our culture.

Moving to next slide let's take a look at our current capital investment plan. This s a slide I mentioned earlier. So over the last two decades our CapEx program has grown significantly and we are not slowing it down. Just in second quarter alone we invested $80 million in infrastructure improvements.

We are on track to invest over 325 million again this year. We expect to continue this pace and invest over a $1 billion over the next three years which should grow our rate base about 6% to 7%. Now let's talk a little on the next slide about our year-to-date rate activity.

So in regard rate in surcharges year-to-date our regulated subsidiaries have received rate awards and infrastructure surcharges in New Jersey, Pennsylvania wastewater, Illinois, North Carolina, Ohio and Texas with an estimated increase to annualized revenues of about $5.2 million.

The company has 4.3 million of rate proceedings pending in Ohio and Virginia and Aqua America's state subsidiaries are expected to file rate requests or surcharges of approximately $5 million within the remainder of 2015. Additionally, our customers and shareholders continue to benefit from the tax repair program in Pennsylvania.

As of quarter end we had invested $700 million in infrastructure improvements in Pennsylvania since the last rate case filing for Pennsylvania back in 2011. I expect Pennsylvania will not fall -- not be in for rates for at least another year On the next slide let's talk about acquisitions year-to-date.

As I mentioned before acquisitions are a key contributor to our long-term growth and our 2015 acquisition pipeline remains very promising. Our growth for acquisition strategy benefits the customers that we serve in the form of improved service along with growing value for our shareholders.

Year-to-date, the Company has acquired eight water and waste water systems, three of which were municipal and five were private. Together, these acquisitions added approximately 8,700 customers and combined with organic growth of about 3,100 customers. We’ve achieved an increase of 1.2% in overall customer growth thus far this year.

Our North Maine utilities acquisition in Illinois combined waste water acquisition is our largest deal of the year and also represents our largest municipal deal closed in the last 16 years.

Currently we’re on pace to close the total 15 to 20 deals by year end which combined with organic growth is expected to contribute 1.5% to 2% in customer growth, representing the highest growth rate that Company has achieved since 2008. Now, I hand the call over to Dave Smeltzer to touch on the key drivers of the second quarter financial results.

Dave?.

Thanks Chris and good morning everyone. As we move to the next slide, I’ll talk about the Q2 financial results and some of the driving factors that affect the Company’s performance. So first, you see the P&L on the chart. The revenue for the quarter increased 5.4% from the prior year.

Our market based acquisitions were actually the most significant contributor to our revenue growth this quarter, providing about 2 percentage points of that total increase in revenue.

Regulated operations including regulated customer growth, consumption and revenue from recent surcharges combined to provide the other 3.4 percentage points of that revenue growth. O&M expenses were up an uncharacteristic 13.3% to $79.7 million from $70 million in 2014.

Our market based acquisitions contributed the most to the total O&M increase, Tri-State Grouting acquisition still in its first year was by far the leading contributor to O&M expenses in this category up about $2.6 million.

Another leading factor was employee related cost and there were two components to this; one, was a one-time credit tied to vacation expenses in 2014 of about $1.6 million; and second, was about $1.8 million in expenses tied to the recent senior leadership transition. Also we placed the reserve on some non-regulated assets that was about $2.2 million.

O&M growth in our regulated acquisitions, most of which came from purchase water in our new North Maine utilities acquisition, led to an increase of about $1.8 million or 2%. And finally, production expenses contributed 1% in the total O&M increase which gets us to the $79.7 million or 13.3% unfavorable increase from 2014.

Now absent the one-time or unique items that we just talked about, you will note that the O&M increase was fairly minor for the quarter.

So, from an EPS perspective, there were a couple of key components that drove that $0.01 increase; first, our regulated growth and consumption increased earnings about $0.01; the tax repair benefits increased earnings a little less than $0.01; and the market based results and our rate results, each were about a $0.005 increasing earnings.

And they were all offset by our increased O&M expenses, which was nearly $0.02, so that all netted out to the $0.1 increase in earnings. So, turning to my last slide. We’ll look at the 2015 year-to-date financials. So our year-to-date performance showed similar trends to our quarterly results.

Year-to-date the Company has seen a 4.8% growth in revenue and 7.6% in increased expenses compared to the same period in 2014. So we’ve had a solid first half with a 9% growth in earnings. And next Chris will discuss expectations for the balance of the year.

Chris?.

Thanks, Dave. Take a minute to review the Company’s guidance for the remainder of 2015. In summary, we expect earnings to be in the range of $1.25 to $1.27. However, I want to mention that we’ve been experiencing a relatively warm but sporadically wet summer, which is not prompt in these levels of irrigation we would have expected.

This could potentially have a negative impact on our third quarter consumption. We expect customer growth to be between 1.5% and 2% with 15 to 20 acquisitions that I mentioned. We’re off to a great start so far this year with our North Maine utilities now into with five other private acquisitions.

We expect to invest at least 325 million in 2015 capital and more than 1 billion in capital through 2017. On the market based side, we expect to see 2015 revenue increase to $30 million. Finally, we expect to see the same store O&M to grow between 2% and 4% for the full year of 2015. With that, we’re ready to open up for some questions,.

[Operator Instructions] And we will go first to Richard Verdi with Ladenburg..

Hi. Good morning guys, and great quarter. And thank you for taking my call here. Just a couple of quick questions here. I did jump on in the call late, so excuse me if you've addressed it, the first one.

But in New Jersey Aqua has been very successful with acquisitions in the past and New Jersey is coming forward now with the Water Infrastructure Protection Plan Act where tax payers in the municipalities can somewhat freely sell their system to players such as yourself.

That being said, is this all about become more aggressive in New Jersey on the acquisition front because of that potential there?.

This is Chris. I think the answer, short answer is yes that we will play in all of the potential opportunities in New Jersey as well as the other states. I think the idea would be to see that legislation or similar legislation get passed in the other states where we do business as well.

As you know we have already worked very well In Illinois and certainly we would like to see it in Pennsylvania and to the other states. And I know that's already being considered in several of those areas as well. But New Jersey specifically I think you will see us active in any opportunity in New Jersey..

Okay. Great. And just one other quick item and maybe Dave this might be geared towards you best. Now in the past we have spoken a lot about the repair tax and Chris in his prepared remarks had mentioned that you will see a filing until next year likely.

But beyond in 2017, '18 and '19, what does the repair tax issue look like out there?.

The repair tax is a function of some key categories of capital spending. So the repair tax is a permanent change in the way we do our accounting for those projects and will be a component of our results for a very, very long time. So it's not away.

What we expect will happen however is that overtime the benefits of the repair tax will simply serve to support the additional rate base that’s being added. As Chris mentioned we have added $7 million in projects in Pennsylvania since we last increased rates. And are suggesting we are not going to increase rates yet for a while, right.

So overtime, the rate base that’s added will support that repair tax benefit that is now allowing us to earn a slightly higher level of net income. And then when we reach that point, we will be ready to go back in for a next rate case and that rate case will then incorporate those repair tax benefits going forward.

So that's really how we expected to unwind is just the timeline is a little uncertain because of all the variables that go into the calculation..

Okay. Great.

But it's a benefit that will be like you said, it will benefit Aqua America for many years to come though, right?.

Right, right. And then, and ….

Okay..

… the customers in particular..

Okay. Thank you guys. I appreciate an excellent quarter I guess..

[Operator Instructions]. We will take our next question from Jonathan Reeder with Wells Fargo..

Good morning gentlemen. First off I want to send my appreciation for the slide deck and the annual guidance, great improvements there Chris, right off of that, I appreciate it.

Questions that I have the indicated 6% to 7% rate base growth, is that corresponding over the next three years to kind of your CapEx budget and then what is the year end '14 rate base amount that you are growing that off of?.

Yes, Jonathan it's Dave. Yes the 6% to 7% is very much associated with our CapEx and the $1 billion we expect to send -- spend over the next three years. So it's right in line with that.

And what was the second part of the question?.

Rate based..

Yes, rate base. On rate base today is in the neighborhood of $3.4 billion and it's fairly straight forward calculate right up the balance sheet but there are some anomalies that you might be off a $100 million or so but it's in the neighborhood of $3.4 billion Jonathan..

Okay, perfect.

And then is there any reason Dave to believe that the annual CapEx spend beyond the current three year period would not continue to grow? I mean how should we think about it I guess directionally?.

Well yes, as Chris said, we expect the spending to be strong for a while.

Clearly there could be a point in time where we feel we are on top of our infrastructure [rehabilitation] and it slows down but we have seen those times coming in the future in prior periods then we will typically offset by acquisitions and the need to devote further capital in improving those acquisitions.

So that's certainly how we would expect it to roll going forward..

Okay. And then last question on the comment PA rates for at least another year.

Does that include the disc filings or might those be within a year?.

That includes the disc filings..

[Operator Instructions] And we’ll go next to Spencer Joyce with Hilliard Lyons..

Good morning guys. Nice quarter and the second some of Johnson’s comments. Thank you for the slide deck, very helpful on some of the items here. Just one really quickly almost housekeeping question from me, can you go back to the slide 15.

What’s your both deals were municipal I am seeing that specifically that Northeast Maine that was a municipal purchase, right?.

The North Maine utilities in Illinois, yes, that is municipal..

So Maine is municipal and then also the Venter Heights, that would also be?.

Jewett is the other municipal. But the North Maine is the one that we talk about Spencer that the largest we’ve done in 16 years, that’s the key there..

That’s good, perhaps selling if it on the purchase side, but again good quarter. I just need that little bit of clarity. Thanks..

Thanks..

And with no further questions in the queue, I’d like to turn the conference back to Chris Franklin for any additional or closing remarks..

Thanks all for joining us and we appreciate your time..

That does conclude today’s presentation. We thank you for your participation..