Essential Utilities, Inc. (WTRG) Q3 2022 Earnings Report, Transcript and Summary

Hello and welcome to Essential Utilities Q3 2022 Earnings Call. My name is Sarah and I will be your coordinator for today's event. Please note this conference is being recorded and for the duration of the call your lines will be in listen-only. [Operator Instructions] I will now hand you over to your host, Brian Dingerdissen, to begin today's conference. Thank you.

Thanks, Sarah. Good morning, everyone, and thank you for joining us for Essential Utilities Third Quarter 2022 Earnings Call. I am Brian Dingerdissen, Vice President of Investor Relations and Treasurer at Essential. 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 essential.co. The slides that we will be referencing and a webcast of that event will also be found there. Here is our forward-looking statements. 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. A reconciliation of these non-GAAP to GAAP financial measures is included at the end of the presentation and also posted in the Investor Relations section of the Company's website. Here is our agenda for the call today. We'll start with Chris Franklin our Chairman and CEO, who will discuss the highlights from the quarter and provide a Company update. Next, Dan Schuller, our Executive Vice President and CFO will discuss our financial results. Lastly, Chris will provide an update on our acquisition program and conclude the presentation with a summary of our guidance before opening the call for questions. With that, I will turn the call over to Chris Franklin.

Hi, thanks Brian and good morning, everyone. Thanks for joining us. Let's start-off with some highlights from the quarter. We continue our focus on the fundamentals of operational efficiency, infrastructure improvement and service-related priorities. And as a result, we had a strong third quarter with earnings per share of $0.26 and year-to-date net income growth of 11.2%. Dan will provide you some details on this in just a few moments. Our commitment to investing in critical infrastructure has resulted in an investment of $719.7 million through our water - wastewater and natural gas systems in the first-nine months of the year. This compares favorably to $675.8 million from the same-period in 2021. We remain on-target to achieve our capital plans of approximately $1 billion of capital spending for the year. Currently we have asset purchase agreement signed for seven municipal acquisitions totaling nearly $365 million in purchase price. This year 2022, we've closed two acquisitions, which added over 19,000 customer equivalents to our footprint. As I'll discuss later, we continue to have a robust pipeline of opportunities. Now just this month - last month in October, the Board appointed Bryan Lewis to our Board. Bryan currently serves as the Chief Investment Officer for U.S. Steel Corporation, which is headquartered in Pittsburgh, Pennsylvania. Bryan is responsible for the Company's global investments for both the defined contribution and defined benefit plans, as well as other related programs at the Company. Prior to his appointment at U.S. Steel, Bryan managed $30 billion pension fund for the Pennsylvania State Employees Retirement System and before that served as Executive Director of the $20 billion Illinois State Universities Retirement System. Now in addition to Bryan's professional career, he is dedicated to increasing the financial literacy and leadership presence in underrepresented populations and serves on several non-profit Boards. At the Essential Board, Bryan will serve on our Audit Committee, as well as our risk mitigation committee. Great addition to our Board, we welcome Bryan, filling an open seat. Now want to take a moment to update you on a few other salient issues. Last week, we were informed for the second consecutive year, that MSCI has upgraded our ESG rating and it's now AA. In their upgrade, MSCI noted that Essential is a global leader in governance, that we are stronger than the industry average in the environmental and social areas as well. We are really pleased with this outcome. Lot of hard work went into this and really pleased with that result. Now staying with the ESG theme, we recently announced a hydrogen pilot with the University of Pittsburgh. The partnership will study the potential of safety and safely and securely transporting hydrogen through natural gas systems. Now together peoples and pit we'll conduct some in-depth research related to the technical issues involve with using natural gas pipelines to transport a blend of hydrogen and natural gas. Following our research phase, the organizations expect to work together on a pilot project to test the impacts of hydrogen on people's natural gas distribution infrastructure. In addition, we're now a member of a consortium that is applying for federal funds to create one of the hydrogen hubs in the country. This one will be based in the Appalachian region, 44 entities including businesses, state governments and other organizations have all signed onto this consortium. It will be exciting part of this - to see what these hydrogen hubs around the country can do to advance hydrogen as a component of clean energy. I should also mention that legislation was just approved in Pennsylvania, which included $50 million in annual tax credits to incentivize hydrogen production, certainly a developing area for us to be involved in. So now let's move on to some organizational announcements. You may read that Rick Fox our, Executive Vice President and Chief Operating Officer is retiring next month, actually at the end of this month. I want to thank Rick for his dedication to the Company and his contributions over the last 20 years. He has served as Chief Operating Officer since 2015 when I became CEO. And prior to his COO, Rick had multiple leadership roles, including Regional President and Vice President of Customer Operations. Over his career, Rick has led important change at the company, including the standardization of our customer service across all states, implementing best practices and leading some of our key acquisitions and divestitures. He was also responsible for the execution of our first-ever billion-dollar capital budget in 2021. Also, Rick's work in safety allowed our company to expand dramatic reductions in workplace injuries. His contributions are really too numerous for us to mention today. You know, when we experienced key retirements, like Rick it often triggers some level of reflection. Most of our management team now has been together since 2015, and so we looked at a few measures that demonstrate the good work we've done together over that time. And in addition to delivering annual earnings growth in-line with our guidance and raising our annualized dividend, Slide 8 here demonstrates that we've grown the rate base and customer-base of the company from nearly $3.5 billion and 958,000 customers to approximately $9.5 billion and 1.8 million customers over that time. During this time, the market cap of the company has grown from $4.5 billion to $10 billion - and over $10 billion today. So really nice outcome. This performance would not have been made possible without people like Rick Fox on the leadership team. Rick, I would like to congratulate you on a great career and I'm happy to call you my friend. We wish you and [Alan] great happiness in your retirement. And now as we look to the future, we've been working diligently on our succession planning. And I'm happy to report that, we have two strong executives that will now report directly to me when Rick retires. Colleen Arnold, President of Aqua; and Mike Huwar, President of Peoples. Colleen has been the President of our eight-state water and wastewater utility operations since 2020, prior to becoming the first female President in the Company's history, Colleen was the Deputy Chief Operating Officer reporting to Rick. Colleen joined the Company in 2007 and is active in the American Water Works Association and the National Association of Water Companies. Mike have been the President of our three state natural gas utility operations since 2020, prior to becoming to the company, Mike had a 34-year career with Columbia Gas where he was President and COO of Columbia's Pennsylvania and Maryland operations since 2017. Now here in the next slide you may have seen this is Whitney Kellett, was recognized as the 2022 Philadelphia CIO of the Year. This is the annual or ORBIE Award, one of the most prestigious awards for CIOs. Whitney was recently promoted to Senior Vice President of Business Transformation, and is responsible for the Company's technology strategies, decisions and policies in areas like cyber security and the protection of our customer information. Whitney will also be the Company's Chief Administrative Officer in 2023, when our current CAO, Susan Haindl retires. As part of our succession plan, we've hired Sumit Nair to replace Whitney, as the new Vice President and Chief Information Officer. Sumit will oversee our internal group of 130 IT professionals and will execute the strategic and operational imperatives that are so important to the Company's operations and growth. Sumit comes with a wealth of technology experience from companies like Independence Blue Cross, De Lage Landen and IKON. Lastly, I want to recognize Jeanne Russo, who joined the Company early this fall as Vice President of Communications. In this newly elevated role, Jeanne will report directly to me and will oversee all internal and external communications across the enterprise. Now with growing public interest in our acquisition initiatives, Jeanne will bring important and focused communications counsel to our work. She also brings a wealth of experience, having worked on top global brands across several industries. We're really excited to have Jeanne and these other executives take their new roles. Hopefully this brief update on our organization gives you some sense of the depth of our team but also the new young leadership that is stepping up in the organization. So with that, let me hand it over to Dan to discuss our financial results for the quarter. Dan?

Thanks, Chris, and good morning, everyone. Moving to Slide 13, looking at the third-quarter highlights we ended the quarter with revenues of $434.6 million, about 20% from last year. Our regulated water segment contributed $301.3 million and our regulated natural gas segment contributed $119 million, with the balance coming from our limited non-regulated operations. We continue to see higher natural gas commodity prices and therefore purchased gas costs increased by $26.6 million year-over-year and gross margin increased by $46.2 million. The largest contributors to the increase in gross margin for the quarter were additional revenues from regulatory recoveries, increased volumes and organic and acquisition-related customer growth from our water segment. O&M expenses increased to $151.4 million for the quarter, up from $139.4 million in the third quarter of last year. Employee-related costs, higher water production costs, recoverable costs related to our natural gas segment customer assistance program and other expenses were the main drivers for the quarter. Net income was up year-over-year from $50.5 million to $68.6 million and GAAP earnings per share increased from $0.19 to $0.26 for the quarter. Next, we'll walk through the waterfall slide starting with revenue. As we look at the third quarter for 2022 regulatory - revenues increased $72.8 million or approximately 20% on a GAAP basis. Regulatory recoveries were the largest driver of increased revenues, since the third-quarter was the first full quarter to include the new rates from the Pennsylvania water rate case. Next you'll notice the recovery of higher purchased gas costs of $26.6 million due to the significant increase in natural gas commodity prices which we've been reporting throughout the year so far. Increased volumes and growth from our regulated water segment contributed an additional $15.7 million and other provided $3.4 million towards the revenue increase, which was offset slightly by reduced volumes from our regulated natural gas segment. Next let's take a look at our operations and maintenance expenses. Looking at the operations and maintenance waterfall expenses for the third quarter increased to a $151.4 million compared to a $139.4 million for the same period in 2021. Employee related costs added $5.2 million for the quarter and increased production costs in our regulated water segment added an additional $2.8 million. We continue to see year-on-year increases in production costs with the largest inflation-related expenses being in the areas of chemicals and sludge. The increased employee-related expenses included an accrual for a one-time incentive compensation for non-officer level employees. Other items contributed $1.6 million to the increase and much of this is the O&M expenses related to our acquired systems. The gas customer assistance program expenses which are fully recoverable through a revenue surcharge increased $1.4 million, and finally, bad debt increased by about $1 million. So end-to-end we have an increase of about $12 million year-over-year. If we subtract off the one-time incentive compensation that I mentioned, as well as the O&M costs related to growth and the increase in the customer assistance program costs, we get to about $6 million or just over a 4% increase year-on-year. That roughly 4% increase makes sense, given increased production, which added about $9.5 million in revenue plus above-average inflation in the areas of chemicals, sludge hauling and other expenses. Next, we'll spend a minute on the earnings per share waterfall. Beginning on the left side of the slide, GAAP EPS for the third-quarter of 2021 was $0.19, rates and surcharges contributed $0.074 and increased volume and growth from our regulated water segment combined added another $0.04. These were offset by $0.03 from other items, which included increased depreciation, interest and taxes, as well as $0.014 of expenses. The result is a GAAP EPS of $0.26 for the third quarter of 2022. We remain confident in our full-year guidance and our ability to deliver on the 5% to 7% earnings growth per share expectation that we set at the beginning of the year. And presuming that we have fairly normal weather for the fourth quarter, we expect to land in the middle of our EPS guidance range of $1.75 to $1.84 for 2022. As always we're watching the weather in Western Pennsylvania closely and so far the temperatures are a bit warmer in November, following a colder than normal October. Moving on to rate activity and other regulatory matters. So far in 2022 we completed rate cases or surcharge filings in our regulated water segment in Illinois, North Carolina, Ohio, and Pennsylvania and we completed a rate case in our regulated natural gas segment in Kentucky. The combined total annualized revenue increase is approximately $88.8 million. Also we currently have base rate cases or surcharge filings underway in North Carolina, New Jersey, Texas, and Virginia for our regulated water segment and a surcharge filing in Kentucky for our regulated natural gas segment. Now many of you have asked about the status of the Pennsylvania PUC on previous calls, so it's certainly worth noting that the three nominees have now been approved and the commission is back to full staff. We certainly see this as a positive development. While we won't provide guidance until early next year, the budget and plan that we're currently finalizing results in continued strong EPS growth and improvement of our credit metrics. While we're on the topic of credit metrics, we did establish an equity ATM program for up to $500 million in October. This gives us a mechanism to issue equity as needed, as we continue to deploy a significant amount of capital to build rate base growth, municipal acquisitions and capital expenditures. And with that, I'll hand it back over to, Chris. Chris?

Alright. Thanks, Dan. Appreciate it. Let's move on to our municipal transaction activity, which along with investing in infrastructure in our existing business is the core of our growth strategy. So in August we announced the closing of East Whiteland Township wastewater system. The system serves nearly 8,200 customer equivalents, including residential and commercial connections in Chester County in Pennsylvania. Now to connect the dots for you, this is one of the systems served by the two different Township trunk line we purchased in December of 2018. You may recall this is the nine-mile pipeline that passes waste to the large Valley Forge Sewer Authority for treatment the plant that they have. And we've already identified $17 million in infrastructure improvements in the East Whiteland area, expected to be completed over the next decade. We look forward to having a positive impact on this community and continuing to provide excellent service and area where we already provide the water service. We also think there is a lot more opportunity as a result of that trunk line. As of this call, we have seven signed asset purchase agreements pending, which together will add over 217,000 customers or customer equivalents. And total nearly $365 million in the purchase price. We are pleased to report that we received approval from the Illinois Commerce Commission to close the Oak Brook Illinois water transaction and anticipate closing this year. Now on Slide 21, let me take a minute to talk about DELCORA. On our last call, we indicated our optimism on this transaction based on the PUC restarting the process and the ALJ - with the ALJ and the strong legal outcomes in our favor. And even since that time, the Delaware County Court determined pleased just on November 2nd this month, once again found in our favor. The court determined that its previous order of September 8, 2022 already constituted a final order that address the claims of all parties and thereby disposing of all the claims - the recent claims. We view this latest court order as a significant development and bringing this litigation closer to an end, basically saying that the agreement with DELCORA is valid and enforceable. We also continue to be confident that we will close DELCORA. However, given the recently released PUC procedural schedule, we now expect to close DELCORA around mid-year 2023. We also continue to hold out some hope, that there is a path towards settlement as you know we've been at that for some time. In the guidance, we provided you at the beginning of this year, DELCORA was included in the 2023 earnings per share guidance but we didn't indicate its level of contribution. Despite DELCORA's delay, we remain confident in our ability to achieve investor expectations in 2023. Importantly, I want remind you that there is continued capital spending expected even after closing of DELCORA, because of their requirement to upgrade the large sewer plant by 2028. We expect to provide our annual roll-forward of guidance in early 2023 and details on the exact timing of the guidance will be forthcoming. I remain confident that we will be able to provide and deliver guidance in-line with our historical performance, based on the current draft of our multi-year financial plan. Now in addition to the signed municipal transactions just discussed, our pipeline of opportunities for growth remains strong and healthy. Currently, we are engaged in active discussions with municipalities and pursuing approximately 430,000 potential water and wastewater customers, as you can see on this slide. While we were disappointed in the outcome of the discussion with Bucks County, we remain confident that and committed to our strategy and have a strong pipeline. We have professionals in each of our states that are focused on the blocking and tackling of our growth strategy focusing on 2,500 to 25,000 customers sized acquisitions and this has not wavered. When larger opportunities come along, we will always pursue them, but they don't distract from the in-state teams from more typically sized acquisition, so they remain on track. Our technical and operational expertise, our commitment to capital investment along with long-term rate stability continued to demonstrate our value proposition to these municipal systems we're talking to. We will continue to focus on growth in all eight states where we have water utilities and fair market value statutes are in place. With that, let me wrap-up the formal remarks by reaffirming our 2022 guidance. Despite the current economic conditions, we are pleased to be on track to meet the 5% to 7% earnings guidance we set for the year. And as Dan mentioned, we believe we're on-track for the middle of our $1.75 to $1.80 per share guidance range. We remain confident that our three-year earnings per share growth will be 5% to 7% through 2024. Our capital plans remain on track as we anticipate investing approximately $1 billion on regulated infrastructure this year to rehabilitate and strengthen water, wastewater and natural gas systems. And nearly $3 billion across the platform by 2024. We continue to expect rate base growth to be between 6% to 7% for water and between 8% and 10% for natural gas. And customer growth to be between 2% and 3% on average for water and stable in natural gas. We also remain committed to our ESG targets, having reported strong progress on our second-quarter call, including an estimated 14% greenhouse gas emissions reduction toward our goal of 60%. Diverse supplier spend of 13% against our target of 15%. And 16% employees of color with our ultimate target of 17%. We expect to report on our continued progress again after the end of the year. We are confident in our guidance because of the strong foundation that we have and despite the various headwinds that all companies are facing in today's economic environment, we believe we have a solid and achievable plan to continue to deliver long-term shareholder value. Finally, in-line with past practice, we expect to present the roll-forward of our guidance in early 2023. We're finally at finalizing those plans now. And we recently presented the Board with a draft of our forward-looking financial plan. We believe that, you'll be pleased with the guidance that we'll provide based on that plan. That concludes our formal remarks. And with that, let me turn back to you with the operator for questions.

[Operator Instructions] The first question comes from the line of Travis Miller from Morningstar. Please go ahead.

Hello. Thank you.

Hi Travis.

Good morning, Travis.

Hi. You made a couple of comments there at the end Chris. But on the muni M&A, just wondering, obviously been a big shift in cost-of-capital here over the last call it three to - even just the last month, right, but accordingly in the last three months. How is that impacting from the financing side? I understand kind of the fundamental side, meaning, wondering to get more thoughts in terms of financing those and making them accretive relative to what you've had in the past.

Yes. I think, listen, long-term as you know we finance these things accordingly with our capital structure that roughly 50-50. What it really does, I think, Travis is makes us think about our hurdle, in order to do the transactions, we look at these and we got hurdles as we think about these are multi-year often almost always we bring these municipal transactions in at less than four earnings power, right. They need capital investment and they need rates. And so therefore we look at a multi-year, look at a hurdle and probably nudges that hurdle a little bit further north, as we think about what we need to do, to do these deals. I don't think it dump - it slows our interest, in fact, as I look at it, some of the financing challenges are not only on our side but also on the municipal side and could actually trigger a little bit more activity. I just don't see there's just not enough federal dollars to build these things out. And I just think there is continued opportunity for us. Daniel do you have anything to add to that?

Yes, Chris. What might I add, Travis, is just that, obviously on the debt side, we tend to finance these - niche in our revolving credit facility and then with long-term debt that we put into place. And of course, we are seeing higher costs as, if you look at LIBOR over the past year, which is really the marker for our revolving credit facility. It's up nearly 400 basis points. So what that does is, it creates a higher initial cost of borrowing than we finance long-term that's a higher-cost than we would have had a year, year and a half ago. And so it's just really create some additional lag between now and when that new acquisition comes into full earnings with a rate case. So period from closing the transaction to new rates, we'll see a bit more of a lag and we model that in as we looked at our pro-forma and have the conversations with the investment community to decide what we're willing to accept in terms of that lag.

Okay. That's great, I appreciate that. And then one follow-up, anything in terms of the election or new people who might come into offices in terms of fair market value anything along those lines in other states?

Well, I think we always focus initially on our largest state, Pennsylvania. The expectation here is that, on the state-level which is with most impactful for our business. That it will be a Democrat for Governor looks like Josh Shapiro was solidly ahead in the polls. And then it looks like the Republican legislature both House and Senate remain firmly in place. And that's probably a pretty nice outcome here in Pennsylvania. The probably the impact that we will see most immediately, the Chairman of the Public Utility Commission, Gladys Dutrieuille is up for renewal or retirement, whichever she decides in the first quarter of next year. So the new Governor and the Senate will have a say on who that is. It will be a Democrat, whether it's Gladys or replacement. So that's probably the first major impact of the newly elected officials. But I - what we're hearing some noise about fair market value, at this point all indications would be that, that those statutes will stay in place, without too much trouble.

Okay. Any states where you think they can they the legislature or Governor whoever is in charge of doing that might institute it?

Well it's good question beyond our stage. In all eight of our water states, we have one statute - no, it's not always called fair market value, but we've got the ability to use a tool like fair market value. But beyond our states, there might be others, I'm just not - I'm not familiar with where that might be added.

Sure. Okay. Thanks so much. Appreciate it.

Thanks, Travis.

The next question comes from the line of Ryan Connors from Northcoast Research. Please go ahead.

Hi, Ryan.

Good morning, Ryan.

Hi. Good morning. Good morning. So, I'd wanted to ask you about the interest-rate environment from a different perspective in terms of returns on equity and the outlook in some of your rate proceedings and whether there is any appetite among these commissions especially with the larger cases in North Carolina and Texas. But I guess also your early read in Pennsylvania too. Is there any appetite to move ROEs up as interest rates go up? I know they held up pretty well when interest rates went down but what's your outlook there from what will happen with ROEs going forward?

It's a good question, Ryan. I think that to your point, ROEs were sticky on the way down as interest rates fell. There likely to be somewhat sticky on the way back off. Now if we saw a consistent period with high-interest rates and that's a higher cost of equity capital when you calculate that. We would obviously be making the - making the case for higher ROEs. I don't think and we think that's a justifiable case if that is the economic situation of the time. I think the other thing that's important for all of us is utilities, we think about it. As we talk to our commissions is that, the utility industry is not immune from the inflation that everyone else is experiencing. And so you will see that those conversations need to be had with regulators as well as utilities filed cases going-forward.

Yes. I think to add to that, hopefully what we continue to see is additional regulatory mechanisms put in place that address lag, because if you don't have future test years what they're going to find is, just in addition with rate cases in all these commissions. And so we need to continue to focus on how do we address inflation, reduce lag, so that the case load isn't overwhelming to these commissions.

Got it. Okay. And then kind of a follow-up to the prior question there by, Travis. on the electoral scene. Specifically the Pennsylvania, the Water Quality Accountability Act, there the SB 597, that seemed like it had some momentum, seems like it's kind of stalled. I don't know that it's actually come to fore and is that something that - is there any key leaves here suggesting that might move forward based upon the early read on the election here?

Yes. It's good question, Ryan. I think probably that Bill has passed out of the senate now, now sits in the house, probably need some amendment to it, to get it advanced further. I think, we'll have to see what the committee chairmanships look like in the reformed house. But I think that bill is going to take some amendment. We've got some thoughts and we are still hopeful, we can get it passed both the House and the Senate next year.

Got it. Okay. And then one last one. Look I apologize, I know you don't want to focus on Bucks County. But if you could just kind of give us your perspective, Chris, on the other one didn't go your way, you mentioned there is lots of smaller and mid-sized deals. So it's certainly not the end of the world. But what is your quick postmortem there? I mean, is there anything that the company learned from that process things you - may not have done differently and things that might have changed the outcome there? Just kind of curious what's your sort of thoughts are now that's in the rear-view mirror?

Yes. But I think - I'm not sure there was anything that the company could have done differently as you know at the end, release came from the commissioners basically saying that the timing wasn't appropriate. So whether something happens in the future or not is going to be up to the elected officials. But I think, two takeaways and I would say this holds true for most of these municipal acquisitions. Upfront the seller has to identify clearly why are they selling the assets and what are they doing with the proceeds. And I do think the lack of clarity in Bucks County did hurt the prospect of ultimately completing the transaction. The Bucks County has a structural deficit, they need the money. And so it would have been ideal had they said listen, we're selling because we got a structural deficit. And we're going to hold rates steady for the next decade through a fund, which was the plan and that we'll go delete or pay-off all county debt. I think those would have been powerful statements. And they just weren't made and articulated. So I would say, for all the transactions that we're working through, those two aspects have to be cleared from the seller. Why am I selling and what am I doing with the proceeds? I see time and time again where those aren't clearly articulated and it just hurts the transaction.

Okay. And that was - so that was - these were the two, was that the first or - those are the two?

Those are the two. Yes.

Got it. I see. Okay.

Listen, I think politics in Bucks County where it was pretty nicely aligned, I think they - Republics and Democrats get along fairly well in Bucks County, in terms of the economic conditions of the county. So, I really felt pretty good about that and certainly the people who were against the transaction, Ryan, you attended some of those hearings and lot of the same people that continued to attend. One of the disappointments that I think we have is that, so much misinformation was repeated at those public hearings. People were just not well-informed and - or chose not to be well-informed either way, but so much misinformation.

Yes. Yes. Well, I appreciate you updating us on that. Thanks for your time today.

Thank you, Ryan.

Take care.

[Operator Instructions] The next question comes from the line of Julien Dumoulin-Smith from Bank of America. Please go ahead.

Hi, Julien.

Good morning, Julien.

Hi, good morning, team. Thank you guys very much for the time, appreciate it and congratulations to everyone on the various stewards here. Just maybe if I can kick it off here, just coming back to '23 and expectations, you talked about DELCORA and obviously the timing is shifting there a little bit, you've got this ATM, that's certainly fluid and you talked about some cost pressures in the quarter. Can you give us a little bit of an update? I know you reaffirmed five to seven and midpoint here for '22 but how are you thinking about it over the longer-term? What are some of these shifts position you as you think about '23? Anything that just flag, I guess, that you haven't launched your formal '23 process yet? But maybe early indications, how do you think about some of the offsets here, maybe some additional capital starting to offset the impact of the timing for DELCORA and the associated spend that you would have done at DELCORA as well?

Yes. I think, we're looking at our budgeting now and we're obviously our 2023 budget will be approved by the Board in December. But as things look right now and I said it in my comments, despite the continued delay in DELCORA, we remain confident in our previously discussed guidance. And so, we'll have an update for you all and another month or so here. But at this point we remain confident that, we can achieve our long-term guidance that we've communicated already. Dan, anything to add?

No, I think you covered it, Chris.

Okay. Could you guys talk about some of the offsets maybe just as you think about? I know it's in flux, so maybe just speak to - through some of them here in terms of the ability to raise that adjust CapEx? And over the timing of the dilution itself as you think about clearly some of that capital raise would have been in tandem with third quarter itself you would think?

Yes. I think you're thinking about it the right way. You know, as we think about our capital spend, we do have some flexibility and obviously whether and our ability to execute against the capital budget, gives us some flexibility there not a ton, but there are levers we can pull there. And yes, listen, then I think discussed pretty well our equity needs. I think we've covered that.

Yes. And I would say just add too, as you think about offsets and achieving objectives, that we're constantly working with our state teams to look at their controllable expenses and make sure that we're rebidding things and we're getting the best contract with the best price. And all of our state team management teams have - they all have incentives in place, that really rely on them achieving their cost metrics. So they are incentivized to help drive cost-down as well.

Got it. Excellent. And you roll forward your outlook with the next update too?

Yes. Well - our plan is to share all of our guidance just after the first of the year. And at this point we would anticipate that looks like guidance we've provided in the past, meaning EPS guidance for 2023, EPS growth rate guidance, capital guidance, and then the other ESG related metrics.

All right. Excellent team. Best of luck. Speak to you then. Cheers.

Thanks, Julien.

The next question comes from the line of Gregg Orrill from UBS. Please go ahead.

Hi, Gregg.

Hi. Sorry to - hi there. So do we know what the duration of the growth rate guidance is going to be that you're going to update us on?

At this point, we would presume the three-year guidance like we provided in the past.

Okay. And then on the PFOs from rule from EPA, we're still looking for that this year?

December timeframe, it sounds like, we expect that MCL to be established around that time. I think that's still on track.

Okay. Best of luck. Thanks.

Thanks, Greg.

Thanks, Greg. Take care.

We currently have no further questions coming through. I will now hand you back to your host.

Thank you all for attending. And as always we stand ready to answer any questions - any follow-up questions you might have. Thanks again for joining us today.

Thank you for joining today's call. You may now disconnect your lines.