Good day, and welcome to the Aqua America Incorporated Third Quarter 2013 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Bryan Dingerdissen, Director of Investor Relations. Please go ahead, sir.

Thank you. Good morning, everyone. Thank you for joining us for Aqua America's Third Quarter 2013 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 site. Presenting today is Nicholas DeBenedictis, Chairman and President of Aqua America; along with the 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.

Thanks, Brian. Good morning, everyone. Despite weather challenges this quarter, Aqua generated another record quarter thanks to the efficiency of our operating model and our meaningful capital investment program. We should produce our 14th straight year of income growth this year. And equally important is internally generated cash is now in excess of our increasing capital investment in needed infrastructure. As a result of our strong earnings and financial position, during the quarter, we enacted our previously announced 9% dividend increase. This is our 23rd in 22 years and our seventh stock split in the last 20 years in the form of a 5-for-4. So therefore, all per share numbers I'll be using today are adjusted for that split. One other note: Even with our aggressive dividend program, which has averaged between 6.5% and 7% CAGR over the 20 years since I've been CEO, our payout ratio is still well below our stated target of 60% to 70% of earnings. Now I'd like to provide some details on the quarter's results and strategic activities we have in place to maintain and grow on our industry-leading positions in operating efficiency, financial strength and our string of increasing profits. First, the quarter. We're pleased to report another solid quarter, net income up $13 million or 25% and EPS up 7% from year-ago numbers or 24%. Unfortunately, it actually could have been better, but due to record rains, we had 11 inches above normal in the quarter, and many of you on the East Coast know what we experienced. This is the first quarter-over-quarter revenue decrease that I can remember with revenue down almost $10 million or 4.8% from last year with all of that due to the rain and the lack of consumption. So had that not happen, obviously, the numbers would…

[Operator Instructions] We'll go to Jonathan Reeder with Wells Fargo.

Nick, just kind of one question for you. You touched on a lot of my other questions already, but where do you see next year's CapEx budget coming in? I know previously you outlined about $300 million annually from '14 through '17. Is that still accurate, that you kind of see CapEx decreasing assuming the bonus depreciation is not extended?

Well, the budget appreciation, we're not calculating in our current numbers, but where I gave you those cash numbers and so on. The 50% is supposed to expire, David, that's correct, at the end of this year. And unless there's a macro deal in Washington, of course, the worst case, as you know, Jonathan, is don't do anything and then 9 months into the year, they do it retroactively, and so -- but our capital budget next year should be consistent with this year. It's a run rate of -- we want -- I think the timing and the capacity, companies do it right. We don't want to get ahead of ourselves in making sure everything we do is going to last 100 years. So I'm comfortable with if you want to use in your model about same as this year. We gave you $325 million plus. It could be as much as $340 million. It could be as low as $315 million this year, depending on how much closes by the end of the year, and that depends on weather and everything else. If it stays warm through December, you can pave some streets and close them. But if you can't, it flows into next year.

Okay. So kind of $315 million to $340 million next year is fair for the CapEx budget?

Absolutely.

Okay. And then, I guess, your other kind of issue, which you've been alluding to on the call is the cash situation that you're in. I mean, especially with the system sales and just your internally generated cash starting to pile up and what to do with it. Are there thoughts of, I guess, further extending that share buyback program, really increasing the capacity on it? Or what else is kind of being kicked around?

Well, all of the above. I mean, and since it's a situation we've never had before, now we still have a healthy dividend and that has to be paid, sent over -- the cash is compared to CapEx, but we still have to dip in and pay the dividend. But of course, your buyback could actually be accretive because we pay such a healthy dividend the same sense, cash wise. So if we're going to put it in the bank and keep it as cash, you're not going to get any interest on it versus you're paying almost 2% or whatever our yield is right now on the stock pretax [indiscernible]

Are you seeing any -- go ahead, Nick, sorry.

Yes. I would say my personal, and this is a board decision, my personal feeling is that dividend reward is, especially for a utility that's trading above book, is a better thing for the shareholders because it's immediate and ongoing. And it's real cash coming at you. It is a better way to go. But the board will make that decision. And I don't want to imply that 700,000 shares that we've activated to -- for buyback is really for a major buyback program. We have 175 million shares outstanding. It's really to fine tune any dilution from option exercises or if there's a huge buying of our employees, which has never been -- it's pretty steady on the employee stock purchase plan.

Right. So are you...

We still have -- 55% of our shareholders are still retail by the way. So dividends are important, I think, to them.

Okay. From an external use of the cash, external growth opportunities, anything you're seeing there, any pickup in terms of deploying that in an efficient manner?

Well, the -- I think our capital budget does not include any acquisitions or any nonregulated. Not the nonregulated has actually, after we -- our initial investments, actually thrown off cash. So it not an -- there's no demand. If we get into a second pipeline, that would be use of it. Acquisitions would be a use of it. So yes, that would be our first, I think, growth area [ph] will be our first call on it. But we don't budget that because we've never had a trouble -- first, it's hard to estimate, and second of all, with our A+ rating, we can get money right away if we need it.

Right. Are there any near-term opportunities that you're kind of getting excited about that would be substantial?

Well, we have a good pipeline in the 9 states we're in. I mean, we're every day out knocking on doors, and we'll do 4 or 5 in the next quarter, and we'll probably do 15 to 20 again next year. We'd like to see some bigger ones, but they come when they come.

All right. So nothing imminent of size, though, that you can discuss?

Yes, our goal is to get back to -- close to where we were in the mid-2000s when we were averaging 3% to 4% growth a year, which is probably triple what the old electric growth used to be. It's probably now infinity because there's not much growth in the electrics, and there has been -- as I remember back, there hasn't been great growth in most of the other water companies. We were doing most of the small system acquisitions. Now everybody's looking at it, and we all are chasing the same ones if we're in the same state. But I think with organic growth coming back, that hustle factor that we provide, we're hoping to get from below 1 where we've been for 3, 4 years. And that's depressed earnings, obviously, and made us more dependent on rates. We're hoping that we can get that up -- closer to the 3% to 4% where we've been.

[Operator Instructions] And we'll go to Stewart Scharf with S&P Capital. Stewart Scharf - S&P Capital IQ Equity Research: First, regarding weather, as you go into the fourth quarter, rainfall has been below normal levels, but I assume that would have less effect based on the season or what we would expect to continue to see...

Stewart, you're not coming through on the -- on our speaker. Stewart Scharf - S&P Capital IQ Equity Research: Can you hear me?

That's better, yes. Stewart Scharf - S&P Capital IQ Equity Research: Okay, a loose wire I guess. So just regarding the low average rainfall so far this month, does it have much of an impact in this quarter based that it's not the typical spring season? People would [indiscernible] ...

No, we can -- you can absorb a little bit of extra rain, but it was like we had it -- almost a year's rain in the first -- in the summer of this year. We usually get to 35 to 40, and we almost had -- I think we had 27 in the summertime this year. So this is just -- this was absolutely, I think, an abnormal year. I don't know how the other companies were reacting unless it was all just in Pennsylvania and South Jersey. But we were a little less affected by weather in the Midwest, although we had a terrible second quarter, but the third quarter was just slightly below 1%, 2%. And Texas had a blowout year. They're continuing to have dry, arid weather. So it's what the portfolio being a little diverse helps us with. But I would say the fourth quarter shouldn't be any negative surprise, at least from what we're seeing through October. That's why I was comfortable with all the first fall estimates. Stewart Scharf - S&P Capital IQ Equity Research: Right. And just regarding states that you're focusing on now, are you pleased with the way it's going in those states? Are you looking to other states? Any areas that you're not as happy with?

No, we're where we want to be now. Now if there's somebody who wants to do a trade and it makes sense, we would definitely look at that. But at this point, every one of our states, other than North Carolina, is doing very well with its ROEs. We're investing money. We have surcharges in every state, except for one is being adopted in North Carolina but every one except for Virginia and Texas. So we have the mechanisms to invest the capital and be able to get the non-regulatory lag recovery that you need if you're going to be a huge investor of capital. And of course, Pennsylvania has always been a state that this is at the forefront of unique regulatory mechanisms that help everybody. And that's what we see in those flow-through tax repair issue. Stewart Scharf - S&P Capital IQ Equity Research: Okay. And [indiscernible] ...

And I would say, we're not -- and if somebody has a huge company they want to sell in a state that's -- we're not in, we would be looking at it. But we're not looking to sell any of -- or get out of any of the states we're in. Stewart Scharf - S&P Capital IQ Equity Research: Okay. And when you [indiscernible] . Could you hear me?

Yes. Stewart Scharf - S&P Capital IQ Equity Research: Okay, it seems like there's a loose [Audio Gap]. Regarding the repair tax and the -- when you go back in for rates, would that be the normal 9-, 12-month lag? Or will it be a longer lag just based on the transition between the end of the repair tax and implementing the rate hike?

That's an excellent question because the timing of our next -- and of course, it's only in Pennsylvania. The other 8 states are normal DISCs. If you have it and then when you -- your ROEs start deteriorating, you're going for a rate case, and by keeping expenses down in all these states, which we've been able to do, the rate request is less, but the shareholder doesn't get hurt because you only really get your benefit from the capital investment, and the operating expenses are just passed through as our interest. So in Pennsylvania now, that whole thing is flipped because we're not getting rates. We're getting it through the flow-through of the tax benefit. And in Pennsylvania, our first step would be to enact a DISC because we, obviously, are eligible. So all the capital we're doing is not deferred. It's going into rate base, so it's building rate base. It's just that the revenue coming in through the tax line is -- I call it revenue, but it's probably not technically correct. But the net income, the money coming in through the tax line is replacing what we would have asked for in rates. The minute our earnings go down to a point where there is a lag, your point, we would first initiate a DISC. That would be -- could be as much a 7.5. At which point, then you would file a rate case, but it would eliminate that lag. And that was all part of the thinking of the OCA and PUC when they did the order. They asked us to stay out of -- to eliminate our DISC in '13 and to not file a rate case in '13. We, obviously, have lived up to that and plan not to do anything probably for another year. Stewart Scharf - S&P Capital IQ Equity Research: And regarding the grant for the CNG, what percent of the cost grant covers the cost for CNG?

That was I think 30% of the slow fill . These are not expensive. What we're doing, Stewart, is putting these -- and this could be adaptable to homes even if the car manufacturers want to push CNG. Right now, there are very few gas stations that you could pull up to and, in 1.5 minutes, get your tank filled with compressed natural gas because they're expensive. It's high-pressurized device, maybe $1 million and so on. But there's a very inexpensive and very -- not very complicated slow fill where you push the gas into your tank, and it compresses while it's being put into the tank. But it takes an hour or so to fill your tank. Although no consumers going to wait an hour at a gas station. But for us, we bring our fleet back every night. It sits idle for 7, 8 hours, so we have plenty of time, downtime to fill the tank up. The $85,000 was -- let's see, this was for -- oh no, this is for purchase of new vans. A van's difference is about 28,000 for traditional gas fuel demand and high 30s for compressed natural gas until they start manufacturing them in numbers that they can bring the price down because, I mean, the extra tankage in the vehicle can't cost $10,000. But in order to get some first movers, the state has these grant programs, which we're taking advantage of. And they like the fact that a company like of our size and reputation is seeing CNG as a future. Did I answer your question? Stewart Scharf - S&P Capital IQ Equity Research: Yes. And just a couple of quick ones. On the organic growth and acquisitions, is that a normal mix you're looking at were about 50-50 organic and acquisitions for additional customers? And just regarding the shale lease, still looking at the same of doubling of earnings over the next year?

Yes. I would say up to 2%, 2.5%, it would be pretty equal organic and acquisitions. If we can exceed 2.5%, get up to 3%, 3.5% growth, the delta will probably come from acquisitions. It would mean we have to do more acquisitions. The -- where we're growing organically fast is in North Carolina and in Texas and certain parts of the suburbs of Philadelphia. I mean, it's not that -- I don't think the country's population is growing 1.5%. I mean, for us to think we're going to grow that much faster than the country's population. But we are in better areas of certain states, and they do grow faster. Your second question was on Marcellus. If a deal comes up that makes sense, we'll do it. We're never going to grow that business to 10%, 20% of our net income or our revenues but -- because it takes time any how. But I'm a true believer that Pennsylvania and Ohio and now West Virginia are going to benefit long term from an energy renaissance. There's more gas than anybody ever thought. It's brought energy prices down, electric prices down because of the abundance. And it's a great way to look at your national defense problems and get off everybody else's oil by switching gas, oil heat. And I hope no oil heat dealers are on the phone, but oil heat should be gas, and cars should be gas. So I think there's a great future for the gas industry in Pennsylvania and Ohio and Texas as always has been. Stewart Scharf - S&P Capital IQ Equity Research: And you still see many -- any this year and into next year?

Any acquisitions? Oh, yes, yes, this year, we'll get cash, but the net income, because we're paying off the depreciation on the pipeline over a short period, so you know how we're in business with an LLP or an LP, I guess you call it MLP. So they don't care about net income. They care about cash, right? Do you ever see their earnings release? So that's why I wanted to show you that the EBITDA on this was over $1 million, even though it's not pumping anywhere close to its current capacity. So if it ever gets to the level of the capacity of that pipeline, it throws off a lot of cash.

[Operator Instructions] It appears there are no other questions in the queue. I'd like to turn it back to Nick DeBenedictis for any additional or closing remarks.

Thank you very much for all your attention. Sorry for the length of the call, but we had a lot to tell you about today. Thank you.

That does conclude today's conference. Thank you for your participation.