Essential Utilities, Inc.

Our regulated water and gas business is capital intensive and requires a significant level of capital spending. The liquidity required to fund our working capital, capital expenditures and other cash needs is provided from a combination of internally generated cash flows and external debt and equity financing. The Company’s condensed consolidated balance sheet historically has had a negative working capital position whereby our current liabilities routinely exceed our current assets. Management believes that internally generated funds along with existing credit facilities, and the proceeds from the issuance of commercial paper notes, long-term debt and equity will be adequate to provide sufficient working capital to maintain normal operations and to meet our financing requirements for at least the next twelve months.

Net cash flows from operating activities were $299,517 for the first three months of 2025, compared to $240,713 for the first three months of 2024. Operating cash flow increased by $58,804 primarily due to an increase in operating income in 2025 resulting from additional revenues from regulatory recoveries, and an increase in gas volumes delivered due to colder weather conditions during the first quarter of 2025 as compared to 2024.

During the first three months of 2025, we incurred $270,539 of capital expenditures, obtained $706,906 of proceeds from borrowings and made $550,000 of repayments to our long-term revolving credit facility, obtained proceeds of $1,244 and repaid $1,150 of long-term subsidiary debt, and made short-term debt net repayments of $97,252. The capital expenditures were related to new and replacement water, wastewater, and natural gas mains, improvements to treatment plants, tanks, hydrants, and service lines, well and booster improvements, information technology improvements, and other enhancements and improvements. Net cash flows used in financing activities decreased by $123,633 during the first three months of 2025 as compared to 2024. The decrease is primarily due to higher financing activity cash inflow resulting from the issuance of common stock from the Company’s at-the-market equity sales program(“ATM”)and increase in borrowings from the Company’s revolving credit facility as compared to the prior period.

On August 13, 2024, the Company established an ATM, under which we may issueand sell shares of our common stock up to an aggregate offering price of $1,000,000 (“2024 ATM”). During the three months ended March 31, 2025, we issued 1,627,009 shares of common stock for net proceeds of approximately $63,000 under the 2024 ATM. As of March 31, 2025, the 2024 ATM had approximately $900,000 of equity available for issuance. The Company used the net proceeds from the sales of shares through the 2024 ATM for working capital, capital expenditures, water and wastewater utility acquisitions, and repaying a portion of outstanding indebtedness. In April 2025, the Company issued 3,664,762 common shares under the 2024 ATM for a total net proceeds of approximately $145,500.

At March 31, 2025, we had $20,784 of cash and cash equivalents compared to $9,156 at December 31, 2024. During the first three months of 2025, we used the proceeds from long-term debt and the proceeds from issuance of common stock, as well as internally generated funds, for capital expenditures, repayment of existing indebtedness, payment of dividends, and general corporate purposes.

At March 31, 2025 our $1,000,000 unsecured revolving credit facility, which expires in December 2027, had $417,368 available for borrowing. Additionally, at March 31, 2025, we had short-term lines of credit of $400,000, primarily used for working capital, of which $310,711 was available for borrowing. Although we believe we will be able to renew these facilities, there is no assurance that they will be renewed, or what the terms of any such renewal will be.

On March 19, 2025, the Company established a commercial paper program (the “CP Program”) that allows it to issue, through private placement, short-term, unsecured commercial paper notes (the “CP Notes”) in an aggregate principal amount not to exceed $1,000,000. Maturities of CP Notes may vary, but cannot exceed 364 days from the date of issue. Amounts available under the Program may be borrowed, repaid, and re-borrowed from time to time. The CP Program is reinforced by the Company’s revolving credit facility, as amounts undrawn under the Company’s revolving credit facility are available to repay the CP Notes. Notes issued under the CP Program will rank equally with the Company’s present and future unsecured indebtedness. The Company intends to use the net proceeds from the sale of the CP Notes for general corporate purposes, which may include working capital, capital expenditures, water and wastewater utility acquisitions, and repaying outstanding indebtedness, including under the Company’s revolving credit facility or the revolving credit facilities of its subsidiaries. As of March 31, 2025, no CP Notes were issued and were outstanding under the CP Program.

As of March 31, 2025, our credit ratings remained at investment grade levels. On March 19, 2024, S&P lowered its credit rating for the Company, Aqua Pennsylvania, and Peoples Natural Gas Companies from A to A-, citing weakening financial measures as a result of inflationary pressures and our significant capital spending; and revised its outlook from negative to stable for the companies. However, as can be noted in their report, S&P continues to assess our business risk profile as excellent, considering our low-risk and rate-regulated water and gas distribution operations in credit-supportive regulatory environments, our geographic and regulatory diversity, our large and stable residential and commercial customer base, and our solid and reliable operations. On October 3, 2024, Moody’s Investors Service (“Moody’s”) affirmed the Company’s senior unsecured notes rating of Baa2 and changed its outlook from stable to negative; and, changed Peoples Natural Gas Companies’ senior secured notes rating from Baa1 to Baa2 and maintained a negative outlook. The Company’s ability to maintain its credit rating depends, among other things, on adequate and timely rate relief, its ability to fund capital expenditures in a balanced manner using both debt and equity, and its ability to generate cash flow. A material downgrade of our credit rating may result in the imposition of additional financial and/or other covenants, impact the market prices of equity and debt securities, increase our borrowing costs, and adversely affect our liquidity, among other things. Management continues to enhance our regulatory practices to address regulatory lag and recover capital project costs and increases in operating costs efficiently and timely through various rate-making mechanisms.