American Water Works Company, Inc. · NYSE:AWK
American Water Works — FY2022 Earnings Presentation
44 slides from American Water Works's earnings presentation, Feb 16, 2023
Slide 1: 2022 Fourth Quarter & Year-End Earnings Conference Call
2022 Fourth Quarter & Year-End Earnings Conference Call February 16, 2023
Slide 2: Aaron Musgrave, Vice President, Investor Relations
Aaron Musgrave Vice President, Investor Relations 2
Slide 3: Forward-Looking Statements
Forward-Looking Statements Safe Harbor This presentation includes forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and the Federal securities laws. They are not guarantees or assurances of any outcomes, financial resu
Slide 4: Susan Hardwick, President and CEO
Susan Hardwick President and Chief Executive Officer 4
Slide 5: Successful 2022 Provides Momentum into 2023
Successful 2022 Provides Momentum into 2023 Earnings Per Share 2022 Highlights $6.95 2022 EPS of $4.51 (incl. $0.06 of weather) achieved our $2.70 $3.70 planned EPS growth for the year vs. 2021 $4.51 Invested $2.6 billion of capital in regulated infrastructure $4.25 improvements and regulated ac
Slide 6: Delivering Exceptional Value to Shareholders
Delivering Exceptional Value to Shareholders AWK Significantly Outperforms on Total Shareholder Return AWK’s Strong and Consistent Dividend Growth 82% ($ rounded) 61% $2.57 57% $2.36 47% $2.15 $1.96 30% $1.78 22% 25% $1.62 10% American Proxy Peer Philadelphia S&P Water Group Utility Index 500 2017 2
Slide 7: Strong and Sustainable Growth Outlook for Future
Strong and Sustainable Growth Outlook for Future Earnings Growth Dividend Growth ESG Leadership Affordability Affirmed Target Affirmed Target Adds to TSR Adds to TSR Targeting 7-9% Targeting 7-9% Exceptional 82% <=1% EPS growth in our dividend growth* in Total Shareholder Avg. Monthly 2023-2027 plan
Slide 8: John Griffith, Executive VP & Chief Financial Officer
John Griffith Executive VP & Chief Financial Officer 8
Slide 9: Details of Final Results for 2022 EPS
Details of Final Results for 2022 EPS $6.95 0.89 0.06 (0.02) 0.24 (0.31) (0.14) $4.51 (0.12) (0.31) (0.03) (2.70) * Gain on Sale of HOS reflects contribution to American Water Charitable Foundation from proceeds of sale. ** As previously disclosed, includes $0.06 per share of favorable impact from p
Slide 10: Strong Outlook for Acquisitions in 2023
Strong Outlook for Acquisitions in 2023 Growing Opportunity for Closed Over Five- Customer Connections Under Agreement As of December 31, 2022 As of December 31, 2022 Year Outlook ≈70,000 Customer Connections ≈32,400 Customer Connections 26 Acquisitions in 7 States, $335M 21 Acquisitions in 9 States
Slide 11: Strong Balance Sheet and Credit Ratings
Strong Balance Sheet and Credit Ratings AWK Long-Term Senior Unsecured Ratings Total Debt to Total Capital S&P Global Moody’s Long-Term 2022 A Baa1 Target (Stable Outlook) (Stable Outlook) 61.7% <60% Ratings and Stable Outlook Low risk business profile affirmed at S&P / Moody’s Strong regulatory
Slide 12: Affirming 2023 EPS Guidance of $4.72 to $4.82
Affirming 2023 EPS Guidance of $4.72 to $4.82 Growth Drivers • Revenue growth from infrastructure investments and acquisitions • Constructive general rate case outcomes in 2022 which will mitigate majority - over 75% - of inflationary cost increases and expected higher pension costs Headwinds Factor
Slide 13: 2023 EPS Detail
2023 EPS Detail 1.10 - 1.20 0.24 - 0.28 0.00 - 0.01 0.28 - 0.32 $4.72 - $4.82 * 0.21 - 0.23 0.05 - 0.07 $4.45 Over 75% of the estimated impact of inflation, like chemicals, power and other fuel, pension and higher interest rates, will be recovered through higher revenues in 2023 2022 Actual Revenues
Slide 14: High Quality, Top Tier Earnings Growth Outlook Affirmed
High Quality, Top Tier Earnings Growth Outlook Affirmed Coupled with Strong Long-Term Financial Targets AWK EPS Growth Triangle 7-9% EPS CAGR Target Business Mix 100% Military Long-Term Financial Targets Regulated and ~0.5% ~1% Services ≈0.2% Group Regulated-Like Earnings Attractive, Long-Term Sus
Slide 15: Cheryl Norton, Executive VP & Chief Operating Officer
Cheryl Norton Executive VP & Chief Operating Officer 15
Slide 16: Exceeded Capital Investment Goal of $2.5B in 2022
Exceeded Capital Investment Goal of $2.5B in 2022 Drives Improved Water Quality, Reliability, and Earnings Growth AWK EPS Growth Triangle Annual Capital Investment ($ in billions) 7-9% EPS CAGR Target Business Mix $2.9 100% Military $2.6 Regulated Regulated and ~0.5% ~1% Services ≈0.2% $0.4 Acquisit
Slide 17: Investments Drive Continued Rate Base Growth
Investments Drive Continued Rate Base Growth ($ in billions) ≈8-9% CAGR for Rate Base Estimated Rate Base* As of 12/31/2022 $17.8 Net Utility Plant $23.2 $16.3 $15.0 Less $13.7 $12.5 Advances for Construction $0.3 $11.6 $10.7 CIAC – Contributions in Aid of Construction $1.5 Net Deferred Income Taxes
Slide 18: Regulated Capital Expenditures by Purpose
Regulated Capital Expenditures by Purpose 2023-2032 3-5% 4-6% 5-7% Infrastructure Renewal Resiliency 5-7% Water Quality 10-12% Operational Efficiency, Technology & Innovation 68-70% System Expansion Other 18
Slide 19: General Rate Case and Regulatory Updates
General Rate Case and Regulatory Updates Rate Cases in Progress Completed Rate Cases in 2022 • Rate case filed 11/15/21, Settlement filed 9/26/22 • Settlement: additional authorized revenues of $11M vs. • New rates effective 9/1/2022 $14M requested • Additional authorized revenues of $46 million; Ou
Slide 20: Rate Filings Summary
Rate Filings Summary ($ in millions) Rate Filings Requested Revenue in Completed* Pending Base Rate Effective since January 1, 2022 Proceedings $416 $28 $181 $308 $153 $243 $218 $108 $25 $173 $90 $83 Rate Cases Infrastructure Total (Includes Charges Rate Cases Infrastructure Total Step Increases) Ch
Slide 21: Continued Focus on Customer Affordability
Continued Focus on Customer Affordability Avg. Monthly Residential Water Bill (AWK Customers) Values around Affordability as % of Median Household Income* Focused on keeping customer bills affordable 0.9% compared to income (wallet share) 0.8% Culture of continuous improvement, diligent cost 0.7
Slide 22: American Water Earns DHS SAFETY Act Designation
American Water Earns U.S. Department of Homeland Security (DHS) SAFETY Act Designation • American Water is the first U.S. water and wastewater company and third utility to earn the Support Anti-Terrorism by Fostering Effective Technologies (SAFETY) Act designation • Serves as one of the highest leve
Slide 23: Q&A Session
Q&A Session 23
Slide 24: Investor Relations Contacts
Investor Relations Contacts Aaron Musgrave, CPA Jack Quinn, CPA Vice President, Investor Relations Senior Manager, Investor Relations aaron.musgrave@amwater.com jack.quinn@amwater.com Janelle McNally Kelley Uyeda Senior Manager, Investor Relations & ESG Analyst, Investor Relations & ESG janelle.mcna
Slide 25: Appendix
Appendix 25
Slide 26: Forward-Looking Statements
Forward-Looking Statements Certain statements made, referred to or relied upon in this presentation including, without limitation, with respect to 2023 earnings guidance, the Company’s long-term financial, growth and dividend targets, future capital needs and the timing and amount of the Company’s f
Slide 27: Non-GAAP Financial Information
Non-GAAP Financial Information This presentation includes adjusted regulated O&M efficiency ratios, both historical and forward-looking, which exclude from their calculation (i) estimated purchased water and other revenues and purchased water expenses, (ii) the impact of the Freedom Industries chemi
Slide 28: 2022 Year in Review
>$3M GIVEN THROUGH THE AMERICAN WATER CHARITABLE FOUNDATION (AWCF) 2022 YEAR IN REVIEW $2.6B CAPITAL INVESTED IN REGULATED INFRASTRUCTURE IMPROVEMENTS AND ACQUISITIONS NET ZERO BY 2050 ACHIEVE NET ZERO SCOPE 1 & 26 SCOPE 2 EMISSIONS BY 2050 MSG SELECTED FOR NAVAL STATION ACQUISITIONS ADDING MAYPORT
Slide 29: 2022 Fourth Quarter EPS Detail
2022 Fourth Quarter EPS Detail $3.55 0.23 0.06 (0.13) $0.81 (2.70) (0.04) (0.02) (0.06) (0.08) Dec QTD HOS Gain on Sale Revenue O&M/Other Depreciation New York Interest Income / HOS Other Segment Dec QTD 2021 Actual (2021)* Operations (2021) Revenue Share Operations 2022 Actual in 2022 from (2021) s
Slide 30: Pure-Play Regulated Water and Wastewater Utility Business
Pure-Play Regulated Water and Wastewater Utility Business Regulated Customer Count* 11.2% 22.5% Pennsylvania 4.9% New Jersey 5.6% Missouri 3.4M Total Illinois Customer 9.6% Connections Indiana 20.9% California 10.7% West Virginia Other 14.6% * As of December 31, 2022 Regulated Operations* Military S
Slide 31: Key State and Federal Legislative Updates
Key State and Federal Legislative Updates 31
Slide 32: Regulated Investments to Support System Needs
Regulated Investments to Support System Needs Capital Plan ($ in billions) $30 - $34 $3 - $4 Regulated Acquisitions $2.9 $14 - $15 $2.6 $0.4 $0.3 $1.5 - $2.0 $1.9 $0.1 $27 - $30 Regulated System $2.3 $2.5 Investments $12.5 - $13.0 $1.8 2021 2022 2023E 2023 – 2027 2023 – 2032 32
Slide 33: Timely Recovery of Capital and Operating Costs
Timely Recovery of Capital and Operating Costs American Water’s Jurisdictions Capital Recovery As of 2010 As of 2022 (2023-2027 Plan) 10 10 11 11 ≈65% Infrastructure 9 ≈70% Surcharge Mechanisms 7 ≈45% 6 5 5 ≈30% Forward Test Traditional Years Recovery 2 ≈30% ≈25% 1 1 Revenue Infrastructure Expense C
Slide 34: Revenue Growth and Customer Growth Help Drive Operating Cost Efficiency
Revenue Growth and Customer Growth Help Drive Operating Cost Efficiency Regulated O&M Efficiency Ratio* Efficiency Drivers: Growing Revenues & Controlling Costs 46.1% • In early years (thru 2016), efficiency gains were 41.0% steeper as culture of cost management formed 39.1% • Recently, more increme
Slide 35: Financing the Capital Investment Plan
Financing the Capital Investment Plan ($ in millions) Prior Plan 2022-2026 Financing Changes Current Plan 2023-2027 +$1B +Balance Sheet CapEx Capacity Debt Sources ≈50% Operating Cash Flows $8,700 Equity Sources ≈50% Operating Cash Flows $10,100 Debt Financing $5,200 Debt Financing +$500 $(400) Debt
Slide 36: Closed Acquisitions
Closed Acquisitions December 31, 2022 NUMBER WATER CUSTOMER CONNECTIONS WASTEWATER CUSTOMER CONNECTIONS STATE TOTAL CUSTOMER CONNECTIONS OF SYSTEMS Missouri 10 4,800 5,400 10,200 Illinois 8 3,000 1,800 4,800 Pennsylvania 3 - 47,800 47,800 California 2 2,500 - 2,500 Iowa 1 - 700 700 New Jersey 1 - 2,
Slide 37: Acquisitions Under Agreement
Acquisitions Under Agreement December 31, 2022 NUMBER STATE WATER CUSTOMER CONNECTIONS WASTEWATER CUSTOMER CONNECTIONS TOTAL CUSTOMER CONNECTIONS OF SYSTEMS Missouri 4 600 600 1,200 Pennsylvania 4 - 19,400 19,400 Illinois 3 1,500 1,200 2,700 California 2 1,300 - 1,300 Iowa 2 100 100 200 Indiana 2 30
Slide 38: Rates Effective Since…
Rates Effective Since… January 1, 2022 January 1, 2023 Date Annualized Date Annualized Rate Cases & Step Increases Infrastructure Charges Effective Revenue Increases Effective Revenue Increases Date Annualized Revenue Infrastructure Charges Effective Increases Pennsylvania, Step Increase 1/1/2022 $2
Slide 39: Pending Rate Case Filings
Pending Rate Case Filings ($ in millions) Rate Cases Filed Docket/Case Number Date Filed Requested Revenue Increase ROE Requested Rate Base California (a) Case No. A.22-07-001 7/1/2022 $37 NA $921 Missouri (b) Docket No. WR-2022-0303 7/1/2022 105 10.50% 2,380 Sub-Total $142 $3,301 Infrastructure Cha
Slide 40: Regulatory Information – Top States
Regulatory Information – Top 10 States CALIFORNIA ILLINOIS INDIANA KENTUCKY MISSOURI Authorized Rate Base* $667,632 $1,642,200 $1,182,170 $443,654 $1,703,170(c) ROE 9.20%(a) 9.78% 9.80% 9.70% 9.55%(d) Equity 55.39%(a) 49.00% 53.41%(b) 48.90% 50.00%(e) Effective Date of Rate Case 1/1/2021 1/1/2023 5/
Slide 41: American Water's GHG Emissions Profile
American Water’s GHG Emissions Profile Providing Services to 14M People with a Light GHG Footprint American Water Co. A 83M Co. B 78M • Stationary Co. C 57M Scope 1: • Fleet Vehicles 76,000 MT Direct Emissions Co. D 43M • Refrigerants Co. E 40M Scope 2: • Purchased Power from Electric 459,000 MT Co.
Slide 42: Science-Based Goals for Scope 1 and 2 GHG Emissions Reductions
Science-Based Goals for Scope 1 and 2 GHG Emissions Reductions - Aligned with Paris Agreement Medium-term: By 2035, reduce absolute Scope 1 and 2 emissions by 50% (2020 baseline1) Long-term: Achieve Net Zero Scope 1 and 2 emissions by 2050 • Medium- and long-term goals are science-based and aligned
Slide 43: ESG at AWK: Expanded Disclosures in 2022
ESG at AWK: Expanded Disclosures in 2022 ID&E Voluntary Disclosures added at Further Aligning Compensation with DiversityatAW.com Sustainability Goals • Summary results released for: • Established two new people-related goals in • Pay Equity Study 2022 Annual Performance Plan (APP) meant to: • Inter
Slide 44: Reconciliation Table: Regulated Segment O&M Efficiency Ratio
Reconciliation Table: Regulated Segment O&M Efficiency Ratio Regulated Segment O&M Efficiency Ratio FY FY FY FY FY FY FY FY (A Non-GAAP Unaudited Number) 2010 2012 2014 2016 2018 2020 2021 2022 ($ in millions) Total operations and maintenance expense $1,291 $1,330 $1,350 $1,504 $1,479 $1,622 $1,777
American Water Works Company — FY2022 Earnings Presentation on 6ix