American Water Works Company, Inc. · NYSE:AWK
American Water Works — Investor Presentation (December 2017)
43 slides from American Water Works's investor presentation, Dec 11, 2017
Slide 1: American Water 2018 Guidance Conference Call
Exhibit 99.2 American Water 2018 Guidance Conference Call NYSE: AWK
Slide 2: Forward-Looking Statements
Forward-Looking Statements Ed Vallejo Vice President, Investor Relations NYSE: AWK www.amwater.com 2
Slide 3: Forward-Looking Statements and Other Information
Forward-Looking Statements and Other Information Certain statements in this presentation including, without limitation, 2017 and 2018 earnings guidance, projected long-term earnings growth, the outcome of new and pending acquisition activity, O&M efficiency ratio targets, estimated revenues from rat
Slide 4: Strategy Overview
Strategy Overview Susan Story President and Chief Executive Officer NYSE: AWK www.amwater.com 4
Slide 5: Headlines from Today's Call
Headlines from Today’s Call Maintaining 7 –10%* five-year EPS CAGR, affirming narrowed 2017 adjustedEPSrange,andsetting 2018EPSGuidanceat $3.22- $3.32 2018-2022 Plan Investing an expected $8.0$8.6 - billion over the next 5 years with continuing focus on customer affordability Delivering a more regul
Slide 6: The More Things Change…the More Our Story Works!
The More Things Change…the More Our Story Works! As Things Change… Our Story Works… Industry leader in water R&D Dedicated scientists to emerging • Water Quality ConcernsIs–my Water contaminants Safe? Largest national investor in water projects • Higher Customer Expectations I Want – Working toward
Slide 7: Our Company is a Perfect Fit for ESG Investors
Our Company is a Perfect Fit for ESG Investors Environmental Social Responsibility Governance •Investing five-year $7.2 billion regulated • 60,000 hours of annual employee safety training •Achieving gender parity: highest number cap ex over 5 years to: address aging of female board members among S&P
Slide 8: American Water will Continue to be a High Growth Utility
American Water will Continue to be a High Growth Utility Long Term Adjusted Earnings Per Share Growth CAGR Target of 7-10%** continues through 2022 7-10%** CAGR Range 2018 Guidance 2017 Adjusted Guidance (GAAP $3.32 Guidance$3.05 – 3.11)* 2016 Adjusted EPS (GAAP $3.22 EPS $2.62)* $3.06 $2.84 $3.00 *
Slide 9: The Regulated Business
The Regulated Business Walter Lynch Chief Operating Officer NYSE: AWK www.amwater.com 9
Slide 10: Our Regulated Story Works…and We Execute on Our Strategies!
Our Regulated Story Works…and We Execute on Our Strategies! Our Story Works… We Execute… 15 R&D scientists (includes 8 PhDs) Growing partnership in emerging • Industry Leader in Water Quality contaminants Source water monitoring $7.2 Billion Five Year Regulated Capital Plan $1.3 Billion increase to
Slide 11: The Leading Investor Owned Water Utility Company
The Leading Investor Owned Water Utility Company Total Customer Connections 2016 Regulated As of December 31, 2016 Revenues (in Thousands) (in Millions) Other, Other, $374 497 Pennsylvania, West Virginia, West Virginia, 709 $142 Pennsylvania, 168 $639 California, California, $211 176 Indiana, Indian
Slide 12: U.S. Water & Wastewater Infrastructure Faces Multi-Decade Investment Needs
U.S. Water & Wastewater Infrastructure Faces Multi-Decade Investment Needs 2018-2022 Plan December 2017 NYSE: AWK www.amwater.com 12
Slide 13: Regulated Investment: $8.0-$8.6 Billion of Investments from 2018-2022
Regulated Investment: $8.0 $8.6 - Billion of Investments from 2018 –2022; $7.2 Billion for Regulated Systems 2018-2022 Capital Expenditure by Category (In $ Billions) $8.0 -$8.6 Why the Additional Strategic $1.3 Billion of Infrastructure Spend $0.2 Capital Regulated Acquisition $0.6 -$1.2 Continue a
Slide 14: Regulated Investment: Leveraging Our Competencies for Customer Benefits
Regulated Investment: Leveraging Our Competencies for Customer Benefits Opportunity to Increase Capex and Minimize Customer Bill Increases O&M Efficiency Target Capital 32.0%* Efficiency by 2022 Supply National Cost Value Technology Purchasing Chain Management Engineering Power * Non-GAAP measure. O
Slide 15: Regulated Acquisitions: Highly Fragmented Water Industry Creates Opportunity
Regulated Acquisitions: Highly Fragmented Water Industry Creates Opportunity Industry Opportunity Water Wastewater 2018-2022 Plan Investor Owned Investor Owned 16% 2% Public & Other Public & Other 84% 98% American Water Footprint Ideal Fit for Industry Consolidation Opportunities Target5k– 30kCustom
Slide 16: Regulated Acquisitions: State Legislation that Enables Consolidation
Regulated Acquisitions: State Legislation that Enables with Water & Wastewater System Consolidation Indiana Illinois Pennsylvania 2015 & 2016 2012 & 2016 2013 Fair Market Value Water & Wastewater Fair Market Value Fair Market Value Expansion Revenue Requirement Post Acquisition Deferrals Consolidati
Slide 17: Regulated Acquisitions: Adding Customers Through Acquisitions and Organic Growth
Regulated Acquisitions: Adding Customers Through Acquisitions and Organic Growth Customer Additions from Organic Growth and Closed Selected Upcoming Acquisition Opportunities Acquisitions 20142017 – (with McKeesport close by year end)* 57,206 54,741 Approximate 22,000 Customers 36,471 Target A 30,00
Slide 18: Our Financial Plan
Our Financial Plan Linda Sullivan Chief Financial Officer NYSE: AWK www.amwater.com 18
Slide 19: Our Story Works…and We Deliver on Our Strategies!
Our Story Works…and We Deliver on Our Strategies! Our Story Works… We Deliver… Affirm 2017 Adjusted EPS Guidance* • A Business Model that Works Strong 2018 EPS Guidance Continued 7 –10%** Long Term EPS CAGR Regulated: $8.0-$8.6 billion needed investment drives more regulated • A More Regulated Risk
Slide 20: American Water Continues to be a High Growth Utility
American Water Continues to be a High Growth Utility Long Term Adjusted Earnings Per Share Growth CAGR Earnings Guidance and Anchor Target of 7-10%** continues through 2022 Affirm 2017 EPS Guidance range GAAP: $3.05$3.11 - Adjusted: $3.00 3.06* - 7-10%** 2018 EPS Guidance $3.22$3.32 - CAGR Range 8%
Slide 21: Our 2018 Guidance and Major Variables Included in the Range
Our 2018 Guidance and Major Variables Included in the Range 2018 Guidance 2018 Guidance $3.22 -$3.32 EPS Major Variables $0.02 -$0.04 $0.02 $3.22 -$3.32 Weather ($0.07) $0.07 $0.18 -$0.20 $3.00 -$3.06 Regulated ($0.03) $0.03 AWE ($0.02) $0.02 Keystone ($0.01) $0.01 2017 Adjusted GuidanceRegulated Ma
Slide 22: Needed Infrastructure Investment Transitions us to an Even More Regulated Risk Profile
Needed Infrastructure Investment Transitions us to an Even More Regulated Risk Profile 2018-2022 Plan 7 –10% CAGR² 2017-2021 Plan 7 –10% CAGR¹ Continued strong growth at stand-alone CAGR of 15.5%³ Customer additions remain at ~30-60k per year Increase of $1.3 billion in needed capital to better serv
Slide 23: Increased Capital Expenditures Drives Stronger Rate Base Growth
Increased Capital Expenditures Drives Stronger Rate Base Growth Highlights Rate Base CAGR Based on Capital increase to better serve customers $8.0 -$8.6 Billion Capital Plan results in ~100 basis point increase in rate 6.5 –7.5% base CAGR Target O&M efficiency ratio of 32.0%* by 5 –6% 2022 helps kee
Slide 24: Market-Based Businesses Continue to Provide Strategic Value
Market-Based Businesses Continue to Provide Strategic Value Three Primary Businesses Highlights 15.5%* Stand Alone Growth CAGR Military Services Cash Flow Positive Businesses Help to Group Support Growth Leverage Size and Scale Homeowners Market-Based Risk Characteristics Services Group Managed Port
Slide 25: Long Term Plan Utilizes Strong Balance Sheet
Long Term Plan Utilizes Strong Balance Sheet Cash Flow from Operations Cash Flow Remains Strong $1.5 Federal NOL of $1.2 billion is projected by the end of 2017 $1.0 Federal NOL position continues through 2021 assuming no tax $0.5 reform $0.0 2016 A 2017 E 2018 E 2019 E 2020 E 2021E 2022 E Debt to T
Slide 26: Tax Reform Remains Uncertain
Tax Reform Remains Uncertain House Bill Senate Bill Potential Impacts Tax Rate Tax Rate Tax Rate • 20% corporate tax rate in 2018 • 20% corporate tax rate in 2019 • Benefits regulated customers • Lowers cash flow and FFO/Debt • Normalization of excess deferred • Normalization of excess deferred • In
Slide 27: A Top Leader in Dividend Growth and Total Shareholder Return
A Top Leader in Dividend Growth and Total Shareholder Return Annualized 5-Year Five Consecutive Years of ~10% Dividend Growth Total ShareholderReturn4 $1.62 $1.47 $1.33 $1.21 $1.09 1 2 2013 2014 2015 2016 2017 2018 E AWK Water Peers5 DJUA S&P 500 Highlights 1 The dividend normally paid in 1Q 2013 wa
Slide 28: Wrap Up
Wrap Up Susan Story President and Chief Executive Officer NYSE: AWK www.amwater.com 28
Slide 29: American Water Continues to be a High Growth Utility - Today's Key Takeaways
American Water Continues to be a High Growth Utility - Today’s Key Takeaways Maintaining 7 –10%* five-year EPS CAGR, affirming narrowed 2017 adjustedEPSrange,andsetting 2018EPSGuidanceat $3.22- $3.32 2018-2022 Plan Investing an expected $8.0$8.6 - billion over the next 5 years with continuing focus
Slide 30: American Water - your calm in the middle of the storms.
“American Water - your calm in the middle of the storms.” NYSE: AWK www.amwater.com 30
Slide 31: Q & A Session
Q & A Session December 2017 NYSE: AWK 31
Slide 32: Investor Relations Contacts
Investor Relations Contacts Ed Vallejo Ralph Jedlicka Vice President, Director, Investor Relations Investor Relations edward.vallejo@amwater.com ralph.jedlicka@amwater.com Upcoming Events: February 21, 2018 Q4 and Year-End 2017 Earnings Call December 11, 2018 2018 Analyst Day, New HQ in Camden, NJ N
Slide 33: Appendix
AMERICAN WATER NYSE: AWK
Slide 34: Non-GAAP Financial Information
Non-GAAP Financial Information This presentation includes adjusted earnings per diluted common share (“Adjusted EPS”) both as 2017 non-GAAP earnings theguidance 2016 EPSand as compound annual growth rate anchor, which constitute “non-GAAP financial measures” under SEC rules. These non-GAAP financial
Slide 35: Our Regulated Infrastructure Investment Five-Year Plan
Our Regulated Infrastructure Investment Five-Year Plan 2018– 2022 Regulated System Investment by Purpose of the $7.2 Billion 6% 2% 7% 7% 8% 53% 10% 7% Asset Renewal Asset Renewal-Lead Service Lines Organic Growth Regulatory compliance Reliability/Quality of Service Efficiency Operational Support Oth
Slide 36: Our Five-Year Debt Maturity Schedule
Our Five-Year Debt Maturity Schedule $302 $300 $225 $154 $295 $152 $105 $77 $2 $24 $5 2018 2019 2020 2021 2022 Parent Regulated Outstanding Avg Remaining Life Weighted Avg Next 5 years 2018-2022 ($ in millions) (years) Interest Rate Parent $85 1.2 5.63% Regulated $800 2.5 5.89% Total $885 2.4 5.87%
Slide 37: Rate Filings Awaiting Final Order
Rate Filings Awaiting Final Order Rate Cases Filed Company Docket / Case Number Date Filed Revenue Increase ROE Requested Rate Base California Case No. A.16-07-002 7/1/2016 $32 (a) NA $494 Missouri Case No. WR-2017-0285 6/30/2017 $84 (b) 10.80% $1,345 New Jersey Case No. WR-17090985 9/15/2017 $129 1
Slide 38: Regulated Utilities: Rate Base & Authorized Return on Equity
Regulated Utilities: Rate Base & Authorized Return on Equity Last Rate Case Awarded - Largest Regulated Subsidiaries Authorized Rate Base* $439,448 $883,386 $841,915 (b) $405,704 (b) $1,132,843 (b) Authorized ROE 9.99% (a) 9.79% 9.75% 9.70% (e) 9.75% (e) Authorized Equity 53.00% (a) 49.80% 41.55% (c
Slide 39: How American Water Grows Earnings: Rate of Return Regulation in the United States
How American Water Grows Earnings: Rate of Return Regulation in the United States PrudentInvestment Drives Need for Rate Cases Establish Step 1 Rate Base x WACC = Allowed Return Step 2 + + = Allowed Operating Taxes, Depr & Revenue Return Expenses Amortization Requirement American Water has experienc
Slide 40: How O&M Efficiency Translates to Investment Growth
How O&M Efficiency Translates to Investment Growth Saving $1 in opex vs investing $7 in capital at allowed ROE, keeps customer bills neutral and can create $0.35 in sustainable earnings $1 > $7 Expense Savings Invested Capital a) Revenue Requirement $ 1.00 $ 1.00 Expenses O&M 0.96 $ - 2 Depreciation
Slide 41: Rate Base Calculation
Rate Base Calculation * $11,023 $10,694 $9,987 * $9,398 Estimated Rate Base As of $8,958 ($ in millions) 9/30/2017 Net Utility Plant $15,451 Less Advances for Construction 279 CIAC – Contributions in Aid of Construction 1,264 Net Deferred income taxes 2,862 Deferred investment tax credits 23 Sub Tot
Slide 42: Reconciliation Tables: 2016 Earnings per Share & 2017 Guidance Range
Reconciliation Tables: 2016 Earnings per Share & 2017 Guidance Range Full Year Earnings per Share 2016 Diluted earnings per share (GAAP): Net income attributable to common stockholders $ 2.62 Non-GAAP adjustments: Impact of Freedom Industries Binding Global Agreement in Principle 0.36 Income tax imp
Slide 43: Closed and Pending Acquisitions as of November 30, 2017
Closed and Pending Acquisitions as of November 30, 2017 2017 Closed Acquisitions No. of Water Wastewater Total State Acquisitions Customers Customers Customers California 2 1,764 - 1,764 Indiana 1 1,300 - 1,300 Iowa 1 718 - 718 Illinois 3 700 120 820 Missouri 3 500 434 934 New Jersey 1 11,212 - 11,2
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