American Water Works Company, Inc. · NYSE:AWK
American Water Works — Investor Day (December 2015)
71 slides from American Water Works's investor day presentation, Dec 14, 2015
Slide 1: Investor Day, Dec 15, 2015
Exhibit 99.1 ERICAN WATER NYSE: AWK INVESTOR DAY Dec 15, 2015
Slide 2: Today's Agenda
Greg Panagos Vice President of Investor Relations Today’s Agenda
Slide 3: Safety Moment
* AMERICAN WATER Safety Moment December 2015
Slide 4: Forward-Looking Statements
Forward-Looking Statements Certain statements in this presentation including, without limitation, 2015 earnings guidance and estimated revenues from rate cases and other government agency authorizations, are forward-looking statements within the meaning of the safe harbor provisions of the Private S
Slide 5: Today's Agenda and Speakers
Today’s Agenda and Speakers: Strategy Overview: Susan Story Regulated Operations: Walter Lynch American Water Enterprises: Sharon Cameron Keystone Clearwater Solutions: Ned Wehler 2015 Financial Overview: Linda Sullivan
Slide 6: Overview
Overview Susan Story President and Chief Executive Officer
Slide 7: Utility Markets Today
* AMERICAN WATER Utility Markets Today December 2015
Slide 8: Demonstrated Superior Performance vs Peers
Demonstrated Superior Performance vs Peers: 2010-2015 Results in Leading Total Shareholder Returns Source: Factset EPS Growth* Dividend Growth* *2015 EPS and dividends are based on year-to-date actuals through September 30 plus fourth quarter Factset consensus estimates. **DJUA includes: AEP , AES ,
Slide 9: Leading Total Shareholder Return
Leading Total Shareholder Return $100 investment in AWK 5 years ago, would be worth over $260 today. Source: Factset
Slide 10: Why American Water?
Personalized economies of scale Why American Water? AWK EPS growth 7-10%, over next 5 years* Multi-decade investment needs Fragmented market Smooth regulated capital deployment Absence of federal economic regulation Geographic diversity Market-based complementary businesses Strong local presence and
Slide 11: Our Future: EPS Growth Target of 7-10% from 2016-2020
*Anchored from adjusted FY 2014. 2016 – 2020 Plan* Great investment opportunity Outstanding execution Best people in the industry Our Future: EPS Growth Target of 7-10% from 2016 – 2020 Our Regulated Business Remains the Foundation Other Regulated Investment – CapEx (4-6%) Shale (~1%) AWE (1-2%) Reg
Slide 12: Regulated Operations
Walter Lynch President and Chief Operating Officer Regulated Operations Regulated Growth: 5 - 8% Other Regulated Investment – CapEx (4-6%) Shale (~1%) AWE (1-2%) Regulated Acquisitions (1-2%)
Slide 13: The Dominant Player in the Water Industry
We manage more than 370 individual water systems across the country The Dominant Player in the Water Industry Every day we operate and manage: 48,000 miles of distribution and collection mains 81 surface water treatment plants 89 dams 100 wastewater treatment facilities 500 groundwater treatment pla
Slide 14: Our Geographic Diversity is a Key Competitive Advantage
Our Geographic Diversity is a Key Competitive Advantage State FY 2014 Revenues ($ mm) % of Total New Jersey $652 25% Pennsylvania 605 23% Missouri 270 10% Illinois 262 10% California 210 8% Indiana 201 7% West Virginia 127 5% Other 347 12% Total Regulated Business $2,674 100%
Slide 15: Strong Leadership with Extensive Water Experience
Rob Maclean President, California/Hawaii Nick Rowe Sr. VP Central Division and President, Kentucky Cheryl Norton President, Missouri Bruce Hauk President, Illinois Strong Leadership with Extensive Water Experience Kathy Pape Sr. VP Mid-Atlantic Division and President, Pennsylvania Bill Varley Sr. VP
Slide 16: Critical Need for Investments
Wooden water pipes Critical Need for Investments Corroded water pipe Our 48,000 miles of pipe would stretch around the world twice By 2020, 44% of U.S. pipe infrastructure to be classified as poor, very poor, or life elapsed… … We replace about 350 miles of pipe each year In USA 2 trillion gallons o
Slide 17: Multi-decade Investment Need
Multi-decade Investment Need American Water Pipe Replacement Rate (in years) Over 25% of pipes are 70 years or older Pipe Replacement rate is shortening Pipe Age Distribution – AW System
Slide 18: Regulated System Investments
Regulated System Investments Strategic Capital Regulated Acquisitions $6.4 Billion of Investments From 2016 – 2020 $5.5 Billion of Regulated System Investments 2016 - 2020 Average Regulated Capital Expenditures by Purpose ~$3.6B Toward Asset Renewal
Slide 19: More Timely Return on Investment Supports Customers' Best Interests
More Timely Return on Investment Supports Customers’ Best Interests # of States 15 New Regulatory Mechanisms Across Our Footprint Since 2010
Slide 20: O&M Efficiency Creates Running Room to Invest
O&M Efficiency Creates Running Room to Invest Note: O&M Efficiency Ratio - Non GAAP Measure – See appendix for reconciliation. Incremental Revenue Requirement* -Increases Attributable to Opex vs. Capex- Note: *Approximation in states where we reached settlement. **For general rate cases effective in
Slide 21: Highly Fragmented Water Industry Creates Opportunity
Water Wastewater Highly Fragmented Water Industry Creates Opportunity The majority of water systems in the US are owned by capital constrained entities Investor Owned 16% Public & Other 84% Investor Owned 2% Public & Other 98% Other Regulated Investment – CapEx (4-6%) Shale (~1%) AWE (1-2%) Regulate
Slide 22: Enabling Growth and Consolidation: Eight States
Enabling Growth and Consolidation: Eight States Water Infrastructure Protection Act: S-2412, Effective Feb 5, 2015 Streamlines the approval process for sales (no ballot question required) Third party appraisal for valuing water and wastewater assets Distressed Utility Acquisition Bill: House Enrolle
Slide 23: Adding Customers Through Acquisitions and Organic Growth
Of 3.26 million customers, 3.10 million are water only * Excludes acquisition of New York. ** 2015 Organic Growth calculated based on actual organic growth through September 30 plus historical three year trending analysis for the final quarter of 2015. 2015 acquisitions are based on transactions clo
Slide 24: Regulated Businesses: Going Forward
Regulated Businesses | Going Forward….. *Expected growth in average customer bills for five largest states of New Jersey, Pennsylvania, Indiana, Missouri and Illinois. Other Regulated Investment – CapEx (4-6%) Shale (~1%) AWE (1-2%) Regulated Acquisitions (1-2%) We will invest about $1.1B per year i
Slide 25: American Water Enterprises
Sharon Cameron President, American Water Enterprises Other Regulated Investment – CapEx (4-6%) Shale (~1%) AWE (1-2%) Regulated Acquisitions (1-2%)
Slide 26: AWE Strengthens American Water
AWE Strengthens American Water Financially: Accelerates growth by leveraging our core skills outside of our regulated footprint Regulated-like risk profile Culturally: Increases customer satisfaction Develops new expertise that can benefit the regulated business Nurtures competitive-minded talent Bu
Slide 27: Serving a Broad Range of Customers
Serving a Broad Range of Customers Lines of Business Drivers of “Regulated-like” Results Long-term contracts & relationships Predictable, stable revenue Growing geographically diversified markets Low levels of capital investment Homeowner Services Military Services Contract Services
Slide 28: Military Services Group
Military Services Group Utility Privatization on U.S. Military Bases Regulated Business Similarities: Water & wastewater operations and capital improvements 50-year contract term Predictable revenue (not consumption based) Periodic price adjustments with defined rules Geographic diversity Business S
Slide 29: Military Services Historical Growth and Opportunity
Military Services Historical Growth Opportunity 2016 - 2025 12 bases with 38+ remaining years Infrastructure upgrades Win new bases 33 opportunities Emerging Opportunities: Expand service delivery through federal sustainability order reduce electricity use, conserve water, water reuse, geothermal Ch
Slide 30: Homeowner Services
Homeowner Services Regulated Business Similarities: Warranties - predictable subscription based revenue Geographic diversity Periodic price adjustments Business Status: 780K customers; 1.6M contracts 97% customer satisfaction High retention rates “A+” Better Business Bureau rating 260 employees 43 s
Slide 31: Homeowner Services Growth Strategy
Homeowner Services Growth Strategy Geographic Expansion 75M homeowners not covered New Products Partnerships 70 of the Top 100 cities Municipalities and utilities are available for partnerships Interior Electric HVAC Surge Well & Septic Regulated Footprint Municipalities/Utilities: Affinity Partners
Slide 32: Contract Services Group
Contract Services Group Solving Municipal, Commercial and Industrial Water and Wastewater Needs Industry leader in commercializing emerging technologies Rehabilitated, operate and maintain Tampa Bay Water desalination plant largest in North America at 25MGD Design, build and operate lead for the awa
Slide 33: American Water Enterprises: Going Forward
American Water Enterprises | Going Forward….. Serve our customers with executional excellence Continue to win new customers… -New bases and new partnerships Expand our products and services to further meet our customers’ needs Other Regulated Investment – CapEx (4-6%) Shale (~1%) AWE (1-2%) Regulate
Slide 34: Break
Break December 2015
Slide 35: Shale Introduction
Shale Introduction Susan Story President and Chief Executive Officer
Slide 36: Keystone Clearwater
Ned Wehler CEO, Keystone Clearwater Other Regulated Investment – CapEx (4-6%) Shale (~1%) AWE (1-2%) Regulated Acquisitions (1-2%)
Slide 37: Market Overview: Decades of Exploration and Production Opportunities
Market Overview – Decades of Exploration and Production Opportunities Well completion technology is water enabled and water dependent Appalachian Basin – a still rising resource - Utica potential and proven Marcellus American Water-Keystone Clearwater – ideally positioned for decades of sustained bu
Slide 38: Market Analysis: Short Term and Long-Term Prospects
Market Analysis – Short Term and Long-Term Prospects Short Term – 2016 Outlook 20-30% lower completion activity constrained takeaway capacity drawdown of excess storage El Nino pattern water infrastructure build-out Long Term – 2017 and Beyond 10-20% gain in completion activity new takeaway capacity
Slide 39: Water Management Cycle
Water Management Cycle Fresh Water Sourcing Pipeline Transfer to Pad On-Pad Temporary Storage On-Pad Water Management Flowback Blending & Re-Use Flowback & Produced Water Storage Water Filtration for Re-Use Transportation for Re-Use Services include: Water Sourcing Pipeline Construction Water and Eq
Slide 40: Our Competitive Advantage
Our Competitive Advantage Core Focus What Does It Mean for the Customer? Senior management has developed technical and environmental knowledge and experience in the Appalachian Basin for over 30 years Appalachian Basin Expertise Keystone’s unique regulatory and engineering experience consistently le
Slide 41: Strategy for Growth
Strategy for Growth Our customer base allows for wallet share gain and expanded services Pursuing 20+ identified new customers Capital constrained E&P producers are receptive to Keystone expanding into an ownership role of main transmission lines Penetration in existing markets Expansion of customer
Slide 42: Risks and Risk Mitigation
Risks and Risk Mitigation Risks Revenue and margin volatility Declining completion counts Large integrated pipeline infrastructure deals Mitigation Strategy 5-year contracts + variable cost + customer additions Design-Build-Own-Operate solutions w/contracts of 5 years plus Broaden/diversify services
Slide 43: Keystone Clearwater: Going Forward
Keystone Clearwater | Going Forward….. We will leverage synergies from our partnership with American Water… … Power of brand, financial strength + size, scale & reputation Build a predictable business model… … Obtain long-term contracts – supply + pipeline + storage operations Own and Operate Water
Slide 44: Financial Overview
Financial Overview Linda Sullivan Senior Vice President and Chief Financial Officer Other Regulated Investment – CapEx (4-6%) Shale (~1%) AWE (1-2%) Regulated Acquisitions (1-2%)
Slide 45: Long Term Diluted EPS Growth Goal of 7-10%
$2.60 Long Term Diluted EPS Growth Goal of 7-10% $2.43 Diluted Earnings Per Share Long Term EPS growth goal of 7-10%, now anchored from FY 2014 7-10% range 2015 Guidance $2.65 2016 Guidance $2.85 $2.75 7-10% CAGR Range *Non-GAAP measure, excludes costs related to the Freedom Industries chemical spil
Slide 46: Reaffirming 2015 Guidance, New EPS Guidance for 2016
$2.60 - $2.65 $2.75 - $2.85 $0.12 - $0.14 $0.02 - $0.04 $0.03 - $0.04 ($0.02) 2015 Landing Zone Regulated Investment Regulated Acquisitions Market Based Business Parent & Other 2016 Guidance Reaffirming 2015 Guidance Range, New EPS Guidance for 2016 of $2.75 - $2.85* 5 - 7% (2015-2016 Regulated Grow
Slide 47: 2016 Guidance and Major Variables
Cents per share variation FY 2016 Initial Guidance: $2.75 - $2.85 Includes… 2016 Guidance and Major Variables
Slide 48: Continued 7-10% EPS Growth Target
Continued 7-10% EPS Growth Target: Regulated Business is the Foundation * 7-10% long-term EPS growth target anchored from FY 2013 2016 – 2020 Plan** 2015 – 2019 Plan* **7-10% long-term EPS growth target anchored from FY 2014 Other Regulated Investment – CapEx (3-6%) Shale (0-2%) AWE (2-3%) Regulated
Slide 49: 2016-2020 Capital Investment Plan
2016-2020 Capital Investment Plan: Stable and Predictable ($ in millions) Regulated System Investments Strategic Capital Regulated Acquisitions Regulated System Investments Strategic Capital Regulated Acquisitions 2016 Capital budget - $1.3 billion
Slide 50: Rate Base Growth
Rate Base Growth – Consistent, Stable Growth CAGR: > 5%
Slide 51: Opportunity Set: Regulated Acquisitions
Opportunity Set: Regulated Acquisitions Current Portfolio 3.26 million customers 2015 Activity 32,955 customers Total Opportunity 24.5 million customers Closed: 19,463 Pending: 13,492 Total: 32,955 In our regulated footprint Serving 5K – 30K connections 13M water & 11.5M waste water
Slide 52: Opportunity Set: Military Services
Opportunity Set: Military Services – Utility Privatization Current Portfolio $0.30 B Remaining contract life net income Currently Pursuing $0.26 - 0.38 B 50-year net income $1.1 – 1.6 B 50-year net income Total Opportunity Represents O&M fees and estimate of infrastructure upgrades. 12 bases 8 bases
Slide 53: Opportunity Set: Homeowner Services
Opportunity Set: Homeowner Services Current Portfolio 1.6 million contracts Projections Through 2020 0.8 – 1.3 million incremental contracts Targeted Market Opportunity 30 million contracts 75 million homes 2 contracts per home 20% penetration
Slide 54: What Does Winning a New HOS Contract Mean to Net Income Growth?
What Does Winning a New HOS Contract Mean to Net Income Growth? * Assumes annualized over 5 year period 1) Penetration Rate With Billing: 15%-40% Without Billing: 1%-15% 2) # Contracts/ Homeowner 2 contracts on average 3) Net Income per Contract* Average: $8-$12 per contract "American Water Resource
Slide 55: Opportunity Set: Keystone
Opportunity Set: Keystone Current Portfolio* $70 million annual revenue Active Development $25-30 million potential incremental annual revenue Total Estimated Opportunity Approximate 1% 5-year EPS CAGR EPS Neutral in 2015 EPS Accretive in 2016 * Estimate based on actual results through September 30,
Slide 56: Keystone: Building a More Predictable Business Model
Current Model -Total Water Management Solution Mostly short-term contracts (under two years) Variable prices and costs Asset light Pursuing a Design, Build, Own and Operate Model Mix of operating revenues and capital projects Long-term contracts (five years or more) Adding water pipelines One or mor
Slide 57: Financial Overview Continued
Financial Overview Continued…. Excellent credit quality Strong balance sheet History of consistent dividend growth Superior total shareholder returns Other Regulated Investment – CapEx (4-6%) Shale (~1%) AWE (1-2%) Regulated Acquisitions (1-2%)
Slide 58: Excellent Credit Quality
Excellent Credit Quality S&P Utilitites AWK Rating FFO / Debt Debt Maturity Schedule
Slide 59: 2015 Capital Structure
CONFIDENTIAL AND PROPRIETARY - FOR INTERNAL USE ONLY 2015 Capital Structure Strong Cash Flow from Operations Strong Balance Sheet Strong Cash Flow from Operations
Slide 60: History of Consistent Dividend Growth
History of Consistent Dividend Growth Source: Factset: Time Period: 2010 – 2015 Dividend Paid CAGR, assumes future quarterly dividend payments in 2015 equal to current quarterly dividend. Peer companies include: AEP , AES , AWK , CNP , D , DUK , ED , EIX , EXC , FE , NEE , NI , PCG , PEG , SO , AWR
Slide 61: Superior Total Shareholder Returns
Ticker LT Growth (Expected) Dividend Yield Total Return (Expected) AWK 8.5%* 2.5% 11.0% DJUA 4.2% 4.2% 8.6% Water Peers 5.8% 2.9% 8.7% Superior Total Shareholder Returns Source : Factset, Data as of December 7, 2015 * Mid Point of 7-10% Long term earnings growth guidance Double digit returns, with a
Slide 62: Financial Overview: Going Forward
Financial Overview | Going Forward….. Grow EPS long term at 7-10%… … Regulated investments will be the foundation Increase dividends in line with earnings… … Payout ratio between 50-60% of earnings Maintain our conservative risk profile… … Market based businesses not more than 15-20% of earnings Del
Slide 63: In Summary
In Summary Susan Story President and Chief Executive Officer
Slide 64: Why American Water?
Personalized economies of scale Why American Water? AWK EPS growth 7-10%, over next 5 years* Multi-decade investment needs Fragmented market Smooth regulated capital deployment Absence of federal economic regulation Geographic diversity Market-based complementary businesses Strong local presence and
Slide 65: Any company's only sustainable competitive advantage is its people
Any company’s only sustainable competitive advantage is its… PEOPLE
Slide 66: Any company's only sustainable competitive advantage is its people
Any company’s only sustainable competitive advantage is its… PEOPLE Victor Munguia
Slide 67: Any company's only sustainable competitive advantage is its people
Any company’s only sustainable competitive advantage is its… PEOPLE Herbie Sims
Slide 68: What's new, What's the same, Summary
What’s new What’s the same Summary 68
Slide 69: Appendix
Appendix
Slide 70: Adjusted Diluted Earnings Per Share from Continuing Operations
Adjusted Diluted Earnings Per Share from Continuing Operations Diluted Earnings Per Common Share 2010 2011 2012 2013 2014 Net Income - GAAP $ 1.53 $ 1.75 $ 2.01 $ 2.06 $ 2.35 Less: Income/(Loss) from discontinued operations $ 0.07 $ 0.03 ($ 0.09) ($ 0.01) ($ 0.04) Income from continuing operations p
Slide 71: Regulated Segment O&M Efficiency Ratio
Regulated Segment O&M Efficiency Ratio Regulated Segment O&M Efficiency Ratio (A Non-GAAP Unaudited Number) FY FY FY FY FY LTM Sep ($ in thousands) 2010 2011 2012 2013 2014 2015 Total Operations and Maintenance Expense $1,271,664 $1,280,165 $1,329,500 $1,289,081 $1,349,864 $ 1,369,553 Less: Operatio
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