American Water Works Company, Inc. · NYSE:AWK
American Water Works — Investor Day (December 2019)
66 slides from American Water Works's investor day presentation, Dec 10, 2019
Slide 1: 2019 Investor Day
2019 Investor Day We keep life flowing ® December 11, 2019 Exhibit 99.2
Slide 2: Welcome
Welcome We keep life flowing ® Ed Vallejo Vice President, Investor Relations
Slide 3: Safety Message
Safety Message Ed Vallejo
Slide 4: Safe Harbor
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 results of levels of activity,
Slide 5: Investor Day Agenda
Investor Day Agenda 8:45 am Susan Story: Overview and Strategy 9:15 am Walter Lynch: Addressing Water Quality Challenges 9:45 am 15 Minute Break 10:00 am Susan Hardwick: Focus on Capital Investment 10:30 am 11:30 am Walter Lynch & Susan Hardwick: Regulated Operations & Financial Overview 11:45 am Q&
Slide 6: Welcome: Strategy Execution
Strategy Execution November 7, 2019 We keep life flowing ® Susan Story President and Chief Executive Officer Welcome We keep life flowing ®
Slide 7: Macro Trends
Macro Trends Customer Technology Social Work Execution Economic Experience above all 24/7 Personalized Service on Demand Proactive Engagement Connectivity and Integration Water’s impact on Environment and Health AI & machine learning rapidly penetrates and disrupts many core enterprise functions Sma
Slide 8: We keep life flowing
We keep life flowing Trusted source of everything water “ ” execution of business fundamentals Highest in customer satisfaction Set the bar for water quality, water source monitoring, and water technology across US Proven and predictable financial performance and growth CUSTOMER OBSESSED The industr
Slide 9: What We Must Do Differently/Accelerate Over Next Decade
Connect continuously with customers & provide personalized choices through technology and human touch What We Must Do Differently/Accelerate Over Next Decade: Leverage genetic engineering to improve water quality Increase outreach and social integration around “Water as Health” Improve efficiency of
Slide 10: 2020-2024 Plan: What You Will Hear Today
2020-2024 Plan 7-10%* EPS CAGR range Regulated Acquisitions Regulated Investment CAPEX 1-2% 1-2% 5-7% Market Based Businesses *Anchored off of 2018 Adjusted EPS (a non-GAAP measure) Continued industry leading growth Regulated investment continues to be the foundation of our growth Highly fragmented
Slide 11: Water Quality
Strategy Execution November 7, 2019 We keep life flowing ® Walter Lynch Chief Operating Officer Water Quality We keep life flowing ®
Slide 12: Water Quality Video
We keep life flowing Water Quality Video ®
Slide 13: Water Quality is essential to our business
Water Quality is essential to our business We keep life flowing ® Emerging Contaminants Ground Water Contamination Algal Contamination Chemical Spill in Water Supply Cross Connection Control Failure Movement of Groundwater Plume Abnormal Weather Events Water Quality Challenges
Slide 14: Water Quality Presenters
We keep life flowing ® Walter Lynch Chief Operating Officer Cheryl Norton Senior Vice President, Eastern Division & President - NJ Kevin Kirwan Senior Vice President, Chief Environmental & Operational Excellence Officer Dr. Lauren Weinrich Principal Scientist, Water Intelligence
Slide 15: American Water on Water Quality
American Water on Water Quality What is Water Quality and challenges associated? What is AW doing about these challenges? Stakeholder perspectives: Regulatory, Investors and customer What are the Water Quality Challenges? How is AW leading the way to ensure water is clean, safe & reliable? What is t
Slide 16: Break
15 minute break
Slide 17: Capital Investment Presenters
We keep life flowing ® Susan Hardwick Chief Financial Officer Bruce Hauk Senior Vice President, Midwest Division & President - IL David Choate Vice President, Engineering
Slide 18: Capital Investment Video
We keep life flowing Capital Investment Video ®
Slide 19: A Focus on Capital Investment
2020-2024 Capital Plan 2020-2029 Capital Plan 1-year budget $1.7 B – $1.9 B 5-year plan $8.8 B – $9.4 B 10-year plan $20 B – $22 B Including $1.6B for regulated infrastructure Including $8.2B for regulated infrastructure *3.76% x $1.024 trillion 25-year need identified by AWWA in “Buried No Longer:
Slide 20: Customer Experience and Capital Efficiency
Customer Experience * Customers at the center of everything we do * Affordability always considered when planning investment * Focused on capital efficiency * Procurement and project delivery savings * Prioritize projects that drives operational efficiency (every $1 saved in opex allows for $8 of ca
Slide 21: Regulated Operations
Strategy Execution November 7, 2019 We keep life flowing ® Walter Lynch Chief Operating Officer Regulated Operations We keep life flowing ®
Slide 22: Our Regulated Business at a Glance
National regulated footprint provides regulatory and geographic diversity CA HI MO IA IL IN MI KY TN WV PA NY VA NJ MD GA 51,000 miles of pipe 621 water treatment plants 130 wastewater facilities 1,000 wells 80 Dams ASSETS as of December 31, 2018 Our Regulated Business at a Glance
Slide 23: Our Leadership Reflects Our Communities
Richard Svindland President - California and Hawaii Nick Rowe Senior Vice President, Southeast Division & President - KY Darlene Williams President Tennessee Bruce Hauk Senior Vice President, Midwest Division & President - IL Matthew Prine President Indiana & Michigan Randy Moore President Iowa Debo
Slide 24: Regulated investment is the foundation of our growth
z Regulated System Investments 2020-2024 Capital Plan Regulated Investment CAPEX $ in billions 5-7% $0.6 – $1.2 $8.8 – $9.4 1-2% 1-2% Market Based Businesses Regulated Acquisitions Regulated investment is the Foundation of our growth $8.2 2020-2024 Plan: 7-10%* EPS CAGR range *Anchored off of 2018 A
Slide 25: Regulated Capital Investment by Year and Purpose
Our Investments Ensure Safe, Reliable, Affordable Water & Wastewater Services For Our Customers Regulated Capital Investment by year $ in billions 2020 2021 2022 2023 2024 2020 - 2024 2025 - 2029 66% 8% 8% 8% 6% 4% Infrastructure Renewal Operational Efficiency, Technology & Innovation Water Quality
Slide 26: Balancing Capital Needs & Customer Bill Impact
Regulatory support and constructive regulation Investing $8.2 billion in infrastructure over the next 5 years with a focus on customer bill impact System investment needs Customer bill impact O&M and Capital efficiencies What can help us Do More Balancing Capital Needs & Customer Bill Impact
Slide 27: Timely Recovery Through Regulatory Mechanisms
Timely Recovery Through Regulatory Mechanisms 2020-2024 Capital Plan Traditional Recovery 41% Forward Test Years (27%) Infrastructure Surcharge Mechanisms (32%) 59% (average)
Slide 28: Regulated O&M Efficiency Ratio
41.0% 39.1% 36.6% 35.6% 2012 2014 2016 2024 Target 31.3% Regulated O&M Efficiency Ratio* ** * Non-GAAP Measure – See appendix for reconciliation. O&M Efficiency Ratio = Adjusted Regulated O&M Expenses (O&M Expenses is most comparable GAAP measure) / Adjusted Regulated Operating Revenues (Operating R
Slide 29: Acquisition Video
We keep life flowing Acquisition Video ®
Slide 30: Regulated Acquisitions Provide Opportunity
z 2020-2024 Plan: 7-10%* EPS CAGR range *Anchored off of 2018 Adjusted EPS (a non-GAAP measure) Regulated Acquisitions 2020-2024 Capital Plan Regulated Investment CAPEX $ in billions 5-7% $8.2 $8.8 – $9.4 1-2% Market Based Businesses 1-2% Regulated Acquisitions $0.6 – $1.2 Regulated Acquisitions Pro
Slide 31: Highly fragmented industry
Highly fragmented industry Natural Gas Utilities What Makes Us Different Water Utilities Source: EPA SDWIS Federal Reports Search www3.epa.gov/enviro/facts/sdwis Electric Utilities Source: Form EIA-861 detailed data files www.eia.gov/electricity/data/eia8 Gas Utilities Source: EPA F.L.I.G.H.T. Green
Slide 32: State Legislation Enables Consolidation
State Legislation Across our Footprint Enables Consolidation Fair Market Value 8 CA IA IN PA NJ MD IL MO Emerging: Water Quality Accountability Legislation 2 Consolidated Tariff 12 NJ IN CA IA IL IN KY MD MO NJ NY PA VA WV
Slide 33: Acquisitions and Upcoming Opportunities
American Water Acquisitions** (Customer Connections) Selected Upcoming Acquisition Opportunities Included in Base Plan Under agreement ≈22,300 More than 50,000 Community Water & about 15,000 Wastewater Systems* 10,000 systems serving > 3,000 customers Regulatory & Legislative climate Opportunities o
Slide 34: Impact of AW on Communities
Impact of AW on Communities Scranton, PA Ransom, IL Bel Air, MD
Slide 35: Our Compelling Story
2020-2024 Plan 7-10%* EPS CAGR range Regulated Acquisitions Regulated Investment CAPEX 1-2% 1-2% 5-7% Market Based Businesses *Anchored off of 2018 Adjusted EPS (a non-GAAP measure) Our Compelling Story Largest and most geographically diverse water utility in the United States Our leadership reflect
Slide 36: Financial Overview
Strategy Execution November 7, 2019 We keep life flowing ® Susan Hardwick Chief Financial Officer Financial Overview We keep life flowing ®
Slide 37: Continued Industry Leading EPS Growth
* Anchored off of 2018 Adjusted EPS (a non-GAAP measure). ** Adjusted EPS is a Non-GAAP measure. Please see appendix for reconciliation and further information. The GAAP range does not reflect any impact of the transactions announced on November 20, 2019 2018 2019 2020 2024 2018 Adjusted EPS (GAAP E
Slide 38: Growth Triangle
z 2020-2024 Plan 7-10%* EPS CAGR range Regulated Acquisitions Regulated Investment CAPEX 1-2% 1-2% 5-7% Market Based Businesses *Anchored off of 2018 Adjusted EPS (a non-GAAP measure) $8.2 2020 - 2024 $0.6 – $1.2 $8.8 – $9.4 Capital Plan Industry leading growth with regulated risk profile supported
Slide 39: Regulated Contribution Increases from Previous Plan
Regulated Contribution Increases from Previous Plan 14% 86% 12% Previous 5-year Plan 2023 New 5-year Plan 2024 88% Regulated Market-based
Slide 40: Capital Plan Supports Rate Base Growth
$8.2 $0.6 – $1.2 $8.8 – $9.4 Our Stable and Predictable Capital Plan Supports Rate Base Growth 2020- 2024 Regulated System Investments Regulated Acquisitions $ in billions 2020 2021 2022 2023 $12.5 $13.2 Multi decade long need for infrastructure investment 2024 9/30 2019 ≈7-8% Rate base CAGR Capital
Slide 41: Market-Based Businesses Provide Strategic Value
Portfolio optimization leads to 2 capital light, cash flow positive business lines Positive branding Enhances customer satisfaction Capital light Leverages core competencies MSG HOS 1.5 million customers with 3 million protection plan contracts Over 40 different partnerships with municipal water, ga
Slide 42: Focus on Financing
Focus on Financing Assumes Issue $500 million in equity Supports $560 million in additional capital Which will increase rate base CAGR by x% Plan Assumes Issuance $500 million in equity Supports additional regulated capital Investment = Proceeds from New York American and Keystone Transactions + Foc
Slide 43: Continued Strong Balance Sheet
*Includes both long term and short term debt. 2019 E Previous 5-year Plan 2023 61-62% Debt to Total Capital $8.8 to $9.4 Billion 2020-2024 CapEx Range* 2 S&P Utility Credit Rating (stable outlook) Moody’s Utility Credit Rating (stable outlook) $14 $310 $28 $159 $473 $ in millions 2020 2021 2022 2023
Slide 44: Top Leader in Dividend Growth
$1.96 ** 6 consecutive years of ≈10% dividend growth $1.33 $1.47 $1.62 $1.78 2015 2016 2017 2018 2019 *Future dividends are subject to approval of the American Water Board of Directors **Anchored off of 2014 dividend paid ≈10.4%** 5-year CAGR 2024 2020 Target long term dividend growth CAGR at High E
Slide 45: Our Compelling Story
2020-2024 Plan 7-10%* EPS CAGR range Regulated Acquisitions Regulated Investment CAPEX 1-2% 1-2% 5-7% Market Based Businesses Grow EPS long-term CAGR of 7-10%*… … One of the fastest growing utilities in the nation *Anchored off of 2018 Adjusted EPS (a non-GAAP measure) Our disciplined financial mana
Slide 46: Closing Remarks
Susan Story President and Chief Executive Officer Closing Remarks We keep life flowing ®
Slide 47: Our ESG Philosophy
Values matter The “how” is just as important as the “what” for long-term financial sustainability Water is the most precious resource for life. We aren’t just a water utility; we’re in the health and safety business How we implement ESG principles Keeping employees safe and injury-free, and developi
Slide 48: ESG Recognition and Highlights
#23 on Barron’s 100 Most Sustainable Companies; Highest ranked Utility Bloomberg Gender Equality Index Top 100 Best for Vets Employers by Military Times New in 2019 American Water commits to further diversity in leadership through a partnership with Paradigm for Parity American Water awards grants t
Slide 49: Doing Well... by Doing Good
Doing Well… a) Source Factset: 2014 GAAP EPS – 2019 Estimate Comparable Adjusted EPS for three quarters actuals plus fourth quarter FactSet consensus estimates b) Source Factset: 2018 Estimate Comparable Adjusted EPS – 2019 Estimate Comparable Adjusted EPS for three quarters actuals plus fourth quar
Slide 50: Our Strategy: Key takeaways
The world is changing rapidly. We must adapt or we will cease to exist Our Purpose and Values don’t change—but our strategies and how we execute will Safety will always be our top focus—for our employees, our customers, and our communities Our Customers are why we exist. We have to act on that in ev
Slide 51: Q&A Session
SE American WATER Q&A Session
Slide 52: Investor Relations Contacts
Ed Vallejo Vice President, Investor Relations edward.vallejo@amwater.com Ralph Jedlicka Director, Investor Relations ralph.jedlicka@amwater.com Abbey Barksdale Manager, ESG abbey.barksdale@amwater.com We keep life flowing ® Ed Vallejo Vice President, Investor Relations edward.vallejo@amwater.com Ral
Slide 53: Appendix
¥& AMERICAN WATER Appendix
Slide 54: Forward-Looking Statements
Forward-Looking Statements Certain statements in this presentation including, without limitation, with respect to 2019 adjusted earnings guidance; 2020 earnings guidance; dividend growth guidance; the outcome of pending or future acquisition activity; the size and timing of any future equity offerin
Slide 55: Non-GAAP Financial Information
Non-GAAP Financial Information This presentation includes adjusted earnings per share (“Adjusted EPS”) both as the Company’s 2019 adjusted earnings guidance and as the 2018 earnings per share (“EPS”) compound annual growth rate anchor, both of which constitute “non-GAAP financial measures” under SEC
Slide 56: Environmental Stewardship: Energy and Water Use
Energy Use GHG emissions: Goal of reducing 40% by 2025 from 2007 baseline, after achieving approximately 31% reduction through 2018 Design for efficiency: enhanced pump, lighting and process design standards Construct for efficiency: sustainable construction standards and methods Operate for efficie
Slide 57: Our People, Customers and Communities
Our People Our Customers Customer data protection: we do not share or sell personal customer data Technology development: ensuring a personalized positive experience Customer satisfaction: Top Quartile in the water industry Online communities as of 10/2019: Our Communities Community service: More th
Slide 58: Board & Committee Structure
Board & Committee Structure Ensuring independence: board is led by an independent, non-executive chair Safety, Environmental, Technology, Operations (SETO) Board Committee Engaging board sufficiently: board met 13 times in 2018 Board engages directly with front-line employees: Off-site board meeting
Slide 59: Rates Effective Since January 1, 2019
Rates Effective Since January 1, 2019 Total $93 $48 Pennsylvania (DSIC) 10/1/2019 6 Tennessee (QIIP, EDI, SEC) 9/1/2019 1 New York (SIC) 8/1/2019 2 Pennsylvania (DSIC) 7/1/2019 3 New Jersey (DSIC) 7/1/2019 15 Missouri (ISRS) 6/24/2019 9 Pennsylvania (DSIC) 4/1/2019 2 West Virginia (DSIC) 1/1/2019 2
Slide 60: Rate Filings Awaiting Final Order
Rate Filings Awaiting Final Order $58 Total Awaiting Final Order: $18(d) 9/14/2018 Case No. 45142 Indiana Rate Case and Infrastructure Settlements awaiting Regulatory Approval $197 $22 21 2 11/15/2019 Tennessee (QIIP, EDI, SEC) 80 10 11/15/2019 New Jersey (DSIC) 55 6 8/26/2019 Missouri (ISRS) $41 $4
Slide 61: Regulatory Information
Regulatory Information CALIFORNIA ILLINOIS INDIANA KENTUCKY MISSOURI 1/1/2018(a) Effective Date of Rate Case 1/1/2017 7/1/2019 6/28/2019 5/28/2018 55.39%(a) Authorized Equity 49.80% 53.41%(c) 48.90% 52.80%(d) 9.20%(a) Authorized ROE 9.79% 9.80% 9.70%(e) 10.00%(e) $498,135 Authorized Rate Base* $883,
Slide 62: 2019 Closed Acquisitions
53,100 42,200 10,900 20 Total 500 - 500 1 West Virginia 13,100 10,400 2,700 5 Pennsylvania * Customer Connections are rounded ** This includes the Alton, IL acquisition, which represents 23,000 customer connections, due to bulk contracts. Connections to the system will be approximately 11,000 State
Slide 63: Pending Acquisitions
22,300 8,100 14,200 25 Total 300 - 300 1 West Virginia 200 - 200 1 Tennessee 2,100 2,100 - 2 Pennsylvania 2,800 2,800 - 1 New Jersey 100 100 - 3 Missouri 500 500 - 1 Indiana * Customer Connections are rounded State Number of Systems Water Customer Connections Wastewater Customer Connections Total Cu
Slide 64: American Water's Historical Adjustments to GAAP
Recurring transactions typically included in our annual guidance, some of which can result in quarterly variability: * Acquisition related expenses * Compensation adjustments which are typically timing and driven by accounting standards * Insurance expense variability primarily driven by claims acti
Slide 65: Reconciliation Table: Adjusted Earnings Per Share Guidance Range
Reconciliation Table: Adjusted Earnings Per Share Guidance Range* * The GAAP range does not reflect any impact of the transactions announced on November 20, 2019 *
Slide 66: Reconciliation Table: Regulated Segment O&M Efficiency Ratio
* Calculation assumes purchased water revenues approximate purchased water expenses ** Calculation of Estimated tax reform = Revenue Requirement with new Effective Tax Rate (taxes grossed up) – Revenue Requirement with old Effective Tax Rate *** Includes the impact of the Company’s adoption of ASU 2
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