American Water Works Company, Inc. · NYSE:AWK
American Water Works — Investor Day (December 2018)
69 slides from American Water Works's investor day presentation, Dec 11, 2018
Slide 1: 2018 Investor Day
Exhibit 99.1 A MERICAN W ATER 2018 Investor Day December 11, 2018 we keep life flowing®
Slide 2: Forward-Looking Statements
A MERICAN W ATER Forward-Looking Statements Ed Vallejo Vice President, Investor Relations we keep life flowing® 2
Slide 3: Forward-Looking Statements Safe Harbor
FORWARD-LOOKING STATEMENTS AMERICAN WATER 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,
Slide 4: Agenda
A MERICAN WATER AGENDA 8:30 am Ed Vallejo: Welcome and Safety Message 8:45 am Susan Story: Overview and Strategy 9:15 am Walter Lynch: Regulated Operations Overview 10:45 am 15 Minute Break 11:00 am Linda Sullivan: Market Based Businesses & Financial Overview 12:15 pm Susan Story: ESG Overview 12:45
Slide 5: Welcome
A MERICAN WATER welcome! Susan Story President and Chief Executive Officer we keep life flowing® 5
Slide 6: Macro Trends
A MERICAN W ATER marco Trends CUSTOMER TRENDS Customers offered personalized services with minimal touch points Seamless customer experience across the enterprise Empathy considerations supersede transactional experience Proactive issue management is fundamental TECHNOLOGY TRENDS Al & machine learni
Slide 7: History of Utility Trends
A MERICAN W ATER History of Utility Trends Utilities Grow 1900-1969: Strong growth in electric, gas appliances and equipment. 1915: Chlorine Disinfection becomes common for US Water Industry. 1935: Public Utility Holding Co. Act established the traditional Regulated Utility Model. 1940s-1970s: Synth
Slide 8: Appreciate the Past
A MERICAN W ATER Appreciate the Past Continued Commitment: Demonstrate that we are “The Best In Class” Executing business fundamentals, Leading customer satisfaction & Setting the bar for water quality and water source monitoring We are quickly and effectively advancing innovative solutions for our
Slide 9: Our Strategy: Purpose Driven. People Powered. Customer Obsessed.
A MERICAN W ATER Our Strategy: Purpose Driven. People Powered. Customer Obsessed. Trusted Source of Everything Water Values Safety Trust Environmental Leadership Teamwork High Performance CUSTOMER OBSESSED Trusted source of everything water The industry leader Strategies SAFETY PEOPLE GROWTH OPERATI
Slide 10: Our Strategy Continues to Drive Growth
A MERICAN W ATER our strategy Continues to drive Growth •Anchored off of 2017 Adjusted EPS (a non-GAAP measure) 2017 Adjusted EPS (GAAP EPS $2.38)** $3.03 $3.27 $3.32 2018 ••Adjusted EPS is a non-GAAP Measure. Please see appendix for reconciliation and further information. 2018 Adjusted EPS Guidance
Slide 11: The Regulated Businesses
A MERICAN W ATER The Regulated Businesses Walter Lynch Chief Operating Officer we keep life flowing® 11
Slide 12: Demonstrate that we are The Best In Class
A MERICAN W ATER Demonstrate that we are “The best In class” We provide clean, safe, reliable, and affordable water services for our customers Prepare for the future Perform in the present Increased favorable regulatory toolkit Consistent execution of strategies Potential acceleration of regulatory
Slide 13: To serve our 12m Regulated Customers
A MERICAN W ATER To serve our 12m Regulated Customers, we have... more than 7,100 employees = 5,900 Regulated Employees ASSETS as of December 31, 2017 50,000 miles of pipe 599 water treatment plants 1,100 wells 127 wastewater facilities 1,300 water storage facilities 1,400 pumping stations Our custo
Slide 14: Regulated Diversity and Footprint Map
A MERICAN W ATER This Diversity gives us key competitive advantages Regulated Diversity Regulated Footprint Map CA & Hl MIDWEST SOUTHEAST MID-ATLANTIC EASTERN HI IA MO IL MI IN KY TN GA WV PA NY VA MD NJ CA 14
Slide 15: Our Leadership Reflects Our Communities
A MERICAN W ATER our leadership reflects our communities Deb Degillio Senior Vice President, Eastern Division & President - NJ Bruce Hauk Senior Vice President, Midwest Division & President - IL Nick Rowe Senior Vice President, Southeast Division & President - KY Richard Svindland President - Califo
Slide 16: 5-7% of our growth is through capital investment
A MERICAN W ATER 5-7% of our growth is through capital INVESTMENT Regulated investment is the foundation of our growth 2019-2023 Plan: 7-10%* EPS CAGR top half of range 2019-2023 captial plan $ in billions Market Based Businesses 1-2% Regulated Acquisitions 1-2% Regulated Investment CAPEX 5-7% $0.1
Slide 17: Critical need for multi-decades of investment
A MERICAN W ATER What makes us different Critical need for multi - decades of investment American Society of Civil Engineers Grades US Infrastructure Resiliency investments to manage climate variability waste water report card 2017 grade D+ drinking water report card 2017 grade D Not American water
Slide 18: Capital expenditures by purpose
A MERICAN W ATER Our ensure safe, reliable, affordable water & wastewater services for our customers 2019 - 2023 Average Regulated Capital Expenditures by Purpose 62% 7% 7% 8% 8% 8% Water Quality $370 In 2019, we will spend $1.6 billion in our Regulated footprint $342 $217 $185 $159 $152 $89 $70 $18
Slide 19: Balancing Capital Needs & Customer Bill Impact
A MERICAN W ATER balancing Capital Needs & Customer Bill Impact Investing $7.3 billion over the next 5 years with a focus on Customer bill impact What can help us do more O&M and Capital efficiencies Regulatory support and constructive regulation System investment needs system investment needs 19
Slide 20: Regulated O&M Efficiency Ratio
A MERICAN W ATER What makes us different 41.0% Regulated O&M Efficiency Ratio* 0.3% 2.4% 39.1% Regulated O&M Efficiency Ratio Tax Reform Adjustment 36.5% 35.7% 1.6% 40.7% 36.7% 34.9% 31.5%** 2012 2014 2016 LTM 2018 2023 Target Adjusted operation and maintenance expense* ($ in millions) Non-GAAP Meas
Slide 21: Capital Efficiency
A MERICAN W ATER What makes us different Capital Efficiency Pipeline Rehabilitation Saved approximately 25% or $5M annually through trenchless technologies Strategic Sourcing Value Engineering Documented over 100 Value Engineering examples totaling over $14M in savings and/or increased value We leve
Slide 22: Timely recovery through regulatory mechanisms
A MERICAN W ATER timely recovery through regulatory mechanisms 57% Infrastructure Surcharge Mechanisms (32%) Forward test years (25%) 43% Normal Recovery 2019-2023 Capital Plan (average)
Slide 23: Regulated acquisitions will provide 1-2% of our growth
A MERICAN W ATER Regulated acquisitions will provide 1-2% of our growth 2019-2023 Plan: 7-10%* EPS CAGR top half of range Market Based businesses 1-2% Regulated 1-2% Acquisitions Regulated Investment CAPEX 5-7% 2019-2023 Capital Plan $ in billions $0.1 $0.6-$1.2 Regulated Acquisitions $7.3 •Anchored
Slide 24: What makes us different: utility comparison
American Water What makes us different Gas Utilities Source: EPA F.L.I.G.H.T. Greenhouse Gas Emissions from Large Facilities Ghgdata.epa.gov/ghgp/main.do# Electric Utilities Source: Form EIA-861 detailed data files www.eia.gov/electricity/data/eia8 water utilities source: epa sdwis federal reports s
Slide 25: State Legislation Across our Footprint
A MERICAN W ATER State Legislation Across our Footprint Further enables opportunities Iowa 2018 Fair market value California 1997 Fair market value Indiana 2015, 2016 & 2018 Fair market value Fair market value expansion Water Commitment Act (SB 362) Pennsylvania 2012 & 2016 Water & wastewater revenu
Slide 26: Disciplined approach to acquisitions
A MERICAN W ATER We actively pursue acquisitions using a disciplined approach American Water Acquisitions** (Customer Connections) From 2015-2018 61 closed deals in 10 states 114,000 customers Under agreement =67,000 Selected Upcoming Acquisition Opportunities Target A 35,000 Target B 34,000 Target
Slide 27: What makes us different
A MERICAN W ATER What makes us different 2019-2023 Plan 7-10%* EPS CAGR top half of range Market Based Businesses 1-2% Regulated Acquisitions 1-2% Regulated Investment CAPEX 5-7% Largest and most geographically diverse water utility in the United States Our leadership reflects our communities Regula
Slide 28: Technology and Innovation speakers
A MERICAN WATER Walter Lynch Chief Operating Officer Nick Santillo Chief Digital Infrastructure & Security Officer Radha Swaminathan Chief Customer, Strategy & Technology Officer Dr. Lauren Weinrich Senior Scientist, Water Intelligence we keep life flowing® 28
Slide 29: Enhanced Customer Experience through technology
A MERICAN WATER Enhanced Customer Experience through technology we keep life flowing 29
Slide 30: Cybersecurity protects our critical assets
A MERICAN W ATER cybersecurity protects our critical assets Digital Risk Security Framework Information Sharing Response Awareness Critical Systems 30
Slide 31: Addressing emerging contaminants
Addressing emerging contaminants A MERICAN W ATER Communications Water Quality External Groups Engineering & Operations 31 Water Intelligence Environmental Health & Safety
Slide 32: Improving Water Quality
A MERICAN W ATER improving Water Quality Hospital Wastewater Legionella Persistent Chemicals Cyanotoxins Giardia & Crypto Pathogen Reduction Leadership Delivery Innovation Taste & Odor 32
Slide 33: Break
33 AMERICAN Water 15 minute break
Slide 34: Market Based Businesses & Financial Overview
A MERICAN WATER Linda Sullivan Chief Financial Officer Eric Palm President, Homeowner Services Mark McDonough President, Military Services we keep life flowing® 34
Slide 35: Homeowner Services Group
A MERICAN W ATER Homeowner Services Group... Organized around our customers and delivering value to OUR REGULATED partners Increased satisfaction of regulated customers 9 point increase on average 2018 Partnership Wins Philadelphia San Francisco Toledo Ft. Wayne Free Cash Flow for increased capital
Slide 36: The four pillars of HOS Growth
AMERICAN WATER The four pillars of HOS Growth Large untapped market opportunity 5M total market penetration 77M Single family, owner-occupied homes in the US 1.5M customers currently Enhance high customer satisfaction through industry leading service delivery Develop new partnerships with utilities
Slide 37: Military Services Group - Regulated like Contract
A MERICAN W ATER Military Services Group - “Regulated like” Contract State Contract Years Remaining Fort Sill OK 35 Fort Leavenworth KS 35 Fort Rucker AL 35 Fort AP Hill VA 39 Scott AFB IL 39 Fort Hood TX 40 Fort Polk LA 40 Fort Belvoir VA 41 Fort Meade VA 42 Hill AFB UT 46 Picatinny Arsenal NJ 46 V
Slide 38: Opportunities for base privatizations
A MERICAN W ATER There are Many Opportunities for base privatizations US Installations Army Navy Air Force Marines Total US installations army navy airforce marines total oppertunities 29 20 39 13 101 38
Slide 39: Financial Results & Outlook
A MERICAN WATER Financial Results & Outlook Linda Sullivan Chief Financial Officer We keep life flowing 39
Slide 40: Disciplined financial management delivers customer and shareholder value
A MERICAN W ATER Our disciplined financial management continues to deliver “The Best In Class” customer and shareholder value Prepare for the Future Industry leader in dividend growth 10% over next 5 years 50-60% target payout Industry leading EPS growth CAGR top half of 7-10%* range Complementary M
Slide 41: 2019 EPS in the top half of 7-10% EPS CAGR range
A MERICAN W ATER 2019 eps in the top half of 7-10%%(a) eps cagr range affirm 2018 eps guidance $3 41
Slide 42: 2019 EPS in the Top Half of 7-10% EPS CAGR range
A MERICAN W ATER 2019 EPS in the Top Half of 7-10%(a) EPS CAGR range Affirm 2018 EPS guidance $3.19-$3.24 (GAAP) $3.27-$3.32 (adjusted)(b) 8.7% increase(c) 2019 EPS Guidance $3.54-$3.64 9.1% increase(d) 2019 Guidance - Major Variables Weather ($0.06) $0.06 Regulated ($0.03) $0.03 Market-Based ($0.02
Slide 43: Capital plan supports rate base growth
A MERICAN W ATER Our stable and predictable and capital plan supports rate base growth Capital Plan $ in Billions $8.0 – $8.6 $0.1 other $0.6 – $1.2 regulated acquisitions $7.3 regulated system investments 2019- 2023 Rate Base Growth* $12.2 $11.6 9/30 2017 2018 2019 2020 2021 2022 2023 7-8%** Rate b
Slide 44: Market-Based Businesses provide strategic value
American Water Market-Based Businesses provide strategic value Portfolio optimization leads to 3 capital light, cash flow positive business lines HOS Fastest growing market base businesses Pivotal acquisition proceeding well 3.0 million contracts serving 1.5 million customers Capital light, cash flo
Slide 45: Market-Based Businesses By the Numbers
A MERICAN W ATER Market-Based Businesses BY THE NUMBERS HOS Contract Growth 11-12% CAGR* 2019-2023 Retention Rate 87% on average Net Income $35-$40 per customer Average projected net income Cash Flow CAGR > 15%* 2019-2023 *Anchor off of 2018 MSG Current Portfolio 14 bases $4.4 billion revenue over r
Slide 46: Strong Balance sheet with no equity needed
A MERICAN W ATER Strong Balance sheet with no equity needed under normal operating conditions Moody’s utility credit rating (negative outlook) 2018 S&P Utility credit rating BB(+/-) BBB(+/-) A- A A+ Ba Ba1 Baa3 Baa2 Baa1 A3 2018 Debt to Total Capital $8.0 to $8.6 Billion CapEx Range* 61% 62-63% 2018
Slide 47: Top leader in dividend growth
A MERICAN W ATER TOP leader in dividend growth 6 consecutive years of =10% dividend growth $1.21 2014 10.3%*** 5-year cagr $1.33 2015 $1.47 2016 $1.78 $1.62 2017 2018 Target long term dividend growth CAGR*at HIGH END 2019 2023 of 7-10%** longterm adjusted EPS growth *Subject to approval by the board
Slide 48: Disciplined financial management delivers best in class value
A MERICAN W ATER Our disciplined financial management continues to deliver “the best In Class” customer and shareholder value 2019-2023 Plan 7-10%* EPS CAGR top half of range Anchored of of 2017 Adjusted EPS (a non-GAAP measure) Grow EPS long-term CAGR at top half of 7-10%*... ... One of the fastest
Slide 49: ESG & Wrap Up
A MERICAN WATER esg & wrap up Susan Story President and Chief Executive Officer we keep life flowing 49
Slide 50: ESG philosophy: Companies do well by doing good
A MERICAN W ATER American Water ESG philosophy: Companies do well by doing good 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 Bein
Slide 51: E: Environment and Sustainability
american water “E”: environment and sustainability Energy Use GHG emissions: Goal of reducing 40% by 2025 from 2007 baseline, after achieving 31% reduction through 2017 Design for efficiency: enhanced pump, lighting and process design standards Construct for efficiency: sustainable construction stan
Slide 52: Our People, Customers and Communities
A MERICAN W ATER Our People Training: on average, more than 60,000 hours of annual employee safety training Employee engagement: Frequent surveys with formalized employee action teams Frontline employees: driving technology development Union representation: As of December 31, 2017, 46% of workforce
Slide 53: G: Governance
A MERICAN W ATER “G”: Governance 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
Slide 54: Doing well... by doing good
American Water “doing well... by doing good” doing well... AWK Daily Stock Price EPS Growth(a) Dividend Growth(b) AWK Daily Stock Price ipo date nov-2018 $100 $80 $60 $40 $20 $0 AWK Average Water Peers(c) Average DJUA 7.9% 7.0% 5.0% AWK Average Water Peers(c) Average DJUA(d) 10.2% 6.5% 5.8% Source:
Slide 55: Doing well... by doing good: doing good
American Water “doing well... by doing good ” doing good... American Water commits to further diversity in leadership American Water earns 2019 Military Friendly Bronze Employer designation American Water awards grants to local firefighters to support the safety of local communities EURONEXT vigeoei
Slide 56: We keep life flowing
A MERICAN W ATER we keep life flowing 56
Slide 57: Q&A Session
A MERICAN WATER Q&A Session 57
Slide 58: Investor Relations Contacts
A MERICAN W ATER Investor Relations Contacts Ed Vallejo Vice President, Investor Relations edward.vallejo@amwater.com Ralph Jedlicka Director, Investor Relations ralph.jedlicka@amwater.com we keep life flowing 58
Slide 59: Appendix
A MERICAN W ATER Appendix 59
Slide 60: Non-GAAP Financial Information
A MERICAN W ATER Non-GAAP Financial Information This presentation includes adjusted earnings per share (“Adjusted EPS”) both as our 2018 adjusted earnings guidance and as the 2017 earnings per share (“EPS”) compound annual growth rate anchor, both of which constitute “non-GAAP financial measures” un
Slide 61: Forward-Looking Statements
A MERICAN W ATER Forward-Looking Statements Certain statements in this presentation including, without limitation, with respect to 2018 adjusted earnings guidance; 2019 earnings guidance; dividend growth guidance; the outcome of pending or future acquisition activity; the amount and allocation of fu
Slide 62: How American Water Grows Earnings: Rate of Return Regulation
A MERICAN W ATER How American Water Grows Earnings: Rate of Return Regulation in the United States American Water has experience in securing appropriate rates of return and promoting constructive regulatory frameworks Prudent Investment Drives Need for Rate Cases Establish Rate Base X Weighted Avera
Slide 63: How O&M Efficiency Translates to Investment Growth
A MERICAN W ATER How O&M Efficiency Translates to Investment Growth Saving $1 in OpEx vs investing $8 in capital at allowed ROE, Keeps customer rates neutral and can create $0.39 in sustainable earnings a) Revenue Requirement$ $1.00 $1.00 Expenses O&M 0.96 $- Depreciation - $0.20 2 Interest Expense
Slide 64: Rates Effective Since January 1, 2018
AMERICAN WATER Rates Effective Since January 1, 2018 Date Effective Annualized Revenue Increases Effective in 2018 Infrastructure Charges West Virginia (DSIC) 1/1/2018 $3 Illinois (QIP) 1/1/2018 3 Virginia (WWISC) 3/1/2018 1 Indiana (DSIC) 3/14/2018 7 Tennessee (QlIP, EDI, SEC) 4/10/2018 1 $15 Rate
Slide 65: Rate Filings Awaiting Final Order
A MERICAN W ATER Rate Filings Awaiting Final Order Rate Cases Filed Company Docket / Case Number Date Filed Revenue Increase Adj for TCIA ROE Requested Rate Base California Case No. A.16-07-002 7/1/2016 $19(a) NA $494 Maryland Case No. 9487 6/28/2018 $2 10.80% $28 Indiana Case No. 45142 9/14/2018 $1
Slide 66: Regulated Utilities: Rate Base & Authorized Return on Equity
A MERICAN W ATER Regulated Utilities: Rate Base & Authorized Return on Equity Last Rate Case Awarded - Largest Regulated Subsidiaries CALIFORNIA AMERICAN WATER ILLINOIS AMERICAN WATER INDIANA AMERICAN WATER KENTUCKY AMERICAN WATER MISSOURI AMERICAN WATER Authorized Rate Base* $439,448 $883,386 $841,
Slide 67: Closed and Pending Acquisitions as of October 31, 2018
AMERICAN WATER Closed and Pending Acquisitions as of October 31, 2018 2018 Closed Acquisitions State No. of Acquisitions Water Customers Wastewater Customers Total Customers Illinois 3 2,469 2,350 4,819 Missouri 3 1,087 1,110 2,197 Kentucky 1 610 - 610 Total 7 4,166 3,460 7,626 Acquisitions Under Ag
Slide 68: Reconciliation Table: Regulated Segment O&M Efficiency Ratio
A MERICAN W ATER Reconciliation Table: Regulated Segment O&M Efficiency Ratio Regulated Segment O&M Efficiency Ratio (A Non-GAAP Unaudited Number) ($ in millions) FY 2012 FY 2014 FY 2016 LTM 9/30/2018 Total operations and maintenance expense $1,330 $1,350 $1,504 $1,451 Less: Operations and maintenan
Slide 69: Reconciliation Tables: 2017 Adjusted EPS & 2018 Guidance Range
A MERICAN W ATER Reconciliation Tables: 2017 Adjusted Earnings per Share & 2018 Guidance Range 2018 EPS Guidance Range Low End High End Diluted earnings per share: Earnings guidance range (GAAP) $3.19 $3.24 Non-GAAP adjustments: Gain on sale of portion of Contract Operations Group contracts (0.08) (
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