American Water Works Company, Inc. · NYSE:AWK
American Water Works — Q3 2023 Earnings Presentation
39 slides from American Water Works's earnings presentation, Nov 2, 2023
Slide 1: 2023 Third Quarter Earnings & 2024 Outlook Conference Call
2023 Third Quarter Earnings & 2024 Outlook Conference Call November 2, 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: M. Susan Hardwick, President and CEO
M. Susan Hardwick President and Chief Executive Officer 4
Slide 5: Strong 2023 Results: Executing the Plan
Strong 2023 Results: Executing the Plan EPS Growth Driven by Regulatory Execution, Favorable Weather Earnings Per Share 2023 YTD Highlights $4.03 2023 includes new rates effective in PA, IL, VA and MO; cases $3.70 filed in IN, WV, KY and VA; CA case proceeding as expected $1.66 Invested approx.
Slide 6: Initiating 2024 EPS Guidance of $5.10 to $5.20
Initiating 2024 EPS Guidance of $5.10 to $5.20 Long-Term Targets Affirmed Long-Term Financial Targets Drivers of Sustainable Shareholder Return • EPS Growth 7-9% • Dividend Per Share Growth 7-9% • Customer Affordability + • ESG Leadership + Additional Supportive Targets • Dividend Payout Ratio 5
Slide 7: Cheryl Norton, Executive VP & Chief Operating Officer
Cheryl Norton Executive VP & Chief Operating Officer 7
Slide 8: New Capital Plan: Investments to Support System Needs, Including ~$1 Billion for PFAS
New Capital Plan: Investments to Support System Needs, Including ~$1 Billion for PFAS Capital Plan ($ in billions) 10 Year Capital Increase: ~$4B* 5 Year $34 - $38 $30 - $34 Capital Regulated $4 - $5 Increase: $3 - $4 Acquisitions ~$2B* $16 - $17 $14 - $15 $3.1 $1.5 - $2.0 $1.5 - $2.0 $27 - $30 $30
Slide 9: Review of 2024-2028 Capital Investment Plan
Review of 2024-2028 Capital Investment Plan Includes $1B for Treatment of PFAS at EPA’s Proposed New Levels Federal PFAS Rule Recap March 2023: The United States EPA proposed drinking water standards for six PFAS American Water estimates ~$1 billion of capital over a 3 to 5-year period, mostly i
Slide 10: General Rate Case and Regulatory Updates
General Rate Case and Regulatory Updates Rate Cases in Progress Completed Rate Cases in 2023 • Rate case filed 7/1/22 • General Rate Case • Will establish rates for the period 2024-2026 • Additional authorized revenues of $11 million • Three-year capital investment of ~$462 million • Effective 4/24/
Slide 11: Continued Focus on Customer Affordability
Continued Focus on Customer Affordability Values around Affordability Monthly Water Bill as % of $ Median Household Income* Focused on keeping customer bills affordable compared to income (wallet share) Supportive of consolidated tariffs that allow customers to benefit from efficiencies of scale
Slide 12: John Griffith, Executive VP & Chief Financial Officer
John Griffith Executive VP & Chief Financial Officer 12
Slide 13: Summary of YTD 2023 Results
Summary of YTD 2023 Results Affirming 2023 EPS Guidance of $4.72 to $4.82 (weather-normalized) 2023 Growth Drivers 2023 Headwinds • Revenue growth from infrastructure investments • Elevated chemical costs through Q3, seeing signs of • New rates mitigating the majority of inflationary leveling off co
Slide 14: Investments Drive Continued Rate Base Growth
Investments Drive Continued Rate Base Growth Foundational to Overall Growth Regulated Capital Investments Estimated Rate Base* ~8-9% CAGR (Includes Acquisitions) (Includes Acquisitions) for Rate Base $ in billions $ in billions 2023E Sept. YTD Sept. YTD 2022 2023 $17.8 $19.0 $2.9 $15.0 $16.3 $12.5 $
Slide 15: Strong Outlook for Acquisitions
Strong Outlook for Acquisitions Growing Opportunity for Closed Over Five- Under Agreement Butler Area Sewer Authority, PA Customer Connections Wastewater As of September 30, 2023 As of September 30, 2023 Year Outlook Amended $230 million 6 4 purchase price NJ 3 3 ~88,100 Customer Connections 3 ~7,90
Slide 16: Considerations for 2024 Outlook
Considerations for 2024 Outlook Initiating 2024 EPS Guidance of $5.10 to $5.20 2024 Growth Drivers • Revenue growth in base rates and in infrastructure mechanisms from capital investments • Regulated acquisitions also driving revenue growth • Limited additional share dilution and limited additional
Slide 17: Financing the 2024-2028 Capital Investment Plan
Financing the 2024-2028 Capital Investment Plan ($ in millions) Prior Plan: 2023-2027 New Plan: 2024-2028 Operating Cash Flows $10,100 Operating Cash Flows $12,000 Incremental Debt Financing $5,300 Incremental Debt Financing $7,000 Equity Issuance * $2,000 Equity Issuance $1,000 Sale Proceeds (HOS)
Slide 18: Continued Strong Balance Sheet and Credit Ratings
Continued Strong Balance Sheet and Credit Ratings AWK Long-Term Senior Unsecured Ratings Total Debt to Total Capital S&P Global Moody’s A Baa1 As of Long-Term (Stable Outlook) (Stable Outlook) September 30, 2023 Target 54% <60% Ratings and StableOutlook Low risk business profile affirmed at S&P /
Slide 19: M. Susan Hardwick, President and CEO
M. Susan Hardwick President and Chief Executive Officer 19
Slide 20: Strong and Sustainable Growth Outlook for Future
Strong and Sustainable Growth Outlook for Future Earnings Growth Dividend Growth Rate Base Growth Strong Balance Sheet Affirmed Target Affirmed Target Affirmed Target Affirmed Targets Targeting 7-9% Targeting 7-9% Targeting 8-9% Targeting <60% long-term EPS CAGR long-term dividend CAGR* long-term ra
Slide 21: Q&A Session
Q&A Session 21
Slide 22: 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 23: Appendix
Appendix 23
Slide 24: Forward-Looking Statements
Forward-Looking Statements Certain statements made, referred to or relied upon in this presentation including, without limitation, with respect to 2023 and 2024 earnings guidance, the Company’s long-term financial, growth and dividend targets, the ability to achieve the Company’s strategies and goal
Slide 25: 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 26: Details of Third Quarter 2023 EPS
Details of Third Quarter 2023 EPS 0.37 (0.08) (0.06) 0.05 0.04 $1.66 $1.63 (0.15) (0.08) (0.06) Q3 QTD Weather in Weather in Revenue O&M Depreciation LT Financing* ST Debt Financing Other, net Q3 QTD 2022 Q3 2023 Q2 2022 2023 ~75% of inflationary costs incl. in Investment Growth revenue from recent
Slide 27: Details of Estimated Rate Base
Details of Estimated Rate Base ($ in billions) Estimated Rate Base* As of 9/30/2023 Net Utility Plant $24.6 Less Advances for Construction $0.3 CIAC – Contributions in Aid of Construction $1.5 Net Deferred Income Taxes $3.8 $5.6 Total Estimated Rate Base $19.0 * An approximation of rate base, which
Slide 28: Rate Filings Summary
Rate Filings Summary ($ in millions) Rate Filings Requested Revenue in Completed* Pending Base Rate Effective since January 1, 2023 Proceedings $86 $359 $273 $23 $194 $171 Rate Cases Infrastructure Total Rate Cases** Infrastructure Total (Includes Charges Charges Step Increases) * Annualized revenue
Slide 29: Increased Investments to Support System Needs
Increased Investments to Support System Needs Capital Plan (Includes Acquisitions) $ in billions $2.9 $3.1 $2.6 $1.9 $1.9 2020 2021 2022 2023E 2024E 29
Slide 30: Regulated Capital Expenditures by Purpose
Regulated Capital Expenditures by Purpose 2024-2033 3-5% 4-6% Infrastructure Renewal 5-7% Resiliency 6-8% Water Quality Operational Efficiency, 9-11% Technology & Innovation System Expansion 68-70% Other 30
Slide 31: Timely Recovery of Capital and Operating Costs
Timely Recovery of Capital and Operating Costs American Water’s Jurisdictions As of 2010 As of 2023 Capital Recovery 11 11 (2024-2028 Plan) 10 10 9 Infrastructure 7 ~70% Surcharge Mechanisms 6 ~45% 5 5 Forward Test 1 Years ~30% ~30% Traditional Recovery ~25% ~25% ~25% Infrastructure Expense Forward
Slide 32: State Legislation & Regulation Enable Growth
State Legislation & Regulation Enable Growth Fair Value 11 Consolidated Tariffs 11 Forward Looking Test Year 9 Infrastructure Mechanisms 10 CA MO CA MO CA KY IA NJ IA NJ IA NJ HI PA IL PA IL PA IL PA IA TN IN TN IN VA IN VA IL VA KY VA KY WV KY WV IN MO WV MD MD Water Quality Accountability Legislat
Slide 33: Successfully Completed 2023 Financing Plan
Successfully Completed 2023 Financing Plan ~$1.7 Billion Common Stock Issuance Closing Date March 3, 2023 Executed on our plan to issue a significant Size 12,650,000 Shares portion of expected $2B of equity need in Five-Year Plan (2023-2027) Public Offering Price $135.50/Share Use of Proceeds Repaid
Slide 34: Closed Acquisitions
Closed Acquisitions September 30, 2023 NUMBER WATER CUSTOMER CONNECTIONS WASTEWATER CUSTOMER CONNECTIONS STATE TOTAL CUSTOMER CONNECTIONS OF SYSTEMS Missouri 6 900 800 1,700 Illinois 3 1,300 1,300 2,600 New Jersey 2 1,600 1,400 3,000 Indiana 1 200 - 200 Pennsylvania 1 100 - 100 Virginia 1 300 - 300
Slide 35: Acquisitions Under Agreement
Acquisitions Under Agreement September 30, 2023 NUMBER STATE WATER CUSTOMER CONNECTIONS WASTEWATER CUSTOMER CONNECTIONS TOTAL CUSTOMER CONNECTIONS OF SYSTEMS Pennsylvania 12 7,700 29,600 37,300 West Virginia 3 3,700 900 4,600 Indiana 3 - 8,100 8,100 Illinois 3 500 26,400 26,900 California 3 1,300 -
Slide 36: Rates Effective Since January 1, 2023
Rates Effective Since… January 1, 2023 ($ in millions) Date Annualized Date Annualized Rate Cases & Step Increases Infrastructure Charges Effective Revenue Increases Effective Revenue Increases West Virginia (DSIC) 1/1/2023 $7 Illinois 1/1/2023 $67(a) Pennsylvania (DSIC) 1/1/2023 3 California, Step
Slide 37: Pending Rate Case Filings
Pending Rate Case Filings ($ 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 Indiana (b) Cause No. 45870 3/31/2023 43 10.60% 1,614 West Virginia (c) Docket No. 23-0383-W-42T 5/1/20
Slide 38: Regulatory Information – Top States
Regulatory Information – Top 10 States CALIFORNIA ILLINOIS INDIANA KENTUCKY MISSOURI Authorized Rate Base* $667,632(g) $1,642,200 $1,182,170 $443,654 $2,318,849(c) ROE 9.50%(a) 9.78% 9.80% 9.70% 9.75%(d) Equity 57.04%(a) 49.00% 53.41%(b) 48.90% 50.00%(e) Effective Date of Rate Case 1/1/2021(g) 1/1/2
Slide 39: Reconciliation Table: Regulated Segment O&M Efficiency Ratio
Reconciliation Table: Regulated Segment O&M Efficiency Ratio Regulated Segment O&M Efficiency Ratio FY FY FY FY FY LTM (A Non-GAAP Unaudited Number) 2010 2013 2016 2019 2022 9/30/2023 ($ in millions) Total operations and maintenance expense $1,291 $1,289 $1,504 $1,544 $1,589 $1,681 Less: Operations
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