American Water Works Company, Inc. · NYSE:AWK
American Water Works — Investor Day (November 2021)
61 slides from American Water Works's investor day presentation, Nov 3, 2021
Slide 1: Fall 2021 Investor Day: Exciting Road Ahead as a Pure-Play Regulated Water Utility
Fall 2021 Investor Day: Exciting Road Ahead as a Pure- Play Regulated Water Utility November 3, 2021
Slide 2: Aaron Musgrave
Aaron Musgrave Senior Director, 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: Safety Above All
Safety Above All Safety is a priority in everything that we do 1 2 3 4 5 Bedrock of Zero Injuries Emotional Safety Virtual Daylight Savings Culture Investor Day Time Ends Sunday, Nov. 7; Be Safe When Driving 4
Slide 5: Walter Lynch
Walter Lynch President and Chief Executive Officer 5
Slide 6: Agenda
Agenda Vision and Business Outlook 1 Walter Lynch, President and CEO Operating Strategy 2 Cheryl Norton, EVP and COO Financial Strategy 3 Susan Hardwick, EVP and CFO Closing Remarks 4 Walter Lynch, President and CEO 5 5 Minute Break 6 Q&A Session 6
Slide 7: Strategic Focus - Creating Value for the Long Term
Strategic Focus - Creating Value for the Long Term Vision 1 2 3 Operate where Champion an we can create Develop and inclusive and value for invest in our high performing customers, people culture employees and shareholders 7
Slide 8: Execution of Our Vision & Strategy
Execution of Our Vision & Strategy Vision 1 Key Drivers for Sale of Homeowner Services (HOS) Narrows the scope of our business to better align with our core Operate competencies and where we can maximize value Operate where where we we can can create create Creates opportunity to convert value creat
Slide 9: Our Business at a Glance
Our Business at a Glance (Post HOS & NY Sales) Regulated Business Customer Count 3.4M Total Customer Connections Regulated Operations Military Services Group 9
Slide 10: Our Industry-Leading Growth Outlook
Our Industry-Leading Growth Outlook 7-9% EPS CAGR target 2022-2026 Plan Business Mix 100% Military Regulated and Services Group ~0.5% ~1% ≈0.2% Regulated-Like Earnings Regulated Acquisitions 2-3% 1.5-2.5% Regulated Regulated Investment Investment CAPEX 5-7% CAPEX 5-7% Regulated Investment CAPEX 10
Slide 11: Accelerating Capital Investment
Accelerating Capital Investment 2022-2031 Average Regulated Capital Plan ($ in billions) Capital Expenditures by Purpose 2022 – 2031 $28 - $32 Infrastructure Renewal $3 - $4 Regulated Resiliency Acquisitions 2022 – 2026 Water Quality 2022 $13 - $14 Operational Efficiency, Technology & $2.5 $1.5 - $2
Slide 12: Balancing Investment Opportunity & Customer Affordability
Balancing Investment Opportunity & Customer Affordability What can help us do more O&M and capital efficiencies System investment Customer Regulatory support and needs affordability constructive legislation Increase customer base 12
Slide 13: Highly Fragmented Water Industry Creates Opportunity
Highly Fragmented Water Industry Creates Opportunity Industry Opportunity American Water Footprint Water Wastewater • Ideal for industry consolidation opportunities 16% Investor Owned 2% Investor Owned • Target 5,000-50,000 customer connections per acquisition 84% Public & Other 98% Public & Other •
Slide 14: Leveraging Our Competitive Advantages
Leveraging Our Competitive Advantages Focus on Efficient Operations Focus on efficient operations Scale and large customer base Increase wastewater within and adjacent to water footprint People with deep utility experience Engagement on regulatory and legislative policy 14
Slide 15: State Legislation & Regulation Enable Growth
State Legislation & Regulation Enable Growth Utility Valuation Water Quality Legislation & Regulation 12 Consolidated Tariffs 12 Accountability Legislation 3 CA IA CA MO IL IN IA NJ NJ KY * MD IL NY IN MO NJ IN PA MO PA TN * KY VA VA WV MD WV 15 *New in 2021.
Slide 16: Regulated Acquisitions Update
Regulated Acquisitions Update Growing Opportunity for ≈1,300,000 Under Agreement* Closed as of November 1, 2021 Customer Connections Over Customer Connections in YTD as of November 1, 2021 Five-Year Outlook Pipeline ≈82,700 Customer Connections ≈7,450 Customer Connections 31 Acquisitions 14 Acquisit
Slide 17: Military Services Group Provides Strategic Value
Military Services Group Provides Strategic Value Currently Serving 71 Additional Installation 17 Military Installations Opportunities 12 Army 15 Army Military Services Group Regulated-like earnings 5 Air Force 23 Air Force Favorable ROI opportunity Capital light / cash flow positive Positive brandin
Slide 18: Objectives for the Next Five Years
Objectives for the Next Five Years: 2022-2026 Plan AWK Growth Outlook 7-9% EPS CAGR Target Advance infrastructure improvement through five-year capital investment plan of approximately $13 - $14 Business Mix billion and expected ten-year plan of approximately 100% Military Regulated and ~0.5% ~1% Se
Slide 19: Scranton Wastewater: An American Water Success Story
Scranton Wastewater: An American Water Success Story Prior to Acquisition • Consent Order and Long-Term Control Plan with the U.S. EPA • $140M in required upgrades • Significant financial penalties • ~700M gallons of sewer overflow discharge annually Post-Acquisition Accomplishments • Maintained rea
Slide 20: Cheryl Norton
Cheryl Norton Executive VP & Chief Operating Officer 20
Slide 21: Water and Wastewater Industry in the U.S.
Water and Wastewater Industry in the U.S. American Society of Civil Engineers Resiliency Investments to Manage Approximately 51,000 community water Grades U.S. Infrastructure Climate Variability systems, 16,000 wastewater systems Nationwide, there is an estimated 250,000 to 300,000 water main breaks
Slide 22: Increase in Regulated Investment of $3 Billion
Increase in Regulated Investment of $3 Billion Over the Next 5 Years and $6 Billion over 10 Years Capital Plan ($ in billions) 10 Year Capital Increase: ≈$6B 5 Year $28 - $32 $22 - $25 Capital Regulated $3 - $4 Increase: $3 - $4 Acquisitions ≈$3B $13 - $14 $10.3 - $10.5 $2.5 $1.5 - $2.0 $1.9 $1.4 -
Slide 23: Regulated Capital Expenditures by Purpose
Regulated Capital Expenditures by Purpose: Infrastructure Renewal Continues to Drive Growth Current Capital Plan 2022-2031 3-5% Infrastructure Renewal 4-6% 5-7% Resiliency 5-7% Water Quality Operational Efficiency, 10-12% 68-70% Technology & Innovation System Expansion Other 23
Slide 24: Value of American Water's Resiliency Investments
Value of American Water’s Resiliency Investments Demonstrated During Hurricane Ida • The river outside our Raritan-Millstone Plant in New Jersey crested at record height of 44.87’, three feet below the top of the recently heightened flood wall • Flood doors at our Norristown Water Treatment Plant in
Slide 25: Constructive Regulatory Mechanisms Across Our Footprint
Constructive Regulatory Mechanisms Across Our Footprint Infrastructure Utility Plant Future Expense Consolidated Revenue Stability Replacement Recovery Test Years Recovery Tariffs Surcharges CA, IL, CA, IL, CA, IL, MO, IL, IN, MO, CA, IL, IN, MO, Top 7 States CA, IL PA IN, PA NJ, PA NJ, PA, WV NJ, P
Slide 26: Timely Recovery Through Regulatory Mechanisms
Timely Recovery Through Regulatory Mechanisms ≈65% Infrastructure Infrastructure Forward Forward Test Surcharge Surcharge Test Years Years Mechanisms Mechanisms ≈25% (25%) ≈40% (38%) ≈35% Traditional Recovery Traditional Recovery 2022-2026 Capital Plan (average) 26
Slide 27: Strategic Approach to Managing Costs
Strategic Approach to Managing Costs TECHNOLOGY SUPPLY CHAIN CULTURE Leverage our scale Enabling employees More competitive Strong customer focus Enhancing customer pricing/buying power Embrace innovation experience Access to supply Best-in-class operations Commitment to diverse Continuous execution
Slide 28: Managing Customer Affordability with a Disciplined Focus on Operating Costs
Managing Customer Affordability with a Disciplined Focus on Operating Costs Monthly Customer Bill Regulated O&M as % of Median Household Efficiency Ratio* Income*** Click to add text ** * Non-GAAP Measure – O&M Efficiency Ratio = Adjusted Regulated O&M Expenses (O&M Expenses is most comparable GAAP
Slide 29: Embedding ESG in Our Operations
Embedding ESG in Our Operations ENVIRONMENTAL SOCIAL GOVERNANCE How a company performs as How a company manages its How a a steward of the relationships with employees, company is governed environment customers, investors and communities e.g., Diversity and Inclusion e.g., Executive Pay e.g., Climat
Slide 30: ESG at AWK
ESG at AWK Raters/Rankers ESG Dashboard Sustainability Report Continuous Performance Released Sept ‘21 Improvement Tracking CDP = B Dashboard includes tracking of: MSCI = BBB Measure, manage, and disclose • Indices/Raters Sustainalytics Risk= 27.7 ESG performance for 2019 & 2020. • Energy & Emission
Slide 31: Susan Hardwick
Susan Hardwick Executive VP & Chief Financial Officer 31
Slide 32: Continued Execution on Our Strategy
Continued Execution on Our Strategy Third Quarter EPS Contribution by Business 2021 Results Three Months Ended 9/30/2021 Three Months Ended 9/30/2020 Change Regulated $1.51 $1.44 $0.07 Market-Based $0.12 $0.12 $0.00 Parent Interest & Other ($0.10) ($0.10) $0.00 Total EPS $1.53 $1.46 $0.07 YTD EPS Co
Slide 33: 2021 Guidance Affirmed; Initiating 2022 EPS Guidance
2021 Guidance Affirmed; Initiating 2022 EPS Guidance 7-9% EPS 2022 EPS CAGR Target Guidance 7-9% EPS 2021 EPS Guidance CAGR Target 2020 EPS $4.49 2020 EPS includes $0.07 per share of favorable weather; $4.28 $3.84 per share weather normalized $4.39 2022 EPS Guidance $4.18 $3.91 $4.39 - $4.49 2026 20
Slide 34: High Quality, Top Tier Earnings Growth Outlook
High Quality, Top Tier Earnings Growth Outlook 2021-2025 Plan 2022-2026 Plan 7-10% EPS CAGR range 7-9% EPS CAGR range Business Mix Business Mix 91% 100% Military Regulated and Regulated and Services Group ~0.5% ~1% ≈0.2% Regulated-Like Earnings Regulated-Like Earnings Regulated Acquisitions 2-3% 1.5
Slide 35: Investment in Rate Base is the Foundation of Our Growth
Investment in Rate Base is the Foundation of Our Growth ($ in billions) ≈8-9% Rate base CAGR Estimated Rate Base* As of 9/30/2021 Net Utility Plant $21.0 Less Advances for Construction $0.3 CIAC - Contributions in Aid of Construction $1.4 Net Deferred income taxes $3.4 $5.1 Total Estimated Rate Base
Slide 36: Homeowner Services Transaction Creates Long Term Value
Homeowner Services Transaction Creates Long Term Value ($ in millions) Long Term Value Creation: • Transaction is an opportunity to transfer value created in HOS into Sale Proceeds accelerated investment in the Regulated Business Cash at Closing $480 • Initial cash proceeds to be redeployed into the
Slide 37: Financing Our Increase in Regulated Investments
Financing Our Increase in Regulated Investments ($ in millions) Financing Changes to Fund Prior Plan 2021-2025 Incremental $3B in Capital Plan Current Plan 2022-2026 Equity Financing Sources ≈47% Debt Financing Sources ≈53% Operating Cash Flows $8,500 Operating Cash Flows $8,700 Debt Financing $3,60
Slide 38: Balance Sheet Strength
Balance Sheet Strength AWK Long-Term Issuer Rating Debt to Total Capital* S&P Global Moody’s 2020 ** Long-Term Target 62% ≤ 60% A Baa1 (stable) (stable) *Includes both long-term and short-term debt **Excludes $500 million term loan repaid in March 2021 Consolidated Debt Maturity Profile Liquidity Av
Slide 39: Consistently Strong Dividend Growth
Consistently Strong Dividend Growth Long Term Dividend Growth Target Target at High End of 7-10%* Dividend Payout Ratio 55-60% 39 * Future dividends are subject to approval of the American Water Board of Directors
Slide 40: Operating and Financial Strategies Support Continued Strong Shareholder Returns
Operating and Financial Strategies Support Continued Strong Shareholder Returns AWK Growth Outlook 5-Year Cumulative 7-9% EPS CAGR range Total Shareholder Return* Business Mix 100% Military Regulated and ~0.5% ~1% Services ≈0.2% Regulated-Like Earnings Group Regulated Acquisitions 2-3% 1.5-2.5% Regu
Slide 41: Walter Lynch
Walter Lynch President and Chief Executive Officer 41
Slide 42: Our Strengths
Our Strengths Safety Performance People Solutions ESG Provider Safety is both a Going beyond the Inclusion & ESG affirms the Growth enables strategy & core minimum requirement empowerment pave a values we have investment in training, company value. to solidify our position path for employee & upheld
Slide 43: Our Compelling Story
Our Compelling Story ESG Leadership Rate Base Growth Earnings Growth Dividend Growth Adds to Total Increased Target Narrowed Target Affirmed Target Shareholder Return Targeting 8-9% rate Targeting 7-9% EPS Targeting high end Exceptional 169% base growth in our growth in our 2022- of 7-10% dividend T
Slide 44: 5 Minute Break
5 Minute Break 44
Slide 45: Q&A Session
Q&A Session 45
Slide 46: Investor Relations Contacts
Investor Relations Contacts Aaron Musgrave, CPA Upcoming Events Senior Director, Investor Relations aaron.musgrave@amwater.com November 7-9, 2021 EEI Financial Conference Michael Tavani, CFA Senior Manager, Investor Relations michael.tavani@amwater.com Janelle McNally Senior Manager, Investor Relati
Slide 47: Appendix
Appendix 47
Slide 48: Forward-Looking Statements
Forward-Looking Statements Statements made, referred to or relied upon in this presentation, including, without limitation, with respect to: earnings per share guidance; dividend growth guidance; the timing and outcome of pending or future acquisition activity; our future financial performance, liqu
Slide 49: 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 50: Third Quarter EPS Detail by Business
Third Quarter EPS Detail by Business Regulated $0.07 Other $0.00 50
Slide 51: Year-to-Date EPS Detail by Business
Year-to-Date EPS Detail by Business Regulated $0.34 MBB ($0.05) Other $0.00 51
Slide 52: Military Services Group Footprint
Military Services Group Footprint Currently Serving 17 Military Installations Years Remaining Installation State Contract | As of 9/30/2021 Fort Sill OK 32 Fort Leavenworth KS 32 Fort Rucker AL 33 Scott AFB IL 36 Fort AP Hill VA 36 Fort Hood TX 37 Fort Polk LA 37 Fort Belvoir VA 38 Fort Meade MD 39
Slide 53: Rate Filings Summary
Rate Filings Summary ($ in millions) Rate Filings Requested Revenue in Completed* Pending Base Rate Effective since January 1, 2021 Proceedings 53 * Annualized Revenue Increase for Rates Effective Since January 1, 2021; excludes agreed to revenue reductions for excess accumulated deferred income tax
Slide 54: What ESG Means at American Water
What ESG Means at American Water Activists/ Investors Stakeholder Advocacy Groups Engagement Industry Associations Employees Workforce The Journey ESG Customers of ESG engagement Board of Customers Directors Infrastructure Regulatory Agencies/ Environmental State Utility Communities Commissions Stew
Slide 55: Environmental Goals
Environmental Goals Energy & Emissions* Water Use & Efficiency Climate Variability & Reduce absolute scope 1 and By 2035, continue to meet Water Supply Resilience scope 2 greenhouse gas emissions customer needs while saving 15% By 2030, increase our water by more than 40% by 2025 from a in water del
Slide 56: 2021 Closed Acquisitions
2021 Closed Acquisitions* As of November 1, 2021 NUMBER OF WATER CUSTOMER WASTEWATER CUSTOMER TOTAL CUSTOMER STATE SYSTEMS CONNECTIONS CONNECTIONS CONNECTIONS California 1 3,050 - 3,050 Illinois 3 500 350 850 Indiana 2 100 100 200 Missouri 4 50 750 800 Pennsylvania 2 - 1,650 1,650 West Virginia 2 90
Slide 57: Acquisitions Under Agreement
Acquisitions* Under Agreement as of November 1, 2021 NUMBER OF WATER CUSTOMER WASTEWATER CUSTOMER TOTAL CUSTOMER STATE SYSTEMS CONNECTIONS CONNECTIONS CONNECTIONS California 3 3,350 - 3,350 Illinois 5 1,500 1,250 2,750 Indiana 1 4,000 - 4,000 Missouri 11 5,350 6,000 11,350 New Jersey 2 1,600 1,400 3
Slide 58: Rates Effective Since January 1, 2021
Rates Effective Since… January 1, 2021 Date Annualized Date Annualized Rate Cases & Step Increases Infrastructure Charges Effective Revenue Increases Effective Revenue Increases Pennsylvania 1/28/21 $70(a) West Virginia (DSIC) 1/1/2021 $5 Missouri 5/28/21 22(b) Pennsylvania (DSIC) 1/1/2021 8 New Yor
Slide 59: Pending Rate Case Filings
Pending Rate Case Filings Rate Cases Filed Docket/Case Number Date Filed Requested Revenue Increase ROE Requested Rate Base California Case No. A.19-07-004 7/1/2019 $29(a) $689 Case No. 21-0369-W-42T & West Virginia 4/30/21 32(b) 10.5% 757 21-0370-S-42T Hawaii Docket No. 2021-0063 8/18/2021 2(c) 10.
Slide 60: Regulatory Information – Top States
Regulatory Information – Top 10 States CALIFORNIA ILLINOIS INDIANA KENTUCKY MISSOURI Authorized Rate Base* $498,135 $883,386 $1,182,170 $443,654 $1,703,170(c) ROE 9.20%(a) 9.79% 9.80% 9.70% 9.55%(d) Equity 55.39%(a) 49.80% 53.41%(b) 48.90% 50.00%(e) Effective Date of Rate Case 1/1/2018(a) 1/1/2017 5
Slide 61: Reconciliation Table: Regulated Segment O&M Efficiency Ratio
Reconciliation Table: Regulated Segment O&M Efficiency Ratio Regulated Segment O&M Efficiency Ratio FY FY FY FY FY FY (A Non-GAAP Unaudited Number) 2010 2012 2014 2016 2018 2020 ($ in millions) Total operations and maintenance expense $1,291 $1,330 $1,350 $1,504 $1,479 $1,622 Less: Operations and ma
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