American Water Works (AWK) 27 Apr 232023 Q1 Earnings call transcript

Good morning, and welcome to American Water's First Quarter 2023 Earnings Conference Call.

As a reminder, this call is being recorded and is also being webcast with an accompanying slide presentation through the Company's Investor Relations website. The audio webcast archive will be available for one year on American Water's Investor Relations website.

I would now like to introduce your host for today's call, Aaron Musgrave, Vice President of Investor Relations. Mr. begin. may you Musgrave,

questions. Good today's and of call. will for remarks, Betsy. joining our you us we your call the for At open morning, you, thank everyone, for prepared Thank the end

we Let me first performance expectations making our over predictions some or our expectations, other statements represent and our These current will statements based language. that are safe forward-looking regarding be harbor go Today, assumptions. future future estimates events. on

subject with may by deal the known future to statements to these are and that numerous or such unknown they factors be since cause uncertainties risks, implied However, results indicated from and events, results statements. materially other different actual

and first Form XX-Q, Additional and uncertainties as SEC. factors information XXst more well quarter in these is March yesterday filed as and risks, provided in important earnings other information our release the detailed the with regarding financials each a analysis of

all refer EPS and rule and share by presentation longer-term statements our announced President of related CEO, And earnings this and proposed share. target Hardwick, and recently the earnings per XXXX results, diluted earnings to highlights USCPA. to during Susan finally, share guidance will per PFAS earnings and

in cover issuance this Vice year. our our discuss acquisitions Griffith, far so with sizeable CFO, announced we'll John financial an results our close President equity and more and first Executive will detail, quarter successful update on

and investment of rule. regulatory Executive PFAS Cheryl general few the plan capital our Vice cases Norton, active proposed our and will President EPA’s COO, details with discuss rate and including updates the conclude then

questions. close We by will then your answering

and Water's CEO, call the turn With that, I'll American to President Susan Hardwick. over

morning, everyone. Thanks, Aaron, good and

results. to start XXXX As in we with strong good financial a yesterday, off announced we're

per achieve to results which earnings as compared expected us put As were year the increased share to per and earnings our affirm. share on we're quarter shown on were pleased last year. full The guidance, X, for slide $X.XX track to $X.XX

of remarks. in some so recap and also Cheryl these you in XXXX, can and a our John their far accomplishments other to Here of see key add will

As issuance plan. of we the Water delivered completed in March, financing XXXX very a billion This common $X.X on upsized stock. equity in our American we highest announced successful priority of

$XXX infrastructure quarter. We capital well in of million the in over also invested

large In year, far addition, over we secured at under so puts million us agreement. this two acquisitions acquisitions which $XXX

We and staying to our did customer service. affordable value all high of of while this bills keeping quality true

We steadfast and and US water these wastewater provider solutions in industry years. remain for quantity to in affordable and and for released from efforts industry Environmental The whole other news the These the PFAS. the XXX first are standards regarding of service quality, drinking among wastewater a and significant faces has US to water leader quarter us water multiple customers proposed water clean, challenges support American mission our industry the national We the the Water's in contaminants they water over quality. Providing a challenges. been when Agency safe, to be came the as protect EPA's reliability. and for commitment water Protection a reliable to

has proposal regulators Cheryl affordability. in to the will with policymakers it. topic. reasonable tackle this water communities We regulators, Congress, for customers advocate the and on support will and and this PFAS will the very investors that I continue head expertise customers, and other and balanced want outcomes elaborate issue our work stakeholders that to and with standards on assure important to cooperatively Water further EPA with related But the quality policies American to of our and protect response to to and

X. Turning to slide

our is peers. per range We of term XXXX share strong execution believe and our to as $X.XX affirming positive are well targets. regulatory we differentiator our our operational mentioned, I as guidance from $X.XX As EPS long a

the past, As deliver plans, top years our earnings pace expect and at done annual over beyond. consistently in a five we've and tier we dividends term the growing next on long and to

Moving on to slide X.

dividend As per Directors X% yesterday, from per share, $X.XXXX cash we the our increased an share announced company's to $X.XXXX quarterly increase. Board of

grown dividend at compounded our of peers. over of rate most significantly five growth X.X% years, last have our We a annual utility outpacing the

Looking growth line ahead, to X% to our our target. year grow X% with we to is on which expect dividend per EPS X% continue to at X% average, compelling in

component shareholder investors. dividend Board many understand return appreciate to Our important team and total is how of management and of our the our

in highlights let And quarter detail. that, it cover financial John? turn results more me to and over some first with John to

morning, Thank and everyone. good Susan, you,

by to Water I'll American meaningful since completed first X, XXXX. primary the really March, Turning in of start size for issuance slide reviewing equity the offering

offering, fully issue greenshoe XXXX. billion. cash The billion As of $X and significant currently end bring remaining which be this a to is XXXX we've commercial balance proceeds by plan paper see for very our the our end near plan. to to planned a the was of the current $X.X plan portion the strong of with to were five to our left zero the proceeds the goes down issued of amount modest over. portion through year upsized, We exercised quarter expected in $X said, expected equity equity of We of used five billion needed was demand in that of for pleased our year

balance wastewater is issuance, and the well fortified future. the sheet investment With to our fund our water into equity robust

years few sale rise ratio, as metric less, five remaining in current above capital our and or HOS over to our equity our end that plan, of XX% year somewhat is late quarter from target plan. we at our of proceeds in debt as no was XX% which With meaningfully just to of end. issue the XXXX receive the the we has this total will year Our reset growth again next until

the to our to the be I'd compelling and advisors like of this by issuance wrap diligently role in this opportunity led prepare growth American our American other to the as we the IR to utility in thesis moment to execute is legal, believe equity, sector. thank a and worked is well that on another emerged. take when the window of to our story at leadership So strong, up execution we play investment transaction Water year the who us as teams treasury, many Water, early external ready indicator

same our $X.XX earnings Turning up our for share some in XX, for share quarter into attention $X.XX to the versus I'll further provide the per XXXX. insights slide financial quarter, results the period per were

cases states are infrastructure, making and and sales including driven proceeds the are Services. the from our These we investments larger know, you have revenues additional a the by significant Water Homeowner of completed in acceleration made we possible as New revenues York in American As result. recently rate increased seeing the spend our of are the by

pension As $X.XX at impacts. share revenues. it see higher we've power operating time costs. the per chemical, And the reinvest and of pressure to we and sales, about consistently since mitigated those takes sales share $X.XXper largely were looking proceeds costs inflationary said of beginning to about are expense and higher by fuel on the

of bottom seek in positioned large costs Our of higher rate proactive strategy us higher costs year line costs jurisdictions expected production last limit favorably rising has case our the recovery XXXX. in to of pension and impact to those many

on in rate investments costs though the in earning of acquisitions rate based return next the case be other As be operating continues will filed year we higher we our with jurisdictions full a rate looking to key just recover general over the driver and Indiana, to cases.

million impact Interest the $X.XX investment depreciation $XXX both the debt share share our equity growth. quarter commercial term increased to from $X.XX count rates. quarter $X.XX paying per EPS issuance higher increased share short would on avoided considering in and first cost per also of due higher the was expense in interest Next, I essentially from from term paper. issuance by also share that senior off our about to when per the the interest last reflected May, additional long the interest note supporting note EPS neutral

count approximately the EPS from interest well. be avoided neutral as to year expect net expense We higher dilution share to of for full the

our adjustments the Military Naval Mayport other awarded quarter summer. Group in recorded we post of of of first consists from in XXXX Finally, contract HOS additional with were primarily the from Station XXXX last new net that close Florida sale in and earnings Services favorable

for well under agreement we transactions are slide Sewer Authority an Butler that end the see asset assume part $XXX agreement are wastewater Township to million you'll in acquisitions XX Area system we the nine March the of through purchasing XX, system previously Pennsylvania Pennsylvania through as growth Towamencin in Granite $XX in had to up states for of pleased strong set plant hope NextEra. as customers. We announced, we wastewater forward expect announce Granite wastewater purchase of announced to of that Then million, in by us Turning in a across we XXXX as beyond. and serving both end just Illinois We contract. and over to including March, XXXX purchase approvals, City, acquisitions at look to ago, agreement weeks which of those on to pending XXXX, million few by $XXX Towamencin were under regulatory midyear close on we for puts close the treatment the the and City from as

to course, is pipeline transactions, we refill across as Of build our the and work footprint. close on acquisition continuous the

earnings this over piece that customer triangle. X.X million supports connections is strong pipeline of a Our leading our indicator of growth

to off confident I'll very to XXXX over to a guidance start I'm it year. $X.XX of our to turn per that EPS we're good to comment share. in echo I Before ability the achieve our Cheryl, Susan's $X.XX

to long-term also financial place, that Looking including ahead, have pleased in right am I strengthened we our sheet, the targets, achieve fundamentals newly affirming our today. which balance we are

to I'll our rate regulatory Cheryl about case Cheryl? to investment, turn updates. it other and that, over more With capital talk

from improved capital systems investments, capital everyone. keeps job This billion increases on to January includes morning, required dozens executing million surcharges. slide $XXX last our infrastructure we leaders their pace of on of drove general approximately the our $X.X the spending million Thanks annualized magnitude Slide a of and teams effort million on that new and XXXX. of revenues goal year. see the $XX same to regulatory in the these and capital shows of corporate It efficiently nearly investment in rate compared deliver efforts and our of investment did plan. show since and great $XXX This safely can by you quarter to To period John, in $XXX from cases and the million our projects XX result have that increased timely and us higher in XXXX. step our recovery XX already and execution rates in that first significant good state hit quarter

$XXX proceedings. surcharge have infrastructure of including two also pending, revenue requests million We total annualized

operating costs. our is on around Moving on consistent theme of strategy and to here regulatory XX, our investments timely, recovery slide

investments footprint. only to recovery years, customers. our our size also Through we but engaged We general reduce those levels policymakers increases for not consistently forward find timely speaks to to and rate wastewater we regulatory in customers, our across allowed to bill of mitigate timely also our making achieve increases on This invest the and best lag reliance side right out test regulators our rate bills lessen general recovery the the to and have ways capital recovery, on water When with can infrastructure manageable. us and timely and to pie of the earn return, of more mechanisms The chart cases. page achieve the it recovery. enables consistent and

infrastructure five of term. years strategies is through annual regulatory continuing We years, a to critical the The expect about next to which pattern the be to capital the grow year. unlocking XX% each key a the test and is use for for ability earnings our business execute recoverable of our success factor consistent more over to growth forward mechanisms long investment through

work and industry to focus and on we'll those water regulatory continue outcomes us challenges. grow, legislative through challenges As to constructive wastewater help

through infrastructure each. key with rate that service. of go and case a from slide most key reliable costs regulatory top the general also slide our general for activity as cases request also ten appendix, in as reflecting cover this rate charges, see. to be an the Shown general a XX to summary Indiana, and made states. outcomes safe continue find other the XXXX in continue cost in end the some water to In snapshot of $XXX million facts to and Let's revenue and the some March, investments our a related providing in At of wastewater increase The includes we to well is in system cases and on details recent we you'll of states. latest pending rate our chemicals filed operating the

a through of We result to $XX XXXX annual implemented. increase in three would when process that seeking phased fully revenues revenue additional million are over step May

was California, approximately as capital awaiting expected the with over last of of filed phased our and expected We're increased progressing process, be Commission XXXX. from seeking is cost revenues of step case still XXXX, so In XXXX year July in in and three pending to rate ruling million changes the a far. a $XX on We're also effective case.

Missouri, the file expected a increase Public approximately including previously surcharges. rate settlement a there our earlier the a were finally, fourth Water expansion A million. this signed request, of In pleased issued Virginia in on In by were few annualized $XX total Missouri California agreement decision increase settlement notable cases, revenue of Service quarter infrastructure is settlement call. rate quarter to $XX final Water And general annualized CPUC. the to related the approved with developments we the matter order March following XXXX. supply in week, Monterey Commission. approved Corporation Pure of State Commission XXXX Xrd, of an on The we an for revenues, since project, authorizing of Outside our million agreement reflects $XX million Monterey the second the this

Monterey that future We we are funding and Together storage water now the the that is pumps complete. to were approval the of the pipes for secure built standard projects and online, ratemaking with water and the treatment recovery now possible allowed is Peninsula once process desalination for reuse expansion. process the and to aquifer and believe support a construction

Improvement in effective wastewater it Indiana's immediately. front awaiting Senate where for in and is legislative through bill House the XXX the consolidated State will systems Indiana, This On with enhancement mechanism. support bipartisan governor's Bill passed rates and allows service Senate signature become recovery the

EPA's expand proposed PFAS, on Susan's on rulemaking. Turning to I'll earlier comments

were American PFAS and long for based with would primarily several states. has a by in Water more anticipating analyses While on limits treatment been the higher federal rulemaking, that line preparing be the our initial standard set

for the are and index for We trillion limits to four of PFOS, carefully hazard and the approach assess several water the EPA's reviewing the PFOA parts other application regulation per proposed drinking chemicals.

lower of be will impacts will to require as plan level, treatment logical Our the that and the capital will well review operating assess cost. will our to It's needed our number expense financing. as the facilities assume as that treatment significantly larger,

EPA's of estimates cost materially early are our One is that understated. concerns

Our to submit continues, assessment, completion of and analysis by upon preliminary our XX. EPA the we'll comments on proposal May the

its end final To As which and is review develops clear, though, information by be we'll very the expected to share further based upon EPA XXXX, rule, of the more analysis. have communities. PFAS aimed in other drinking and harmful joins Congress makers EPA, other decision supplies at keep water Water implementing organizations American of support reasonable policies in out the of and water

on from EPA on In the equal USCPA. we to and also comments to water provide for We'll ensure regardless the and/or intend provide others including all wastewater to and the following. to under We'll of to liability exemption we federal comments ask proposed an any to wastewater related of providers, financial expect access many for also and to itself, ownership, addition treating utility related state PFAS the rule and funding PFAS. ask water have all issues, systems

assistance customer for addition, income program. funding low wastewater a request and federal In we'll water permanent

with Providing and We'll any the that general policymakers safe, the Water's standards reliable work business. ensure of and EPA, affordable the and protect continue to water regulators, communities, implementation is customers, to American public. final productively Congress,

take it turn and I'll questions begin over to operator might that, our to with have. back any So you Q&A

Instructions] [Operator

from JPMorgan. Richard comes today Sunderland question first with The

impacts on on little all At dig O&M there more particularly outcome the or expense that's of as just capital magnitude of than is commentary to both of for good here? and basis? to levered you in Any forward but to kind potential way an opportunity the this Hi, PFAS frame more. rates flagging capital side, versus minimum, go an concern, want you're a time bit today. thank a a the a Appreciate morning, to the

Cheryl have Rich. EPA that And Good we to comments know terms rule. a parts proposed. to treatment lot how quite be question. we great in do the you with huge proposed proposed there's these they're issue don't it's trillion, of of feedback as Yes, rule are a trying limits as Rich, Hey. here this even and with have fact, the Obviously, this I process said, works. to at about at obviously indicated, a in morning, to mean, analysis here. four we're that. the worked And, accomplish what of Cheryl supportive And per

cost. around is issue the think I

that As costs are are Cheryl our said, around understated. early estimates here EPA expectations the

think back EPA. to that'll be I industry the the that part response the So of generally provides

as a evaluate Cheryl For we've as times, to And I continuing talked know, risk about impacts. our you approach the this to we're us, said many and planning. capital said, use we based

these as that and plan, projects projects So into we it could well very out. profile other our risk work move capital change

about lot think still to So overall a that. work plan, determine our to as do changes got we we to of

question, O&M, your we necessary around at capital a to will be there's versus both fair think amount this though, that Specific of level.

that the capital the have be able treatment operating to an with requirements ongoing facilitate treatment, itself. and of there'll cost course, facilities associated So be there'll to then, are

and determined. again, lots be to direct So on yet to learned our impacts plan yet this to be

it bridge recovery last very side, in with you the costs. rate higher up chemicals That's out expenses you maybe and that Can How time a customer came year walk lot seeing the few year context. more discussing over the do of plan. about next the trends terms a expectations recent helpful laid years? these cost impacting you we those fall to understood. in bit bills sticking I last little back of spent when latest think guess the Okay, and speak to your costs, you're there of this the

Cheryl certainly this, started quarter on in the second in really and Yes, Rich, continuation too. weigh of seeing impacts year. the But can question. say, last a we we good And that of John seen, I'd have

for the increases to still in elevated, certain expect they have of some to a and may time. While bit, started are continue all that we costs out level some

rates that the the the on. touched regulatory in we've roughly it, here we the did of mentioned, got fully too. in these last is result as XX% ‘XX, John case those baked And think costs the address filed, we've of did in arena did year. maybe the we on a just remarks early you cases as real experience I key it estimated and work Indiana to we Cheryl costs there, we've addressed or we'll And into in prepared

think a that on amount continue job of they address early have we to these see bottom costs we side. here cost the don't fair on done as done have impact. good pressure be could But so line So we a to as

with question from next Storozynski Angie comes The Seaport.

you. Thank

So first the like maybe presentation question.

longer So breakdown Can earnings, us and regulated with show the bridge for give right, you quarter? this corporate? breakdown segment, for you market us the no of by no earnings based

and basis, Well, there market the that based waterfall small as the now a military, is of which I as think is probably much very impact not you good on variation. from a have just year-over-year there just The is. business, is

on The HOS we I sort of the in other driver been gain first which sale highlighted quarter last the the would year. the true-up segment, have primary gain, the there, think of

a drag the mention your imply couldn't. the factor a also to peers Was couple seen and And we've tried of I a earnings. actually I on think I a something didn't XX-Q the electric that driver to that's Okay. at have on quarter. But you all? weather and on as that water okay, in as highlighted side I moving the anyway, from mean

Yes.

is impact talk for just quarter much you or First about of not seasonality year. weather – a Cheryl, us to want

Yes.

second biggest weather Our impacts and be going quarter. are in to third

to see really unless think over not was the will And first this in see typically spill that at won't fourth weather it one us for impact weather any quarter, is all. severe that dramatic the impact. another. the really, Sometimes year, the I direction quarter, We or weather into

we're solid. So I pretty think

then of in an a looks you of Shorelands to the like acquisition. decision the I be And will lastly, issued denial Okay. pursuing are XXXX. sometime noticed adjustment It that appeal that acquisition related

it I sense is future it a have? deal might And only long But million, So so that's but can again, any mean, growth you as impact. case? $XX important a that know closely, implications you, the followed as a you far haven't this any us not again, of, I can for related shot? is pending itself aspirations give this how big I to is goodwill still transaction that

status want really any you here? of Yes, no implications to comment but Cheryl, on materiality,

that hanging in scheme Yes. that us Angie, decision we're be have financial to really we no so grand from still but is worried has ways impact. going other this out sets a not us. case, impact there's we for of issue so kind strong doing no yes. in like, all but the precedents of to a believe, The perspective. about of the honesty, things, We deals still little it there, real found to And

to Okay. just going sorry. then PFAS, I'm And back

EPA I I decades hasn't those So I that penalties. the that non-compliant at of the requirements that been systems been pretty we've is strict penalties with these have again, Then the going think, after imposing or seen really over think rules, couple regulations. problem last, the looked with really

municipal I'm or for privately So grow, on should any municipally this a wondering in been difference far your would exert because with there particularly imposing big M&A systems? pressure Again, EPA example, if, diligent just owned additional sort municipal hasn't be other how rules. as, one of as or that

here, address of our is should obviously, again, use We apply, record to that track sort that. we'll Yes, fair and There one authority to, should rules. the think on these things and its the in comments. rules EPA to all it's comment I Angie, think providers a enforce it's obviously we'll of a observation, that so that have

think on acquisition that? to hit some but think could on comment I to opportunity, We be potential. it you've key views issue. As on there John, you want the relates our

the we reason list municipals just choose us say I this in the issue at Angie. why may as Yes, that future. to sell look for on another to

question comes next Paul The America. Zimbardo Bank with of from

Hi, team. on offering. congrats And the equity good morning, successful

whole the strong full billion to Was way believe equity the Just the plan. And curious, you the for XXXX EPS $X you that it you plan bill year just of equity demand? given to did neutral consider full take be I correct? I of placing say out that expect offering the on versus heard

John, you here? to want comment

Sure, yes.

first with of the we On the past. the part question, we to messaging in the tried investors to provided consistent that remain had

So wanted of issuance, stay that's correct. as about we we that so. to the within thought dilution, regards the magnitude we and to With did range

debt that just off given neutral. look rates issuances at are, the valuation how we and a and where We pay we EPS ability trade our interest as perspective, with given expect from to

state? Okay, great, as Indiana in switching well. acquisition the I capital then priorities prospective influence that legislation of topics. or the noticed higher Does that any

that you're really, that? to want is question to. you comment legislation rate the Yes, issue, on around John, referring consolidated Paul, this

the regulatory And additional mechanism legislation seems it reduce help that the new it was lag enacted, perspectively. could like from

on think it it lessen gives and that's Again, impact customers. bill to Indiana that around I to creates I more leverage consolidated mechanism do grow revenue fair, and us probably Yes, think the have used think probably acquisitions. I in opportunity

think it's to, sort perspective legislation important of of a again, piece from facilitate I that growth. very

UBS. next Orrill The with Gregg from question comes

wondering acquisitions. a Florida was for ask sort I your view I morning. could market Good as Congratulations. you. if on thank of Yes,

help on versus thinking progressing that's the there's folded Thank get pursuit value then in legislation you. timeline of about and I how to for regarding you're fair there just would litigation pay that compliance. rules of and the PFAS the think how sort

Gregg. Well, two those topics, big are

there. maybe First, let comment me just on Florida,

the and is state. nation a to significant legislative same in et for regulatory We substantially looking anything an think, I we there, our sort which, on all following really of we're like existing opportunity other come regulatory things. it our of But to environments And always have a have opportunities. cetera. I say optimized We see to We obviously growth grow developments across footprint. footprint, as the is our course, at environment, we're the particular into lot. environment, have at in. we We do sort of the states. of to look I'd do us potential legislative together, types those But of think answer think we're constantly parts actions, that as we around like actions, beyond

growth our We jurisdictions. focus opportunities be. that's for great in And have existing continues obviously, where our to

responsible. those feel treatment, the the do responsible that are positioned it's best be helping On question impacts think think PFAS we around that and time the litigation are around litigation for problem to is and responsible and there here, industry's is our goal Cheryl And been the held your this. important for mentioned, solve the second to has goal, do and some to we I we as there, for production of chemicals while also

our for worked it's necessary We that of we states for think really be. that responsible customer be And actively will to appropriate are at to part of the this through. continue again, customers do litigation and for. things heart important has don't that to think in So overall pay an involved that. And aren't is or affordability equation they that's

the So we'll be along of pursuing actively that litigation rest the with industry.

[Operator Instructions]

The Fargo. comes Jonathan next Wells question from with Reader

kind was it include by year from Hey, market think little included I bit just exactly XXXX year other I recast out good two think of the $X.XX the that just kind was regarding other bit. other the left Angie's a of a $XX to with you on I based give breakdown earlier segment, and broken think of to segments and gain. segment your don't us pretax being full Can what's wanted directional build question million historical I guidance? but morning, full that segment, parent and was little team. some a

we of about, drag overall kind full should there? I be ‘XX thinking year how So guess

that's activity getting go Jonathan, the prior some at don't to remaining me confused but those is going had have the group to bit all to a true-up and HOS for numbers right here, services military we our to that's back Boy, maybe sale, related year, sound we're and and look numbers. Those

not back the don't earnings reflective on But of and can of a a of business. size follow it's the really because, up of overall I part much think year-over-year the again, that quoting, we earnings variance, numbers contribution small that's you're the that the anyway. relatively reconciliation

Okay. true-up thinking look business like or But, ‘XX. other kind of we you're strip just $XX maybe that the it it I of mean, if out of pretax to flattish part that kind we million ‘XX the when is whatever, sounds from gain at

operations that services year-over-year to me. number That doesn't a a the there. $XX number there. recall Yes. I military bell million verify need just ring it that. I mean, relatively being flat. pretax quoting there's to I Certainly know group you're We'll don't

back Aaron have we you we'll the numbers sure got up with that make right there. to on So just follow

concludes our you call. session question-and-answer the conference and This attending Thank presentation. concludes for today's

disconnect. You now may