American Water Works Company, Inc. Q4 FY2024 earnings call

Susan Hardwick discussed her retirement effective May 14, 2025, with John Griffith succeeding her as CEO. John Griffith highlighted 2024 highlights including financial results in line with expectations, $5.39 per share earnings, successful general rate cases, over $3 billion invested in 2024, and affirmed 2025 EPS guidance of $5.65 to $5.75 per share. David Bowler discussed 2024 financial results, rate case updates (Illinois, California, Kentucky), balance sheet strength with total debt to cap ratio at 57%, and financing plan covering 2025-2029 with estimated $2.5B external equity issuances. Cheryl Norton talked about capital investment program, successful acquisitions in 2024 adding nearly 70,000 customers, and growth drivers including focus on customer affordability and infrastructure replacement.

Affirmed 2025 EPS guidance of $5.65 to $5.75 per share, expecting 8% EPS growth compared to weather-normalized 2024 EPS. Confirmed financing plan from 2025 to 2029 with estimated $2.5B external equity issuances, expecting $1B in 2026 and $1.5B in 2029, tied to funding growth and maintaining financial position.

Regulatory uncertainties in various jurisdictions, potential delays in acquisitions causing lumpiness in earnings, market conditions affecting equity financing timing, and challenges in achieving full decoupling benefits in California rate cases.

Q: Hey, team. Good morning, Susan. All the best. And John, congrats. Look forward. So two questions. One, a lot of news flow information coming out of DC. A lot of executive orders. I was just curious if anything has changed from your perspective on your strategy to attack PFAS. You have, like, a billion dollars in the capital plan. Just and I know you announced the contract very recently. Anything has changed on the ground?

A: Durgesh, this is Cheryl. Thanks so much for the question. We haven't made any changes to our plans at all. We haven't seen anything coming out of DC that makes us think that we're not going to need to invest the capital that we've talked about in the past. We want to make sure that we're meeting all the regulatory requirements and also just providing clean, safe water according to our standards. So we've made no changes at all to our capital plans related to PFAS or anything else.

Q: As we think about the 7% to 9% EPS growth rate for our models, should we be including the ten cents, you know, the remarketing of the loans here as our base, or should we be excluding that? Trying to see if you're going to go with the base including that ten cents or should we just be separating that out and see think of them as, like, one-time earnings?

A: Durgesh, this is David. Yeah. You should be separating that out and excluding it from the base. And that's what we tried to indicate in our presentation here.

Q: Hi, good morning. Congratulations, John. Susan, I hope you have a fruitful retirement. Of course. The first question I had was on the acquisition slide, just the callout box on the right when you talk about significant business development capabilities added across the footprint in just some of the color you gave there. Could you describe, like, if this is something new, kind of where you've been adding capabilities, you make the references to multiple states, some of the mid-sized states. If you could just elaborate on what you're alluding to there?

A: Sure. Paul, this is Cheryl. And we have added some staffing in our BD group just to have more boots on the ground, do more origination work in general, but we've also really kind of ramped up our corporate support team so that we are driving consistency through our integration processes, our due diligence processes. And we really have just taken the whole entire organization and taken a look at what's working really well and how do we build on that. So that's why we're starting to see more growth across our entire footprint because we're not just focused in one or two states. We are truly focused all across our footprint on growth, and we're seeing the fruits of that.

Q: Kind of following on Durgesh's question in a slightly different direction, just going through the 10-K, I noticed some word changing, like, some of the references to ESG, diversity, removed in the K. Just is there any kind of fundamental changes in the company's approach to hiring and otherwise or is that just kind of changing some language?

A: Yep. Paul, it's John here. It's the latter. We're not changing our strategy at all. For us, ESG is a very business-driven proposition. Everything we do is to drive the results that we expect to achieve.

Q: Yes, thank you. Congratulations, Susan and John. Just in terms of the procurement, can you comment on if there's been any disruptions there, how things are going? And then I have another question. Thank you.

A: Gregg, procurement of what, please? Capital to procurement of, you know, for large capital projects, pipe replacement, have there been any disruptions there that you're seeing? Yeah. No, Gregg. We have a very robust supply chain organization that sits both here at corporate but also is embedded into our states. And we've just done a really great job of being able to procure all of the supplies, the necessary supplies we need for all the capital investments that we're making, including all the PFAS work. We announced earlier that we had signed a contract with Calgon Carbon to make sure that we can obtain all the vessels and the necessary carbon and the regeneration of the carbon long term. So we feel like we're in a really good spot in that space and also with all the materials for all of our projects across the footprint.

Q: Hey, good morning, team. Congrats, Susan and John, on the formal transition announcements made today. Enjoy the retirement, Susan. I plan on it. Thank you. I think we all want to get to that position, Susan. Well deserved, but I think Paul already asked my question on the M&A pipeline. But I've got another regarding, you know, the pending rate case in Missouri. It sounds like things are on track in that Missouri rate case. Do you expect to reach a settlement prior to the start of hearings?

A: Yes. I'd say, Jonathan, it's John here. That's certainly been our experience and we'll see how it plays out, but that would be our expectation.

Q: On customer growth, you know, obviously, electric and to some degree, you know, gas, has been experiencing an uptick in, you know, customer growth usage from, you know, resurgence in manufacturing demand, obviously, AI data center related stuff like that. Is any of that starting to trickle into your, you know, service territory where this economic development is kind of promoting more customer growth than we've seen historically and, you know, maybe taking a little pressure off, you know, the cadence of rate cases or, you know, at least the degree of rate relief that you need to request?

A: Jonathan, I'd say your term trickle in is appropriate. As we think about AI data centers, generally speaking, they're more power-hungry than they are water-hungry. But we are seeing economic development opportunities which may come in the form of additional pipe to get to locations, things like that in the same way that an electric utility might need to build out some transmission for a renewable project. But I'd say for us, it's relatively early days and we're not expecting to see the kind of massive increases in demand in water. You know, generally speaking, water as an industry is in a position of excess capacity. So we expect to see a little bit of infrastructure build, but that's, I'd say, how we think about it.

Q: Thank you. And Susan, John, what a transition. Congratulations to Susan. Definitely an end of an era. Now on the financing, so you guys consider, you know, maybe using hybrids instead of traditional equity? If only because, you know, the water sector has sharply derated. I'm sure that that's probably more dilutive to the original plan, so I'm not going to an equity perspective. And, again, is there a way to manage the dilution going forward?

A: Yeah. Angie, this is David. We certainly look at all products, but we just don't see these hybrids being cost-effective for us. And they are more dilutive than just straight equity based on how we trade.

Q: About the, you know, the lumpiness of the M&A and an ability to basically manage the earnings impact with some other organic CapEx. Is this just more simply because you have so many growth opportunities that, again, you can smooth out the earnings trajectory? Or are you trying to say that the, you know, M&A is less of an earnings driver overall given, again, plenty of organic growth?

A: Yeah. That's a great question, Angie. Those deals are lumpy because there are so many things that can slow down the closing process. So, you know, we can plan for a certain number of deals in a given year, and they may spill over into the next year. So on an annual basis, there's some lumpiness there. We do target that 2% of the customer growth, but if we see that some of these deals are going to get pushed out, we've got plenty of capital projects kind of in the wings that we can bring in to ensure that we spend that $3.3 billion or whatever our target is for a given year to absolutely smooth out that EPS growth. But it's really important that we're adding the customers because adding customers helps us with that affordability story. It helps us spread our costs out amongst more customers. So we're going to continue to push on that acquisition piece. In some years, it'll be more than 2%. Some years, it might be less than 2%. But when we make that commitment to our capital spend, we're going to do what we need to do to make sure that we get that capital spend. And, Angie, just to follow on Cheryl's comments, you know, to be clear, the need is very much there in terms of target systems. Right? And as we've talked about a little bit in the past, you know, the list of reasons why a target company, a municipality would sell is getting longer and not shorter. Right. You know, there continues to be deferred capital investment, deferred maintenance, increasing regulatory need for clean water and delivery. So the fundamentals haven't changed. And if anything, you know, we see a broadening opportunity base. And a lot of what we've been spending our time on is broadening out the opportunity set across our system, which takes a little bit of time, but we feel very good about in terms of the progress that we're making.

Q: Lastly, on California, you mentioned that there's looking at ways to, if I understand correctly, basically, retain the previous full decoupling. Right? So, you know, versus the commission's decision. So are we talking about a legal challenge? I mean, again, I'm just wondering what is the option?

A: That's correct, Angie. It is. We have filed a motion for rehearing for that.

Q: Congrats, Susan and John, great news for both. Just want to follow up a little on Angie's question, just a quick one. On the equity financing, it's very clear you guys state in 2026 and then also in 2029. Do you time that with CapEx needs, or thoughts of maybe some not an annual program versus a block? Just curious the pluses and minuses on the approach here.

A: Yeah. I'd say we time it when we have a need to maintain our strong balance sheet. And, you know, we're not going to issue too early, and we're not going to issue late. We're going to issue when we need the financing or the funding.

Q: Hey, good morning and congrats as well to Susan and John. Great news to hear. Just one quick cleanup from me. I think you hit this with Durgesh earlier, but just thinking through the growth going forward, is the 7% to 9% growth, is it based on 2025 guidance less that $0.10 of incremental interest income? Is that the right way to think about the base for 7% to 9%?

A: That is right, Rich, and I think we've got that in David's slides. And just as a reminder, you know, when we set our 7% to 9%, that goes back to when we put the note in place originally, which was a $720 million note at a 7% interest rate. And then we amended the note about a year ago and early 2024, increased the interest rate to 10%, and we also collected on an earn-out payment of $75 million that was rolled into the note. As we think about note repayment, we're only trying to make up the 7% interest, and to do that, we'll have proceeds of $795 million, not $720 million, which is why you won't see a dividend in earnings as we're moving forward. So, yes, you've got it correct, Rich. And as a reminder for the group, you know, the note, the final termination date of the note is December of 2026. But the owner of the business has the right to call the note as early as December of this year, and so we'll see how the timing of repayment works out. But one way or another, we're very prepared for the timing, and we won't see any sort of impact to earnings.

Q: On the Missouri legislation, I know there are a couple of different bills out there. There's also been some actions around, I think, it's SB4 and some language change there to pull in more of the broader utility efforts. Can you just walk through a little bit of what's been going on recently in the legislative? Just give us an update on how you see that playing out.

A: Yes. Sure, Rich. This is Cheryl. In Missouri, we have been working for quite some time to try to improve the regulatory environment there. They have historically, you know, when I was president there, historically had a historical test year, which makes it really challenging when you're talking about regulatory lag. And so we have been working hard with the other utilities as well as, you know, talking with the commission, with the chair of the commission to say, you know, what are ways that we can improve this environment for us from a regulatory lag perspective? And so as these bills got submitted early on, they were kind of separated. Now they've been several of them have been joined together, and we are very focused on the future test year aspect of this legislation. And we'll continue to work together with the other utilities, the chair of the commission, and all of the allies that we can bring to the table to ensure that we improve that regulatory environment.

Q: Yes. Thank you. One follow-up, please. Just what were the results of the non-utility business for the year and some context on where you're taking that part of the company?

A: Yeah. Gregg, we don't disclose that level of detail. Probably, it's in the other business segment. Yeah. I can talk to kind of what we have in mind in the future for that other part of the organization, if you will. It's essentially our military services group. And we're still really excited about that part of our business, and we think it's a great mission. It aligns very well with our regulated businesses. And we're excited about the relationships we have at all the existing bases and will continue to encourage the different arms of the military to move forward with utility privatization. We do expect to see some movement there. We just don't know exactly what's coming or the timing of that, but our team is poised and ready to bid on any of the projects that make sense for us in the future.