American Water Works Company, Inc. Q1 FY2025 earnings call

Key Accomplishments

• Earnings of $1.05 per share for Q1 2025, nearly 11% increase from prior year. Affirmed 2025 EPS guidance of 8% growth.
• Continued regulatory and capital plan execution with new rates effective in several states and infrastructure investments progressing well.
• Constructive settlement in Missouri general rate case and Test Year legislation signed in Missouri, supportive of utility infrastructure investments.

Financial Results

• Consolidated reported earnings $1.05 per share, up $0.10 vs prior year. Revenues higher due to rate increases, acquisitions, and organic growth. O&M costs, depreciation, and financing costs increased as expected.

Regulatory Activity

• Missouri: Settlement agreement reached with annualized revenue increase of $63M, new rates effective May 31, 2025. Virginia: Settlement approved with $15M annualized revenue increase. Iowa proceeding progressing, Hawaii partial settlement, and California rate case submission ongoing.

Capital Program

• $518M invested in Q1 2025, on track for $3.3B in 2025. Supply chain predominantly domestic, limited tariff exposure. Acquisition outlook with ~37,000 customer connections under agreement in various states.

No specific product segment breakdown mentioned in the transcript. However, Q1 2025 earnings were $1.05 per share, a nearly 11% increase from $0.95 in the prior year. Revenues were higher due to authorized rate increases, water and wastewater acquisitions, and organic customer growth.

Earnings Guidance

• Affirmed 2025 EPS guidance of 8% growth compared to weather-normalized 2024 EPS.

Dividend Guidance

• Board approved quarterly cash dividend increase from $0.765 to $0.8275 per share, 8.2% increase. Expect to grow dividend at 7%-9% per year in line with EPS growth targets.

Long-Term Targets

• Affirmed long-term targets for earnings and dividend growth at 7%-9% driven by 8%-9% rate-based growth.

• Tariff uncertainties with limited exposure due to domestic supply chain, but efforts to mitigate. - Economic conditions affecting muni finances could impact acquisition opportunities. - Potential changes in PFAS/lead regulations, but no changes to current investment plans as of now.

Q: Any thoughts on pulling forward your 2026 equity issuance given recent share price strength?

A: We’ll continue to evaluate the market and opportunities, but at this point, no plans to pull that forward. We’re going to issue equity when we need the financing and we’ll leave it at that.

Q: How do you see the landscape standing under a scenario where recession puts pressure on muni finances? Do you think this could bolster some of the medium-term opportunities for you?

A: Our prior narrative that we expect to see continuous flow of acquisition opportunities is still in place. It’s possible that whether it’s recession or just less federal funding could drive some sellers or potential sellers to want to transact, it is an opportunity and we think about that as part of a broader list of reasons why sellers could sell, whether it’s environmental remediation, deferred capital investment, spend, retiring operators, things like that. I’ll point to continued activity.

Q: Curious if you could just talk about maybe percentage increase that you think you’ll be asking in that [California] case. And then also, is the timing of when you guys would file a cost of capital proceeding in California?

A: The California case that we’re filing, there’s a requirement to file a case every three years. We haven’t disclosed the percentage increase and won’t disclose that at this time. As far as the cost of capital proceeding, that’s correct. There’s a separate proceeding. We requested that that be delayed until 2026. That was approved earlier this year. So the 10.2% we have in place will stay in place until through 2025. Filing in 2026 for a new cost of capital in January 2027.

Q: Could you provide an update on the California desalination project and how that’s going to help you there?

A: Sure. Gregg, I think on desal, as you recall, we got our last major permit approval back in November of 2022, which was the California Coastal Commission. We’ve got a CPCN from the California PUC. We’ll need to provide updates to the PUC. But as we had noted in our 10-K, we expect to break ground this year on desal. That’s not a part of the rate case? Correct. That’s a separate docket.

Q: Is there any way that you could frame the opportunities from the legislative progress in the three states?

A: We haven’t really framed up how much of an opportunity the future Test Year in Missouri will provide to us, nor have we for the other states. I mean, obviously, it will incrementally help our earned returns in each state.