American Water Works Company, Inc. Q2 FY2026 earnings call

Regulatory Achievements

• Three completed 2026 rate cases in West Virginia, Maryland, and Pennsylvania authorized recovery of nearly 100% of the company's capital investments in each state
• The completed Pennsylvania rate case approved a $75 million annualized revenue increase (requested $160 million), a 9.55% return on equity, and a 54.2% equity component; new rates will take effect August 13, 2026
• Six active general rate cases are in progress across multiple jurisdictions: settlements-in-principle have been reached in Virginia and partial settlements in California, confidential settlement discussions are ongoing in New Jersey, evidentiary hearings are scheduled for August 2026 in Illinois, a new rate case was filed in Kentucky in May 2026, and a new rate case was filed in Missouri in July 2026
• The Missouri rate case is the first to use the state's newly enacted fully forecasted future test year legislation, reflecting $1.6 billion in system investments and requesting $179 million in additional annual revenue

Acquisition & Merger Progress

• The acquisition of Nexus Water Group closed ahead of schedule on June 1, 2026, after securing all 8 required state approvals, adding 47,000 new customer connections
• As of June 30, 2026, approximately 57,000 additional customer connections are under municipal acquisition agreement across six states, totaling $236 million in deal value
• For the proposed merger with Essential Utilities, three state approvals (Kentucky, Ohio, Virginia) have been secured to date, merger cases are proceeding as planned in all other states, a settlement-in-principle has been reached in Texas, and the company still expects the merger to close by the end of Q1 2027
• The company remains on track to hit its 2026 target of 2% total customer growth

Capital & Financial Operations

• $1.8 billion in capital investments has been deployed year-to-date, focused on infrastructure renewal, service resiliency, water quality improvements, and new system acquisitions
• In May 2026, the company successfully issued $500 million in long-term debt at 4.625% with strong investor demand; in June 2026, it settled 3.4 million shares of equity forwards for $476 million in net proceeds, with the remaining equity forwards expected to settle in Q4 2026
• O&M costs remained flat quarter-over-quarter, demonstrating successful cost control amid operational growth
• The company strategically operates in diverse, pro-investment regulatory environments, and expects average monthly residential water bills to remain at or below 1% of median household income long-term to maintain customer affordability

The transcript does not break out financial performance into separate product segments, only reporting consolidated results. Consolidated Q2 2026 adjusted diluted EPS was $1.61, compared to $1.49 in Q2 2025, representing 8% YoY growth. Consolidated adjusted diluted EPS for the first half of 2026 was $2.62, compared to $2.51 in the first half of 2025. Total year-to-date capital investment and acquisition spend was $1.8 billion. As of June 30, 2026, the total debt to capital ratio was 58%. Total acquired and contracted customer connections amounted to 104,000 (47,000 from the closed Nexus Water Group acquisition and 57,000 under acquisition agreements), with contracted municipal acquisitions totaling $236 million.

• Management affirmed the full year 2026 adjusted diluted EPS guidance range of $6.02 to $6.12 per share, which represents 8% full year EPS growth
• The company reaffirmed its long-term target of 7% to 9% annual EPS and dividend growth through 2030 and beyond
• Most full year EPS growth is expected to occur in the second half of 2026, as key state revenue increases are scheduled to take effect in Q3 2026

• Forward-looking statements are explicitly noted to be subject to numerous known and unknown risks and uncertainties that could cause actual results to differ materially from projections; additional risk disclosures are available in the company's recently filed Q2 2026 10-Q
• Affordability concerns and regulatory scrutiny in Pennsylvania could impact the cadence of rate case recovery and the Essential Utilities merger approval process
• Expanding the DSIC capital recovery mechanism in Pennsylvania requires legislative amendment, creating uncertainty around the timing and scope of expanded recovery eligibility
• Regulatory processes for remaining Essential Utilities merger approvals are ongoing, and final outcomes are still pending

Q: An analyst asked whether Missouri's new fully forecasted future test year framework changed the size of the requested $179 million rate increase compared to the prior historical test year approach, and what the company's outlook is for Indiana regarding affordability rules and new chemical cost recovery legislation. / A: Management stated it had not explicitly quantified the impact of the new forecasting framework, but analysts could reference prior Missouri rate cases for a rough approximation. For Indiana, management noted affordability efforts are focused on electric utilities, not water, and the company's water rates remain affordable and aligned with forecasts, with the new chemical recovery legislation providing modest incremental benefits. (231 characters)

Q: An analyst asked whether Pennsylvania PUC commentary on rate case frequency changed the company's in-state regulatory strategy, and if lower ROE is an acceptable tradeoff for reduced regulatory lag. / A: Management responded that Pennsylvania rate cases are driven by required capital investment, and the company will continue pursuing the most constructive recovery pathway. The company is exploring expanding the DESIC interim recovery mechanism, which would smooth rate increases for customers and reduce the need for frequent large general rate cases, but expanding eligibility requires legislative changes. (294 characters)

Q: An analyst asked what percentage of Pennsylvania capital expenditure qualifies for recovery under the existing DESIC mechanism, what is needed to expand eligibility, and whether the Essential Utilities merger would reduce the frequency of future rate cases via economies of scale. / A: Currently ~40% of Pennsylvania capex qualifies for DESIC recovery, compared to ~90% for electric utilities, and full expansion requires legislative change. While the merger will deliver long-term economies of scale, near-term capital investment needs for both companies will remain unchanged, and rate case timing will continue to be driven by required capital spending. (317 characters)

Q: An analyst asked whether Pennsylvania's recent affordability focus and regulatory intervention in the People's Gas case could impact approval of the Essential Utilities merger in the state. / A: Management noted that Pennsylvania evaluates merger approval against a substantial affirmative public benefit standard. Affordability is a statewide priority, but the company has already demonstrated the required public benefit in its merger testimony and remains confident in approval. (208 characters)