American Water Works Company, Inc. (NYSE:AWK) Q2 2021 Earnings Conference Call August 3, 2021 9:00 AM ET Company Participants Ed Vallejo - Vice President of Investor Relations Walter Lynch - President, Chief Executive Officer Susan Hardwick - Executive Vice President, Chief Financial Officer Conference Call Participants Shar Pourreza - Guggenheim Partners Ryan Greenwald - Bank of America Durgesh Chopra - Evercore ISI Insoo Kim - Goldman Sachs Jonathan Reeder - Wells Fargo Operator Good morning and welcome t ...

Financial Data and Key Metrics Changes - The first quarter 2021 earnings per share (EPS) was $0.73, up 7.4% compared to $0.68 in the first quarter of 2020 [24][12] - The company invested $342 million in capital during the first quarter, focusing on operational and capital efficiencies [12][13] - The O&M efficiency ratio improved to 34.1% from 34.5% year-over-year, with a target of 30.4% by 2025 [20][64] Business Line Data and Key Metrics Changes - Regulated business segment results were $0.74 per share, an increase of $0.06 per share driven by infrastructure investment and acquisitions [24][25] - Market-based business results decreased to $0.09 per share, down $0.03 due to increased claims from weather-related events [24][25] Market Data and Key Metrics Changes - The company added approximately 4,500 customer connections through closed acquisitions and organic growth in 2021, with over 86,000 customer connections under agreement [10] - The acquisitions represent approximately $440 million in additional rate base and an estimated $115 million in follow-on capital expenditures over the next five years [10] Company Strategy and Development Direction - The company is focused on growth through acquisitions in regulated markets, with significant recent acquisitions in Pennsylvania and New Jersey [7][10] - The strategy includes leveraging regulatory frameworks to facilitate acquisitions and improve service delivery [18][19] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism regarding the Biden administration's infrastructure plan, which includes significant investment in water and wastewater systems [36][38] - The company remains confident that the ongoing investigation related to the subpoena will not materially impact overall operations or financial results [21][22] Other Important Information - The Board of Directors increased the quarterly cash dividend from $0.55 to $0.6025 per share, reflecting a commitment to dividend growth [28] - The company issued its first annual Inclusion & Diversity Report, highlighting efforts in advancing diversity and inclusion [30] Q&A Session Summary Question: Clarification on the New York American sale process - Management confirmed they are still targeting a close within the year [32] Question: Details on the subpoena related to homeowner services - The subpoena is specific to New York City Metropolitan operations, and the company is cooperating with the investigation [34] Question: Thoughts on the Biden administration's infrastructure plan - Management is optimistic about the plan, believing it will provide low-interest financing opportunities for water and wastewater projects [36] Question: Impact of recent acquisitions on equity guidance - Management indicated that the recent acquisitions do not change the equity financing timing or plans [52] Question: O&M efficiency ratio progress - Management is confident in achieving the 2025 target of 30.4% efficiency, having improved from 34.5% to 34.1% [64]

Financial Performance and Growth - The company targets a long-term EPS Compound Annual Growth Rate (CAGR) at the high end of 7-10%[81] - The company anticipates regulated growth driven by approximately $10.4 billion in capital investment over the next five years and an expected $22 to $25 billion over the next ten years[29, 81] - The company's regulated businesses are expected to comprise 89% of the 2025 EPS, supported by cash flow from Market-Based Businesses (MBBs)[81] - The company's 2021-2025 plan projects a 7-10% EPS CAGR range[29, 81] Capital Investments and Expenditures - The company plans to increase regulated investment by $1.3 billion over the next 5 years[16] - The company's capital plan includes $10.3 - $10.5 billion in system investments from 2021 to 2025[18] - The company's capital expenditures are allocated as follows: 67% for system expansion, 8% for water quality, 8% for operational efficiency, technology & innovation, 7% for infrastructure renewal, and 6% for resiliency[18] Operational Efficiency - The company targets a 30.4% O&M Efficiency Ratio by 2025[27] - From 2010 to 2020, the company's Adjusted O&M Expenses increased by only 1.0% CAGR[27] Acquisitions and Customer Base - The company has added approximately 322,000 customer connections since 2010[27] - The company has a pipeline of approximately 1,230,000 customer connections for potential acquisitions[35]

Financial Data and Key Metrics Changes - In Q4 2020, earnings per share (EPS) increased to $0.80 from $0.54 in Q4 2019, a rise of $0.26 per share [64] - For the full year 2020, EPS was $3.91 compared to $3.43 in 2019, an increase of $0.48 per share [65] - The regulated business contributed an increase of $0.33 per share, while the market-based business improved by $0.24 per share compared to 2019 [66] Business Line Data and Key Metrics Changes - The regulated business accounted for over 89% of projected EPS by 2025, with significant assets including over 53,000 miles of pipes and 609 water treatment plants [15] - Market-based businesses, including homeowner services and military services, contributed positively to earnings, with homeowner services reaching approximately 1.5 million customers [31] Market Data and Key Metrics Changes - The company added approximately 38,000 customer connections through acquisitions in 10 states in 2020 [13] - The five-year growth expectation from regulated acquisitions has increased, reflecting a significant need for investment in water and wastewater infrastructure across the U.S. [17] Company Strategy and Development Direction - The company is focused on building reliable water and wastewater infrastructure, enhancing customer experience, and maintaining a values-led approach [10] - A capital plan of $10.4 billion over the next five years has been established, with a focus on infrastructure renewal and regulated acquisitions [20][22] - The company aims for a long-term EPS compound annual growth rate (CAGR) of 7% to 10% over the next five years [19] Management's Comments on Operating Environment and Future Outlook - Management highlighted the importance of clean, safe, reliable water services, especially during the COVID-19 pandemic [12] - The company is well-positioned for long-term success, with a strong focus on safety and operational excellence [9][11] Other Important Information - The company has been recognized as one of the Top 10 World's Most Sustainable Corporations [13] - A new Chief Operating Officer has been appointed, emphasizing the company's commitment to leadership and safety [14] Q&A Session Summary Question: What is the company's outlook for EPS growth? - The company expects EPS guidance for 2021 to be between $4.18 and $4.28, reflecting a year-over-year growth rate of over 10% [69] Question: How does the company plan to finance its capital investments? - The company plans to rely on operating cash flows, raising $3.6 billion in long-term debt and about $700 million in equity over the next five years [72] Question: What are the key areas of focus for the company's growth strategy? - The growth strategy includes a focus on regulated acquisitions, infrastructure investment, and engagement with regulatory policies to benefit customers [48][40]