The paragraph is an introduction to the American Water Fourth Quarter and Year End 2024 Conference Call. The operator sets the stage for the call, indicating that participants will initially be in listen-only mode with an opportunity for questions later. Aaron Musgrave, VP of Investor Relations, explains that the call will include forward-looking statements, subject to various risks and uncertainties. These risks and other details are outlined in the company's recent earnings release and Form 10-K filing with the SEC. Susan Hardwick, the CEO, and John Griffith, the President, will provide remarks, including highlights from 2024 and affirm the 2025 EPS guidance.

In the paragraph, American Water's CEO, Susan Hardwick, announces her retirement effective May 14, 2025, at the annual shareholders meeting. John will succeed her as CEO, a move that is part of the company's established succession plan. The transition aims to ensure long-term leadership stability. John brings over 25 years of industry experience and a strong commitment to the company's purpose and stakeholders. The leadership team, including Cheryl Norton, will continue focusing on industry leadership and performance. Prior to this, Executive Vice Presidents David Bowler and Cheryl Norton will report on financial results, capital investment, and growth strategies.

The paragraph highlights the achievements and leadership within American Water, emphasizing the company's commitment to providing reliable water and wastewater services. The outgoing leader, Susan, reflects on her 40-year career, expressing gratitude for her six years at American Water and the cohesive leadership team. Susan asserts that the company has consistently met its goals, building trust with stakeholders. John Griffith, the incoming CEO, acknowledges Susan's contributions and expresses his excitement about leading the company. He anticipates a strong future and begins to discuss the company's 2024 highlights.

The paragraph outlines the company's key accomplishments in 2024, emphasizing that their financial results met expectations with earnings of $5.39 per share, boosted by favorable weather and additional interest income. The company achieved over 8% EPS growth, completed significant rate cases to support infrastructure investments, and added nearly 70,000 customer connections, meeting their 2% growth target. With over $3 billion invested in infrastructure, the company demonstrated strong execution and remains committed to providing safe, reliable service to 14 million customers. Looking ahead, the company reaffirms its 2025 earnings guidance of $5.65 to $5.75 per share, anticipating continued EPS and dividend growth driven by rate base growth.

The paragraph discusses American Water's strong position as a regulated utility with a broad geographic footprint and diverse regulatory landscape, contributing to its low-risk growth plans. The company's focus on basic infrastructure renewal, affordability, and sustainability drives shareholder value, with expected consistent EPS growth of 7% to 9% through 2029 and beyond. The company remains committed to addressing infrastructure and water quality challenges, pairing this with significant capital investments to support earnings and dividend growth. The paragraph then transitions to David Bowler, who congratulates Susan on her upcoming retirement and John on his new CEO role. David reports that American Water's 2024 earnings increased by $0.49 per share from 2023, with a portion attributed to drier than normal weather.

The paragraph details a financial performance update, highlighting an increase in revenues by $1.28 per share, largely due to rate increases from rate cases and infrastructure surcharges, acquisitions, organic customer growth, and increased customer demand. Purchase water costs, netted against revenues, increased by $0.08 per share as they are usually recovered. Operating and maintenance costs rose by $0.22 per share, mainly due to employee costs and business growth support, while production costs related to fuel, power, and chemicals also increased. General taxes increased by $0.05 per share owing to property and gross receipts taxes, linked to capital investments and higher revenues, especially in New Jersey. Depreciation and long-term financing costs grew by $0.31 and $0.33 per share respectively, aligning with investment growth. Additionally, $0.09 per share came from interest income after a note amendment related to the sale of homeowner services. In terms of rate cases, seven were completed successfully in 2024, with orders received in Illinois, California, and Kentucky, resulting in Illinois' Commission approving $105 million in annualized revenues effective January 2025.

The paragraph outlines regulatory updates and rate adjustments for American Water in Illinois, California, and Kentucky. In Illinois, the company is maintaining a 9.84% return on equity and a 49% equity layer, consistent with previous rates. In California, a partial settlement was approved, allowing $53 million in incremental annual revenues over three years, with a partial decoupling mechanism. The company is seeking a rehearing to achieve full decoupling for affordable rates and conservation benefits. California also granted an extension for the cost of capital filing until 2026, maintaining the authorized ROE at 10.2% until the end of 2026. In Kentucky, the Public Service Commission approved a final order for $17 million in annual water revenue increases, effective November 6, 2024, after a requested clarification on the May order. The company also has ongoing rate cases in four jurisdictions, as shown on slide twelve.

The company is focused on a significant rate case in Missouri, aiming to recover $1.1 billion in capital investments, with hearings starting soon and new rates expected by mid-2025. They are negotiating settlements and proposing adjustments for investments up to May 2025. Additionally, they are collaborating with an informal coalition of water and gas utilities to advance legislative efforts regarding future test years, with four bills introduced in the current Missouri legislative session. In Virginia, they are awaiting commission approval for a filed settlement. The company plans to file rate cases every two years to maintain their service quality. As of early 2025, their financial position remains strong with a debt-to-capital ratio of 57% and an A rating from S&P, while Moody's maintains a Baa1 rating with a stable outlook.

The paragraph highlights the company's strong regulatory and operational performance across multiple states, supported by low-risk operations and solid financial metrics, particularly the FFO to debt ratio. The company reaffirms its 2025 EPS guidance, projecting 8% annual growth, and outlines its financing plan without issuing new equity in 2025 but with planned issuances of $1 billion in 2026 and $1.5 billion in 2029 to support growth. The timing of these equity issuances will depend on market conditions and the company's capital expenditure and cash flow projections. Additionally, an interest income component from an amended note contributes to the financial strategy, with the note repayment being part of the long-term funding plan.

The paragraph discusses the company's financial flexibility and future plans. They are aligned with their debt and dividend targets, allowing them to adapt plans in response to market changes. Investors can expect regular equity financing based on the investment program and rate cycles. The 2025 financing plan includes $1.5 to $2 billion in long-term debt. Cheryl Norton takes over to discuss the capital program, acquisitions, and growth. She appreciates her collaboration with Susan and expresses confidence in John's leadership. The company has consistently met its capital deployment goals, with a $3.3 billion investment in 2024, including acquisitions. These investments will help maintain water service reliability and are expected to grow the regulated rate base by 8% to 9% long-term.

The paragraph highlights American Water's capital investment strategy, emphasizing balanced customer affordability and necessary system investments, with residential water bills projected to stay at or below 1% of median household income over a decade. The capital spend is focused on replacing aging infrastructure, enhancing system resilience, and improving water quality. A successful year in regulated acquisitions added nearly 70,000 new customers, and future growth is expected through acquisitions with over 24,000 customer connections under agreement. The company plans to invest $300 million to $400 million annually in acquisitions, part of a broader $3 billion capital plan, aiming for a 2% annual growth rate in customers from acquisitions.

The paragraph outlines the company's growth strategy, highlighting that while acquisitions are expected to drive growth, they may fluctuate annually compared to organic capital expenditures. The company is prepared to adapt and reallocate resources as needed for system improvements, such as replacing aging pipes. It emphasizes its long-term strategy and proven track record of meeting earnings projections, projecting continued success into 2025. The company aims to stand out as a premium utility by prioritizing reliable and affordable service. It replaced 400 miles of pipe in 2024, demonstrating commitment to service improvement. The company stresses urgency in its work, citing recent assistance provided to six municipal systems in West Virginia facing service disruptions due to weather and leaks.

In the article paragraph, a local elementary school faced a two-week water service disruption until a company provided a 7,000-gallon water tanker to address the issue. The company remains committed to its regulatory, operational, and financial plans to ensure successful outcomes for its investors. During a Q&A session, Durgesh Chopra from Evercore ISI inquires about any changes in strategy concerning PFAS amid policy updates from Washington, D.C. Cheryl Norton confirms no changes to their investment plans for PFAS compliance, emphasizing their commitment to regulatory standards and safe water. Additionally, Chopra seeks clarification on EPS growth rate projections, questioning whether to include a specific ten-cent adjustment related to loan remarketing in their models.

In the conversation, David Bowler clarifies to Durgesh Chopra that a specific ten-cent element should be excluded from the base and considered separately, as indicated in their presentation. After confirming this, the discussion shifts to Paul Zimbardo from Jefferies, who congratulates John and expresses well-wishes for Susan Hardwick’s retirement. Paul asks about the company's acquisition strategies, specifically regarding business development capabilities across various states. Cheryl Norton explains that the company has increased staffing in their business development group to enhance origination work and has strengthened their corporate support team to drive consistency in integration and due diligence processes. This strategic adjustment is allowing for growth across multiple states, not just one or two, leading to broader organizational growth.

In the paragraph, questions and answers from a corporate earnings call are discussed. John Griffith clarifies that recent changes in language in the company's 10-K report, such as the removal of certain ESG and diversity references, do not indicate a shift in the company's strategy, which remains results-driven. Gregg Orrill from UBS congratulates Susan and John and inquires about potential disruptions in procurement for large capital projects and pipe replacement. Cheryl Norton responds that the company's supply chain is robust, allowing them to efficiently procure necessary supplies for capital investments, including PFAS-related work, with a contract signed with Calgon Carbon to ensure a reliable supply and regeneration of carbon. Overall, they are well-positioned regarding material procurement for their projects.

The conversation in the paragraph centers around the topics of customer usage and growth, and includes several participants. Cheryl Norton discusses a slight plateau in the long-standing decline of usage per customer, linked to increased conservation awareness, but notes this isn't a major concern as they have ample capacity. Jonathan Reeder of Wells Fargo congratulates Susan and John on their transition announcements and touches on the Missouri rate case, with John Griffith expressing optimism about reaching a settlement before the hearings. Reeder also notes growth in electric and gas customer usage due to increased manufacturing demand and AI-related activities.

The paragraph involves a discussion about the impact of economic development, particularly related to AI data centers, on utility services. John Griffith responds to Jonathan Reeder's inquiry, noting that there is a slight increase ("trickle") in demand for water and infrastructure development due to economic development opportunities. However, he emphasizes that significant demand increases are not expected and the water industry generally has excess capacity. Angie Storozynski then shifts the discussion towards financing options, questioning whether the company is considering hybrid financial products instead of traditional equity, given the water sector's reduced valuation. David Bowler responds that while they consider all financial products, hybrids are not deemed cost-effective at the moment. Susan Hardwick and Angie briefly discuss the leadership transition, acknowledging the end of an era with Susan's tenure.

The paragraph discusses the challenges and strategies in managing earnings growth through mergers and acquisitions (M&A) and organic capital expenditures (CapEx). Cheryl Norton explains that M&A deals can be unpredictable and may extend beyond the planned timeline, causing variability in earnings. However, the company has numerous growth projects ready to ensure it meets its capital spending targets and stabilizes earnings growth. Adding customers through acquisitions is crucial for spreading costs and enhancing affordability. John Griffith adds that the necessity for acquiring target systems remains strong, and the reasons for municipalities or companies to sell are increasing, indicating continued opportunities for acquisitions.

In the article paragraph, Angie Storozynski questions the legal steps being taken regarding the retention of full decoupling in California following a commission's decision, to which David Bowler confirms that a motion for rehearing has been filed. The conversation then transitions to Anthony Crowdell, who asks about the timing of equity financing related to capital expenditure needs, and David Bowler clarifies that the company plans to issue financing as needed to maintain a strong balance sheet. Richard Sunderland also congratulates Susan and John before asking a brief follow-up question.

The paragraph discusses a financial strategy related to a note initially set at $720 million with a 7% interest rate. This note was amended to a 10% interest rate in early 2024, and an additional earn-out payment of $75 million was added to it. The company expects proceeds of $795 million and aims to cover the 7% interest without affecting earnings, thus no dividends will be paid out. The note matures in December 2026, but it can be called earlier. Richard Sunderland then asks about legislative developments in Missouri concerning utility regulations and Cheryl Norton explains that they have been working to improve the regulatory environment.

The article paragraph features a discussion about efforts to address regulatory lag in the utility industry, highlighting collaboration with other utilities and regulatory bodies to improve the environment, specifically focusing on future test year legislation. Richard Sunderland thanks the speaker, and an operator introduces a question from Gregg Orrill of UBS regarding the non-utility business results. David Bowler indicates that detailed disclosure is not provided, while Cheryl Norton expresses enthusiasm for future plans, particularly in the military services group, emphasizing alignment with regulated businesses and readiness to pursue utility privatization projects at military bases.

The Q&A session and the conference have ended, and attendees are thanked for participating. They are informed that they can now disconnect from the presentation.

This summary was generated with AI and may contain some inaccuracies.