10-QPeriod: Q1 FY2015

American Water Works Company, Inc. Quarterly Report for Q1 Ended Mar 31, 2015

Filed May 6, 2015For Securities:AWK

Summary

American Water Works Company, Inc. (AWK) reported its first-quarter results for 2015, showing growth in both regulated and market-based operations. The company's net income increased year-over-year, driven by higher operating revenues and improved operational efficiency. Key to this performance were rate increases in regulated segments and growth in military contracts within market-based operations. Despite the positive results, investors should note the company's ongoing capital expenditures to improve infrastructure and its commitment to acquisitions and strategic investments. AWK's focus on operational efficiency, as demonstrated by an improved O&M efficiency ratio, along with a steady dividend payout and a share repurchase program, suggests a continued commitment to shareholder value. However, the company faces ongoing regulatory proceedings and potential environmental liabilities, which warrant careful monitoring.

Financial Highlights

44 data points
Beta

Revenue

$698.08M

Net Income

$80.00M

11.5% Net Margin

EPS (Diluted)

$0.44

Total Assets

$16.26B

Cash & Equivalents

$24.00M

Free Cash Flow

$198.62M

Financial Statements
Beta
Revenue$698.08M
Operating Expenses$494.00M
Operating Income$204.00M
Interest Expense$75.67M
Net Income$80.00M
EPS (Basic)$0.45
EPS (Diluted)$0.44
Shares Outstanding (Basic)179.00M
Shares Outstanding (Diluted)180.00M

Key Highlights

  • 1Consolidated operating revenues increased by 2.8% to $698.1 million in Q1 2015 compared to Q1 2014.
  • 2Net income increased to $80.0 million ($0.44 per diluted share) in Q1 2015, up from $68.1 million ($0.38 per diluted share) in Q1 2014, driven by higher revenues and favorable operational results.
  • 3Regulated Businesses segment operating revenues grew by 1.3% to $615.4 million, supported by rate increases and infrastructure surcharges.
  • 4Market-Based Operations segment operating revenues increased by 15.3% to $87.5 million, driven by growth in military contracts and homeowner services.
  • 5The company reported an improved O&M efficiency ratio for its Regulated Businesses of 36.3% for the twelve months ended March 31, 2015, down from 38.0% in the prior year.
  • 6Capital expenditures for the first three months of 2015 were $226.4 million, with a full-year plan of $1.2 billion focused on infrastructure improvements and acquisitions.
  • 7The company declared a quarterly cash dividend of $0.34 per share, payable in June 2015, reflecting its commitment to returning value to shareholders.

Frequently Asked Questions

The increase in net income was primarily driven by higher operating revenues across both the Regulated Businesses and Market-Based Operations segments, along with improvements in operational efficiency within the Regulated Businesses segment. Favorable regulatory decisions, such as the California general rate case finalization and infrastructure charge authorizations, also contributed.

The company is investing in future growth through capital expenditures focused on infrastructure improvements in its Regulated Businesses. Additionally, AWK has a capital plan that includes allocations for acquisitions and strategic investments. An example is the agreement to acquire Environmental Disposal Corporation (EDC) in New Jersey.

Key risks and contingencies include ongoing legal proceedings, particularly related to the Freedom Industries chemical spill in West Virginia, and environmental matters such as the diesel fuel tank overflow incident in Virginia. While the company believes these matters will not materially affect its financial position, there's always uncertainty in litigation outcomes.

The O&M efficiency ratio for Regulated Businesses is a non-GAAP measure calculated as regulated operation and maintenance expense divided by regulated operating revenues, adjusted for certain items. American Water Works Company views this as a direct measure of operational efficiency. The ratio improved to 36.3% for the twelve months ended March 31, 2015, from 38.0% in the prior year, indicating better efficiency, driven by increased regulated revenues and decreased O&M expenses.