10-QPeriod: Q3 FY2018

American Water Works Company, Inc. Quarterly Report for Q3 Ended Sep 30, 2018

Filed October 31, 2018For Securities:AWK

Summary

American Water Works Company, Inc. (AWK) reported its third-quarter 2018 financial results, demonstrating resilience and strategic progress. For the nine months ended September 30, 2018, total operating revenues increased to $2.59 billion, up 2.1% year-over-year, primarily driven by growth in its Regulated Businesses driven by authorized rate increases and acquisitions, as well as expansion in its Market-Based Businesses through the acquisition of Pivotal Home Solutions. Net income attributable to common stockholders was $455 million for the nine-month period, a 6.6% increase compared to the prior year, reflecting the benefit of lower federal income tax rates enacted by the Tax Cuts and Jobs Act (TCJA). Key strategic initiatives included significant capital investments totaling $1.5 billion for infrastructure improvements and acquisitions, underscoring the company's commitment to long-term growth and operational efficiency. Despite a notable non-cash goodwill and intangible asset impairment charge of $57 million related to the Keystone business, the company maintained a strong financial position with $116 million in cash and cash equivalents and restricted funds and a consolidated debt to capitalization ratio of 0.59 to 1.00. AWK continues to focus on its five central themes: safety, customers, people, growth, and technology, positioning itself for continued value creation for its shareholders.

Financial Highlights

49 data points
Beta

Revenue

$955.00M

Net Income

$187.00M

19.6% Net Margin

EPS (Diluted)

$1.04

Total Assets

$20.88B

Cash & Equivalents

$86.00M

Free Cash Flow

$70.00M

Financial Statements
Beta
Revenue$955.00M
Operating Expenses$641.00M
Operating Income$335.00M
Net Income$187.00M
EPS (Basic)$1.04
EPS (Diluted)$1.04
Shares Outstanding (Basic)181.00M
Shares Outstanding (Diluted)181.00M

Key Highlights

  • 1Operating revenues for the nine months ended September 30, 2018, increased to $2.59 billion, up 2.1% from the prior year, driven by rate increases and acquisitions in Regulated Businesses and growth in Market-Based Businesses.
  • 2Net income attributable to common stockholders for the nine months ended September 30, 2018, rose to $455 million, an increase of 6.6%, benefiting from the lower federal corporate income tax rate.
  • 3Capital expenditures for the first nine months of 2018 were $1.5 billion, allocated to infrastructure improvements, the acquisition of Pivotal, and smaller regulated business acquisitions.
  • 4The company recorded a $57 million non-cash, pre-tax impairment charge related to goodwill and intangible assets for its Keystone business, stemming from operational and financial challenges.
  • 5AWK completed a significant debt offering of $1.325 billion to fund operations, repay debt, and for general corporate purposes.
  • 6Adjusted diluted earnings per share (non-GAAP) increased by 11.5% for the nine months ended September 30, 2018, compared to the prior year, reflecting operational growth and integration efficiencies.
  • 7The company received rate authorizations for annualized revenues totaling $100 million from general rate cases and $15 million from infrastructure surcharges in various states during the first nine months of 2018.

Frequently Asked Questions

The TCJA, which reduced the federal corporate income tax rate from 35% to 21%, significantly lowered American Water's effective income tax rate. For the nine months ended September 30, 2018, this reduction contributed to a decrease in the provision for income taxes and an increase in net income. The company is also working with its regulators to pass on a portion of these tax savings to customers through rate adjustments.

The acquisition of Pivotal Home Solutions on June 4, 2018, contributed to the growth in the Market-Based Businesses segment. It increased operating revenues and, while incurring integration expenses, these were lower than projected in the third quarter, positively impacting adjusted diluted earnings per share.

The impairment charge of $57 million for Keystone was due to operational and financial challenges encountered in its construction business. The company decided to narrow the scope of Keystone's operations to focus solely on water transfer services, which necessitated the impairment testing and subsequent write-down of goodwill and intangible assets.

American Water plans to invest between $2.0 billion and $2.1 billion for the full year 2018, encompassing capital expenditures for infrastructure improvements and acquisitions. The company continues to pursue growth through strategic acquisitions and investments in its regulated utility infrastructure, aiming to enhance service reliability and expand its customer base.