10-QPeriod: Q2 FY2019

American Water Works Company, Inc. Quarterly Report for Q2 Ended Jun 30, 2019

Filed July 31, 2019For Securities:AWK

Summary

American Water Works Company, Inc. (AWK) reported solid financial results for the second quarter and first six months of 2019, demonstrating continued growth and operational stability. Revenue growth was primarily driven by rate increases in regulated operations and expansion in market-based businesses, including contributions from recent acquisitions. The company maintained its financial strength, as evidenced by its affirmed credit ratings and a significant debt offering that was used to support its growth initiatives and refinance existing obligations. Key to the company's performance is its ongoing investment in infrastructure, reflected in substantial capital expenditures. AWK continues to execute its strategy focused on safety, customer service, people, growth, and operational excellence. Despite some challenges like lower water demand due to weather, the company's diversified business model and regulated revenue streams provide a resilient foundation. Management remains confident in the company's ability to fund its liquidity needs and support its strategic objectives.

Financial Highlights

49 data points
Beta

Revenue

$863.00M

Net Income

$170.00M

19.7% Net Margin

EPS (Diluted)

$0.94

Total Assets

$21.85B

Cash & Equivalents

$64.00M

Free Cash Flow

-$74.00M

Financial Statements
Beta
Revenue$863.00M
Operating Expenses$580.00M
Operating Income$302.00M
Net Income$170.00M
EPS (Basic)$0.94
EPS (Diluted)$0.94
Shares Outstanding (Basic)181.00M
Shares Outstanding (Diluted)181.00M

Key Highlights

  • 1The company reported an increase in diluted earnings per share (EPS) for both the three and six-month periods ending June 30, 2019, compared to the prior year, indicating improved profitability.
  • 2Operating revenues saw a notable increase, driven by authorized rate increases in regulated businesses and growth in market-based segments, including contributions from acquisitions like the City of Alton, Illinois wastewater system.
  • 3Capital expenditures remained substantial, with $792 million invested in the first six months of 2019, primarily for infrastructure improvements and strategic acquisitions, signaling continued investment in long-term asset growth.
  • 4American Water Capital Corp. successfully completed a $1.10 billion debt offering, enhancing liquidity and providing funds for growth initiatives and debt refinancing.
  • 5Credit ratings were affirmed by Standard & Poor's ('A' long-term, 'A-1' short-term) and updated by Moody's (senior unsecured debt to 'Baa1'), reflecting the company's stable financial position.
  • 6The company is actively managing its operational efficiency, with the adjusted O&M efficiency ratio for regulated businesses remaining stable at 35.4% for the twelve months ended June 30, 2019.
  • 7Market-based businesses showed strong revenue growth (15.8% for the quarter, 24.3% for the six months), largely attributed to the acquisition of Pivotal Home Solutions and new military contracts.

Frequently Asked Questions

American Water Works reported increased net income and diluted earnings per share for both the three-month and six-month periods ending June 30, 2019, compared to the same periods in 2018. This growth was supported by higher operating revenues from regulated businesses due to rate increases and acquisitions, as well as solid performance from market-based businesses. Capital investments remain robust, indicating a commitment to infrastructure growth.

AWK primarily funded its operations and growth through cash flows from operations, complemented by significant debt financing. A key event was the $1.10 billion debt offering by American Water Capital Corp. (AWCC) in May 2019, which provided capital for lending to parent and subsidiary companies, debt repayment, and general corporate purposes. AWK also has a substantial revolving credit facility available.

Acquisitions played a significant role in AWK's growth, particularly in the market-based businesses. The acquisition of Pivotal Home Solutions continued to contribute to revenue and O&M expense increases in the Homeowner Services Group. In regulated businesses, the company acquired the City of Alton, Illinois' regional wastewater system and entered into agreements for further regulated acquisitions, adding customers and revenue streams.

The company disclosed ongoing litigation, including the Dunbar, West Virginia Water Main Break Class Action Litigation and various proceedings related to water supply projects in California. While the company believes it has meritorious defenses, the ultimate outcome and financial impact of these matters are uncertain, and management cannot reasonably estimate potential losses for all proceedings. The company also mentioned that its regulated businesses are subject to state utility commissions, and rate case outcomes can impact future revenues.