01—Abstract
Summary
Summary of the 10-Q filed October 30, 2019. Cited figures are marked; the original filing is the authoritative source.
American Water Works Company, Inc. (AWK) reported solid financial results for the nine months ended September 30, 2019, demonstrating consistent growth and strategic execution.
The company's net income attributable to common shareholders increased by 14.9% year-over-year to $523 million, with diluted EPS rising to $2.89a from $2.53 in the prior year period. This growth was driven by continued investment in regulated infrastructure, strategic acquisitions in its regulated water and wastewater systems, and expansion of its market-based businesses, notably through the Military Services Group (MSG). Financially, the company strengthened its balance sheet by issuing $1.1 billion in long-term debt, which was used to fund growth initiatives and refinance existing obligations.
Cash flow from operations remained robust, although slightly lower than the prior year due to a one-time settlement of cash flow hedges. Capital expenditures were significant, totaling $1.115 billionb for infrastructure improvements and acquisitions, underscoring the company's commitment to long-term asset enhancement and service expansion. Despite facing some regulatory and legal matters, AWK appears well-positioned to navigate these challenges and continue its growth trajectory in the essential water utility sector.
02—Key points
Key Highlights
- Net income attributable to common shareholders increased to $523 million for the first nine months of 2019, up from $455 million in the same period of 2018.
- Diluted earnings per share (EPS) rose to $2.89 for the nine months ended September 30, 2019, compared to $2.53 in the prior year.
- The company invested approximately $1.25 billion in capital expenditures during the first nine months of 2019, focused on infrastructure improvements ($1.17 billion) and regulated business acquisitions ($85 million).
- AWK secured significant new contracts for its Military Services Group (MSG), including operation and maintenance of water and wastewater systems at Joint Base San Antonio and the U.S. Military Academy at West Point, with estimated aggregate revenues of $967 million over 50 years.
- The company successfully issued $1.1 billion in long-term debt in May 2019 to support growth initiatives, including lending to its parent company and regulated subsidiaries, and to repay maturing debt.
- Operating revenues increased by $118 million (4.6%) to $2.708 billion for the first nine months of 2019, driven by rate increases in regulated businesses and growth in market-based segments.
- The company's adjusted O&M efficiency ratio for the Regulated Businesses improved to 35.0% for the twelve months ended September 30, 2019, from 35.7% in the prior year period, indicating operational improvements.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2019filed October 30, 2019Financial Statements
Q3 FY2019 against Q3 FY2018
| Line item | Q3 FY2019Q3 FY2018 | Change |
|---|---|---|
| Revenue | $1.01B$955.00M | +6.1% |
| Operating Expenses | $607.00M$641.00M | −5.3% |
| Operating Income | $406.00M$335.00M | +21.2% |
| Net Income | $240.00M$187.00M | +28.3% |
| EPS (Basic) | $1.33$1.04 | +27.9% |
| EPS (Diluted) | $1.33$1.04 | +27.9% |
| Shares Outstanding (Basic) | 181.00M181.00M | 0.0% |
| Shares Outstanding (Diluted) | 181.00M181.00M | 0.0% |
05—Questions
Frequently Asked Questions
What were the main drivers of American Water's revenue growth in the first nine months of 2019?
Revenue growth was primarily driven by authorized rate increases and infrastructure surcharges in its Regulated Businesses, water and wastewater acquisitions, and organic growth in existing systems. Additionally, the Market-Based Businesses, particularly the Homeowner Services Group and Military Services Group, contributed to revenue increases through contract growth and new military contracts.
How is American Water managing its debt and capital structure?
American Water is actively managing its debt by issuing $1.1 billion in new long-term debt in May 2019 to fund growth initiatives and refinance existing debt. The company maintained a consolidated debt to capitalization ratio of 0.60 to 1.00 as of September 30, 2019, which is in compliance with its debt covenants. It also has a significant revolving credit facility providing ample liquidity.
Are there any significant legal or regulatory challenges facing the company?
The company is involved in ongoing legal proceedings, including class action litigations related to water main breaks in West Virginia and Tennessee, and regulatory matters in California concerning desalination plant development. While these matters are being vigorously defended, the company cannot currently estimate the amount of potential losses for some of these proceedings.
How has the adoption of new accounting standards impacted the company?
American Water adopted new lease accounting standards (ASC 842) effective January 1, 2019, which resulted in the recognition of operating lease right-of-use assets and liabilities. This adoption did not materially impact the consolidated results of operations or cash flows, but did increase the balance sheet by approximately $117 million in right-of-use assets and $115 million in lease liabilities.
06—Continue