10-QPeriod: Q2 FY2023

American Water Works Company, Inc. Quarterly Report for Q2 Ended Jun 30, 2023

Filed July 26, 2023For Securities:AWK

Summary

American Water Works Company, Inc. (AWK) reported solid financial results for the second quarter and first half of 2023, demonstrating continued growth driven by rate increases and strategic acquisitions. Diluted earnings per share (EPS) increased by 20% and 25% for the three and six-month periods, respectively, compared to the prior year, reaching $1.44 and $2.37. This growth was primarily fueled by new rates implemented in its regulated businesses, which helped offset increased operating costs due to inflation, higher fuel, chemical, and pension expenses. The company continues to execute its growth strategy through significant capital investments in infrastructure and regulated acquisitions. AWK invested $1.2 billion in the first six months of 2023, with plans to invest approximately $2.9 billion for the full year. This investment is crucial for maintaining and upgrading its essential water and wastewater systems. Furthermore, AWK has a robust pipeline of pending acquisitions, aiming to add a significant number of customers. The company also highlighted its strong liquidity position, with total available liquidity of $3.47 billion as of June 30, 2023, bolstered by a recent equity offering and senior notes issuance which improved its financial flexibility.

Financial Highlights

47 data points
Beta

Revenue

$1.09B

Net Income

$280.00M

25.7% Net Margin

EPS (Diluted)

$1.44

Total Assets

$29.50B

Cash & Equivalents

$794.00M

Free Cash Flow

-$198.00M

Financial Statements
Beta
Revenue$1.09B
Operating Expenses$665.00M
Operating Income$432.00M
Net Income$280.00M
EPS (Basic)$1.44
EPS (Diluted)$1.44
Shares Outstanding (Basic)195.00M
Shares Outstanding (Diluted)195.00M

Key Highlights

  • 1Revenue growth in the regulated segment was driven by a $140 million increase in the second quarter and $222 million increase in the first half of 2023, largely due to authorized rate increases and infrastructure surcharges.
  • 2Diluted EPS increased by 20% to $1.44 for Q2 2023 and by 25% to $2.37 for the first half of 2023 compared to the prior year periods.
  • 3Capital expenditures totaled $1.15 billion in the first six months of 2023, with a full-year projection of $2.9 billion, primarily for infrastructure improvements and replacements.
  • 4The company successfully completed a significant public offering of common stock in March 2023, raising approximately $1.69 billion, which was used to repay short-term debt and for general corporate purposes.
  • 5AWK's liquidity position improved significantly, with total available liquidity reaching $3.47 billion as of June 30, 2023, up from $1.58 billion at the end of 2022, supported by cash flows and credit facilities.
  • 6The company is actively pursuing several pending acquisitions, which are expected to add approximately 74,800 customers upon closure.
  • 7Management estimates potential capital expenditures exceeding $1 billion over three to five years to comply with proposed EPA regulations on PFAS in drinking water, alongside estimated annual operating expenses of $50 million.

Frequently Asked Questions

The primary driver of revenue growth in the second quarter of 2023 was authorized rate increases, including infrastructure surcharges, which are essential for funding capital investments across various states. Acquisitions and organic growth in existing systems, along with favorable weather conditions leading to higher water usage, also contributed positively.

American Water offset increased operating costs, such as those related to inflation, fuel, chemicals, and pensions, primarily through new rates implemented in its regulated businesses. Approximately 75% of the estimated impact of these increased costs was recovered through higher revenues from recently completed rate cases.

American Water's growth strategy is focused on continued capital investment in its infrastructure to ensure safe, clean, and reliable water and wastewater services, as well as pursuing regulated acquisitions to expand its customer base. The company plans to invest approximately $2.9 billion in 2023 for these initiatives, with a significant portion allocated to infrastructure improvements and replacements.

American Water is actively monitoring the proposed EPA regulations for PFAS and has submitted comments to the EPA. The company estimates potential capital expenditures exceeding $1 billion over a three-to-five-year period to install necessary treatment facilities, along with estimated annual operating expenses of approximately $50 million for testing and treatment. They advocate for policies that hold polluters accountable while also ensuring customer affordability.