Good morning, and welcome to American Water's First Quarter 2020 Earnings Conference Call. As a reminder, this call is being recorded and is also being webcast with an accompanying slide presentation through the company's Investor Relations Web site. Following the earnings conference call, an audio archive of the call will be available through May 14, 2020. U.S. callers may access the audio archive toll-free by dialing 1-877-344-7529. International callers may listen in by dialing 1-412-317-0088. The access code for replay is 10142727. The audio webcast archive will be available for one year on American Water's Investor Relations Web site at ir.amwater.com/events.I would now like to introduce your host for today's call, Ed Vallejo, Vice President of Investor Relations. Mr. Vallejo, you may begin.

Thank you, Sean. Good morning everyone, and thank you for joining us for today's call. At the end of our prepared remarks, we will open the call for your questions. During this conference call, both in our prepared remarks and in answers to your questions, we may make forward-looking statements that represent our expectations regarding our future performance or other future events. These statements are predictions based upon our current expectations, estimates and assumptions. However, since these statements deal with future events, they are subject to numerous known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from the results indicated or implied by such statements.Additional information regarding these risks, uncertainties and factors, as well as a more detailed analysis of our financials and other important information is provided in the earnings release and in our March 31, 2020 Form 10-Q, each has filed with the SEC. Reconciliations for non-GAAP financial information discussed on this conference call, including adjusted income, adjusted earnings per share, adjusted return on equity and our adjusted regulated O&M efficiency ratio, can be found in our earnings release and in the appendix of the slide deck for this call. Also, the slide deck has been posted to our Investor Relations page on our Web site. All statements in this call related to earnings and earnings per share refer to diluted earnings and earnings per share.I should also note that consistent with our efforts to ensure the safety and health of our team, we're conducting this call while practicing social distancing and from remote locations. As an example, Walter and Susan are in separate locations. We don't anticipate any technical issues. But if for any reason technical issues do arise, Walter will take over and lead us through the full presentation.That being said, I will now turn the call over to American Water's President and CEO, Walter Lynch.

Thanks, Ed. Good morning, everyone, and thanks for joining us. Today, I'll start by giving you a brief update on our COVID-19 response and then provide key updates on our business. Susan Hardwick, our CFO, will cover the first quarter financial results and provide a few additional comments related to the implications of COVID-19. As you know, American Water provides clean, safe, reliable water and wastewater services and is continuing to do so throughout this pandemic. American Water’s established clear priorities across our organization, focused in three areas; the first is the care and safety of our employees and their families; the second is the safety of our customers and the communities we serve; and the third area of focus is the execution of our preparedness plans, so we can continue to provide essential services and help our communities get through this crisis.Let me give some examples that the measures we've implemented. Because safety is our top priority, we've implemented required work from home policy where possible, as well as social distancing and other enhanced safety measures for employees and customers. For example, we've suspended all nonemergency and home appointments and limited the amount and nature of contact with customers during field appointments. We've also worked hand in hand with labor across the business and supported our employees with paid leave for COVID-19 diagnosis, quarantines and childcare.We suspended billing related service shut offs, suspended late fees and have restored service to customers who were previously shut off for nonpayment. We're also working with customers who are experiencing financial hardships by offering customer assistance programs and access to low income programs. Susan will cover this a bit more later, but we've implemented actions to strengthen our liquidity and ensure access to capital. We also continue to execute on our core strategies,…

Thank you, Walter and good morning, everyone. Let me first start on Slide 12 with a bit more detail on results for the quarter. First quarter 2020 consolidated GAAP earnings were $0.68 compared to $0.62 per share in 2019. In the first quarter of 2020, GAAP earnings were adjusted for depreciation expense that would have been recorded in the quarter related to the New York subsidiary assets, had they not been classified for accounting purposes as assets held for sale. Also, 2019 GAAP earnings were adjusted for a reduction in the settlement liability related to the Freedom Industries chemical spill.Excluding these two adjustments, earnings per share as adjusted increased $0.06 per share or 9.8%, driven primarily by growth in the regulated business. The regulated business segment results increased $0.08 per share or an increase of 13.6% compared to 2019 earnings. The market based business results increased a penny per share and the parent company decreased $0.03 per share compared to 2019, primarily reflecting higher interest expense to support growth in the business.Moving on to Slide 13. Regulated operations increased $0.08 per share in total. We saw $0.14 per share increase from additional authorized revenue and surcharges to support infrastructure investment, acquisition and organic growth. O&M expense increased $0.06 per share and depreciation increased $0.03 per share, both to support regulated acquisitions and growth. Also, results reflected $0.03 per share benefit primarily related to lower pension expense from a higher assumed return on assets used to set expense for 2020.The market based business’s first quarter results increase compared to 2019, primarily by the homeowner services group’s organic growth and contract price increase. Also, as Walter already mentioned, we expect Joint Base San Antonio and the United States Military Academy at West Point, New York to assume operations by the second quarter…

Thanks, Susan. It's been a month since I've had the honor of leading this company as CEO. I want to take a moment to thank all the employees of American Water. Their response to the current health crisis has been simply incredible. Not only are we providing essential services while keeping safety as our top priority, we've invested in water and wastewater systems, welcome new customers who close acquisitions and work with state leaders, regulators and other key officials.We've also had a significant increase in customer satisfaction. We've achieved all this since the beginning of the year. Our company will emerge strong from this COVID-19 pandemic. How we work together throughout this crisis will have a lasting positive impact on our culture of trust and teamwork. I personally can't wait to once again get out to our business, to our plants, to our operating centers, to our call centers and say thanks to our employees. They're simply the best.And with that, we're happy to take your questions.

Thank you. We will now begin the question-and-answer session [Operator Instructions]. Our first question today will come from Durgesh Chopra with Evercore ISI.

Maybe appreciate all the color, just any quantifiable trends, I know it's early on the regulated side in terms of, you mentioned residential demand being higher and commercial industrial perhaps slower. But any quantifiable trends into April and in your regulated subsidiaries? And then also, are you seeing any nonpayments or no payments in your market based businesses? I know it's early on, but anyhow you could provide I’d appreciate it.

Susan, you want to take that and then I'll jump in at the end.

Let me make just a few comments, Durgesh. And again, I would reiterate it is early. And as we think about across all of our jurisdictions the various states implemented restrictions and stay at home orders at different times. So obviously, depending on when that occurred in each of our jurisdictions that's going to impact when we really started to see a shift in demand expectations. I’d again reiterate what I said in our prepared remarks, roughly 70% of our load is residential and as you can imagine, obviously, folks are at home. So we are seeing in our early data that residential sales are up.And again, I’d hesitate to quantify it because it's still so early. In some cases, we may have six weeks worth of demand data. In other cases, we may only have three or four weeks, again, depending on when those measures were put in place. And in some cases, we have real time meters, some cases we don't. So we have to wait until we have actual billing data. But we certainly are seeing residential usage up.On the commercial side, again, it depends on the jurisdiction and depends on the mix of customers in a particular state. But as you can imagine, commercial is trending down, because of business closures, restaurant closing et cetera. And on the industrial side, while in a particular state it could be a material change. And I'll give an example in Kentucky, we've got a large plant there an auto manufacturer. So in the State of Kentucky, we're seeing a pretty substantial decline in industrial sales, because of the concentration there. But overall, our industrial sales makeup is only about 4% of our total.So again, as you sort of roll all that together, residential is up, the other two are down. Our current thinking is that they may tend to offset each other. But I think it also depends on how long this goes. It depends on sort of a variety of factors in each of the jurisdictions. So, again, I'm not getting directly to your quantify it but hopefully, a bit more color there is helpful. On the collection side, again, I'd say it's too early to really see much on the regulated side and we certainly haven't seen anything on the market base side either that gives us immediate concern about collection. On the market based side in particular, I don't think we expect much in the way of difficulties there.Again, we think customers appreciate and are willing to sort of stay with these programs, because it helps them avoid unexpected future expenditures. So we're quite confident we'll be able to retain customers, and with that goes the ability to collect on the fees under those contracts.

And I think the key to the usage, again, back to what Susan was talking about is when do these states get back to normal, when do they start opening up. A lot of the commercial establishments and industrial and obviously, we're tracking that very closely as we work with the governor's offices and our plants and working with them.

And then maybe just real data from the timing of the New York American Water sale. Is that still expected to close? I believe it was late this year. Is that still on track?

Yes, we're still moving forward with the sale. There's no delay in the regulatory process. And we're working very well with Liberty and we expected to closing that late this year or early in 2021, Durgesh .

And then just final one for me, I apologize. In terms of just, some of your peers have talked O&M savings, Walter and Susan, just folks staying on home, less mileage expense. That's expenses in general travel, meals, et cetera. Are you seeing that? And sort of what was the experience, I guess, maybe it's still early to talk about. But any color into what you might have seen versus original plan year-to-date in terms of those expense savings?

Well, let me start and then I'll hand it off to Susan. Durgesh, as you know, in my prepared remarks in over the years we focused very closely on O&M expenses. And so that's part of our culture. We're going to continue to do that. We're going to continue to drive O&M expenses down. So that when we invest, we're asking our customers to pay for that investment and not the O&M cost. So again, it’s part of our culture, we just -- it’s embedded, everybody understands it. And that's, again, the continued focus that we're going to have in this business, not just during the pandemic, as you know. So I'll ask Susan for additional comments.

I think, Walter, you're right on target. The only thing I would add, maybe just as a specific example and you mentioned travel one, obviously, we've implemented no travel across all of our jurisdictions. But what you might not be thinking about is added PPE that we've added for all of our employees, including office employees. So there's added expense there, while we may have saved in other areas. So, the bigger picture is we are still on target for our earnings expectations for the year, and I think our ability to navigate all the variables. And the result as our expectations remain the same, I think that gives a pretty good indication of how we're managing.

Now our next question will come from Richard Verdi with Coker and Palmer.

Good morning, everyone. Thank you for taking my call. And Walter, I just wanted to say congrats on your first call as CEO of the company. It was great so far. I just wanted to start very quickly with the military operation. Typically, its turnaround on new contracts can take 12 to 18 months and it's the same with your peers obviously. And so it just seems kind of quick of a turnaround that we're going to start to see work being done here in the second quarter of 2020. And I was just wondering if you talk a little bit about what made that turnaround so quick, and when we could start to maybe see positive impact on the financials from such turnaround?

On our two new bases, we've been in transition services since we got the award. And we worked very well at both installations with Joint Base San Antonio and West Point, showing the value to the communities. And we're going to be starting full operations, as I said in my prepared remarks in the second quarter. So, I think it's the trust and confidence that they have in our military services group to take over their water and wastewater systems and do it in a professional and amazing way as our group does with our military services group.So again, we're really proud to have those two new installations, particularly West Point, one of the most important military installations in the country. I'm a graduate of West Point [Multiple Speakers] I’d like to say that. But no, we're really proud of our military services group. They've developed a tremendous reputation and brand with the government. And I think it’s the confidence that they have in our group that's move those forward as quickly as we have.

And then kind of follow-up to that. What sort of indication has the company received on potential delays in new rewards, and new bases being awarded because of the COVID crisis? Has there any at all or what's kind of going on in there?

So we're in five active solicitations right now. And we expect still this year to hear on three of those. So we're not seeing any measurable delay on behalf of the government and moving those forward.

And then for the municipal acquisition front, do you think that COVID could cause, I mean what's the feeling internally there where COVID causes municipalities to somewhat become cash straps and maybe accelerate the sales of their water systems to American Water?

Well, we believe looking at the impact of COVID-19 crisis we're going to have on communities that there are going to be a lot of municipalities that are facing financial challenges. And so when you look at what the efforts that we've put in already over the years of building our pipeline. And again our pipeline is 650,000 customer connections. We've worked on fair market value legislation, we've worked on water quality accountability legislation. And when you really add this COVID-19 crisis and we think it will have an impact on the number of communities that we're having discussions with, so being able to show what we can do and providing solutions for them. We do think it's going to have an impact on those discussions, absolutely.

And then just the last question here, thank you for the time. When you look at the guidance for the year of 3.79 to 3.89, and you look into the model, and you also think back to the Analyst Day, of how the company now intends to issue equity at some point over the next five years. Debt to capital is targeted to come down to 59% to 60% range over time, and then we have a CapEx plan and then there's also COVID. At least in my model, when you start to bring down diluted earnings per share below that 3.79 figure into low 3.70s, the flow through impact of that is that your operating cash drops. And you either need to make up for that by issuing debt, which will increase your debt to total capital before you issue more equity, which could possibly dilute the EPS growth rate or you peel back on CapEx. And no one knows what -- you guys are doing a great job obviously so far, but no one knows. If you go on for a long time, it could be really unfavorable. So let's just assume a doomsday scenario. What would be the for -- where would the company look to try to remedy the situation, but also try to keep the long-term growth guidance in range? Does the company say okay, we're going to let our debt ratios maybe kind of at risk and further credit downgrades, do we issue more equity, do we peel back CapEx. I'm sure you guys have kind of ran scenarios internally there. What's kind of a doomsday scenario, what would be a strategy that occurred?

Susan, you want to take that one?

Rich, there's a lot in that question, obviously. And I'd start with just simply saying that where we are today, we are confident in our ability to hit all of the various targets we've laid out. And I think we said that sort of throughout our remarks. We like I'm sure everyone has done a variety of scenarios and in sort of worst case, best case types of analyses. And that's just good financial planning. I would say to you that as you outline them in all of your remarks, we would have many levers to pull. And I'm probably not going to comment beyond that.I just think the strength of the balance sheet and the strength of our credit, the diversity of our operations, there's a whole variety of things about our business model that are set up in a way that makes it possible for us to navigate through situations like this. I made the comment in my remarks that, again, we're built on fundamentals, and we believe this is a very resilient business and I believe that's absolutely true. So to the extent we've got to look at different approaches to manage whatever crises come along, I'm confident in our ability to do so.

And I just actually have one more question, I'll wrap it up with this. Can you guys just refresh my memory again, please with the 3.79 to 3.89 guidance, assuming that was created around a magic number of an expectation of 3.84 for the end of the year, the midpoint of the guidance. What must happen from that 3.84 for actually 3.79 to be reportable? What would need to happen to have that low end of the guidance to be reported?

Susan, you want to take that -- I mean, mostly it’s weather impact, as you know…

Yes, that's all I would say. Yes, I just think just variables like that, that are beyond our control. And that's why we give a range to be able to account for things like that. I think weather would be the largest potential impact.

Our next question will come from Jonathan Reeder with Wells Fargo.

Good morning, Walter and Susan. Hope you're having a good day morning. It was nice for Susan to step aside right when a pandemic was coming down the pike towards your, right? I know you just, you expect constructive treatment. But have any of your largest states, like PA or New Jersey, Missouri, Illinois, taking concrete action with respect to [Technical Difficulty] recovery of incremental COVID-19 costs?

And I'm going to get to sort of an analysis here we've done. We've actually obviously been active with regulators across all the jurisdictions, monitoring their actions and then we certainly developed our own strategy on how we would approach. But we know for certain that California, Maryland, Virginia, have addressed. They've already issued orders on cost deferrals. We have pending proceedings in Illinois and Iowa to do similarly. And we have discussions ongoing in every state but Hawaii, it was just it’s easier and probably say the ones that we don't have. So active discussions or actions already taken across our jurisdictions.

And then Walter, can you maybe talk about the calculus on year-end, as well as the feedback in the states where you have major requests pending. I think you're planning on filing another major rate case yet this year in, I guess it’s Missouri or Illinois. But any apprehension with being in for rates of many customers are facing these economic hardships. You've seen some companies kind of defer filing requests or extend out the timeline, stuff like that. But it sounds like for you guys, it's kind of full steam ahead in some regards?

Jonathan, let me say first that we're very sensitive to the situation that our customers are facing right now. We've been investing as you know, significant amounts in our systems. And this is really getting to recovering that investment. And if you look to Pennsylvania, I know we did file last week but those rates will not be effective for eight to 10 months. So we took that into consideration as we made that decision. New Jersey was already filed in December, so we continue to work with the commission on that and in Virginia and California the same. But we did look at that very closely. But again because of the timing, we felt like filing now for an outcome that's in 2021 is a reasonable decision in our view.

And Walter I might just add to that that we certainly are working closely with regulators around this very question. And we have not received direction or signals really from regulators that we should not proceed sort of as usual. So that's a different answer than customer considerations. It's really just also taking into account what regulators are expecting, and we've not really been pushed to delay the normal process as well.

And then the last question really is just on the military front. Do you expect any new bases will be awarded through the RFP process later this year and either AWK or one of your competitors?

Yes, that's right Jonathan. Of the five that we're pursuing, all indications are they’ll award three this year.

This will conclude today's question-and-answer session. I would like to turn the conference back over to Walter Lynch for any closing remarks.

Well, thank you all for participating in our call today. Please know that we value as Investor owners and as the financial analysts who research our company for the benefit of your clients and their futures. We always want to be open and transparent in all our discussions and dealings with you. So you have confidence in your decisions around our company and investments in our stock. If we've not been able to address your question or if you have additional questions, please call Ed and Ralph and they'll be happy to help. Stay safe and thanks again for listening. Have a nice day, everybody.

The conference has now concluded. Thank you for attending today's presentation. And you may now disconnect.