American Water Works Company, Inc. (AWK) Q2 2026 Earnings Report, Transcript and Summary

Good morning, and welcome to American Water’s Second Quarter 2026 Earnings Conference Call. As a reminder, this call is being recorded and is also being webcast with the accompanying slide presentation through the company’s Investor Relations website. The audio webcast archive will be available for one year on American Water’s Investor Relations website. I would now like to introduce your host for today’s call, Aaron Musgrave, Vice President of Investor Relations. Mr. Musgrave, you may begin.

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. Let me first go over some safe harbor language. Today, we will be making forward-looking statements that represent our expectations regarding our future performance or other future events. These statements are predictions based on 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 second-quarter earnings release and Form 10-Q, each filed yesterday with the SEC. This call will include a discussion of non-GAAP financial information. A reconciliation of our historical adjusted earnings per share to GAAP earnings per share and other disclosures related to our non-GAAP financial information can be found in the appendix of the slides for this call. And finally, all statements during this presentation related to earnings and earnings per share refer to diluted adjusted earnings and earnings per share. With that, I will turn the call over to American Water’s President and CEO, John C. Griffith.

Thanks, Aaron, and good morning, everyone. Let’s turn to Slide 5. I will start by covering some highlights of the second quarter and first half of the year. As we announced yesterday, we delivered solid financial results in the second quarter and through the first half of 2026. Adjusted earnings were $1.61 per share for the second quarter compared to $1.49 per share for the same period last year. In the first six months of 2026, adjusted earnings were $2.62 per share compared to $2.51 per share in the same period of 2025. With this strength across the business, combined with our expectations for the rest of the year, we continue to be on track to achieve our full-year earnings guidance, which we have again affirmed along with our long-term targets. David will share more about our results and guidance a bit later. I also want to acknowledge the great work of our state and corporate regulatory teams as they continue to successfully execute our regulatory strategy with rate cases and merger proceedings, which I will talk more about shortly. We have completed three rate cases already in 2026 in West Virginia, Maryland, and Pennsylvania, all of which authorized recovery of nearly 100% of the capital investments we have made in each state. As we have discussed with investors many times over the years, we strategically choose to operate in a diverse set of regulatory environments that we believe have been and will remain supportive of water and wastewater utility investments and consolidation. American Water continues to receive healthy support at the state level for the work that we do. We, along with utility commissions, all share a strong desire to promote customer affordability, resilient and reliable services, and financially strong utilities. We look forward to continuing to provide common-sense solutions for the benefit of customers and communities across our 14-state footprint. Moving on to some of our other key accomplishments so far in 2026, we have invested $1.8 billion in capital projects and acquisitions year to date. This reflects our focus on making investments to better serve our customers and to grow the business. As we have said, growing to scale in our states greatly benefits our operating efficiency and long-term customer affordability. Speaking of customer growth, we were very pleased to close on the acquisition of systems from Nexus Water Group ahead of schedule on June 1. Our teams did a great job of achieving all eight requisite state approvals in a timely and constructive manner. We are also excited to continue our progress on the municipal acquisition front, with approximately 57,000 customer connections under agreement as of June 30. Overall, we are well on our way to executing our capital plan for 2026 and achieving our target of 2% customer growth. These efforts align squarely with our mission to provide safe, clean, reliable, and affordable service to our customers. Turning to Slide 6, I am pleased to share that we have continued to achieve new milestones in the second quarter related to our proposed merger with Essential Utilities. You may recall, as part of the update we provided with Q1 earnings, we achieved our first state approval, Kentucky, in April. In May and June, we added Ohio and Virginia to the list of approvals received. It is also worth noting that so far, we are hearing good support for the merger during public input hearings, including in Pennsylvania in April and May. In other states, the merger cases are proceeding as planned, including very good progress in Texas, where we have reached a settlement in principle. We remain very pleased with our integration planning to date and the constructive relationships that continue to develop between the American Water and Essential Utilities teams. Consistent with our messaging from the merger announcement last October, we expect the merger to close by the end of the first quarter of 2027. With that, I will hand it over to David to cover our financial and regulatory update in further detail. David?

Thanks, John, and good morning, everyone. Starting on Slide 8, I will provide further insights into our financial results for the quarter. Consolidated earnings were $1.61 per share compared to $1.49 per share in Q2 of 2025, representing just over an 8% growth rate. Revenues were higher due to authorized rate increases to recover investments across our states, while depreciation, financing costs, and general taxes increased as expected. Importantly, O&M costs were flat period over period, highlighting our continued focus on cost control while supporting operational and customer needs. Slide 9 shows our financial results for the year so far. Consolidated earnings were $2.62 per share compared to $2.51 per share in 2025, which is well on track with our plans for the year. The variance drivers here are similar to the quarterly drivers, and our outlook for these categories for the year remains unchanged, as you can see from the full-year waterfall in the appendix. As a reminder, the majority of our EPS growth will occur in the second half of the year, with revenue increases in key states expected to go into effect later in Q3. Slide 10 provides a look at our balance sheet and liquidity profile. Our total debt-to-capital ratio as of June 30 was 58%. On May 20, we successfully completed a long-term debt issuance of $500 million at 4.625% that attracted strong demand. In June, we settled 3.4 million shares of our approximately 8 million share equity forwards for net proceeds of $476 million. Our financing plan for 2026 assumes we will settle the remaining equity forwards in Q4. Slide 11 covers the latest regulatory activity in our states. In Pennsylvania, we received a final order in the case that approved a $75 million annualized increase in water and wastewater revenues, compared to the filing that had requested a $160 million increase. The order also approved a return on equity of 9.55% and an equity component of 54.2%. As John mentioned, we believe this was a constructive outcome. We will implement new rates on August 13. On active cases, you can see we have general rate cases in progress in six jurisdictions. To highlight a few of those, in June, we entered into a black-box settlement with staff and several interveners in Virginia, as well as a partial settlement with the Public Advocates Office in California. In New Jersey, as outlined in the procedural schedule, the company is in confidential settlement discussions with the parties to the proceedings, and we hope to be able to announce a resolution soon. In Illinois, our case is progressing as expected, and the next milestones in the case will be evidentiary hearings in August, followed by briefings from all parties in September and then a proposed order due in October. On May 15, we filed a general rate case in Kentucky reflecting $108 million in system investments covering January 2027 through December 2027. We are seeking $18 million of additional annual revenue and would expect proposed rates to go into effect on an interim basis in December 2026. Intervenor testimony is set for August and rebuttal testimony in September. And lastly, on July 1, we filed a general rate case in Missouri reflecting $1.6 billion in system investments covering the period from June 2025 through May 2028. We are seeking $179 million of additional annual revenue, and we expect proposed rates to go into effect in June 2027. Importantly, with this case, this is the first case using the fully forecasted future test-year legislation that was passed last year. Turning to Slide 12. As John mentioned, yesterday, we affirmed our 2026 adjusted EPS guidance range of $6.02 to $6.12 per share. This represents our expectation of again delivering 8% EPS growth in 2026 while continuing to provide high-quality, affordable service to our customers. We also continue to expect to achieve EPS and dividend growth well within the 7% to 9% range through 2030 and beyond. With that, I will turn it over to Cheryl to talk more about our capital program and our recent acquisition activity.

Thanks, David, and good morning, everyone. Starting on Slide 14, we successfully invested in many needed capital projects across our footprint in the first half of 2026. We have deployed $1.8 billion this year to renew our infrastructure, improve resiliency, and address water quality challenges, as well as add new systems, including those acquired from Nexus Water Group. These investments are crucial for us to deliver on our core mission of consistently providing clean and reliable water and wastewater services, and we remain vigilant about utilizing our scale and expertise to control costs and keep bills affordable for our customers. We are hyper-focused on staying balanced between affordability and making necessary investments in our systems. We remain confident that American Water’s average monthly residential water bills will stay at or below 1% of median household income for many years to come. Concluding on Slide 15, we continue to be well positioned for growth through acquisitions across many states, as our track record of signing and closing deals continues in 2026. We were excited to begin serving the customers of the acquired Nexus Water systems at the beginning of June, which was a few months ahead of our initial estimated timeline. We look forward to leveraging our scale and size to deliver safe, clean, reliable, and affordable water and wastewater services to the 47,000 new customer connections and to welcoming the 70 local employees who already call these communities home. Zooming out, as of June 30, we had approximately 57,000 customer connections under agreement across six states, totaling $236 million. There are many systems across our fragmented industry that have underinvested in the necessary capital to operate their systems, and we believe we can be a solutions provider for these communities. With that, I will turn it back over to our operator to begin Q&A and take any questions you may have.

Thank you. We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. And at this time, we will pause momentarily to assemble our roster. And the first question will be from Paul Zimbardo from Jefferies. Please go ahead.

Hi. Good morning, team.

Hi. Good morning.

Thanks for taking the time. I promise no Pennsylvania questions for a change. Starting in Missouri, just with that forecast year, is there any way to quantify what the benefits of that kind of change would be? Or, said differently, what the rate increase would have been versus that $179 million if it was more of a historical filing?

Paul, this is David. We have not quantified it. I mean, for practical purposes, I think one way you could do it is you could go back and look at our prior cases and what that filed increase would be. I mean, that is not a complete apples-to-apples comparison, but that could give you an idea.

Okay. No. It looked like a decent pickup, potentially. So I was just curious there. And the other was Indiana, kind of two parts. I know there is an affordability process in the state. It seems like it is not focused on water, but I am curious about your thoughts there. And also, I know there was some legislation passed, which seemed like it could give you a little bit of incremental recovery on some chemical costs and others. Just curious about overall Indiana affordability and legislation, if you could. Thank you.

Yeah. Paul, I would say we still feel good about Indiana. From everything we are seeing in the state, it is focused on the electric affordability story there. Our rates are very affordable in Indiana and continue to be in our forecast to be there. So we feel good. As far as the legislation, yeah, it is beneficial to us. I mean, it is not overly material from an American Water standpoint, but certainly, little wins like that help.

Okay. Understood. No. Thank you very much, team.

Thank you. And the next question will be from Shahriar Pourreza from Wells Fargo. Please go ahead.

Actually, it is Andrew Kavadlo on for Shar. Thanks for taking my questions.

Good morning, Andrew.

Has the Pennsylvania PUC commentary on the frequency of your rate cases changed your regulatory strategy in the state? Or do you see the 25 basis points of ROE for less regulatory lag as an acceptable trade-off?

Thanks for the question, Andrew. With regard to our strategy in Pennsylvania, our real focus and what underpins our rate cases in the state is the capital investment that we make. They are really investment-driven rate cases. As we look to recover, we can continue to do that under general rate cases. Another area that we are exploring is a broadening of our DSIC mechanism, which could be useful in a couple of ways, giving us interim recovery in between rate cases, which also has the benefit of smoothing in increases over time, which is helpful from an affordability perspective. I would say water in the state, as it relates to mechanisms, is a little bit behind electric. In other states, we have had the opportunity to update the mechanism. And certainly, from our perspective in PA, if we can get some traction in being able to do that, that could be helpful from a cadence perspective. But at the end of the day, for us, our obligation in PA, as in all of our states, is to provide good service. That requires capital. That is what drives the rate cases. And so we will look for the most constructive form of recovery.

Makes sense. And then staying in Pennsylvania, has the affordability noise and Shapiro’s intervention in the Peoples Gas case had any potential impact, maybe, on the approval of the Essential merger? How should we think about that?

Approval for the merger is really just judged under a standard in the state. Each state has its own standard. In the case of Pennsylvania, it is substantial affirmative public benefit. That can come in a variety of ways. Certainly, affordability is a theme across the state and other states. But our job with respect to the merger is to be able to demonstrate substantial affirmative public benefit. We think that we have done that in our testimony. So we are in settlement discussions there, and so we will continue to push there.

Thank you. I will leave it there.

Again, if you would like to ask a question, please press star, then one. Our next question is from Angie Storozynski from Seaport. Please go ahead.

Thank you. I was about to ask about the DSIC. Could you maybe tell us what percentage of your CapEx currently qualifies for recovery under this rider? And what would it take to actually increase, you know, how much of the spending is recoverable? Thank you.

Hey, Angie. Good morning. Thanks for that question. Currently, it is about 40%, give or take, depending on the year. But you can roughly think 40% of our capital in Pennsylvania falls under the DSIC mechanism.

And would you need some sort of legislation to basically expand the CapEx that qualifies?

Yes. Under the current legislation that allows DSIC, we would need to amend that to include additional capital to fall under that mechanism.

And Angie, John here, just to follow on David’s response. I think there is a cap element to the DSIC, and then there is eligibility in terms of assets that is available. And so David correctly said legislation is for a wholesale change. There may be work that can be done in a regulatory pathway around the edges that could be helpful. You know, when you think about David’s 40% answer, I think the answer to that question from an electric perspective is somewhere in the neighborhood of 90%. And that is really, you know, when we look at what is eligible for us, you know, think in terms of underground piping. And that is where water, you know, when you think about treatment, think about PFAS, storage tanks, things like that, the more we can broaden eligibility, then that would be helpful.

Okay. And then separately, you obviously still have the merger proceeding pending. It did not seem to have impacted the distribution rate case, which, I mean, is definitely good news. But I am just wondering, is there any chance that you could actually stay out of rate cases longer once you become a larger company? I mean, there have to be some economies of scale driven by the enlarged operations in Pennsylvania.

There certainly will be economies associated with the merger over time. I will say in the near term, as we begin to go through our integration planning, you know, both companies have a—and together as one company, we will have a need, really, for the people, by and large, that we have today. Both companies individually and together still have the need to invest all of the capital that we are investing. And it is that capital investment that really drives the timing of rate cases for capital recovery.

Very good. Thank you.

Thank you. And ladies and gentlemen, as there are no more questions, this concludes our question-and-answer session. We thank you for attending today’s conference call. You may now disconnect your lines. Take care.