American Water Works Company, Inc.

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 website. Following the earnings conference call, an audio archive of the call will be available through May 14th, 2020. U.S. callers may access the audio archive toll-free by dialing 1-877-344-7529. International callers may listen by dialing 1-412-317-0088. The access code for replay is 101-42727. The audio webcast archive will be available for one year on American Water's Investor Relations website at ir.amwater.com slash event. 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 make those 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 as 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 website. 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. With that being said, I will now turn the call over to American Waters 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 has continued to do so throughout this pandemic. American Water has 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 of 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 non-emergency 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, quarantine, and childcare. We suspended billing-related service shutoffs, suspended leach 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, such as making needed capital investment. We've increased communications with public service commissions, customers, and public officials. As the COVID-19 impact continues to be assessed, American Water will work constructively with public service commissions as they look to address utility response measures, customer protection, and cost recovery for all regulated utilities in their jurisdictions. Finally, we provided a $500,000 donation to the American Water Charitable Foundation to help fund COVID-19 relief efforts across the United States. This was in addition to a $100,000 donation made to Feeding America to help support food banks. We understand we have a very important role during this crisis. We provide water and wastewater services for hygiene, hospitals, sanitation, and fire protections. We thank all our employees for continuing to provide these essential services. Moving on to first quarter results. The employees of American Water delivered solid results and further strengthened our low-risk profile and predictable growth story. Our first quarter 2020 adjusted earnings per share increased 9.8% compared to first quarter 2019. We invested capital of $457 million in the first quarter of 2020, which is a 36% increase over the same period last year. This increase is driven by the continued investment in our systems and the communities we serve, along with more favorable construction weather this year versus last. As you know, we work hard to minimize the customer bill impacts of these investments through a continued focus on controlling O&M costs. I'll talk more in a moment about our regulated operations, our continuing progress in regulated acquisitions, and their contributions to our long-term growth story. Our market-based businesses were up a penny in earnings per share. This was due primarily to growth in customer contracts from homeowner services. As a reminder, in the third quarter of 2019, our military services group was awarded two military contracts, Joint Base San Antonio in Texas and the United States Military Academy at West Point, New York. We're on track to assume operations by the second quarter of 2020. Moving to slide seven, the foundation of our earnings growth continues to be the capital investment we make in our regulated operations to provide clean, safe, and reliable service to our customers. We believe that long-term financial success depends on effectively executing the fundamentals of our business every day. We plan to invest $20 to $22 billion in capital over the next 10 years to ensure the quality and reliability of our services and to bring water and wastewater solutions to communities across the country. We're affirming our long-term EPS compound annual growth rate in the 7% to 10% range. We also expect our 2020 adjusted earnings to be in the range of $3.79 to $3.89 per share. This is the same range we communicated in February, which should have been identified as an adjusted EPS range. Our gap earnings are expected to be in the range of $3.85 to $3.95 per share. In her comments, Susan will provide additional information about the difference between our gap and adjusted guidance ranges. Also consistent with our previous dividend guidance, on April 29th, our Board of Directors increased our quarterly cash dividend payment from $0.50 per share to $0.55 per share, a 10% increase. We understand that a secure and growing dividend is important to our shareholders while striking the right balance with continuing investment in our regulated operations. Turning to slide eight, let's walk through some of the regulatory highlights of the first quarter of 2020. Pennsylvania American Water filed a general rate case last week requesting $92 million in the first year and $46 million in the second year. Since our last case in 2017, Pennsylvania American Water will have invested $1.64 billion in infrastructure upgrades for the four-year period of 2019 through 2022, including replacing more than 427 miles of aging water and sewer pipes. The case also includes enhancements to our customer assistance program. Traditionally, the Public Utility Commission's review of the filing may take up to nine months, and new rates would not be effective until 2021. Also in Pennsylvania, the Public Utility Commission approved the company's revision to its wastewater desic. This action allows the desic to be applied to another 50,000 wastewater customers effective May 1st. We also have three pending rate cases in New Jersey, Virginia, and California. New Jersey American Water filed a general rate case in December 2019 requesting an overall revenue increase of approximately $88 million, excluding the revenue from desic. Since our last rate case, we've invested more than $1 billion in system upgrades. Virginia American Water filed a general rate case requesting an overall revenue increase of $5.6 million in November 2018. This case was driven by approximately $98 million in infrastructure upgrades since April 2017. Insurance rates became effective on May 1, 2019, and we expect a decision later this year. Moving west. California American Water filed for new rates in July 2019. The case covers 2021 through 2023 and requests an increase in authorized revenue of $46.6 million over three years. The request seeks $197 million for infrastructure improvements planned for 2021 and 2022. Due to COVID-19, the evidentiary hearings were moved from April and May to to early June with final hearing dates expected in late August. We now expect a decision on this case as early as first quarter of 2021. In addition, we filed a motion for interim rates to be effective back to January 1st, 2021. On the legislative front, during the quarter, Indiana Governor Holcomb signed two bills. The first one authorizes recovery for above ground infrastructure without a full rate case. and the second establishes an appraisal process for non-municipal utilities to establish fair value and a reasonable purchase price. In West Virginia, Governor Justice signed the Water and Wastewater Investment and Infrastructure Improvement Act. Effective June 5th, this legislation creates a voluntary process to use fair value assessments to determine the value of the water or wastewater systems, enables combined water and wastewater rate-making, and expands how municipalities can use the proceeds they receive from selling utility assets to better address needs in their communities. Finally, in Virginia, Governor Northam signed fair market value legislation, which will go into effect on July 1st. This is now the ninth state that has adopted fair market value legislation across our footprint. All this legislation is focused on helping communities and utilities address water and wastewater challenges. Moving to slide nine, customers remain at the center of every decision we make today and into the future. This means smart investments balanced by efficient operations and capital deployment. As I mentioned earlier, in the first quarter, we invested $457 million, with the majority in our regulated businesses, including $432 million in infrastructure investment and $21 million in regulated acquisitions. As we make these critical investments to maintain reliable service, we must also ensure affordability for our customers. We'll continue to focus on O&M efficiency and work toward our O&M efficiency goal of 31.3% by 2024. For the 12-month period ended March 31, 2020, our O&M efficiency ratio improved to 34.5% compared to 35.5% for the 12-month period ended March 31, 2019. Now, to put this into perspective, our adjusted O&M expenses are just slightly higher today than they were in 2010. Since then, we've added approximately 276,000 customer connections, while expenses only increased at a compound annual growth rate of 0.7%. We're very proud of our employees' focus and commitment to controlling costs on behalf of our customers, especially given the current situation and economic challenges some of our customers are now facing. Moving on to slide 10, we believe our commitment to putting customers first is a key to growing our regulated footprint. So far in 2020, we've closed down five acquisitions in four different states, adding about 6,200 new customer connections. We've also added more than 3,200 customer connections to organic growth in the first quarter. We look forward to adding another 45,800 customer connections through currently signed agreements in eight states, most of which we expect to close this year in 2020. These new agreements reflect our commitment to provide water and wastewater solutions to communities across our footprint. And with that, let me now turn it over to Susan.