American Water Works Company, Inc.

Good morning, and welcome to American Water's third quarter 2020 earnings conference call. As a reminder, this call is being recorded and 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 November 12, 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 the replay is 101-49253. The audio webcast archive will be available for one year on American Water's investor relations website at ir.amwater.com slash events. I would like now to introduce you to your host for today's call, Ed Vallejo, Vice President of Investor Relations. Mr. Vallejo, you may begin.

Thank you, Matt, and good morning, everyone, and thank you for joining us for today's call. At the end of our prepared remarks, we will, as usual, 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 no known 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 other factors as well as a more detailed analysis of our financials and other important information, is provided in the earnings release in our September 30, 2020, Form 10-Q, each as filed with the SEC. Reconciliations for non-GAAP financial information discussed on this earnings conference call, specifically O&M efficiency ratio and return on equity, can be found in our earnings release and in the appendix of the slide decks for this call. Also, this 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. And I should note that consistent with our efforts to ensure the safety and health of our team, we are again conducting this call while practicing social distancing and from remote locations. As an example, Walter and Susan remain in separate locations. If for any reason technical issues do arise, Walter will take over and lead us through the full presentation. And with that, I will turn the call over to American Water's President and CEO, Walter Lynch.

Thanks, Ed. Good morning, everyone, and thanks for joining us. We have a lot to cover today. I'll start with a few comments on the national election, then move to key updates on our business, including our continued focus on the implications of COVID-19. Susan will then provide a more detailed review over a third quarter and year-to-date financial results, along with other updates. So let me start with Tuesday's election. American Water has and will continue to work with both sides of the aisle in constructive water policy. Water and wastewater infrastructure remain a bipartisan issue, and we'll stay engaged with leaders at the state and federal level on this issue on behalf of our customers. We continue to believe that investment in the country's water and wastewater infrastructure is important. Supportive legislation and regulation are also critical to ensure customer bills are affordable. Let's move to slide five and our third quarter results. The employees of American Water delivered solid results and further strengthened our low risk profile and predictable growth story. Our results were driven by the continued execution of our strategies. Our third quarter 2020 earnings per share were up 9.8% compared to third quarter 2019. We invested capital of $1.38 billion in the first three quarters of 2020, which is a 10.4% increase over the same period last year. We balanced that investment through a focused effort to control costs as we work towards our long-term O&M efficiency goal of 31.3% by 2024. We've added more than 47,000 customer connections to date through closed acquisitions and organic growth. and look forward to welcoming an additional 19,000 customer connections through pending acquisitions, most of which we expect to close in 2021. As it relates to the ongoing COVID-19 pandemic, safety continues to be our top priority. Susan will give more detail in a minute, but as you saw in our 10Q, residential demand continued higher, and we saw some rebound in commercial demand as businesses started to reopen. As a result of this higher demand in the third quarter, we saw an estimated favorable impact of 3 cents per share. We'll continue to assess the situation across our service territory. Recognizing that it's difficult to predict the impact, we currently anticipate a full year unfavorable 3 cents to 6 cents per share from the COVID-19 pandemic. Also included in the results is an estimated 6 cents per share favorable impact in 2020 from hotter, drier weather across some of our regulated states. This compares to 4 cents per share unfavorable impact for the same period in 2019 from wetter than normal conditions in both the Midwest and Northeast. Moving to our market-based businesses, we were very proud to announce that our military services group was awarded a contract for the operation and maintenance of the water and wastewater utility systems at Joint Base Lewis-McChord in Washington State. We're now honored to provide water and wastewater services to more than 425,000 military men, women, and their families at 17 installations across the United States. Moving to slide six, the foundation of our earnings growth continues to be the capital investment we make on our regulated operations. 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 increasing our 2020 earnings range to $3.87 to $3.93 per share, up from $3.79 to $3.89 per share. This reflects the favorable weather in the quarter. We're also affirming our long-term EPS compound annual growth rate in the 7% to 10% range. Also consistent with our previous dividend guidance, on October 26th, our board of directors declared a quarterly cash dividend of $0.55 per share of common stock payable on December 2nd, 2020. Turning to slide seven, let's go through some of the regulatory highlights of the third quarter 2020. We currently have five pending rate cases, and I'll cover the more significant developments since our last call. Last week, the New Jersey Board of Public Utilities approved a settlement between New Jersey American Water, BPU staff, and the New Jersey Division of Rate Council for new water and wastewater rates. The new rates represent a $39 million annual increase in water and wastewater revenues. In a separate proceeding, the BPU also approved a customer credit associated with the Tax Cuts and Jobs Act that will offset the rate increase for the average residential customer through August 31, 2021. While the customer credit will benefit customer bills, it will have no earnings impact in New Jersey American Water as it's offset by lower tax expense during this period. The company's rate case was driven by more than $1 billion in infrastructure investments since the last rate case. Last week, Pennsylvania American Water and the Pennsylvania Public Utility Commission Bureau of Investigation and Enforcement entered into a settlement agreement providing for a total annualized revenue increase of $70.5 million over a two-year period. The terms of the proposed settlement have been presented for review to the PUC Administrative Law Judge. Until the Administrative Law Judge and Commission are able to review the proposed settlement and render their decisions, it would be premature to discuss the terms of the settlement any further. As you recall, Pennsylvania American Water's general rate case requested $92 million in the first year and $46 million in the second year. Pennsylvania American Water will have invested $1.6 billion in infrastructure upgrades for the four-year period of 2019 through 2022. We also have pending rate cases in Missouri, Iowa, California, and Virginia, and those cases are moving along on schedule. Also, In California, the California Public Utility Commission released a decision in September under its Low Income Ratepayer Assistance Program rulemaking. The decision will require California American Water to file a proposal to alter its Water Revenue Adjustment Mechanism, or RAM, in its next general rate case filing in 2022, which would become effective in January 2024. California American Water has filed an application for a rehearing of the decision. Finally, in September and after careful consideration, California American Water withdrew a portion of its application at the California Coastal Commission for the Monterey Peninsula Water Supply Project in an effort to further educate stakeholders on environmental and water supply benefits of the project. The company will be resubmitting its application in the near future, and once submitted by statute, the California Coastal Commission would have 180 days to process after it deems the application complete. Lastly, regarding the sale of New York American water. Last week, the governor announced proposed legislation that would include a PSC study of a public takeover option. We'll review the legislation when a bill is introduced. We still firmly believe the sale of New York American water to Liberty is in the best interest of our customers and will continue to take the needed steps to close the transaction in early 2021. Regarding state legislation. We've seen multiple states take action to help tackle water and wastewater challenges. In Indiana, legislation passed that authorizes recovery for above-ground infrastructure without a full rate case. And separate legislation passed that establishes an appraisal process for non-municipal utilities to establish fair market value and a reasonable purchase price. Iowa amended legislation that gives the Iowa Utilities Board 180 days to approve acquisitions. and allow systems to qualify as a distressed system when they don't have a certified operator. Virginia also signed its version of fair market value legislation into law this year, and West Virginia passed a bill that allows for expanded asset valuation, combined water and wastewater rate making, and expansion of how municipalities can use proceeds from the sale of a water or wastewater system. Moving on to slide eight. In addition to legislative action to help communities solve water and wastewater challenges, we believe our commitment to putting customers first is key to growing our regulated footprint. As I mentioned, so far in 2020, we've closed on 20 acquisitions in nine different states, adding approximately 36,200 new customer connections. We've also added approximately 10,900 customer connections through organic growth through nine months. We look forward to adding another 19,000 customer connections to currently signed agreements in seven states. Also, the pipeline of opportunities we've noted are a result of increased conversations we're having across our footprint with communities looking for solutions to water and wastewater challenges. These opportunities are in various stages of development, and as you know, the process can take multiple years. We know that many communities are facing unprecedented challenges now. And our mission is to help make those communities better because we're there. This includes our recent acquisitions of the City of Jerseyville water and wastewater system in Illinois and the Long Hill sewer system in New Jersey. According to the City of Jerseyville Mayor William Russell, quote, we can trust that our water and wastewater systems are in professional, caring hands, end quote. Moving on to slide nine, customers remain at the center of every decision we make. This means smart investments, balanced by efficient operations, and capital deployment. For the 12-month period ending September 30, 2020, our O&M efficiency ratio improved to 34.2% compared to 34.8% for the 12-month period ended September 30, 2019. Our adjusted O&M expenses are just slightly higher today than they were in 2010. Since then, we've added approximately 317,000 customer connections while expenses only increased at a compound annual growth rate of 0.9%. This is incredible work by our employees. Finally, before I turn the call over to Susan, I want to thank all American Water employees for their commitment to safety as we continue to provide essential services during this pandemic. I also want to send a special thanks to our employees in California, who once again are safely and successfully providing critical water service as that state deals with catastrophic wildfires. With that, let me turn it over to Susan.