Q4 2024 American Water Works Co Inc Earnings Call
for CINEMATOGRAPHY SCREENPLAY MURDA PART OF THE SCREEN DIRECTED BY CINEMATOGRAPHY
Speaker Change: I would now like to turn the conference over to Erin Musgrave VP of Investor Relations. Please go ahead.
Speaker Change: Thank you Cindy.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: These statements are predictions based on our current expectations estimates and assumptions.
Speaker Change: Ever 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.
Speaker Change: <unk> is provided in the fourth quarter earnings release and in our 'twenty 'twenty four Form 10-K, each filed yesterday with the SEC.
Speaker Change: And finally, all statements. During this presentation related to earnings and earnings per share refer to diluted earnings and diluted earnings per share.
Speaker Change: Susan Hardwick, our CEO, who will share a few opening remarks, followed by our President John Griffith, who will share highlights of 'twenty 'twenty four and comment on our affirmation of 2025, EPS guidance and longer term targets, David Miller, Our executive Vice President and CFO will discuss our 'twenty 'twenty four financial results provide right.
Speaker Change: Case updates discuss our strong financial position heading into 2025 and review, our EPS guidance drivers and five year financing plan.
Speaker Change: Cheryl Norton, our executive Vice President and CFO will then discuss our capital investment program, our acquisition outlook and will conclude with comments on our compelling growth drivers.
Speaker Change: After our prepared remarks, we'll then close by answering your questions with that I'll turn the call over to American Water's CEO Susan Hardwick.
Speaker Change: Aaron and good morning, everyone. Let me start by making a few comments on the leadership news detailed in our earnings release last night.
Susan Hardwick: There, we announced my retirement as of May 14th 2025, which is the date of our annual shareholders meeting at that same time, John will become our CEO. This.
Susan Hardwick: This is the next step in the succession plan, we laid out in August of last year. The American water Board is deeply committed to building a strong succession and development strategy at American water as evidenced by the thoughtful plan.
Susan Hardwick: This transition is just a part of that intentional effort to ensure we have the best leadership Foundation for the long term throughout the entire organization.
Susan Hardwick: John working with Cheryl and the rest of our talented and highly experienced leadership team will continue American water strong record of industry leadership and high performance.
John has 20 more than 25 years of industry knowledge and expertise and significant experience in leading high performing teams strategy development and execution. Most importantly, he has a deep understanding of our company's purpose and a strong commitment to our customers employees and shareholders I.
Susan Hardwick: I am very proud of the leadership team that we have built at American water all of whom are committed to the mission of delivering safe clean and reliable service to those we have the privilege of serving.
Susan Hardwick: The success of this company reflects the cohesive leadership of this entire team.
Susan Hardwick: I also want to thank all of the employees of American water.
Susan Hardwick: Been in the utility business for over 40 years now and it is an absolute privilege to work with you.
Susan Hardwick: I'm thankful and humbled by the opportunity to spend the last six years in the water industry with each of you.
Susan Hardwick: Providing water and wastewater services that improve customers' lives and make community stronger is a true honor.
Susan Hardwick: But before I go I want to reiterate my belief that American water continues to be the leader in all aspects of the water and wastewater utility industry in the United States.
If you compare our plans to our actual results you will see that we've consistently executed exactly as we said we would including our results in 2024 that were squarely in line with our plan.
Susan Hardwick: This growing at record of consistency continues to solidify the earned trust in our company from investors analysts and other key stakeholders.
Susan Hardwick: That let me turn it over to John to cover 2024 highlights and our affirmed outlook John.
John Griffith: Thank you Susan and congratulations while we still have you until May let me say, what a tremendous privilege. It has been for all of US to have worked alongside you over the years you have made a very significant contribution to American worse success and the company is stronger because of your because of your leadership.
Speaker Change: I'm excited and honored to work alongside this team as CEO starting in May and know we have a great future ahead of us as we continue to make communities stronger through the critical water and wastewater services we provide.
Speaker Change: Let's turn to slide six and I'll start by covering some highlights of last year.
Speaker Change: You can see here, an abbreviated list of some of our key accomplishments for the year and David and Cheryl will add these in their remarks.
Speaker Change: As we announced yesterday, we delivered 2024 financial results right in line with our expectations earnings were $5 39 per share for the year, which included <unk> 12 per share of favorable weather and nine cents per share of incremental interest income from the HOS note our results reflect the clear execution.
Speaker Change: One of our plan in 2024, which delivered EPS growth of eight plus percent.
Speaker Change: I'm proud of our regulatory and state teams for successfully completing several significant general rate cases. This past year. These cases, which were driven by needed infrastructure investments punctuate. The focus we have on providing safe clean reliable and affordable service to over 14 million people across our full.
Print and as you can see we invested over $3 billion in 2024 to help achieve that mission. That's included a solid year for acquisitions, which at nearly 70000 customer connections met our 2% compounded annual growth target.
Speaker Change: Overall, I'm very proud of our company's ability to stay focused on serving our customers safely and reliably this past year I believe the takeaway today for investors is that our strong execution in 'twenty 'twenty four coupled with our low risk top tier capital growth plan demonstrates American water's ability to deliver.
Speaker Change: Or on our long term plan I'm confident we will execute on our plans for 2025 and beyond building on the momentum we have from 2024.
Speaker Change: Turning to slide seven we are affirming our 2025 earnings guidance of $5 65 to $5.75 per share. This represents our expectation of 8% EPS growth in 2025 compared to our weather normalized 2024, EPS the comments that we'll share today.
Speaker Change: Are an affirmation of the financial plan long term targets and guidance, we laid out last fall highlighted by 7% to 9% EPS and dividend growth and driven by 8% to 9% rate base growth.
Speaker Change: We have a geographic footprint and resulting regulatory diversity that is rivaled by few this along with our capital plan that has decades of basic infrastructure renewal at its core drives the low risk nature of our growth plans, along with our affordability and sustainability leadership I believe American water.
Speaker Change: <unk> offers a top tier shareholder return opportunity and merits our position as a premium regulated utility.
Speaker Change: In closing on slide eight I want to emphasize that we expect to achieve consistent EPS growth well within the 7% to 9% range through 2029 and beyond we've demonstrated during these last few years and with our guidance for 'twenty 'twenty five that our business plan is strong and compelling.
Speaker Change: Our commitment to solving problems for our customers remains steadfast, including addressing aging infrastructure and water quality challenges There's foundation, coupled with the capital investment needs that lie ahead uniquely positions American water to achieve consistently strong earnings and dividend growth for many years to.
Speaker Change: Come.
Speaker Change: With that I'll hand, it over to David to cover our financial results rate case updates and balance sheet strength and further detail David.
David Miller: Thanks, John and good morning, everyone before I start I'd like to also congratulate Susan on her upcoming retirement and John on his succession and two the C. E O C E L role, Susan I uncle John's comments, I'll, let being a pleasure to work with you over the years. It will certainly be missed by all of us here.
David Miller: Now turning to slide 10, let me provide a few more details on 2024 results as compared to 2023, you will also find details of our fourth quarter results in the appendix consolidated reported earnings were $5.39 per share in 2024 higher by 49 cents per share compared to 2023 as John.
David Miller: Noted earnings in 2024 benefited from an estimated 12 cents per share as a result of revenue from drier than normal weather experienced across our states as compared to 13 cents per share of favorable weather in 2023.
David Miller: Excluding the impacts of weather revenues were higher by $1 28 per share primarily due to authorized rate increases from general rate cases, and infrastructure surcharges to recover investment across our states.
David Miller: Were also higher from close water and wastewater acquisitions.
David Miller: Organic customer growth and an increase from changes in customer demand.
David Miller: One additional item to note is that purchase water cost.
David Miller: Which were higher by eight cents per share year over year had been netted against revenues as these costs are generally recovered on a dollar for dollar basis.
David Miller: And looking at operating cost O&M was higher by 22 per share driven primarily by employee related cost and other increases to support growth in the business as we expected.
David Miller: Production costs related to fuel power and chemicals were also slightly higher compared to 2023.
David Miller: Next general taxes, which are comprised of property in grocery seats taxes were higher by five cents per share with the increase in property taxes tied to the level of capital investment and higher grocery seats tax driven by higher revenue primarily in New Jersey.
David Miller: Depreciation increased 31 cents per share a longterm financing costs increased 33 cents per share both as expected in support of our investment growth.
David Miller: And finally, we had nine cents per share of additional interest income from the February 'twenty 'twenty four amendment of the note related just to the sell up hole, while our homeowner services.
David Miller: We will continue to break this out quarterly so investors can track the ongoing growth of American water from our core regulated strategy without this additional interest income.
David Miller: Turning to slide 11.
David Miller: We summarize the seven rate cases, we successfully completed in 2024 five of which we covered on prior calls.
David Miller: In the fourth quarter, we received orders in Illinois, and California, as well as an updated final order in Kentucky.
David Miller: In December, Illinois Commission approved an additional $105 million in annualized revenues effective January one 2025. This order includes an allowed return on equity of 984% and an equity layer of 49%.
David Miller: Both of which were consistent with our last rate case in Illinois.
David Miller: We continue to believe that Illinois, a constructive environment for American water and is supportive of the investment needed to continue to provide safe and reliable service for the benefit of our Illinois American water customers.
David Miller: Switching over to California also in December the commission, they're approved and adopted a partial settlement agreement, providing incremental annualized revenues of $53 million over three years, beginning with rates retroactive to January one 2024.
David Miller: The Commission's decision included a partial decoupling mechanism and approval of an important sales adjustment mechanism that allows annual updates a forecast of water sells for ratemaking purposes.
David Miller: While the decision didn't recognize the importance of afford the coupling mechanism and promoting affordable rates and conservation we filed an application to in December for rehearing with the commission and are exploring other avenues to ensure that customers can achieve the benefits of Soc associated with decoupling.
David Miller: Also in California. The commission granted the request for an additional one year extension of the cost of capital filing today first of 2026.
David Miller: Which will set the authorized cost of capital beginning January one 2027.
David Miller: Our our authorized ROE in California will remain at 10.2% through December 31 2026.
David Miller: And finally in Kentucky Public Service Commission approved the final order, providing for $17 million of annualized increases in water revenues, which is higher by about 6 million from the initial order in may of 2024.
David Miller: As a reminder.
David Miller: She received in May we filed a motion for clarification on their authorized amount of annualized revenues in this case.
David Miller: New rates provided in the final order were effective November 6th.
David Miller: Turning to slide 12, you can see we have general rate cases in progress in four jurisdictions.
David Miller: The most prominent rate case for us this year is in Missouri, where we're seeking recovery of $1 $1 billion of capital investments.
David Miller: Hearings began at the end of this month.
David Miller: Settlement discussions are underway ahead of briefs due at the end of March.
David Miller: We expect new rates go into effect in the middle of 2025.
David Miller: Overall.
David Miller: The key parties in this case it filed similar positions as they did in our prior case two years ago, which was settled.
David Miller: As a reminder, in this case the commission allows all parties to propose specific adjustments beyond December 31, 2024, and we have proposed to capture investments through May 2025.
David Miller: Separately, we are continuing to work alongside an informal coalition of water and gas utilities in Missouri are legit on a legislative path for a future test year and have supported the introduction of four separate bills in the current session related to that effort.
David Miller: The Missouri Legislative session ends on May 16th.
David Miller: Finally in Virginia, the filed stipulation of settlement remains subject to Commission review and approval, which we are waiting.
David Miller: One quick note at the bottom of the slide we now provide a list of the dates we filed our most recent general rate cases by state as we've said in the past we expect to file rate cases about every two years as supported by our ongoing investments to continue to provide safe clean and.
David Miller: Reliable water and wastewater services for the long term benefit of our customers.
David Miller: Yeah.
David Miller: Turning to slide 13.
David Miller: Review, the strength of our balance sheet credit back metrics and liquidity position as we began 2025.
David Miller: Our total debt to cap ratio at the end of the year net of $96 million of cash on hand was 57%.
David Miller: Which was well within our target of less than 60%.
David Miller: Investors can expect our company to continue to be focused on this target over the long term.
David Miller: We remain a rated at S&P with a stable outlook and just last month, Moody's affirmed our solid b double a one investment grade credit rating and stable outlook.
David Miller: Both agencies note, our scale strong regulatory and operational diversity across 14 states.
David Miller: Low risk business.
David Miller: And our steady financial performance in their analysis they.
David Miller: They also know our trend of credit support of regulatory outcomes and expected sustained F O to debt ratios.
David Miller: Well within the current ratings thresholds, we're confident our business and financial profile.
David Miller: F O to debt will continue to support either our current or higher investment grade credit ratings.
David Miller: From this position of balance sheet strength, let's turn to slide 14 for a review of our guidance and five year financing.
David Miller: As John mentioned, we affirmed our 2025 EPS guidance, which again represents 8% annual growth.
David Miller: The backbone of the plan continues to be earning our allowed returns on capital when best to serve our customers while prudently managing operating costs. So that we can deliver on our customer affordability targets.
David Miller: It's really that simple.
David Miller: As a reminder, our 2025 guidance range includes 10 cents per share of incremental interest income from the amendment of the HOS no a year ago, which was on top of the interest income from the original note terms that we're replacing with earnings from the regulated business.
David Miller: We've said in the past repayment of the note is a component of our long term financing plan as a source of funding for our growth.
David Miller: Well, we are also affirming our financing plan shared last fall now covering 2025 to 2029.
David Miller: Previously the plan includes an estimated total $2 5 billion of external equity issuances with no equity plan for 2025.
David Miller: The level and timing of that with external equity is tied very simply to our need to fund growth and maintain our strong financial position.
David Miller: Based on our current projections of capital spending and cash flows. We currently expect to issue $1 billion of that could be at some point in 2026.
David Miller: $1 $5 billion in 2029.
David Miller: Timing of future equity is subject to market conditions.
David Miller: Well as the underlying assumptions around our projected capex and cash flows.
David Miller: Since we are already in alignment with our targets for debt to cap and dividend payout ratios, we had the flexibility to adjust these plans and respond to market conditions, if and when they change for the benefit of our customers and investors alike.
David Miller: Overall investors should expect equity financing to occur routinely as determined by our restaurant program break faced cycle and as appropriate to maintain our strong balance sheet and credit metrics.
David Miller: Finally, I'll wrap up by noting that our financing plan for calendar year 2025 includes one five to 2 billion to $2 billion of long term debt financing.
David Miller: With that I'll turn it over to Cheryl to talk more about our capital program. Our recent acquisition activity at all and I look at our key growth drivers Cheryl.
Cheryl Norton: Thanks, David and good morning, everyone. Let me start by echoing John in David's comments about Susan and I have worked closely together over the past six years and I'm a better leader.
Cheryl Norton: I'm, a better leader as a result of that time together and American water is definitely stronger because of her time here I'm excited about John's leadership and in his new role I know, we're going to accomplish great things over the next years.
Cheryl Norton: Yeah.
Cheryl Norton: On slide 16, we have combined a few slides to show a more comprehensive view of our investment program that has always managed with an eye on customer affordability I want to start by acknowledging that our teams have done a great job executing our capital investment plans. These last few years, we have consistently met our capital deployment.
Cheryl Norton: Well each year and we've done it again in 2024 by investing $3 $3 billion, which includes the acquisition of investments that I'll speak about later these.
Cheryl Norton: These investments represented by hundreds of discrete projects are crucial to continuing to deliver safe and clean water and support continued reliability of service to our customers.
Cheryl Norton: We expect these capital investments in infrastructure and a necklace acquisitions to grow regulated rate base at a long term rate of 8% to 9%. We believe the high degree of visibility to our capital investment plan combined with the low risk nature of the plan uniquely positions American water and the utility sector and is fundamental.
Cheryl Norton: Two our investment thesis.
Cheryl Norton: We of course remain very focused on balancing customer affordability with the magnitude of the necessary system investments in our plan.
Cheryl Norton: Affordability is a key variable in our annual capital planning analysis, we believe that the average residential water bill across our footprint will continue to be at or below 1% of median household income throughout our 10 year plan.
Cheryl Norton: The Pie chart on the bottom right side of the page shows the breakdown of our capital spend by purpose over the next decade, while the majority of our capital is dedicated to basic replacement of aging pipes. We are also focused on fortifying our systems through resilient spending and making investments in water quality projects to allow our systems to.
Cheryl Norton: To meet our own high standards of compliance.
Cheryl Norton: Turning to slide 17, I'm proud to report that we had a solid year of investment in regulated acquisitions successfully closing on 13 systems totaling $417 million, which added nearly 70000 new customers.
Cheryl Norton: Looking ahead, we continue to be well positioned for strong growth through acquisitions across many states with over 24000 customer connections under agreement as of the beginning of the year. We've added significant business development capability over the last few years across our footprint and we're confident these investments in additional resources and <unk>.
Cheryl Norton: <unk> processes will help us meet our compounded annual growth rate target of 2% for customers added through acquisitions.
Cheryl Norton: Overall, we expect to continue to invest about $300 million to $400 million on average each year and acquisitions are small, but important part of our over $3 billion capital plan.
Cheryl Norton: We expect growth through acquisitions will become more consistent on an annual basis over time, but will remain lumpier than our organic capex as timelines for details can shift throughout the closing process, if and when that happens we have the flexibility to reallocate and easily replace these acquisition dollars with various other projects.
Cheryl Norton: To meet system needs such as additional replacement of aging pipe.
Cheryl Norton: To close on slide 18 today, you've heard a recap of our long term strategy, which should sound very consistent.
Cheryl Norton: Our words, though I believe we have a proven track record of executing on our plans, including achieving our EPS guidance year after year.
Cheryl Norton: I fully expect 2025 to be another successful year demonstrating this execution.
Cheryl Norton: Slide 18 is a compilation of the predictable and steady growth driver for American water that differentiate our growth trajectory from other utilities enabled us to stand out as a premium utility we replaced approximately 400 miles of pipe in 2020 for this replacement effort reflects our commitment to reliable service.
Cheryl Norton: With the work prioritize by need the prioritization is balanced by affordability and cost of material labor permitting restoration and an annual increase in the actual amount of miles of pipe. We have acquired via acquisitions, our mission to provide safe clean reliable and affordable services to the customers we are.
Cheryl Norton: Religion to serve as the foundation for all we do.
Cheryl Norton: As our team has said we're confident we can fulfill this mission and provide a fair return to our investors American water has been doing this work for decades, but there is much left to be done and we must have urgency in our work as we've witnessed in West Virginia. For example, our teams provided assistance to six different municipal systems in January alone.
None that we're dealing with service disruptions due to extreme weather and the inability to keep up with leaks and one of those towns are local elementary school was without water service for more than two weeks until we provided a 7000 gallon tanker to supply water directly to the school. We will continue to do this critical work and execute on a.
Cheryl Norton: <unk> operational and financial plans, which we believe will drive the superior returns our investors expect with that I'll turn it back over to our operator to begin Q&A and take any questions you may have.
Cheryl Norton: We will now begin.
Cheryl Norton: The question and answer session.
Cheryl Norton: You ask a question.
Cheryl Norton: Press Star one on your telephone keypad.
Cheryl Norton: If you are using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed.
Cheryl Norton: Like to withdraw your question please.
Speaker Change: Please press Star then two.
Speaker Change: At this time, we will pause.
Speaker Change: Momentarily to assemble our roster.
Speaker Change: Our first question comes from.
Speaker Change: <unk> Chopra of Evercore ISI go ahead. Please.
Hey, Deane good morning, Susan all of that and John Congrats.
Speaker Change: Thanks, you guys.
Speaker Change: Certainly sounds like so so two questions one a lot of news flow information coming out of D. C.
Speaker Change: A lot of executive order.
Speaker Change: Just curious if anything has changed from your perspective on your strategy to attack the path P. Fast you have like a $1 billion in our capital plan.
Speaker Change: And I know you announced the contract maybe recently anything has changed on the ground.
Speaker Change: Andrew gas this is Charlotte. Thank so much for the question.
Speaker Change: We haven't made any changes to our plans at all we haven't seen anything coming out of D. C that makes us think that that we're not going to need to invest the capital that we've talked about in the past we want to make sure that we're meeting all the regulatory requirements and also just providing clean safe water. According to our standards. So we've made no changes at all to our capital plans related to P.
Speaker Change: Or anything else.
Speaker Change: Got it perfect. Thanks, and then just one housekeeping question just as we think about the 7% to 9% EPS growth rate for our models should we be including the 10 cents.
Speaker Change: You know the remarketing of the of the loans your base or should we be excluding that kind of see if you're going to go.
Speaker Change: With the beat including that 10 cents or should we be just be separating that out and you can think of them as like one time earnings.
Josh: Hey, Josh.
David Miller: Josh This is David Yeah, you should be separating that out and excluding it from the base.
Speaker Change: We tried to indicate that.
David Miller: And our presentation here.
David Miller: Got it I thought so wanted to confirm that thank you David Thanks, guys I appreciate the time.
David Miller: Yeah.
David Miller: Okay.
Speaker Change: The next question comes from Paul Zimbardo of Jefferies Go ahead. Please.
Paul Zimbardo: Hi, good morning.
Speaker Change: And congratulations John Susan IP of our fruit for all retirement.
Speaker Change: Thanks, Paul.
Speaker Change: Of course, the the first question I had was on the the acquisition slide just the callout box on the right. What you talk about significant business development capabilities added across our footprint and just some of the color. You gave there could you could you describe like if if this is something new kind of where you've been adding.
<unk> you make the references to multiple state some of the midsize seats. If you could just elaborate on kind of.
Speaker Change: Well, what youre alluding to there.
Speaker Change: Sure. Paul This is Charles and we have added some staffing and our our BD group just to be more have more boots on the ground do more origination work and general, but we've also really kind of ramped up our corporate support teams. So that we are driving consistency through our integration processes are due diligence.
Speaker Change: That says and we really have just taken the whole entire organization and and and taken a look at what's working really well and how do we build on that so that's why we're starting to see more growth across our entire footprint because we're not just focused in one or two states. We are we are truly focused all across our footprint on grub.
Speaker Change: And where we're seeing the fruits of that.
Speaker Change: Okay.
Speaker Change: Understood I understand.
Speaker Change: And then kind of following on <unk> question, a slightly different direction, just going through the 10-K I noticed some were changing like some of the references to ESG diversity removed in the case is there any kind of fundamental changes in that.
Speaker Change: The company's approach to hiring and otherwise or is that just kind of changing some language.
John Griffith: Yeah, Paul It's John here, it's the latter we're not changing our strategy.
Speaker Change: Not at all.
Speaker Change: For us ESG is a very business driven proposition in everything we do is to drive the results that we expect to to achieve.
Speaker Change: Okay.
Understood. Thank you both again congratulations.
Speaker Change: Thanks, Paul.
Speaker Change: Okay.
Speaker Change: Next question.
Speaker Change: The next question comes from Greg <unk> of UBS go ahead. Please.
Speaker Change: Yes. Thank you congratulations Susan John.
Speaker Change: Thanks, Greg just.
Speaker Change: Just in terms of the.
Speaker Change: Procurement.
Speaker Change: Could you comment on if theres been any disruptions.
Speaker Change: Descriptions there of how things are going.
Speaker Change: And then I have another question. Thank you.
Speaker Change: Greg procurement of what please.
Speaker Change: Capital.
Speaker Change: The procurement of.
Speaker Change:
Speaker Change: Or for large capital projects pipe replacement.
Speaker Change: Have there been any disruptions, though that you are saying.
Speaker Change: Yeah, No Greg we have a very robust supply chain organization that that sits both here at corporate but also is embedded into our states and we've just done a really great job of being able to procure at all of the suppliers the necessary supplies, we need for all of the capital investments that we're making including all the P. Fast work we announced.
Speaker Change: Earlier that we had signed a contract with calgon carbon to make sure that we can obtain.
Speaker Change: Obtained all the vessels and the necessary carbon in the regeneration of the carbon long term. So we feel like we're in a really good spot in that space and also with all the materials for all of our projects across the footprint.
Speaker Change: Okay great.
Speaker Change: And then in terms of usage per.
Speaker Change: Our customer are you.
Speaker Change: Seeing any.
Speaker Change: Sort of.
Speaker Change: Changes there strengthening through your customer classes.
Speaker Change: Yeah, Greg what we've seen related to kind of declining use we had talked about that for a very long time, we are starting to see that plateau, just a bit but we do still have a bit of declining use across our footprint. It's just has to do with fixtures and people being a little more aware in the conservation space, but nothing that we're concerned about.
Speaker Change: In either direction, we have plenty of capacity in most all of our locations and and we're not seeing any declines that are troubling to us.
Speaker Change: Okay. Thank you.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Jonathan Reeder of Wells Fargo Go ahead. Please.
Jonathan Reeder: Hey, good morning team, Congrats Susan and John on the formal transition announcements made today.
Speaker Change: Thanks, Jonathan.
Speaker Change: Enjoy their retirement Susan.
Speaker Change:
Speaker Change: I know plan on it thank you.
Speaker Change: I think we all want to get to that position.
Speaker Change: Well deserved, but I think Paul already asked my question on the M&A pipeline, but I've got another regarding you know coming rate case in Missouri. It sounds like things are on track and that Missouri rate case do you expect to reach a settlement prior to the start of hearings.
Speaker Change: Yeah, Hey, Jonathan it's John here that that's certainly been our experience and we'll see how it plays out but that would be our expectation.
Speaker Change: Okay great.
Speaker Change: And then on customer growth you know, obviously electric and to some degree you know gas has been experiencing an uptick in customer growth usage from a resurgence in manufacturing demand, obviously AI data center related stuff like that.
Speaker Change: Is any of that starting to trickle into your <unk>.
Speaker Change: Service territory, where this economic development news, there's kind of promoting more more customer growth than you've seen historically and you know maybe taken a little pressure off.
Speaker Change: Either the cadence of rate cases, or at least to the degree of of rate relief that you need to request.
Speaker Change: Jonathan I'd say your term trickle in is appropriate as we think about AI data centers generally speaking are there more power hungry then they are water hungry, but we are seeing economic development opportunities.
Speaker Change: Oh, which may.
Speaker Change: It may come in the form of additional pipe.
Speaker Change: To get to locations.
Speaker Change: Things like that in the same way that an electric utility you might need to build out some transmission for a renewable project, but I'd say for us it's relatively early days and we're not expecting to.
Speaker Change: See the.
Speaker Change: Massive increases in demand and in water generally speaking.
Speaker Change: Water as an industry is in a position of excess capacity. So there.
Speaker Change: We expect to see a little bit of infrastructure build.
Speaker Change: And that's I'd say, how we think about it.
Speaker Change: Great. Thanks, Congrats on a solid update today.
Speaker Change: Right at the time.
Jonathan Reeder: Thanks, Jonathan.
Jonathan Reeder: The next question comes from algae.
Jonathan Reeder: Of Seaport go ahead please.
Susan Hardwick: Thank you and then Susan John Warner transition Congratulations Susan.
Speaker Change: Daphne and and you know.
Susan Hardwick: At the end of an era.
Susan Hardwick: Hum.
Susan Hardwick: I N G. I appreciate that thank you.
Susan Hardwick: Now on the financing. So you can consider maybe using hybrids instead of traditional equity if only because.
Susan Hardwick: The water sector has has sharply debated.
Susan Hardwick: So I'm sure that.
Susan Hardwick: That's probably more dilutive to the original plan from lack of equity perspective, and again is there a way to manage that dilution going forward.
Susan Hardwick: Yeah, Andrew this is David.
Susan Hardwick: We certainly look at all products, but we just don't see these the hybrids being cost effective for us and that they are more dilutive than just straight equity based on how we trade.
Susan Hardwick: Okay.
Susan Hardwick: And then and then a balance there.
Susan Hardwick: The lumpiness of the M&A and an ability to basically manage the earnings impact with what some other organic capex this year.
Susan Hardwick: Well simply because you have so many growth opportunities that again, you can smooth out the earnings trajectory.
Susan Hardwick: Or why are you trying to say that the municipal M&A is less of an earnings driver overall.
Susan Hardwick: Given again plenty of organic growth.
Speaker Change: Yeah. That's a that's a great question Angie Hum those deals are lumpy because there there are so many things that can slow down the closing process. So you know we can plan for a certain number of deals in a given year and they may spillover into the next year or so on an annual basis, there's some lumpiness there.
Speaker Change: We we do target that 2% of the customer growth, but if if we see that some of these deals are going to get pushed out we've got plenty of capital projects kind of in the wings that we can bring in to ensure that we spend that $3 3 billion or whatever our target is for a given year to two absolutely smooth out that E. P. S.
Speaker Change: Growth, but it's really important that we're adding the customers because adding customers helps us with that affordability story. It helps us spread our costs out amongst more customers. So we're going to continue to push on that acquisition piece and some years it'll be more than 2% some years it might be less than 2%, but when we make that commitment to our capital spend we're gonna do we have the floor.
Speaker Change: <unk> ability to do what we need to to make sure that we get that capital spend.
Speaker Change: And Andy just to follow on Sharon's comments, you know to be clear are the.
Speaker Change: The need is very much there in terms of target systems, right and as we've talked about a little bit in the past.
Speaker Change: The list of reasons why a target company a municipality would sell is getting longer and not shorter right. You know there continues to be deferred capital investment deferred maintenance increasing regulatory.
Speaker Change: The need for clean water and delivery so the fundamentals havent changed and if anything we.
Speaker Change: So we see a broadening.
Speaker Change: Our opportunity base and a lot of what we've been spending our time on is is broadening out the the opportunity set across our system, which takes a little bit a little bit of time, but we feel very good about in terms of the progress that we're making.
Speaker Change: Okay, and then lastly on California, you mentioned.
Speaker Change: We're looking at ways to.
Speaker Change: Uh-huh correctly basically.
Speaker Change: The previous Ah full decoupling right.
Speaker Change: Yeah.
Speaker Change: The Commission's decision, so I'll be talking about a legal challenge.
Speaker Change: Again I was just wondering what is the option.
Speaker Change: That's correct Angie It is we we have filed.
Speaker Change: A motion for rehearing for that.
Speaker Change: Okay. Thank you congrats again, thank you.
Speaker Change: The next question comes from Anthony.
Speaker Change: Oh I see.
Speaker Change: Go ahead please.
Speaker Change: Sure John Great News for both just I wanted to just follow up a little on Andrew's question. Just a quick one on the equity financing. It's very clear you guys state in 'twenty six and then also in 'twenty nine.
Speaker Change: Do you tie that with capex needs or thoughts of maybe some not an annual program versus a block just curious the pluses and minuses on on the approach here.
Speaker Change: Yeah.
Speaker Change: I'd say, we were talking about when we have a need for our to maintain our strong balance sheet.
Speaker Change: And yeah, we were gonna issue too early and we're not going to issue like we're gonna issue, while we need we need the financing or the funding.
Speaker Change: Great Thats, all I had thanks so much.
Speaker Change: The next question comes from Richard Sunderland of Jpmorgan go ahead. Please.
Richard Sunderland: Hey, good morning, and congrats as well to Susan and John.
Speaker Change: Great music here, just one quick cleanup for me I think you hit this earlier, but just thinking through the growth going forward is the 7% to 9% growth is that based on 2025 guidance less than 10 cents of incremental interest income is that the right way to think about the base for <unk>.
Richard Sunderland: 799%.
Rich: That is right rich and I think we've got that in David's slides and just as a reminder, you know when when we set our 7% to 9% that goes back to when we put the note in place originally.
Rich: <unk>, which was a $720 million note at a 7% interest rate and then we amended the note are about a year ago in early 2024 increase the interest rate to 10% and we also collected on an earn out payment of.
Rich: Of $775 million that was rolled into the note. So as we think about no repayment.
Rich: We're only trying to make up the 7%.
Rich: Interest and to do that we'll be able to will have proceeds of $795 million not $720 million a week, which is why you won't see it.
Rich: Divot in earnings as we're.
Rich: It is as we're moving forward. So yes, you've got it correct rich and as a reminder for the group.
Rich: The final.
Rich: Termination date of the note is December of 2026.
Rich: But the.
Rich: The owner of the business has the right to call. The note as early as December of this year and so we'll see how.
Rich: How have the timing of repayment works out, but one way or another we're very prepared for the timing and we won't see a any any sort of of impact to earnings.
Speaker Change: Great. Thank you for running through that and then on the Missouri legislation I know there are a couple of different bills out there theres also been some actions around thank you.
Speaker Change: Before and some language change there to pull in more of the broader utility efforts can you just walk through a little bit of what's been going on recently in the leg.
Speaker Change: Sure I think there were some actions on S. Before yesterday, just give us an update on how you see that playing out.
Cheryl Norton: Yeah sure Rich this is cheryl.
Speaker Change: Uh huh.
Speaker Change: In Missouri, we have been working for quite some time to try to improve the regulatory environment. There. They have historically you know when I was president there historically had.
Speaker Change: Oracle test year, which makes it really challenging when you're talking about regulatory lag and so we have been working hard with the other utilities as well as you know talking with the commission with the the chair of the Commission to say you know what are ways that we can improve this environment for us from a regulatory lag perspective.
Speaker Change: And so as these bills got submitted early on they were kind of separated now they've they've been several of them have been joined together and and we are very focused on the future test year aspect of this legislation and we'll continue to work together with the other utilities the chair of the Commission.
Speaker Change: And and all of the allies that we can can bring to the table to ensure that we improve that regulatory environment.
Speaker Change: Great. Thank you for the time today.
Speaker Change: The next question comes from Greg <unk> of UBS go ahead. Please.
Speaker Change: Yes. Thank you one follow up please just the what were the results of the non utility business for the year and some context on.
Speaker Change: Where you are you taking that part of the company.
Greg: Yes, Greg we don't disclose that level of detail.
Speaker Change: So it's and it's in the other business segment.
Greg: Yeah.
Yeah, I can I can talk to kind of what we have in mind in the future for that other part of the organization. If you will it's essentially our military services group and we're still really excited about that part of our business and we think it's a great mission it.
Greg: It aligns very well with our regulated businesses and we're excited about the relationships. We have at all of the existing bases and we will continue to encourage the different arms of the military to move.
Greg: We moved forward with utility privatization, we do expect to see some movement. There. We just don't know exactly what's coming or or the timing of that but our team is poised and ready to bid on any of the projects that makes sense for us in the future.
Greg: Okay.
Greg: Thanks.
Greg: The Q&A session.
Greg: France has now concluded.
Greg: For attending today's presentation you may now disconnect.