Q2 2025 American Water Works Co Inc Earnings Call

American Water's Investor Relations website, I would like now to introduce your host for today's call Erin Musgrave, Vice President of Investor Relations. Mr. Musgrave's, you may begin.

Thank you Alan and 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.

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.

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 and finally all statements. During this presentation related to earnings and earnings per share refer to dilute.

Aaron Musgrave: Good morning and welcome to American Water's second quarter 2025 earnings conference call. As a reminder, this call will be recorded and is also being webcast with an accompanying slide presentation for 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 like now to introduce your host for today's call, Aaron Musgrave, Vice President of Investor Relations. Mr. Musgrave, you may begin.

Good morning.

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With that I'll turn the call over to American water's, President and CEO John Griffith.

Thank you Erin and good morning, everyone, let's turn to slide five and I'll start by covering some highlights of the second quarter and first half of the year as we announced yesterday, we delivered solid financial results through the first half of 2025 earnings were $1 48 per share for the second quarter compared to one.

Best relations, Mr. Musgrave, you may begin.

Alan: Thank you, Alan. 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.

$1 42 for the same period last year and the first six months of 2025 earnings were $2 53 per share compared to $2 37 per share in the same period of 2024 with this strength across the business combined with our expectations for the rest of the year.

Thank you, Alan. 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.

We now expect to achieve the top half of our initial EPS guidance range for 2025, which we've narrowed to $5 70.

To $5 75 per share David will share more about our results and guidance a bit later.

Moving on to some of our other key accomplishments so far in 2025, we invested $1 $3 billion in capital projects year to date again, reflecting great work by our teams responsible for planning and completing these investments.

Alan: And finally, all statements during this presentation related to earnings and earnings per share refer to diluted earnings and diluted earnings per share. With that, I'll turn the call over to American Water's President and CEO, John Griffith.

We were also very pleased to announce several new acquisition agreements in the first half of the year, including the next water group systems that will add nearly 47000 customer connections, which we expect to close by August 2026, as Sharon will discuss we are continuing to build momentum with our business development.

Aaron Musgrave: Thank you, Aaron, and good morning, everyone. Let's turn to slide five, and I'll start by covering some highlights of the second quarter and first half of the year. As we announced yesterday, we delivered solid financial results through the first half of 2025. Earnings were $1.48 per share for the second quarter, compared to $1.42 for the same period last year. In the first six months of 2025, earnings were $2.53 per share, compared to $2.37 per share in the same period of 2024. With this strength across the business, combined with our expectations for the rest of the year, we now expect to achieve the top half of our initial EPS guidance range for 2025, which we've narrowed to $5.70 to $5.75 per share. David will share more about our results and guidance a bit later.

Platform with 87000 customer connections under agreement totaling over $500 million across our platform and we continued our track record of regulatory execution in the first half of 2025 with new rates effective in several states and new cases filed to reflect investments in infrastructure.

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Which leads us to slide six which describes the drivers of American water is very competitive and sustainable shareholder return profile, we have a clear top tier capital growth plan underpinned by decades of fundamental water and wastewater infrastructure renewal and water quality investment this <unk>.

Bind with our strong regulatory and operational execution results and a value proposition that we believe is unique in the utility sector.

Aaron Musgrave: Moving on to some of our other key accomplishments so far in 2025, we invested $1.3 billion in capital projects year to date, again reflecting great work by our teams responsible for planning and completing these investments. We were also very pleased to announce several new acquisition agreements in the first half of the year, including the Nexus Water Group Systems that will add nearly 47,000 customer connections, which we expect to close by August 2026. As Cheryl will discuss, we are continuing to build momentum with our business development platform, with 87,000 customer connections under agreement, totaling over $500 million across our platform. And we continued our track record of regulatory execution in the first half of 2025, with new rates effective in several states and new cases filed to reflect investments in infrastructure for the benefit of our customers.

We are again affirming our long term targets for both earnings and dividend growth at 7% to 9% driven by 8% to 9% rate base growth, we expect to consistently grow earnings and dividends at an industry, leading pace over the next five years and beyond with that I'll hand, it over to David to cover our financial results.

<unk> rate case updates and our 2025 outlook in further detail David.

Thanks, Sean and good morning, everyone turning to slide eight I'll provide further insights on second quarter results.

Holidayed earnings were $1 48 per.

Per share up six cents per share versus the same period in 2020 for.

Revenues were higher by 50 per share driven by authorized rate increases to recover our investment across our states.

Revenues were also higher from recently completed water and wastewater acquisitions and organic customer growth.

Aaron Musgrave: Which leads us to slide six, which describes the drivers of American Water's very competitive and sustainable shareholder return profile. We have a clear top-tier capital growth plan underpinned by decades of fundamental water and wastewater infrastructure renewal and water quality investment. This, combined with our strong regulatory and operational execution, results in a value proposition that we believe is unique in the utility sector. We are again affirming our long-term targets for both earnings and dividend growth at 7% to 9%, driven by 8% to 9% rate-based growth. We expect to consistently grow earnings and dividends at an industry-leading pace over the next five years and beyond. With that, I'll hand it over to David to cover our financial results, rate case updates, and our 2025 outlook in further detail. David?

Whether on the other hand was unfavorable unfavorable by an estimated six cents per share year over year. This was due to wet weather in 2025 across many states, resulting in an unfavorable <unk> <unk> impact.

Combined with the three unfavorable weather variance from the warm and dry conditions experienced in the second quarter of 2024.

And looking at operating costs O&M was higher by <unk> 17 per share driven primarily by lower employee related expense increased maintenance.

And technology cost as well as costs related to acquisitions completed in 2024, which we expected.

Depreciation increased 10 cents per share and financing costs increased <unk> <unk> per share both as expected in support of our investment growth.

Turning to slide nine year to date consolidated earnings for $2 53 per share up <unk> 16 per share versus the same period in 2024.

David Bowler: Thanks, John, and good morning, everyone. Turning to slide eight, I'll provide further insights on second quarter results. Consolidated earnings were $1.48 per share, up $0.06 per share versus the same period in 2024. Revenues were higher by $0.50 per share, driven by authorized rate increases to recover investment across our states. Revenues were also higher from recently completed water and wastewater acquisitions and organic customer growth. Weather, on the other hand, was unfavorable by an estimated $0.06 per share year over year. This was due to wet weather in 2025 across many states, resulting in an unfavorable $0.03 impact, combined with the $0.03 unfavorable weather variance from the warm and dry conditions experienced in the second quarter of 2024.

On a weather normalized basis EPS is up nine 4% year to date compared to the prior year.

Many of the same drivers I described for the quarter applied to this period as well, including the unfavorable impact of weather.

Revenues were higher by <unk> 94 per share in O&M was higher by 32 cents per share depreciation increased 21 cents per share in financing costs increased <unk> 18 per share both as expected in support of our investment growth.

Turning to slide 10, I'll cover the latest regulatory activity in our states.

First on completed cases, we received a final order from the Missouri Commission a may approval of our settlement agreement, which we discussed last quarter.

In <unk>, we received a final order from the commission approving an annualized revenue increase of $13 million based on an ROE of nine 6% and an equity layer of $52 five 7%.

David Bowler: In looking at operating costs, O&M was higher by $0.17 per share, driven primarily by employee-related expense, increased maintenance, and technology cost, as well as cost-related acquisitions completed in 2024, which we expected. Depreciation increased $0.10 per share, and financing costs increased $0.08 per share, both as expected in support of our investment growth. Turning to slide nine, year-to-date consolidated earnings were $2.53 per share, up $0.16 per share versus the same period in 2024. On a weather-normalized basis, EPS was up 9.4% year to date compared to the prior year. Many of the same drivers I described for the quarter apply to this period as well, including the unfavorable impact of weather. Revenues were higher by $0.94 per share, and O&M was higher by $0.32 per share. Depreciation increased $0.21 per share, and financing costs increased $0.18 per share, both as expected in support of our investment growth.

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Approved capital structure and its previous rate case.

As a reminder, in term rates were effective on May 11, 2024, and the amount of $5 1 million in final rates will go into effect Tomorrow on August one.

In Hawaii, we received a final order last week from the commission approving an annualized revenue increase of $1 $5 million based on an ROE of $9 seven 5% and then equity layer just north of 52%.

We expect new rates go into effect in early August.

Turning to active cases, you can see we have general rate cases in progress in three jurisdictions.

On May five we filed a general rate case in West, Virginia, reflecting $300 million in system investments covering the period March 2024 through February 2027.

We're seeking $48 million of additional annual revenue, which would be reflected in two steps in March 2026 in March 2027.

David Bowler: Turning to slide 10, I'll cover the latest regulatory activity in our states. First, on completed cases, we received a final order from the Missouri Commission in May, approving our settlement agreement, which we discussed last quarter. In Iowa, we received a final order from the Commission approving an annualized revenue increase of $13 million based on an ROE of 9.6% and an equity layer of 52.57%, in line with the Iowa's approved capital structure and its previous rate case. As a reminder, interim rates were effective on May 11, 2024, in the amount of $5.1 million, and final rates will go into effect tomorrow on August 1st. In Hawaii, we received a final order last week from the Commission approving an annualized revenue increase of $1.5 million based on an ROE of 9.75% and an equity layer just north of 52%.

And we expect this case to be completed by the end of February 2026, Intervenor testimony is set for October and rebuttal testimony in November.

On May 16th we filed our general rate case in Kentucky, reflecting $212 million in system investments covering February 2025 through December 2026.

We're seeking $27 million of additional annual revenue and we expect proposed rates go into effect on an interim basis in December 2025.

Intervenor testimony is set for August and rebuttal testimony in September.

And finally on July one we filed a general rate case in California, reflecting system investments through 2028.

We are seeking $63 million of additional annual revenue in 2027 compared to authorized 2025 revenue in a total increase in revenue over the 2027 to 2029 period of $111 million.

David Bowler: We'll expect new rates to go into effect in early August. Turning to active cases, you can see we have general rate cases in progress in three jurisdictions. On May 5th, we filed a general rate case in West Virginia, reflecting $300 million in system investments covering the period March 2024 through February 2027. We are seeking $48 million of additional annual revenue, which would be reflected in two steps: in March 2026 and March 2027. And we expect this case to be completed by the end of February 2026. Intervener testimony is set for October and rebuttal testimony in November. On May 16th, we filed a general rate case in Kentucky, reflecting $212 million in system investments covering February 2025 through December 2026. We are seeking $27 million of additional annual revenue, and we expect proposed rates to go into effect on an interim basis in December 2025.

If approved by the commission that new rates would take effect on January one 2027 with subsequent increases expected in January 2028 and 2029.

As a reminder, our request for a one year extension of our cost of capital filing in late 2026 was approved earlier this year, which maintains our current authorized cost of capital through 2026 absent significant movements in interest rates.

Another piece of our filing is decoupling. We currently have partial decoupling in California, but again are requesting for decoupling to promote promote affordable rates and concentration.

On a similar front on the legislative side, a decoupling bill related to water utilities has passed out of the California Senate and is currently awaiting action and the California Assembly Appropriations Committee.

David Bowler: Intervener testimony is set for August and rebuttal testimony in September. And finally, on July 1st, we filed a general rate case in California, reflecting system investments through 2028. We are seeking $63 million of additional annual revenue in 2027 compared to authorized 2025 revenue, and a total increase in revenue over the 2027 to 2029 period of $111 million. If approved by the Commission, the new rates would take effect on January 1st, 2027, with subsequent increases expected in January 2028 and 2029. As a reminder, a request for a one-year extension of our cost of capital filing to May 1st, 2026, was approved earlier this year, which maintains our current authorized cost of capital through 2026, absent significant movements in interest rates. Another piece of our filing is decoupling. We currently have partial decoupling in California, but again are requesting full decoupling to promote affordable rates and conservation.

On slide 11, as John mentioned yesterday, we announced that we are narrowing our 2025 EPS guidance to the top half of the range. We first disclosed last October.

The 2025 EPS guidance range is now $5 70 to $5 75.

$5 65 to $5 75, previously on a weather normalized basis.

We're seeing strength in the business across several regulated states so far in 2025, including solid customer usage.

Coupled with the fact that we will continue to have revenue increases year over year in several states through Q3, we expect the second half of 2025 to deliver financial results to achieve this narrowed guidance range.

This puts us on track to deliver eight 6% EPS growth in 2025 at the midpoint of our narrowed guidance range.

I am confident in our team's ability to execute on our financial and operating plans, including delivering cost effective financing, while maintaining our balance sheet strength and credit profile.

As a reminder, a request for a 1-year extension of our cost of capital filing to May 1st 2026 was approved earlier this year which maintains our current authorized cost of capital through 2026 absent, significant movements in interest rates.

Our total debt to capital ratio as of the end of the quarter net of $94 million of cash on hand was 58%, which was within our target of less than 60%.

David Bowler: On a similar front, on the legislative side, a decoupling bill related to water utilities has passed out of the California Senate and is currently awaiting action in the California Assembly Appropriations Committee. On slide 11, as John mentioned, yesterday we announced that we are narrowing our 2025 EPS guidance to the top half of the range we first disclosed last October. The 2025 EPS guidance range is now at $5.70 to $5.75, from $5.65 to $5.75 previously on a weather-normalized basis. We are seeing strength in the business across several regulated states so far in 2025, including solid customer usage. Coupled with the fact that we will continue to have revenue increases year over year in several states through Q3, we expect the second half of 2025 to deliver financial results to achieve this narrow guidance range.

Another piece of our filing is decoupling. We currently have partial decoupling in California. But again, our requesting full decoupling to promote promote affordable rates and conservation.

As a reminder, our 2025 financing plans still includes another long term debt issuance at roughly $1 billion to be completed in the second half of 2025.

On a similar front on the legislative side, a decoupling Bill related to water. Utilities has passed out of the California Senate and is currently awaiting action. In the California Assembly Appropriations Committee.

And finally on slide 12.

Want to ramp up emphasize that we continue to expect to achieve consistent EPS growth within the 7% to 9% range through 2029 and beyond.

On slide 11. As John mentioned yesterday, we announced that we are narrowing our 2025 EPS, guidance to the top half of the range. We first disclosed last October,

We believe our industry, leading EPS and dividend growth, coupled with our affordability position and sustainability leadership will continue to be highly valued rewarded by investors. We believe these aspects of our business and our position as the largest and most geographically diversed water and wastewater utility in the country.

The 2025 EPS guidance range is now 5.70 to 5.75 from 5.65 to 5.75 cents. Previously on a weather normalized basis.

We are seeing strength in the business across several regulated States so far in 2025, including solid, customer usage.

English is us from all other utilities.

With that I'll turn it over to Cheryl to talk more about our capital program, our recent acquisition activity.

David Bowler: This puts us on track to deliver 8.6% EPS growth in 2025 at the midpoint of the narrow guidance range. I'm confident in our team's ability to execute on our financial and operating plans, including delivering cost-effective financing while maintaining our balance sheet strength and credit profile. Our total debt-to-capital ratio as of the end of the quarter, net of $94 million of cash on hand, was 58%, which was within our target of less than 60%. As a reminder, our 2025 financing plan still includes another long-term debt issuance of roughly $1 billion to be completed in the second half of 2025. And finally, on slide 12, I want to reemphasize that we continue to expect to achieve consistent EPS growth within the 7% to 9% range through 2029 and beyond.

That we will continue to have Revenue increases year-over-year in several States through Q3. We expect the second half of 2025 to deliver Financial results to achieve this narrow guidance range.

Thank you David and good morning, everyone on Slide 14, our capital program delivered $1 $3 billion of investments in the first half of the year. This result keeps us on pace to hit our goal of approximately $3 $3 billion of capital investment in 2025 are low risk annual capital plan is made up of hundreds of individual.

This puts us on track to deliver 8.6% EPS growth in 2025, at the midpoint of the narrow guidance range.

I'm confident in our team's ability to execute on our financial and operating plans, including delivering cost-effective financing while maintaining our balance sheet strength and credit profile.

<unk>, which our teams do a really great job of executing as a reminder, the nature of the program also gives us the ability to flex up or flex down our organic capex spending annually in order to achieve our overall planned capital spend including acquisitions. We continue to expect these capital investments in infrastructure.

Our total debt to Capital ratio as of the end of the quarter, net of 94 million of cash on hand was 58%, which was within our Target of less than 60%.

As a reminder, our 2025 financing plan still includes another long-term debt. Issuance of roughly 1 billion dollars to be completed in the second half of 2025.

And in acquisitions will grow regulated rate base at a long term rate of 8% to 9%.

Turning to slide 15.

We continue to be well positioned for growth through acquisitions across many states with about 87000 customer connections under agreement from deals totaling $535 million in May we were pleased to announce an agreement with the Nexus water group subsidiary.

David Bowler: We believe our industry-leading EPS and dividend growth, coupled with our affordability position and sustainability leadership, will continue to be highly valued and rewarded by investors. We believe these aspects of our business and our position as the largest and most geographically diverse water and wastewater utility in the country distinguish us from all other utilities. With that, I'll turn it over to Cheryl to talk more about our capital program, our recent acquisition activity.

And finally, on slide 12, I want to re-emphasize that we continue to expect to achieve consistent, EPS growth within the 700 and 9 range through 2029 and Beyond

We believe our industry-leading Epps and dividend growth coupled with our affordability position in sustainability. Leadership will continue to be highly valued and rewarded by investors.

To purchase multiple water and wastewater systems located in eight states for $315 million. This acquisition will add nearly 47000 customer connections and approximately $200 million to rate base.

It was believed these aspects of our business and our position as the largest. And most geographically diverse Water and Wastewater utility in the country distinguishes us from all other utilities.

Cheryl Norton: Thank you, David, and good morning, everyone. On slide 14, our capital program delivered $1.3 billion of investments in the first half of the year. This result keeps us on pace to hit our goal of approximately $3.3 billion of capital investment in 2025. Our low-risk annual capital plan is made up of hundreds of individual projects, which our teams do a really great job of executing. As a reminder, the nature of the program also gives us the ability to flex up or flex down our organic CapEx spending annually in order to achieve our overall planned capital spend, including acquisitions. We continue to expect these capital investments in infrastructure and in acquisitions will grow regulated rate-based at a long-term rate of 8% to 9%.

With that, I'll turn it over to Cheryl to talk more about our Capital program. Our recent acquisition activity,

Through this transaction, we will grow in eight of our existing regulated states supporting our long term growth target of 2% for customer additions as with other acquisitions, we will be able to leverage our scale and size to deliver safe clean reliable and affordable water and wastewater services to these new customers.

Thank you, David and good morning everyone on slide 14. Our Capital program delivered 1.3 billion dollars of investments. In the first half of the Year. This result Keeps Us on Pace to hit our goal of approximately 3.3 billion dollars of capital investment in 2025.

We also believe this expansion will help lead to more growth since it will expand some of our in state geographies. We expect closing will take place buyer before August 2026.

In addition to the Nexus system. We currently have 20 acquisitions in seven states under agreement for $220 million that would add about 40000 customer connections. This represents significant progress on the business development front, including in West, Virginia, and Pennsylvania Importantly, we've seen renewed activity in <unk>.

Cheryl Norton: Turning to slide 15, we continue to be well-positioned for growth through acquisitions across many states, with about 87,000 customer connections under agreement from deals totaling $535 million. In May, we were pleased to announce an agreement with the Nexus Water Group subsidiary to purchase multiple water and wastewater systems located in eight states for $315 million. This acquisition will add nearly 47,000 customer connections and approximately $200 million to rate base. Through this transaction, we will grow in eight of our existing regulated states, supporting our long-term growth target of 2% for customer additions. As with other acquisitions, we'll be able to leverage our scale and size to deliver safe, clean, reliable, and affordable water and wastewater services to these new customers. We also believe this expansion will help lead to more growth, since it will expand some of our in-state geographies.

Our low-risk annual Capital plan is made up of hundreds of individual projects, which our teams do a really great job of executing. As a, reminder, the nature of the program also gives us the ability to flex up or Flex down. Our organic capex spending annually in order to achieve our overall plan Capital, spend, including Acquisitions. We continue to expect these Capital Investments and infrastructure and an Acquisitions will grow regulated rate base, at a long-term rate of 8 to 9%,

Pennsylvania, including four systems closed so far this year and an additional eight systems under agreement.

Most recent acquisitions announced where the pittston water wastewater system and the Indian Creek Valley Water Authority, where we plan to utilize fair market value under the new guidelines set by the commission. We have negotiated purchase prices that we believe will result in approval by our regulators of transactions at full cost recovery, we remain calm.

Turning to slide 15. We continue to be well, positioned for growth through Acquisitions across many states with about 87,000. Customer connections under agreement from deals totaling 535 million in may. We were pleased to announce an agreement with the Nexus water group, subsidiary to Pro to purchase multiple Water and Wastewater systems located in 8 States for

Evidence and our acquisition pipeline and we are continuing to invest in regulated acquisition opportunities across our footprint and all of our states. The acquisition opportunities are driven by the need for system consolidation infrastructure upgrades regulatory compliance and operational enhancements.

315 million. This acquisition will add nearly 47,000 customer connections, and approximately 200 million dollars to rate base.

With that I'll turn it back over to our operator to begin Q&A and take any questions you may have.

Through this transaction, we will grow in 8 of our existing regulated States supporting our long-term growth Target of 2% for customer additions. As, with other Acquisitions, we'll be able to leverage our scale and size to deliver, safe, clean, reliable, and affordable Water, and Wastewater services to these new customers.

We will now begin the question and answer session.

Cheryl Norton: We expect closing will take place by or before August 2026. In addition to the Nexus systems, we currently have 20 acquisitions in seven states under agreement for $220 million that would add about 40,000 customer connections. This represents significant progress on the business development front, including in West Virginia and Pennsylvania. Importantly, we've seen renewed activity in Pennsylvania, including four systems closed so far this year and an additional eight systems under agreement. The most recent acquisitions announced were the Pittston Wastewater System and the Indian Creek Valley Water Authority, where we plan to utilize fair market value under the new guidelines set by the Commission. We've negotiated purchase prices that we believe will result in approval by our regulators of transactions at full cost recovery. We remain confident in our acquisition pipeline, and we are continuing to invest in regulated acquisition opportunities across our footprint.

Ask a question you May press Star then one on your Touchtone phone if your question.

We also believe this expansion will help lead to more growth, since it will expand some of our in-state geographies. We expect closing will take place by or before August 2026

Okay.

Two.

It's really twofold.

Roster.

Our first question comes from Richard Sunderland of Jpmorgan. Please go ahead.

Hi, Good morning, Thank you for your time today.

Good morning Rich.

How are you thinking about Pennsylvania, stakeholder relationships and engagements in advance of the next rate case application. The state have you been season, the timing of an application and are you seeing recognition of that.

Hey, rich it's Cheryl.

Thanks for the question, we really appreciate it yes, we've been doing a whole lot of work in that stakeholder space first and foremost we continue to provide really great customer service across the state and so we know that that is the ultimate way for us to keep our customers happy that's what they expect but also we have.

In addition to the Nexus systems, we currently have 20 Acquisitions in 7 States under agreement for 220 million. That would add about 40,000 customer connections. This represents significant progress on the business development front, including in West, Virginia, and Pennsylvania importantly, we've seen renewed activity in Pennsylvania, including 4 systems closed so far this year and an additional 8 systems under agreement. The most recent acquisitions announced were the pitston water Wastewater system and the Indian Creek Valley Water Authority, where we plan to utilize fair market value under the new guidelines set. By the commission. We have negotiated purchase prices that we believe will result in approval by our Regulators of transactions at full cost recovery. We remain confident in our acquisition

Cheryl Norton: In all of our states, the acquisition opportunities are driven by the need for system consolidation, infrastructure upgrades, regulatory compliance, and operational enhancements. With that, I'll turn it back over to our operator to begin Q&A and take any questions you may have.

Created a stakeholder plan, where we continue to reach out and build relationships across all of our stakeholder groups and we feel like we're in a really good spot in Pennsylvania. We are continuing to plan for our rate filing just as you would normally expect and as we've talked about in the past.

Pipeline and we are continuing to invest in regulated acquisition opportunities across our footprint, in all of our states, the acquisition opportunities are driven by the need for system. Consolidation infrastructure, upgrades Regulatory Compliance and operational enhancements.

Aaron Musgrave: We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If your question has been addressed and you would like to remove it, please press star, then two. We will pause momentarily to examine the roster. Our first question comes from Richard Sunderland of JPMorgan. Please go ahead.

Got it that's helpful color there and then on the financing side I know you've been clear on sort of a strategy for the equity with blocks curious if you would explore afford issuance to take care of the 2006 equity needs <unk> seen a lot of peers in the space get ahead of equity. Thank you.

Richard Sunderland: Hi, good morning. Thank you for the time today.

Our first question comes from Richard, Sunderland of JP Morgan. Please go ahead.

Hey, Rich this is David thanks for that question.

Cheryl Norton: Morning, Rich.

Hi, good morning, thank you for the time today.

Richard Sunderland: How are you thinking about Pennsylvania stakeholder relationships and engagement in advance of the next rate case application in the state? Have you been seasoning the time you have an application, and are you seeing recognition of that?

Morning rich.

We keep Oh.

All options on the table and are always evaluating.

Are the options that we have the.

Issue, but our plan is is to take proceeds in 2020 search initiated equity in 2000 <unk>. So.

Uh, how are you thinking about Pennsylvania, stakeholder relationships and engagements in advance of the next rate case application, the state. Have you been seasoning the time given application? And are you seeing recognition of that?

Cheryl Norton: Hey, Rich, it's Cheryl. Thanks for the question. We really appreciate it. Yeah, we've been doing a whole lot of work in that stakeholder space. First and foremost, we continue to provide really great customer service across the state. And so we know that that is the ultimate way for us to keep our customers happy. That's what they expect. But also, we have created a stakeholder plan where we continue to reach out and build relationships across all of our stakeholder groups. And we feel like we're in a really good spot in Pennsylvania. We are continuing to plan for our rate filing just as you would normally expect and as we've talked about in the past.

Great I'll leave it there thank you.

Okay.

The next question comes from Angie Stuart There isn't T. A C Corp. Please go ahead.

Thank you.

I wanted to ask about the <unk> acquisition.

Anything you guys can can provide.

As for the earnings power of this asset and how it compares to.

Municipal M&A. Thank you would typically pursue and what does it say about the availability of larger municipal pockets that you guys are going after a private assets.

Hi Richard Cheryl um thanks for the question, we really appreciate it. Uh yeah we've we've been doing a whole lot of work in that stakeholder space first and foremost, we continue to provide really great customer service across the state. And so we know that that is the the ultimate Way for us to um, you know, keep our customers happy. That's what they expect. But also we have um, created a stakeholder plan where we continue to reach out and build relationships across all of our stakeholder groups and we feel like we're in a a really good spot in Pennsylvania. We um are continuing to to plan for our rate filing just as you would normally expect and as we've talked about in the past,

Richard Sunderland: Got it. That's a helpful color there. And then on the financing side, I know you've been clear on sort of strategy for the equity with blocks. Curious if you would explore a forward issuance to take care of the 26 equity needs. I've seen a lot of peers in the space get ahead of equity. Thank you.

Okay.

Thanks, Angie I'll take a stab at that question, we see the Nexus acquisition. It was a great opportunity for us to get a group of customers.

The states that we already provide service to but it does help us to expand our footprint in those states, we don't see it being a lot different than most of our acquisitions, we're going to go through the same processes to bring these customers online we've already started outreach with employees and communities. So that we can get to know them and they can get.

Got it. That's how color there. And then on the financing side, I know you've been clear on sort of strategy for the equity with blocks. Um, curious if you would explore a forward issuance to take care of the uh, 26 Equity needs seen a lot of peers in the space. Get ahead of equity. Thank you.

David Bowler: Hi, Rich. This is David. Yeah, thanks for that question. Obviously, we keep, I mean, all options on the table and are always evaluating the options that we have to issue. But our plan is to take proceeds in 2026 and issue the equity in '26, so.

Hey, Rich, this is David. Yeah, thanks for that question. Um, obviously we keep, uh, I mean all options on the table and are always evaluating uh,

No that's a little bit as we go through the process, which is just typical for what we would do in any acquisition type of scenario. So I. We don't we don't see this as being any kind of an indication.

Uh or the options that we have to to to issue. But you know our plan is uh is is to take proceeds in 2026 and issue the equity in 26. So,

Richard Sunderland: Great. I'll leave it there. Thank you.

Regarding municipal deals those municipal deals are still out there, we're still pursuing them and we're still getting lots of interest across our footprint. So we think that it's just.

Great. I'll leave it there. Thank you.

Aaron Musgrave: The next question comes from Angie Sturzinski of Seaport. Please go ahead.

Angie Sturzinski: Thank you. So I wanted to ask about the Nexus acquisition. You know, anything you guys can provide as a basis for the earnings power of this asset and how it compares to municipal M&A that you would typically pursue? And what does it say about the availability of larger municipal targets that you guys are going after a private set of assets? Thank you.

The next question comes from Angie Stow stoinski of Seaport. Please go ahead.

Another step in right sizing the organization across the across the U S and this consolidation piece that we've been pushing on and seeing all across the footprint I, it's going to continue and that will happen.

In various ways. So we're excited about this deal, but it certainly has not taken our eye off the ball on the municipal systems.

And it's not gonna have.

Initial stability because of the.

Thank you. Um, so wanted to ask about the, uh, the Nexus acquisition, um, you know, anything you guys can can provide um, as um, you know, basis for the earnings power of this asset and how it compares to, um, Municipal uh, m&a that that you would typically pursue and and what does it say about the availability of, uh, larger Municipal targets that, you guys are going after a private set of assets.

Cheryl Norton: Thanks, Angie. I'll take us down with that question. You know, we see the Nexus acquisition. It was a great opportunity for us to get a group of customers in states that we already provide service to, but it does help us to expand our footprint in those states. We don't see it being a lot different than most of our acquisitions. We're going to go through the same processes to bring these customers online. We've already started outreach with employees and communities so that we can get to know them and they can get to know us a little bit as we go through the process, which is just typical for what we would do in any acquisition type of scenario. So we don't see this as being any kind of an indication regarding municipal deals. Those municipal deals are still out there.

Goodwill that is being paid and then just the differential.

Thank you.

Privately owned asset acquisitions.

No I don't think that it's going to have a negative impact at all I think it's gonna be.

We will just roll them right and we will just keep moving forward and and I don't see a negative impact at all.

Okay.

Okay. That's all I have thank you.

Just a reminder, if you have a question. Please press Star then one on.

Our next question comes from Jonathan Reeder of Wells Fargo. Please go ahead.

Okay.

Hey, good morning team congrats on a solid update I wanted to start first I guess piggybacking off of <unk>.

Cheryl Norton: We're still pursuing them, and we're still getting lots of interest across our footprint. So we think that it's just another step in right-sizing the organizations across the US. And this consolidation piece that we've been pushing on and seeing all across the footprint is going to continue, and that will happen in various ways. So we're excited about this deal, but it certainly has not taken our eye off the ball on the municipal systems.

Angie there and say you know congrats on the Nexus steel as well as the.

The resumption of some Pennsylvania fair market value deals Sheryl could you just kind of talk a little bit more on.

Thanks, Angie, I'll, I'll take a stab at that question. You know, we see the Nexus acquisition. It was a great opportunity for us to get a group of customers in, in states that we already provide service to. But it does help us to expand our footprint in those States, we don't see it being a lot different than most of our Acquisitions. We're going to go through the same processes to bring these customers online. We've already started Outreach with um, employees and and communities, so that we can get to know them and they can get to know us a little bit as we go through the process, which is just typical for what we would do in any acquisition type of scenario. So I I we don't we don't see this as being any kind of an indication uh regarding Municipal deals. Those municipalities are still out there. We're still pursuing them and we're still getting lots of interests across our footprint. So we think that it's just

You know the landscape in Pennsylvania on the fair market value front, where these deals that you know are kind of already in the pipeline just waiting to get done once the PUC final.

Finalize the revisions to the rule or is this just kind of more of the tip of the iceberg of the backlog of deals that are kind of waiting to come in we should expect to see.

Angie Sturzinski: And it's not going to have diminished profitability because of the goodwill that is being paid and then just a different treatment of privately owned asset acquisitions?

Another step in, right, sizing the organization's across the um, across the us. And this consolidation piece that we've been pushing on and seeing all across the, the footprint is going to continue and that will happen. Um, in various ways. So we're excited about this deal, but it certainly has not taken our eye off the ball on the municipal systems.

A lot more Pennsylvania, a fair market value of activity in the quarters ahead.

Yeah, Jonathan Jonathan Thanks for the question.

Cheryl Norton: No, I don't think that it's going to have a negative impact at all. I think it's going to be, again, we'll just roll them right in and we'll just keep moving forward, and I don't see a negative impact at all.

And and it's not going to have um you know, diminished for stability because of the um you know, Goodwill that is being paid and then just a different treatment of uh privately owned asset acquisitions.

You know these deals.

All long lead time deal. So we've been working on all of these deals for quite some time nothing happens overnight in the acquisition space, but but I would say these deals have just gone through the natural progression I don't think they were necessarily waiting in the wings for these rules to get finalized or anything like that I think the timing is what it is just based on the conversations that we have.

No, I I don't think that it's going to um have a negative impact at all. I think it's going to be um again we'll just roll them right in and we'll just keep moving forward and and um, I don't see a negative impact at all.

Angie Sturzinski: Okay. Okay, that's all I have. Thank you.

Okay. Okay, that's all I have. Thank you.

Aaron Musgrave: Just a reminder, if you have a question, please press star, then one. Our next question comes from Jonathan Reeder of Wells Fargo. Please go ahead.

Been having and you know we look at each deal to determine does it makes sense to do a fair market value deal or does it make sense to do a more traditional type of deal.

Just a reminder, if you have a question, please press star then 1.

Our next question comes from Jonathan Reader of Wells Fargo please go ahead.

Jonathan Reeder: Hey, good morning, team. Congrats on a solid update. I wanted to start first, I guess, piggybacking off of Angie there and say, you know, congrats on the Nexus deal as well as the resumption of some Pennsylvania fair market value deals. Cheryl, could you just kind of talk a little bit more on, you know, the landscape in Pennsylvania on the fair market value front? Were these deals that, you know, were kind of already in the pipeline just waiting to get done once, you know, the PUC finalized the revisions to the rules? Or, you know, is this just kind of more the tip of the iceberg of the backlog of deals that are kind of waiting to come and we should expect to see, you know, a lot more Pennsylvania fair market value activity in the, you know, quarters ahead?

And we've had a mixture of those when you talk about all the deals that are happening in Pennsylvania, Theyre not all fair market value deals do we expect more to come to the table absolutely and we will continue to manage through those deals. We were we were glad when the commission gave US guidelines that we can follow along so that it makes that that process of getting a deal closed.

Further and hopefully faster and so we're going to we're going to follow those guidelines with our fair market value deals. So that we can really push all of these deals forward, whether their fair market value or not but yeah. We think there's still a lot more deals there is a lot of consolidation that needs to happen out there.

Okay great.

It's John here I'll, just add to Sharon's comments Sheryl spot on there in terms of the Pennsylvania landscape.

Cheryl Norton: Yeah, Jonathan, thanks for the question. You know, these deals are all long lead time deals. So we've been working on all these deals for quite some time. Nothing happens overnight in the acquisition space. But I would say these deals have just gone through the natural progression. I don't think they were necessarily waiting in the wings for these rules to get finalized or anything like that. I think the timing is what it is, just based on the conversations that we've been having. And, you know, we look at each deal to determine, does it make sense to do a fair market value deal or does it make sense to do a more traditional type of deal? And we've had a mixture of those. When you talk about all the deals that are happening in Pennsylvania, they're not all fair market value deals.

You know, the landscape in Pennsylvania on the fair market value front with these deals that, you know, are kind of already in the pipeline, just waiting to get done once, you know, the PUC finalizes the revisions to the rules. Or, you know, is this just kind of more the tip of the iceberg of the backlog of deals that are kind of waiting to come? And we should expect to see, you know, a lot more Pennsylvania fair market value activity in the, you know, quarters ahead.

We really are seeing.

Additional contribution from across our entire platform as well, so Pennsylvania remains healthy, but those same dynamics that drive, Pennsylvania in terms of the need for investment.

<unk>, a scale, which leads to the REIT regionalization those all apply across our platform and we're really.

We've spent the last couple of years organizing to be able to to move on those dynamics broadly.

Across our states.

Awesome, that's great to hear that momentum is broad.

The other question I had was on your reference to the Bill the decoupling Bill in California can you kind of expand a little bit more what exactly that size or maybe what's the goals of the bill because I believe the legislature.

Cheryl Norton: Do we expect more to come to the table? Absolutely. And we'll continue to manage through those deals. We were glad when the Commission gave us guidelines that we can follow along so that it makes that process of getting a deal closed smoother and hopefully faster. And so we're going to follow those guidelines with our fair market value deals so that we can really push all these deals forward, whether they're fair market value or not. But yeah, we think there's still a lot more deals. There's a lot of consolidation that needs to happen out there.

This year kind of past the decoupling bill, but it didn't require the commission.

To adopt decoupling does this spill like require them to approve decoupling full decoupling for the for the California water utilities.

Yeah, Jonathan Jonathan, thanks for the question. You know, I these deals are all long, lead time deals. So we've been working on all these deals for quite some time. Nothing happens overnight and the acquisition space, but um, but I would say these deals have just gone through the natural progression. I don't think they were necessarily waiting in the wings for these rules to get um finalized or anything like that. I think the timing is what it is just based on the conversations that we've been having. And you know, we look at each deal to determine. Does it make sense to do a fair market value deal? Or does it make sense to do? Um, a more traditional type of deal and we've had a lot of those. Um, when you talk about all the deals that are happening in Pennsylvania, they're not all fair market value deals. Do we expect more to come to the table? Absolutely. And we'll continue to manage through those deals. We were, we were glad when the commission gave us guidelines that we can follow along. So that, um, it makes that that process of getting a deal closed smoother and hopefully faster. And so, we're

Yes, Jonathan This bill was designed to try to close that gap for us. So we're hopeful that it continues to make its way through and that the governor signs off on it and we're hoping to have a decision over the next few months.

David Bowler: Hey, John, it's John here. I'll just add to Cheryl's comments, and Cheryl's spot on there in terms of the Pennsylvania landscape. You know, we really are seeing additional contribution from across our entire platform as well. You know, so Pennsylvania remains healthy, but those same dynamics that drive Pennsylvania in terms of the need for investment, economies of scale, which leads to the regionalization, those all apply across our platform. And we're really, you know, we've spent the last couple of years organizing to be able to move on those dynamics broadly across our states.

We're going to we're going to follow those guidelines with our fair market value deals, so that we can really, um, push all these deals forward, whether they're fair market value or not. But yeah, we think there's still a lot more deals. There's a lot of consolidation that needs to happen out there.

Okay, but at this point it still needs to pass both chambers before even knowing that the governor is that correct.

Yeah.

Yeah, well, it's Jonathan is David it's passed out of the Appropriations Committee now it's Gotta go.

To see the full.

Our legislature and then once it passes there it goes to the Governor's desk.

Excellent alright, thanks, so much for taking the time to answer my questions and again congrats on a good update.

Thanks Al Thank you.

The next question comes from Paul Zimbardo of Jefferies. Please go ahead.

Jonathan Reeder: Awesome. That's great to hear the momentum is broad. One other question I had was on your reference to the bill, the decoupling bill in California. Can you kind of expand a little bit more what exactly that says or maybe what's the goals of the bill? Because, you know, I believe the legislature in the previous year kind of passed the decoupling bill, but it didn't require the Commission to adopt decoupling. Does this bill, like, require them to approve decoupling, full decoupling for the California water utilities?

Hey, hey Jonathan, it's John here. I I'll just add to Cheryl's comments and Cheryl's spot on there. In terms of the Pennsylvania landscape. You know, we we we really are seeing, uh, additional contribution from across our entire platform as well. You know, so Pennsylvania remains healthy, but those same dynamics, that Drive Pennsylvania. In terms of the need for investment, uh, economies of scale which leads to, to the regionalization, those all apply across our platform and we're really, uh, you know, we've spent the last couple of years organizing to be able to, to, to to, to move on those Dynamics, uh, broadly uh, across our states.

Yeah.

Hi, good morning team. Thank you.

Hi, Good morning, I just had one.

Hi, Good morning, I just had one quick one in your comprehensive before just on the strength in the 2025 pushing up the guidance towards the top end I know you attributed to some stronger usage and just outperformance across the footprint is there anything else in particular that drove that strength and if we should think about that those drivers.

Whatever they may be contributing in 2026 blocks.

Cheryl Norton: Yeah, Jonathan, this bill was designed to try to close that gap for us. So we're hopeful that it continues to make its way through and that the governor signs off on it. And we're hoping to have a decision over the next few months.

Awesome. That's great to hear. Momentum is broad. Uh, what other question I had was on your reference to the bill, the decoupling bill in California. Can you kind of expand a little bit more on what exactly that says, or maybe what the goals of the bill are? Because, you know, I believe the legislature in the previous year kind of passed the decoupling bill, but it didn't require the commission to adopt decoupling. Does this bill like require them to approve decoupling, full decoupling for the California water utilities?

Hey, Paul This is David no that doesn't mean, but what we disclosed in the call here is really the primary driver.

We're just seeing strong usage.

We saw that last year, a continuation of that and.

Jonathan Reeder: Okay, but at this point, it still needs to pass both chambers before even going to the governor. Is that correct?

Yeah, Jonathan, this bill was designed to try to close that gap for us, so, um, we're hopeful that it continues to make its way through and that the governor signs off on it and, um, we're hoping to have a decision over the next few months.

The main driver.

Yeah, Paul I'll, just add to that you know, it's a lot of consistent regulatory execution and the strength of our diversified platform geographically as well as from a regulatory perspective.

Okay, but at this point, it still needs to pass both chambers before even going to the governor. Is that correct?

David Bowler: Yeah, well, it's passed, Jonathan, David, it's passed out of the appropriations committee. Now it's got to go to the full legislature, and then once it passes there, it goes to the governor's desk.

Okay.

Okay.

Understood.

Thanks, very much have a good one.

Jonathan Reeder: Excellent. All right. Thanks so much for taking the time to answer my questions, and again, congrats on a good update.

Yeah, well, it's, it's Jonathan's David. It's passed out of the Appropriations Committee. Now, it's got to go, uh, to to the full, um, uh, legislation. And then once it passes, there it goes, to the governor's desk.

This concludes our question and answer session. Our presentation has now finished you may now disconnect.

Cheryl Norton: Thanks, Jonathan.

Excellent. All right, thanks so much for taking the time to to answer my questions and again, congrats on a good update.

Jonathan Reeder: Thank you.

Thank you.

Aaron Musgrave: The next question comes from Paul Zimbardo of Jefferies. Please go ahead.

The next question comes from Paul, zimbardo of Jeffrey's. Please go ahead.

Paul Zimbardo: Hi, good morning, team. Thank you. I just had one, good morning. I just had one quick one to your comprehensive before. Just on the strength in the 2025 pushing up the guidance towards the top end, I know you attributed to some stronger usage and just outperformance across the footprint. Is there anything else in particular that kind of drove that strength and if we should think about that, those drivers, whatever they may be contributing in 2026 plus?

Hey, good morning, team. Thank you.

David Bowler: Hey, Paul, this is David. No, I mean, what we disclosed in the call here was really the primary driver. You know, we're just seeing strong usage. We saw that last year, a continuation of that, and that's the main driver. Yeah, and Paul, just to add to that, you know, it's a lot of consistent regulatory execution and the strength of our diversified platform geographically as well as from a regulatory perspective.

I just had a good morning. I I just had 1 quick 1 to your comprehensive before, just to on the the strength and the 2025. Pushing up the guidance towards the top end, I know you tripped it to some stronger usage and just outperformance across the the footprint, is there anything else in particular that going to drove that strength? And if we should think about that, those drivers whatever, they may be contributing in 2026, Plus

Hey Paul, this is David. Uh no I mean what what we disclosed in the call here was really the primary driver you know? We we just seen strong usage. Um we saw that last year, a continuation of that and um that's the main driver.

Yeah, I'm Paul just to add to that, you know, it's it's a lot of consistent regulatory execution and the strength of our uh Diversified platform geographically as well as from a regulatory perspective.

Paul Zimbardo: Okay. Understood. No, thanks very much. Have a good one.

Okay. Understood. Thanks very much. Have a good one.

Aaron Musgrave: This concludes our question and answer session. Our presentation is now finished. You may now disconnect.

Our presentation is now finished. You may now disconnect.