Q3 2025 Quarterly Prepared Remarks

American Water

Prepared Remarks for 2025 Third Quarter Earnings & 2026 Outlook Presentation

October 29, 2025

Company Representatives Providing Remarks

This update will cover American Water's third quarter 2025 earnings results, 2026 earnings guidance, and 2026-2030 capital plan.

These remarks will include 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 third quarter earnings release and Form 10-Q, each filed today with the SEC, as well as at the end of these remarks. And finally, all statements made in these remarks related to earnings and earnings per share refer to diluted earnings and diluted earnings per share.

Turning to slide 5, I'll start by again saying how incredibly excited we are to be combining with Essential Utilities, which we announced earlier this week. These are two top-notch teams who share similar values and a deep commitment to our communities. As a combined company, we expect to capitalize on the compelling strategic rationale and financial benefits to drive growth and value creation, while also benefiting our customers, employees and other stakeholders. We believe this combination creates a value proposition that is unique in the utility sector, and we look forward to engaging with investors and other stakeholders as we move through the approval process.

With that, the rest of our remarks today will pertain to our standalone results, plan and outlook.

I'll start by covering some highlights from the third quarter and year-to-date periods. As we announced today, we delivered strong financial results in the third quarter in line with our expectations, adding to an already successful 2025. Earnings were $1.94 per share for the quarter, compared to $1.80 for the same period last year. In the first nine months of 2025, earnings were $4.47 per share, compared to $4.17 for the same period last year. Our results reflect the clear execution of our plan in 2025, which David and Cheryl will discuss further in their remarks. These results give us confidence to affirm our 2025 EPS guidance of $5.70 to $5.75 per share, which you'll recall from last quarter represents our narrowing of guidance to the top half of the previous guidance range.

Moving on to some of our other key accomplishments so far in 2025, we invested $2.2 billion in capital projects year to date, again reflecting great work by our teams responsible for planning and completing these investments. As Cheryl will review, we continue to build momentum with our Business Development platform, with nearly 107,000 customer connections under agreement across our platform, including the Nexus Water Group systems that will add nearly 47,000 customer connections.

And, we've continued our track record of regulatory execution this year, with new rates reflecting investments in infrastructure for the benefit of customers.

Slide 6 notes that we are initiating our 2026 earnings guidance of $6.02 to $6.12 per share. Among other assumptions that David will cover in further detail, our 2026 EPS guidance assumes the HOS note will be repaid around year-end 2025. As we've said previously many times, I want to highlight that we expect to achieve approximately 8 percent EPS growth in the year following repayment of the note, as demonstrated when looking at the midpoint of the guidance range for 2026.

Slide 7 shows that, as we update our five-year plan, we are affirming our long-term targets, including 7 to 9 percent EPS and dividend compounded annual growth rates. I want to emphasize that we expect to achieve consistent EPS growth through 2030, and beyond.

As a regulated water and wastewater utility, rate base growth, regulatory and capital execution, and operational excellence are the key drivers of growth for our company. We expect to achieve 8 to 9 percent rate base growth over the next decade, driven by the accelerated cap ex plan we put forth four years ago to meet reliability, resiliency and compliance needs. Our rate base growth includes our regulated acquisition strategy, which drives a growing customer base as well as the organic revenue growth opportunities we expect from our Military Services Group.

The capital investment needs in our systems and for the broader water and wastewater industry are vast. Our commitment to solving problems for our customers and future customers is unwavering – including addressing PFAS, Lead and Copper, and aging infrastructure, among other challenges. These catalysts are embedded in the foundation of our growth strategy and strongly position us to achieve consistent strong earnings growth for many years to come.

Along with our affordability and sustainability leadership, we believe these are the drivers of American Water's very competitive and sustainable shareholder return.

Regarding slide 9, I will add a few remarks on our year-to-date results. Consolidated earnings were $4.47 per share, up 30 cents per share versus the same period in 2024.

Revenues were higher by $1.42 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, has been flat year-to-date in 2025, and was unfavorable by an estimated 7 cents per share year over year.

In looking at operating costs, O&M was higher by 41 cents per share driven primarily by employee-related costs and increased maintenance and technology costs, as well as costs related to acquisitions completed in 2024, as we expected.

Depreciation increased 32 cents per share, and financing costs increased 27 cents per share, both as expected, in support of our investment growth.

Slide 10 covers the latest regulatory activity in our states.

On active cases, you can see we have general rate cases in progress in four jurisdictions.

On August 1st, we filed a general rate case in Maryland reflecting $22 million in system investments covering February 2019 through April 2025. We are seeking $3 million of additional annual revenue, and we expect new rates, if approved, to take effect in March 2026.

Our general rate cases in West Virginia, Kentucky and California are progressing as expected. In West Virginia, the next steps in that case are the rebuttal testimony, due in November, and evidentiary hearings to be held in early December.

On the legislative side in California, the decoupling bill related to water utilities did not make it out of the California Assembly in 2025, among many other bills. Decoupling is still a part of our general rate case filing. We currently have partial decoupling in California but are again requesting full decoupling to promote affordable rates and conservation.

Looking ahead, we anticipate filing general rate cases in Virginia and Pennsylvania by the end of 2025, in keeping with our two-year rate cycle.

Slide 11 includes some considerations regarding our outlook for 2026 results in our newly established EPS guidance range of $6.02 to $6.12 per share.

First, as may be expected, our growth will be driven by the returns on the capital invested to serve our customers. Cheryl will comment on how our capital investment has grown and the specifics of the plan included in this update. As we've noted previously, 2025 is year four of our accelerated capital plan following the 2021 HOS sale, so we see that ramp up reflected in earnings in 2026, both from base rate increases and infrastructure mechanisms. Recent regulated acquisitions that are being incorporated into active or just-completed rate cases will also drive growth next year.

Also critical to our growth strategy is our ability to prudently manage the operating costs it takes to serve our customers. The focus on operating cost efficiencies goes to the heart of the customer affordability construct we want to protect, which is closely aligned with the interests of regulators and, ultimately, investors.

The increases in depreciation, long-term financing, and general taxes are driven by our continued capital investments in our systems. We will also expect to see some dilution related to the equity financing we anticipate settling in mid-year 2026.

Finally, this plan assumes that the $795 million note due from HOS will be repaid about one year early, around the end of 2025, which the buyer has the option to do. As John noted in his remarks, and as we have been discussing for some time now, we do not expect to see an earnings dip from the lack of interest income. We'll manage around the small headwind of a nickel or less that's left after considering avoided interest expense, which is included in the long-term financing and dilution bar, and thus, be able to grow 8 percent in 2026 at the midpoint of the range.

We also obviously assume the incremental interest income of about 10 cents per share we earned in 2024 and 2025 goes away one year early. As a reminder, that dime was never included in our 7 to 9 percent EPS growth expectations.

And while not called out on the slide, I'd like to note that our Military Services Group continues to add incrementally to our earnings growth expectation. MSG's great work on the numerous military installations it serves has built trust and resulted in the U.S. government allocating additional funds for improvement projects, driving increased revenues.

Slide 12 provides a look at our balance sheet and liquidity profile before closing with our five-year financing plan update.

Our total debt to capital ratio as of September 30th, net of the $166 million of cash on hand, remains at 58 percent and within our target of less than 60 percent. Our expected dividend payout ratio for 2025 of 58 percent is also within our target range of 55 to 60 percent.

With our continued focus on maintaining a strong balance sheet, we also remain confident that we will have access to capital for the foreseeable future. Our diversified banking relationships with some of the largest and strongest banks in the world, coupled with our fully regulated business model and strong credit ratings, give us great confidence around liquidity.

From this position of balance sheet strength, slide 14 provides a review of our five-year financing plan that will fund the increased capital plan.

In our prior five-year plan covering 2025 to 2029, we expected a total of $2.5 billion of equity issuances, subject to market conditions. That amount and timing remain unchanged for 2026 to 2030, save for the additional $150 million greenshoe exercised in our August Forward Agreement. The level and timing of anticipated external equity is tied very simply to our need to fund growth and maintain our strong financial position. Investors should expect equity financing to occur routinely as determined by our investment program, rate case cycle, and as appropriate to maintain our strong balance sheet and credit metrics. Since we are already in alignment with our targets for debt to cap and dividend payout, we have the flexibility to adjust these plans and respond to market conditions when they change, for the benefit of customers and investors alike.

Finally, I'll note that our current financing plan for calendar-year 2026 includes $1.5 to $2 billion of long-term debt financing.

On slide 15, I'll begin my remarks with a discussion of our current long-term capital plan. For 2026, we expect our investment spending level to be $3.7 billion. From 2026 to 2030, we expect to invest $19 to $20 billion, an increase of about $2 billion over our previous five-year plan. This level of spending reflects the result of our consistent, risk-based project planning.

Along with risk, customer affordability is a key variable in our analysis. The increase in the current plan compared to last year is a combination of increased spending to meet compliance requirements for EPA's PFAS and Lead rules, and rolling the plan forward a year, among other smaller items.

We are now expecting to spend about $1.5 billion over the next five years related to LCRI, and approximately $2 billion in capital to comply with EPA's PFAS rule. The now $300 million of annual investment for Lead and Copper service lines includes continued pipe replacement as well as work to inventory customer-side service lines such as digs, surveys, and customer engagement. Construction cost and material cost estimates for PFAS remediation have continued to escalate as we fully engineer surface water treatment plant solutions, particularly in New Jersey.

In total, looking out over the next decade, we expect to invest about $46 to $48 billion in our regulated systems and acquisitions, which is $6 billion higher than the previous ten-year plan. One of our key initiatives with this higher level of investment is the expansion of our infrastructure renewal and replacement program. Accelerating the replacement of aging underground pipe is one of the crucial investments we will be making for decades to come to continue delivering safe and clean water and ensure reliability of service to our customers.

Slide 16 covers customer affordability. We remain very focused on balancing customer affordability and the magnitude of the necessary system investments in our plans. The state and national dialogue on utility bill affordability continues to grow louder in the U.S. Fortunately, we've been focused on customer affordability for many, many years, so within the current national dialogue we start from a place of strength relative to other utility bills. We once again believe that the average residential water bill across our footprint as a percentage of median household income will continue to be below 1 percent throughout our ten-year plan.

Slide 17 notes that, as part of our overall capital plan, we are on pace to invest approximately $3.2 billion of capital into our systems in 2025. Our low-risk annual capital plan is made up of hundreds of individual projects, which our teams do a great job of executing. We continue to expect that these capital investments in infrastructure and acquisitions will grow regulated rate base at a long-term rate of 8 to 9 percent.

Investing in needed infrastructure on a continuous basis drives consistency of reliability of our services and of water quality. Infrastructure and other regulatory mechanisms enable us to mitigate the size of general rate increases for our customers, which helps promote affordable monthly bills. And, by reducing regulatory lag, timely capital recovery allows us to more closely earn our allowed return and better deliver consistent earnings growth.

Slide 18 shows that we continue to be well-positioned for growth through acquisitions across many states, with nearly 107,000 customer connections under agreement from deals totaling $606 million.

The regulatory approval process for the Nexus Water Group systems is progressing well. We have received approval from the commissions in Kentucky and Virginia and we expect to close this transaction by August of 2026.

In addition to the Nexus systems, we currently have 22 acquisitions in 6 states under agreement for $291 million that would add about 60,000 customer connections, not including our proposed merger with Essential Utilities. This represents significant progress on the business development front, in several of our states. The acquisition opportunities are driven by the need for system consolidation, infrastructure upgrades, regulatory compliance, and operational enhancements.

Finally, I would like to say that we look forward to seeing many of you at the upcoming EEI Financial Conference.