American Water Works Company, Inc. (AWK)

American Water Works Company, Inc. is the largest and most geographically diverse, publicly-traded water and wastewater utility company in the United States, as measured by both operating revenues and population served. The company employs approximately 7,000 professionals who provide drinking water, wastewater and other related services to approximately 14 million people in 24 states. The company conducts the majority of its business through regulated utilities that provide water and wastewater services, collectively presented as one reportable segment, referred to as the Regulated Businesses. The company also operates other businesses that provide water and wastewater services to the U.S. government on military installations, as well as municipalities. The U.S. water and wastewater industries include investor-owned systems as well as municipal systems that are owned and operated by local governments or governmental subdivisions. According to the U.S. Environmental Protection Agency, as of 2025, approximately 84% of the water market is served by municipal systems and, as of 2022, approximately 98% of the country's wastewater systems are government owned. The EPA also estimates, as of 2025, that there are over 50,000 community water systems and, as of 2022, over 16,000 community wastewater systems in the United States, with approximately 81% of the community water systems serving a population of approximately 3,000 or less.

The company's Regulated Businesses generally do not face direct competition in their existing markets because the company operates in those markets pursuant to franchises, charters, certificates of public convenience and necessity or similar authorizations issued by state PUCs or other authorities, and the high cost of constructing a new water and wastewater system in an existing market creates a significant barrier to market entry. However, the Regulated Businesses face competition from governmental agencies, other investor-owned utilities, large industrial customers with the ability to provide their own water supply/treatment process and strategic buyers that are entering new markets and/or making strategic acquisitions. When pursuing acquisitions, the company's largest investor-owned competitors, based on a comparison of operating revenues and population served, include Essential, American States Water Company and California Water Service Group. From time to time, the company also faces competition from infrastructure funds, multi-utility companies and others, such as Algonquin Power and Utilities Corp. and Nexus Water Group. MSG faces competition primarily from American States Water Company.

The company's primary business involves the ownership of utilities that provide water and wastewater services to residential, commercial, industrial, public authority, fire service and sale for resale customers. The company's utilities operate in 14 states in the United States, with 3.6 million active customers in its water and wastewater networks. Services provided by the company's utilities are subject to regulation by multiple state utility commissions or other entities engaged in utility regulation, collectively referred to as public utility commissions. Operating revenues for the Regulated Businesses were $4,723 million ¹ for 2025, $4,296 million ² for 2024 and $3,920 million ³ for 2023, accounting for 92% ⁴, 92% ⁵ and 93% ⁶ of the company's total operating revenues for the same periods. The vast majority of the company's regulated water customers are metered, which allows the company to measure and bill for its customers' water usage, typically on a monthly basis. Residential customers make up a substantial portion of the company's customer base in all of the states in which it operates.

The company's Regulated Businesses segment provides water and wastewater services. For the year ended December 31, 2025, water services operating revenues were $4,233 million ⁷, consisting of residential revenues of $2,557 million ⁸, commercial revenues of $981 million ⁹, fire service revenues of $189 million ¹⁰, industrial revenues of $195 million ¹¹, and public and other water revenues of $311 million ¹². Wastewater services operating revenues were $422 million ¹³ for 2025, consisting of residential revenues of $287 million ¹⁴, commercial revenues of $86 million ¹⁵, industrial revenues of $10 million ¹⁶, and public and other revenues of $39 million ¹⁷. Other operating revenues, consisting primarily of alternative revenue programs, miscellaneous utility charges, fees and rents, were $68 million ¹⁸ for 2025. As of December 31, 2025, the Regulated Businesses served 3,242,000 ¹⁹ water customers and 330,000 ²⁰ wastewater customers. The company's Other segment primarily includes the Military Services Group business, which enters into long-term contracts with the U.S. government to provide water and wastewater services on military installations. MSG operates on 18 ²¹ military installations under 50-year contracts with the U.S. government as part of its Utilities Privatization Program. MSG's backlog of revenue associated with its contracts with the U.S. government is approximately $7.4 billion ²², with an average remaining contract term of 37 years ²³. Operating revenues for Other were $417 million ²⁴ for 2025, $388 million ²⁵ for 2024 and $314 million ²⁶ for 2023, accounting for 8% ²⁷, 8% ²⁸ and 7% ²⁹ of the company's total operating revenues for the same periods.

On October 26, 2025, parent company entered into an Agreement and Plan of Merger with Essential to combine the two companies in a stock-for-stock transaction. The Essential Merger Agreement provides that, upon the completion of the proposed merger, Essential's shareholders will receive 0.305 ³⁰ shares of parent company common stock in exchange for each share of Essential common stock eligible for exchange in the merger. The company currently estimates that the closing of the proposed merger will occur by the end of the first quarter of 2027. On May 19, 2025, the company entered into a Purchase and Sale Agreement with Nexus Regulated Utilities, LLC, a subsidiary of Nexus Water Group, Inc., to acquire all of Seller's equity interests in each of the Acquired Entities on a cash-free and debt-free basis. The aggregate purchase price to be paid by the company will be approximately $315 million ³¹ in cash, subject to adjustment at closing. Aggregate rate base that would be acquired at closing is estimated to be approximately $200 million ³², subject to final determination by the respective PUCs. The company currently anticipates that the closing will occur by or before August 2026. In 2025, the company invested $3.2 billion ³³ in the Regulated Businesses for infrastructure improvements and replacements, and $83 million ³⁴ to fund acquisitions in the Regulated Businesses, which added approximately 20,900 ³⁵ customers during 2025. This includes the company's acquisitions effective May 28, 2025, and October 27, 2025, of all the outstanding capital stock of Audubon Water Company and Appalachian Utilities Inc., respectively, for aggregate consideration of $11 million ³⁶, in the form of shares of parent company common stock. Approximately 18,900 ³⁷ new customers were added through organic growth in existing systems. As of December 31, 2025, the company had entered into 20 ³⁸ agreements with a total aggregate purchase price of $582 million ³⁹ for pending acquisitions in the Regulated Businesses to add approximately 104,300 ⁴⁰ additional customers. In August 2025, the company entered into forward sale agreements with each of Wells Fargo National Bank, National Association, JPMorgan Chase Bank, National Association, and Mizuho Markets Americas LLC, each as forward purchasers, relating to an aggregate of 8,098,592 ⁴¹ shares of the company's common stock at an initial forward price of $139.657 ⁴² per share. The company estimates that it will receive total net proceeds of approximately $1,131 million ⁴³, before deducting estimated offering expenses, subject to the price adjustment and other provisions of the Forward Sale Agreements, in the event of full physical settlement of all of the Forward Sale Agreements. On August 8, 2025, AWCC completed the sale of $900 million ⁴⁴ aggregate principal amount of its 5.700% Senior Notes due 2055. On February 27, 2025, AWCC completed the sale of $800 million ⁴⁵ aggregate principal amount of its 5.250% Senior Notes due 2035. For the year ended December 31, 2025, $13 million ⁴⁶ of merger-related costs were included in Operation and maintenance expense. Including the costs incurred for the year ended December 31, 2025, the company estimates a total of $150 million ⁴⁷ of merger-related costs will be incurred by the company and by Essential prior to the closing of the proposed merger.

For the year ended December 31, 2025, total operating revenues were $5,140 million ⁴⁸, compared to $4,684 million ⁴⁹ in 2024 and $4,234 million ⁵⁰ in 2023. Operating income was $1,879 million ⁵¹ in 2025, compared to $1,718 million ⁵² in 2024 and $1,504 million ⁵³ in 2023. Net income attributable to common shareholders was $1,111 million ⁵⁴ in 2025, compared to $1,051 million ⁵⁵ in 2024 and $944 million ⁵⁶ in 2023. Diluted earnings per share was $5.69 ⁵⁷ in 2025, compared to $5.39 ⁵⁸ in 2024 and $4.90 ⁵⁹ in 2023. Net cash provided by operating activities was $2,059 million ⁶⁰ in 2025, compared to $2,045 million ⁶¹ in 2024 and $1,874 million ⁶² in 2023.

The company expects to invest between $19 billion to $20 billion ⁶³ over the next five years, and between $46 billion to $48 billion ⁶⁴ over the next 10 years, including $3.7 billion ⁶⁵ in 2026. The company's expected future investments include capital investment for infrastructure improvements and replacements in the Regulated Businesses of between $17 billion to $17.5 billion ⁶⁶ over the next five years, and between $42 billion to $43 billion ⁶⁷ over the next 10 years, and growth from acquisitions in the Regulated Businesses to expand the company's water and wastewater customer base of between $2 billion to $2.5 billion ⁶⁸ over the next five years, and between $4 billion to $5 billion ⁶⁹ over the next 10 years. The company estimates the expected capital investment for infrastructure improvements in its Regulated Businesses over the next ten years will be allocated to the following purposes: infrastructure renewal 70% ⁷⁰; resiliency 10% ⁷¹; water quality, including capital expenditures related to PFAS 8% ⁷²; operational efficiency, technology and innovation 5% ⁷³; system expansion 4% ⁷⁴; other 3% ⁷⁵.

A fundamental aspect of the company's growth strategy is to pursue acquisitions of water and/or wastewater systems in geographic proximity to areas where the company operates its Regulated Businesses. The company intends to continue to expand its regulated footprint geographically by acquiring water and wastewater systems in its existing markets and, if appropriate, pursuing acquisition opportunities in certain domestic markets where the company does not currently operate its Regulated Businesses. The company's Regulated Businesses current customer mix of 91% ⁷⁶ water and 9% ⁷⁷ wastewater also presents strategic opportunities for wastewater growth and consolidation, allowing the company to add wastewater customers where it already serves water customers. The company is proactively improving its pipe renewal rate from what was a 250-year replacement cycle in 2009 to a less than a 150-year replacement cycle on average over the last five years. The company anticipates it will reach better than a 100-year replacement rate within the next decade, which is generally viewed in the industry as a minimum benchmark for a long-term sustainable replacement rate. In addition, from 2026 to 2030, the company's capital investment in treatment plants, storage tanks and other key, above-ground facilities is expected to increase, further seeking to address infrastructure renewal, resiliency, water quality, operational efficiency, technology and innovation, and emerging regulatory compliance needs.

The company estimates an investment of approximately $1.5 billion ⁷⁸ of capital expenditures between 2026 and 2030 related to complying with the Lead and Copper Rule Improvements. The company will continue to invest thereafter in order to fully comply with the LCRI by 2037. The company currently estimates an investment of approximately $2 billion ⁷⁹ of capital expenditures to install additional treatment facilities in order to comply with the National Primary Drinking Water Regulation for PFAS as proposed. Additionally, the company estimates that it will incur annual operating expenses of up to approximately $50 million ⁸⁰ related to testing and treatment, with the majority of the operating expenses beginning near the April 2029 compliance deadline. The company estimates that it will make capital expenditures of approximately $4.1 billion ⁸¹ over the next five years, and approximately $788 million ⁸² in 2026, to address water quality issues; most of which are focused on compliance with environmental laws and regulations.

The company expects to make pension contributions to the plan trusts of $44 million ⁸³ in 2026. Actual amounts contributed could change materially from this estimate as a result of changes in assumptions and actual investment returns, among other factors. The company will use a weighted-average discount rate and expected return on plan assets of 5.54% ⁸⁴ and 6.63% ⁸⁵, respectively, for estimating its 2026 pension costs. Additionally, the company will use a weighted-average discount rate and EROA of 5.46% ⁸⁶ and 5.00% ⁸⁷, respectively, for estimating its 2026 other postretirement benefit costs.

The company plans to invest between $46 billion and $48 billion ⁸⁸ over the next 10 years for capital improvements, including acquisitions, to its Regulated Businesses' water and wastewater infrastructure, largely for pipe replacement and upgrading aging water and wastewater treatment facilities. In order to meet its future capital expenditure needs, the company currently plans over the next five years to issue a combination of short-term and long-term debt, as well as additional equity. The company expects to fund future maturities of long-term debt through a combination of external debt and, to the extent available, cash flows from operations. Since the company expects its capital investments over the next few years to be greater than its cash flows from operating activities, the company currently plans to fund the excess of its capital investments over its cash flows from operating activities for the next five years through a combination of long-term debt and equity issuances, in addition to the remaining proceeds from the sale of HOS, all of which were received as of February 13, 2026. The company's Board of Directors authorized an anti-dilutive stock repurchase program to mitigate the dilutive effect of shares issued through the company's dividend reinvestment, employee stock purchase and executive compensation activities. The program allows the company to purchase up to 10 million ⁸⁹ shares of its outstanding common stock over an unrestricted period of time. From April 1, 2015, the date repurchases under the anti-dilutive stock repurchase program commenced, through December 31, 2025, the company repurchased an aggregate of 4,860,000 ⁹⁰ shares of its common stock under the program, leaving an aggregate of 5,140,000 ⁹¹ shares available for repurchase under this program.

The company faces risks associated with limitations on availability of water supplies or restrictions on its use of water supplies because of government regulation or action, which may adversely affect its access to sources of water, its ability to supply water to customers or the demand for its water services. The company's ability to meet the existing and future demand of its customers depends on the availability of an adequate supply of water. Supply issues, such as drought, overuse of sources of water, the protection of threatened species or habitats, contamination or other factors may limit the availability of ground and surface water. In California, where the state has previously experienced multi-year droughts, the company utilizes multiple water supply options including numerous ground water wells in multiple aquifers as well as various long-term purchase water agreements with regional water suppliers to optimize supplies while seeking resiliency during dry years. The company's California subsidiary is seeking to augment its sources of water supply, principally to comply with the cease and desist orders issued by the California State Water Resources Control Board that require Cal Am to significantly decrease its diversions from the Carmel River. The Water Supply Project includes the construction of a desalination plant, to be owned by Cal Am, and the construction of wells that would supply water to the desalination plant. Subject to the impacts, outcomes or resolution of applicable litigation and other proceedings, construction of the desalination plant for the Water Supply Project is expected to begin in 2026, and the desalination plant is currently anticipated to be in service by the end of 2029.

The company faces risks related to the proposed merger with Essential, including that the proposed merger is subject to various closing conditions, including the receipt of consents and approvals from various governmental and regulatory entities and third parties, and a failure to obtain all such consents or approvals or to satisfy such other closing conditions could prevent or delay the completion of the proposed merger or impose conditions that could have a material adverse effect on the company or the combined company. The company anticipates that, subject to the receipt of all required regulatory and other consents and approvals and the satisfaction or waiver of all other closing conditions, the Essential merger will be completed in the first quarter of 2027. Among other closing conditions, completion of the proposed merger is conditioned upon the receipt of such required consents, orders and approvals from various governmental and regulatory entities and other third parties, including PUCs in certain states in which either or both companies operate, including without limitation the Pennsylvania Public Utility Commission. The proposed merger is also subject to review under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the expiration or earlier termination of the waiting period applicable to the proposed merger is a condition to closing the proposed merger. The Essential Merger Agreement contains provisions that limit the company's ability to pursue certain alternatives to the proposed merger, which could discourage a potential acquirer from making an alternative transaction proposal and, in certain circumstances, could require the company to pay to the other party a significant termination fee. Under the Essential Merger Agreement, in the event the Essential Merger Agreement is terminated to accept a superior proposal, or under certain other circumstances, the company would be required to pay a termination fee of $835 million ⁹² to Essential in the case of a termination of the Essential Merger Agreement by the company, and Essential would be required to pay a termination fee of $370 million ⁹³ to the company in the case of a termination of the Essential Merger Agreement by Essential.

Management's message emphasizes the company's position as the largest and most geographically diverse, publicly-traded water and wastewater utility company in the United States, and highlights a disciplined approach to capital investment and regulatory execution. The company reported diluted earnings per share (GAAP) of $5.69 ¹⁰¹ for 2025, an increase of $0.30 ¹⁰² per diluted share compared to the prior year. Excluding net adjustments, adjusted diluted earnings per share (non-GAAP) was $5.64 ¹⁰³ for 2025, an increase of $0.46 ¹⁰⁴ per diluted share compared to the prior year. Management attributes these results primarily to the implementation of new rates in the Regulated Businesses from capital and acquisition investments, partially offset by increased production and employee-related costs, increased depreciation and higher financing costs. The company's strategic priorities include continued capital investment in infrastructure to provide safe, clean, reliable and affordable water and wastewater services, regulated acquisitions to expand services to new customers, and organic growth in existing systems. The company plans to invest between $19 billion to $20 billion ¹⁰⁵ over the next five years, and between $46 billion to $48 billion ¹⁰⁶ over the next 10 years. Management also highlights the pending merger with Essential as a key strategic transaction, with the company currently estimating that the closing of the proposed merger will occur by the end of the first quarter of 2027.

For the year ended December 31, 2025, total operating revenues were $5,140 million ¹⁰⁷, compared to $4,684 million ¹⁰⁸ in 2024. Net income attributable to common shareholders was $1,111 million ¹⁰⁹ in 2025, compared to $1,051 million ¹¹⁰ in 2024. Diluted earnings per share was $5.69 ¹¹¹ in 2025, compared to $5.39 ¹¹² in 2024. Operating income was $1,879 million ¹¹³ in 2025, compared to $1,718 million ¹¹⁴ in 2024. Net cash provided by operating activities was $2,059 million ¹¹⁵ in 2025, compared to $2,045 million ¹¹⁶ in 2024. Capital expenditures were $3,126 million ¹¹⁷ in 2025, compared to $2,856 million ¹¹⁸ in 2024. As of December 31, 2025, total long-term debt was $12,777 million ¹¹⁹, short-term debt was $1,588 million ¹²⁰, and the current portion of long-term debt was $1,479 million ¹²¹. Total common shareholders' equity was $10,837 million ¹²² as of December 31, 2025, compared to $10,332 million ¹²³ as of December 31, 2024. The Regulated Businesses segment reported operating revenues of $4,723 million ¹²⁴ for 2025, compared to $4,296 million ¹²⁵ for 2024, and net income attributable to common shareholders of $1,137 million ¹²⁶ for 2025, compared to $1,065 million ¹²⁷ for 2024. The Other segment reported operating revenues of $417 million ¹²⁸ for 2025, compared to $388 million ¹²⁹ for 2024, and a net loss attributable to common shareholders of $26 million ¹³⁰ for 2025, compared to a net loss of $14 million ¹³¹ for 2024. For the year ended December 31, 2025, the company incurred $13 million ¹³² of merger-related costs included in Operation and maintenance expense.

The company's Regulated Businesses are subject to extensive regulation by PUCs, which affects the rates the company charges its customers and has a significant impact on its business and operations. The company periodically files rate increase applications with PUCs, and the ensuing administrative process may be lengthy and costly, and rate increase requests may or may not be approved, or may be partially approved. The company's operations and the quality of water it supplies are subject to extensive and increasingly stringent environmental, water quality and health and safety laws and regulations, including with respect to contaminants of emerging concern such as PFAS. The company currently estimates an investment of approximately $2 billion ⁹⁴ of capital expenditures to install additional treatment facilities in order to comply with the NPDWR for PFAS as proposed. The company also estimates an investment of approximately $1.5 billion ⁹⁵ of capital expenditures between 2026 and 2030 related to complying with the LCRI. The company's indebtedness could adversely affect its business and limit its ability to plan for or respond to changes in its business. As of December 31, 2025, the company's aggregate long-term and short-term debt balance (including preferred stock with mandatory redemption requirements) was $15.8 billion ⁹⁶, and its working capital was in a deficit position. Debt maturities and sinking fund payments in 2026, 2027 and 2028 will be $1,479 million ⁹⁷, $646 million ⁹⁸ and $869 million ⁹⁹, respectively. The proposed merger with Essential is subject to various closing conditions, including the receipt of consents and approvals from various governmental and regulatory entities, and a failure to obtain all such consents or approvals could prevent or delay the completion of the proposed merger. Under the Essential Merger Agreement, in certain circumstances, the company would be required to pay a termination fee of $835 million ¹⁰⁰ to Essential.