Good morning and welcome to American Water's First Quarter 2019 Earnings Conference Call. As a reminder, this call is being recorded and is also being webcast with an accompanying slide presentation through the Company's Investor Relations website. Following the earnings conference call, an audio archive of the call will be available through May 9, 2019. U.S. callers may access the audio archive toll-free by dialing: 1(877)344-7529. International callers may listen by dialing 1 (412) 317-0088. The access code for replay is 10130570. The online webcast will be available at American Water's Investor Relations homepage at http://ir.amwater.com. I would now like to introduce you to the host for today's call, Ed Vallejo, Vice President of Investor Relations. Mr. Vallejo, you may begin.

Thanks, Brandon, and good morning everyone, and thank you for joining us for today’s call. We will keep the call to about an hour and at the end of our prepared remarks, we will open the call for your questions. During the course of this conference call, both in our prepared remarks and answers to your questions, we may make Forward-Looking Statements that represent our expectations regarding our future performance or other future events. Now, these statements are predictions based upon our current expectations, estimates and assumptions. However, since these statements deal with future events, they are subject to numerous known and 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 other factors as well as a more detailed analysis of our financials and other important information is provided in the earnings release and in our Form 10-Q each has filed with the SEC. Reconciliations for all non-GAAP financial information discussed on this conference call can be found in our earnings release and in the appendix of the slide deck for this call. Also, this slide deck has been posted to our Investor Relations page of our website. All these statements in this call related to earnings and earnings per share refer to diluted earnings and earnings per share. And with that, I will now turn the call over to American Water’s President and CEO, Susan Story.

Thanks, Ed. Good morning everyone, and thanks for joining us. Before I discuss our first quarter earnings results, I'd like to talk about Linda Sullivan's retirement. While we made the announcement yesterday, she will remain as CFO until July the 1st and will stay with us until August 1st to ensure a smooth transition. This is especially bittersweet for me as Linda and I have been a team since she began her tenure as CFO in early May of 2014 when I moved from the CFO position to CEO. But her family is growing in addition to her two beautiful grandsons you met in a presentation at our Investor Day last December. Her son and daughter-in-law in California are expecting her first grand daughter in June. We're happy for Linda and in a few minutes she will tell you more about her plans. Her accomplishments are too long to live, but I would highlight that from 2014 through 2018, our EPS has grown at an 8% CAGR, our annual dividends have increased at a 10.1% CAGR and our stock price has risen from $46.22 on May the 1st, 2014 to a $107.10 at yesterday's closing. I reminded of an executive team meeting in 2014, when we ask each person for his or her top aspirational goals for American Water, literally Linda said "for our stock to go over $100 per share." Linda, we did it. Linda also oversaw the raising of $4.4 billion of financing capital over the past 5 years. She rebuilt our tax and risk management functions with industry leading talent, and she has led significant improvements in our supply-chain processes. She also designed and developed the financial strategy and planning organization, and she has recently setup digital finance within her organization, one of the first in the utility industry. She has also been very involved in our corporate wide growth, customer and people initiatives, and she helped us recruit her successor, Susan Hardwick, who she has known for several years. Many of you also know Susan, who served more than 6 years as CFO of Vectren. She has 35 years of deep finance and regulated utility experience. She most recently led the execution of the 8.5 billion Vectren sale to CenterPoint Energy. Susan is strongly committed to customers constructive regulatory relationship and building better communities. She prioritizes employee development and the building of collaborative and successful teams. She has a strong record of living and leading the values we have at American Water and is a tremendous fit for our company. She would join our company on June 3rd as Executive Vice President of Finance until she takes the CFO rank from Linda on July the 1st. She is actually here in the room with us today. Linda, would you like to say a few words?

Yes, and thank you Susan for your very kind words and your inspirational leadership. I have learned more from you in the last 5 years in my entire career and I thank you immensely. You know, my husband and I took the road-less travel when we moved from California to New Jersey 5 years ago and being part of the American Water team turns out to be the best career decision of my life and I would not trade this experience for anything in the world. And to our analysts and investors, I want you to know that one of my favorite things to do is to meet with you and discuss the American Water story and listen to your insights and views. You are truly the grand teachers and thought leaders of our industry. It has been an absolute pleasure learning from all of you. So now after 30 years in the utility industry, this decision to retire is the hardest career decision I have made and at the same time the easiest personal decision for me and my family. It's hard because I love everything about American Water, the leadership team, my colleagues, my team, the board, and our collective ability to do what we say we're going to do. I believe American Water is the best run utility in the nation and with our announcement today bringing Susan Hardwick on board, I am confident it will continue to be just that. Personally, this is an easy decision for me. My coast-to-coast family is rapidly expanding with two grandsons and a granddaughter due in June and I am fortunate in this stage of life to be able to follow that strong pull of my heart. And you know, it's really hard to explain the way grandchildren make you feel, but there is a song lyric and it's by Andy Grammar that sums it up pretty well, it says, I think I finally found my hallelujah. So, I also love the work I do on several boards and I am eager to spend more time pursuing that passion plus my bucket list is approaching the size of a novel and my husband Tom and I look forward to living those dreams. I would like to thank the leadership team and board for being so understanding and gracious about my decision and working with me through a strong succession plan. I am thrilled to have Susan Hardwick join the team. She will bring tremendous value to American Water.

Thanks Linda. As always, Linda will cover our financial results in just a few minutes. Unfortunately, our COO, Walter Lynch is in Arkansas due to the passing of his father-in-law Alex Street. Many of you know that Walter is a West Point graduate and an Army veteran. Mr. Street also served our country in the Army. At 80 years old, he was still a practicing attorney after more than 50 years. We applaud his life commitment to his family and the values we hold here at American Water integrity, service, and unwavering commitment to his community and country. So, now moving on to our first quarter results, the employees of American Water delivered solid performance and further strengthened our low risk and predictable growth story. Our first quarter 2019 adjusted earnings per share were up 3.4% compared to the first quarter of 2018. As a reminder, we had an extraordinary first quarter of 2018 with a 13.5% EPS increase from the previous year, primarily due to the impact of finalizing both the Pennsylvania and Missouri general rate cases in 2018, which Linda will discuss in more detail. While American Water does not give quarterly guidance, our first quarter results were a penny ahead of plan for the quarter. Given our performance year-to-date we are affirming our 2019 adjusted EPS guidance of $3.54 to $3.64 per share as well as affirming guidance to the top half of our 7% to 10% EPS compound annual growth rate through 2023. Also consistent with our previous dividend guidance on April 17, our Board of Directors increased our quarterly cash dividend payment from $0.455 to $0.50 per share, a 9.9% increase. The Company has increased its dividend every year since our IPO in April 2008 with consistent annual increases of around 10% per year since…

Thank you, Susan. I'll start on Slide 12. We had a solid first quarter of 2019 especially compared to a very strong first quarter 2018. GAAP earnings were $0.62 per share and increase of $0.03 compared to the first quarter last year. Included in GAAP earnings was a favorable adjustment of $4 million or a $0.01 per share to reflect a reduction in the settlement liability related to the Freedom Industries chemical spill. This reduction is based on our latest determination of the final claims cost. In total, our share of the original 126 million Freedom Industries related settlement has been reduced to $19 million through insurance recoveries and lower claims. Excluding this benefit, first quarter earnings were up 3.4% which came in a $0.01 above our plan. On strong market based earnings offset partially by timing items in the regulated business in parent. Other highlights included achieving a consolidated adjusted return on equity of 10% for the 12 months period ended first quarter 2019, executing on our capital investment strategy by investing $337 million during the quarter and adding $36 million in annualized new authorized revenue since the beginning of this year. Turning to Slide 13. Let me provide more detail on our first quarter adjusted earnings results. I'll start from the left hand side of this page. As you can see, we had a very strong first quarter of 2018, up 13.5% over first quarter of 2017 on settlement above of the Pennsylvania and Missouri general rate cases last year. First quarter 2019 increased 3.4% on a quarter-over-quarter basis which reflects some timing impacts that I will discuss in more detail as I cover each business. Let me start with our regulated businesses which were up a $0.01 per share. Revenue was at $0.08 in total and included…

Thanks Linda, we never forget at American Water that at the end of every water pipe there's a family depending on the safety of the water they give their children, that at every fire hydrant lives depend on the water being there at the right pressure, that at every wastewater plant we are a shield between our customers and disease. We're very proud to announce our most recent awards in the water research foundation to continue research on Legionella while Legionella is primarily an issue in customer owned plumbing and not even on our side of the meter. We think it's critical that we further educate and protect our customers from contaminants that could impact their water quality. As a reminder, we've had an R&D group at America Water since 1981 and our newest research grant is one of over 100 we received on topics ranging from emerging contaminant to water recycling and reuse, to groundbreaking water technologies. We know that employees, customers and investors are seeking to align themselves with and invest in companies that are actively committed to the betterment of society, our planet, and our communities. We believe that successful financial performance follows doing these things as part of our purpose driven value culture. I was fortunate to be asked to participate on the panel at the recent S&P Global ESG Evaluation launch. The key topics at the launch were ESG risk quantification, developing more standardized ESG measures, and improving timeliness of reporting. S&P as well as Moody's have indicated that ESG measures will be an important input into evaluation of risks to overall financial performance capability of companies and their subsequent credit ratings. We're committed to bringing even more transparency in giving you the ESG information that you want, but the wide-ranging and non-standardized measurements today…

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Angie Storozynski with Macquarie Research. Please go ahead.

Linda, congratulations, I'm very happy for you and we will live vicariously through your travels.

Thank you so much Angie.

Thank you. So, I wanted to ask about California, about the recent acquisitions, I mean, I was a little bit surprised. I always thought that most of the municipal M&A is going to come from the Northeast. Some of those are not newly M&A, but could you talk a little more about this?

Sure, Angie, and thank you for the question. So, this is what we call as you know we're tuck-in and in California, there is significant interest from the public utility commission to help the stress system throughout the state. We saw that at the cost of capital hearings in some of the discussions that resulted in the increase and our cost of capital. Our plan that we guide to is basically assuming that all of our acquisitions are these smaller tuck-ins and you will have larger systems of course as you said, and if you look at our history of acquisitions more have been in the northeast and in the Midwest. This was an opportunistic acquisition. We're pleased to have these folks on board. It's a roll-in to service areas where we already are, and again, we have in the past several months seeing for us anyway constructive outcomes at the California PC including the approval of the Monterey desalination facility as part of the water supply project as well as the last general rate case outcome.

And, Angie, if I can add to that, in our cost of capital decision as Susan mentioned, we did have a lot of conversations about investments in California, and it's really important to note that although our ROE decreased to 9.2% in that proceeding, our equity ratio increased from 53% to 55.4%.

And just one last question about New Jersey. Is there any progress on the implementation of this New Jersey Water Quality Accountability Act, meaning as far as it relates to municipal M&A?

That’s a great question, Angie. So many of you know that the first step in implementation was that water providers in the state of New Jersey were going to have to certify to certain parts of those regulations. That is happening though as the regulations are currently still being developed by the DEP in New Jersey to be rolled out further. So, we were the first to certify, for us, it was more business as usual. So, we are just now starting to see some of the certifications coming in. It's our understanding that there may be one or two, I think, a university that may be looking at consolidating those type of certifications and looking where different systems stand in the state. So, it's in the early stages. The regulations are still being promulgated, and we look forward to -- it continued into roll out over the next, probably 6 to 12 months.

Our next question comes from Richard Verdi with Coker & Palmer. Please go ahead.

Before I ask my question, I just wanted to say Linda, I wish you all the best in your retirement, congratulations and that I really appreciate all the time that you gave me from when I would pester you for you know to do conference calls with investors, with me or to go on the road to visit investors. So, I appreciated all that time and I wanted to say that make sure you knew that and I wish all the best in your retirement, congratulations on a well-deserved retirement still I'm sure.

Rich, thank you so much, and it was my pleasure to have those discussions with you.

Thank you very much. So kind of I'm pretty clear on everything for the quarter. Just kind of a, I guess, more of a high level question. Last month, we saw the New Jersey Department of Environmental Protection announced that it had planned to set standards for the PFOS contamination. And they're much, more strict than the EPA's guidelines, and it appears other states are going to implement similar standards as well. So, I was just kind of hoping maybe you could discuss a little bit about how that could impact the Company on the regulated side in terms of the acquisition front and then on in terms of what it could mean to cost to the Company since it's going to need to deal with the stricter standards as well? And then on top of that, how it could also impact the Company in terms of the military business because you know driver of this contamination is caused by the fire extinguisher foam used on these military bases every day when they're running the drills. And so, I would think that would be you know something with this PFOS contamination could be an impetus to see more of those military bases pursue O&M contracts with the likes of American Water. So just wondered, if you could give us some high level color on how is PFOS contamination could impact the Company?

Rich, thank you for this. This is probably one of the largest emerging issues that will need to be addressed across the country both from states that are doing their own limits on PFOS as well as EPA actually yesterday came out from -- what most people don't understand while the EPA has a recommended maximum contaminant level, there really isn't a regulation. It is not actually a regulated chemical, what it is that they're recommending not to have over certain limits, but they don't have the force of regulation behind it. EPA came out yesterday I read and basically said they are going to do it. They're looking at the level that they were using for maximum contaminant levels that weren't regulated of 70 parts per trillion. New Jersey as you mentioned, has come in with a much lower I believe 13 parts per trillion. To your point about the Company, I mentioned, it's interesting that you've asked this question because I mentioned in my final remarks about the role of our R&D group. We've been doing research on these perfluorinated chemicals for decades. And in fact and I'll talk about military first and I'll come back to the regulated business. We have actually already been working on a couple of three of our military basis to actually treat PFOS. We have mobile units where we can actually do on-site decontamination. And for example, at Picatinny Arsenal in New Jersey, we've done tremendous work already with the couple of wells there that we serve. We believe from a military installation standpoint, it's actually a competitive advantage for us. We have treated 2 levels that are at or below what the New Jersey requirements are, we now had to do that. So, this is a serious situation, and if you…

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

I wanted to echo everyone's remarks when they congrats on the retirement decision. I know you're going to have fun through the rest of your live as you have been while at American Water Works. And I think I understand how it's an easy personal decision for you to make. Then last point, I thought when Susan was saying for the first time American Water Works history and have just been talking about Corvette. I thought she was going to say there was a new Corvette waiting for you in the parking lot. Maybe they don't like you that much, I don’t know.

I was hoping that too Jonathan, but it didn't happen.

It is okay, yes. So anyway, Susan, just want to ask you, in light of the recent rate case outcome, how do you think about West Virginia in terms of the inner core state for you? I know in some pretty good rate cases there, they were challenging outcomes plus kind of the way -- the Freedom even was treated, seem less than kind of equitable to you guys. So just wondering how you do West Virginia today?

So, West Virginia, first of all for those of who ever been there, it's a beautiful state and we had been in West Virginia since 1880. And the last two rate case outcomes we've had, including a settlement, I mean this was a settlement reach without parties. We were very constructive because in West Virginia, there's a realization you know maybe as much as any other state about the importance of clean water and safe water. And it's not just an issue for American Water, the public providers of water there and wastewater services see the same thing. So, we have some wonderful employees in West Virginia. We have some outstanding customers in West Virginia and we're very excited that there is a growing realization from all of the parties to stakeholders as well as the regulatory commission about the importance of investment for the future to ensure that that state can continue to grow economically and have a safe water, wastewater and fire protection system for its citizens.

And Jonathan, I'll add to that as well, as you know, West Virginia now has a decent mechanism as well for continuing investment in the state. And as part of our settlement of the rate case, they authorized a 9.75% ROE, which is the same that we had in the last case. But they also increased the equity ratio from 45.84% to 48.4%, so really showing that the need for attracting capital to the state.

Good stuff. Glad things are improving there for sure. Linda, did you quantify what the weather impact, the headwind was in Q1 '19 then? I mean I know it's huge and not overly sensitive, but…

Yes, we did not have any, any really at all weather impact in the first quarter.

Okay, I thought, I heard you say that that was a bit of a headwind, sorry about that. And then, I also kind of missed what you said was driving the expected 1% improvement from your prior forecast and the 2023 debt to total cap ratio going to 61 to 52. What were the drivers there?

So, it was really kind of refining -- our estimates are actual, came in much better than we thought for 2018, and we also have had a very, very strong, strong focus on cash flow management.

Okay, okay, alright, well thank you very much and enjoy the future, I know you will. End of Q&A

Thanks Jonathan. And that's the last question and we thank you all for participating in our call today. Please note that we value you as our investor owners, and as a financial analyst, who research our company for the benefit of your clients and their futures. We also want to be open and transparent in all of our discussions and dealings with all of you, so that you can have confidence in your decisions around our company and investments in our stock. If we have not been able to address your question or you have additional questions, please call Ed and Ralph, and they will be happy to help. You may also see in the next few weeks or months, the newest member of our Investor Relations team, Abbey Barksdale, who is our new investor relations ESG manager. I'd like to remind everyone that our annual shareholders meeting will take place a week from tomorrow, Friday, May 10th. Thanks again for listening.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.