American Water Works Company Inc

NYSE:AWK

Good day, and welcome to the American Water Fourth Quarter and Year-End 2024 Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Aaron Musgrave, VP of Investor Relations. Please go ahead.

Thank you, Cindy. 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 fourth quarter earnings release and in our 2024 Form 10-K, each filed yesterday with the SEC. And finally, all statements during this presentation related to earnings and earnings per share refer to diluted earnings and diluted earnings per share.

Susan Hardwick, our CEO, will share a few opening remarks, followed by our President, John Griffith, who will share highlights of 2024 and comment on our affirmation of 2025 EPS guidance and longer-term targets. David Bowler, our Executive Vice President and CFO, will discuss our 2024 financial results, provide rate case updates, discuss our strong financial position heading into 2025 and review our EPS guidance drivers and 5-year financing plan. Cheryl Norton, our Executive Vice President and COO, will then discuss our capital investment program, our acquisition outlook and will conclude with comments on our compelling growth drivers. After our prepared remarks, we'll then close by answering your questions.

With that, I'll turn the call over to American Water's CEO, Susan Hardwick.

Thanks, Aaron, and good morning, everyone. Let me start by making a few comments on the leadership news detailed in our earnings release last night. There, we announced my retirement as of May 14, 2025, which is the date of our Annual Shareholders Meeting. At that same time, John will become our CEO. This is the next step in the succession plan we laid out in August of last year.

The American Water Board is deeply committed to building a strong succession and development strategy at American Water as evidenced by this thoughtful plan. This transition is just a part of that intentional effort to ensure we have the best leadership foundation for the long term throughout the entire organization. John working with Cheryl and the rest of our talented and highly experienced leadership team will continue American Water's strong record of industry leadership and high performance.

John has more than 25 years of industry knowledge and expertise and significant experience in leading high-performing teams, strategy development and execution. Most importantly, he has a deep understanding of our company's purpose and a strong commitment to our customers, employees and shareholders. I am very proud of the leadership team that we have built at American Water, all of whom are committed to the mission of delivering safe, clean and reliable service to those we have the privilege of serving. The success of this company reflects the cohesive leadership of this entire team.

I also want to thank all of the employees of American Water. I have been in the utility business for over 40 years now, and it is an absolute privilege to work with you. I'm thankful and humbled by the opportunity to spend the last 6 years in the water industry with each of you. Providing water and wastewater services that improve customers' lives and make communities stronger is a true honor.

But before I go, I want to reiterate my belief that American Water continues to be the leader in all aspects of the water and wastewater utility industry in the United States. If you compare our plans to our actual results, you will see that we've consistently executed exactly as we said we would, including our results in 2024 that were squarely in line with our plan. This growing record of consistency continues to solidify the earned trust in our company from investors, analysts and other key stakeholders.

And with that, let me turn it over to John to cover 2024 highlights and our affirmed outlook. John?

Thank you, Susan, and congratulations. While we still have you until May, let me say what a tremendous privilege it has been for all of us to have worked alongside you over the years. You have made a very significant contribution to American Water's success, and the company is stronger because of your leadership. I'm excited and honored to work alongside this team as CEO starting in May and know we have a great future ahead of us as we continue to make communities stronger through the critical water and wastewater services we provide.

Let's turn to Slide 6, and I'll start by covering some highlights of last year. You can see here an abbreviated list of some of our key accomplishments for the year, and David and Cheryl will add these in their remarks.

As we announced yesterday, we delivered 2024 financial results right in line with our expectations. Earnings were $5.39 per share for the year, which included $0.12 per share of favorable weather and $0.09 per share of incremental interest income from the HOS note. Our results reflect the clear execution of our plan in 2024, which delivered EPS growth of 8-plus percent.

I'm proud of our regulatory and state teams for successfully completing several significant general rate cases this past year. These cases, which were driven by needed infrastructure investments, punctuate the focus we have on providing safe, clean, reliable and affordable service to over 14 million people across our footprint. And as you can see, we invested over $3 billion in 2024 to help achieve that mission. This included a solid year for acquisitions, which, at nearly 70,000 customer connections, met our 2% compounded annual growth target.

Overall, I'm very proud of our company's ability to stay focused on serving our customers safely and reliably this past year. I believe the takeaway today for investors is that our strong execution in 2024, coupled with our low-risk, top-tier capital growth plan, demonstrates American Water's ability to deliver on our long-term plan. I'm confident we will execute on our plans for 2025 and beyond, building on the momentum we have from 2024.

Turning to Slide 7. We are affirming our 2025 earnings guidance of $5.65 to $5.75 per share. This represents our expectation of 8% EPS growth in 2025 compared to our weather-normalized 2024 EPS. The comments that we'll share today are an affirmation of the financial plan, long-term targets and guidance we laid out last fall, highlighted by 7% to 9% EPS and dividend growth and driven by 8% to 9% rate base growth.

We have a geographic footprint and resulting regulatory diversity that is rivaled by few. This, along with our capital plan that has decades of basic infrastructure renewal at its core, drives the low-risk nature of our growth plans. Along with our affordability and sustainability leadership, I believe American Water offers a top-tier shareholder return opportunity and merits our position as a premium regulated utility.

In closing, on Slide 8, I want to emphasize that we expect to achieve consistent EPS growth well within the 7% to 9% range through 2029 and beyond. We have demonstrated during these last few years and with our guidance for 2025 that our business plan is strong and compelling. Our commitment to solving problems for our customers remains steadfast, including addressing aging infrastructure and water quality challenges. This foundation, coupled with the capital investment needs that lie ahead, uniquely positions American Water to achieve consistently strong earnings and dividend growth for many years to come.

With that, I'll hand it over to David to cover our financial results, rate case updates and balance sheet strength in further detail. David?

Thanks, John, and good morning, everyone. Before I start, I'd like to also congratulate Susan on her upcoming retirement, and John on his succession into the CEO role. Susan, I echo John's comments on it being a pleasure to work with you over the years. You'll certainly be missed by all of us here.

Now turning to Slide 10. Let me provide a few more details on 2024 results as compared to 2023. You will also find details of fourth quarter results in the appendix. Consolidated reported earnings were $5.39 per share in 2024, higher by $0.49 per share compared to 2023. As John noted, earnings in 2024 benefited from an estimated $0.12 per share as a result of revenue from drier-than-normal weather experienced across our states as compared to $0.13 per share of favorable weather in 2023. Excluding the impacts of weather, revenues were higher by $1.28 per share, primarily due to authorized rate increases from general rate cases and infrastructure surcharges to recover investment across our states.

Revenues were also higher from closed water and wastewater acquisitions, organic customer growth and an increase from changes in customer demand. One additional item to note is that purchased water cost, which were higher by $0.08 per share year-over-year, have been netted against revenues as these costs are generally recovered on a dollar-for-dollar basis.

And looking at operating costs, O&M was higher by $0.22 per share driven priorly by employee-related costs and other increases that support growth in the business as we expected. Production costs related to fuel, power and chemicals were also slightly higher compared to 2023. Next, general taxes, which were comprised of property and gross receipts taxes, were higher by $0.05 per share, with the increase in property taxes tied to the level of capital investment and higher gross receipts tax driven by higher revenue, primarily in New Jersey.

Depreciation increased $0.31 per share. And long-term financing costs increased $0.33 per share, both as expected in support of our investment growth.

And finally, we had $0.09 per share of additional interest income from the February 2024 amendment of the note related to the sale of Homeowner Services. We will continue to break this out quarterly so investors can track the ongoing growth of American Water from our core regulated strategy without this additional interest income.

Turning to Slide 11. We summarize the 7 rate cases we successfully completed in 2024, 5 of which we covered on prior calls. In the fourth quarter, we received orders in Illinois and California as well as an updated final order in Kentucky. In December, the Illinois Commission approved an additional $105 million in annualized revenues effective January 1, 2025. This order includes an allowed return on equity of 9.84% and an equity layer of 49%, both of which were consistent with our last rate case in Illinois. We continue to believe that Illinois is a constructive environment for American Water and is supportive of the investment needed to continue to provide safe and reliable service for the benefit of our Illinois American Water customers.

Switching over to California, also in December, the commission there approved and adopted a partial settlement agreement providing incremental annualized revenues of $53 million over 3 years, beginning with rates retroactive to January 1, 2024. The commission's decision included a partial decoupling mechanism and approval of an important sales adjustment mechanism that allows annual updates on forecast of water sales for rate-making purposes. While the decision didn't recognize the importance of a full decoupling mechanism and promoting affordable rates and conservation, we filed an application in December for rehearing with the commission and are exploring other avenues to ensure that customers can achieve the benefits associated with decoupling.

Also in California, the commission granted the request for an additional 1-year extension of the cost of capital filing to May 1, 2026, which will set the authorized cost of capital beginning January 1, 2027. Our authorized ROE in California will remain at 10.2% through December 31, 2026.

And finally, in Kentucky, the Public Service Commission approved a final order providing for $17 million of annualized increases in water revenues, which is higher by about $6 million from the initial order in May of 2024. As a reminder, [indiscernible] received in May, we filed a motion for clarification on their authorized amount of annualized revenues in this case. New rates provided in the final order were effective November 6.

Turning to Slide 12. You can see we have general rate cases and progress in 4 jurisdictions. The most prominent rate case for us this year is in Missouri, where we are seeking recovery of $1.1 billion of capital investments. Hearings begin at the end of this month, and settlement discussions are underway, ahead of briefs due at the end of March. We expect new rates to go into effect in the middle of 2025. Overall, the key parties in this case have filed similar positions as they did in our prior case 2 years ago, which was settled.

As a reminder, in this case, the commission allows all parties to propose specific adjustments beyond December 31, 2024, and we have proposed to capture investments through May 2025. Separately, we are continuing to work alongside an informal coalition of water and gas utilities in Missouri on a legislative path for a future test year and have supported the introduction of 4 separate bills in the current session related to that effort. The Missouri legislative session ends on May 16.

Finally, in Virginia, the filed stipulation of settlement remains subject to commission review and approval, which we are awaiting.

One quick note at the bottom of the slide. We now provide a list of the dates we filed our most recent general rate cases by state. As we've said in the past, we expect to file rate cases about every 2 years as supported by our ongoing investments to continue to provide safe, clean and reliable water and wastewater services for the long-term benefit of our customers.

Turning to Slide 13. Let's review the strength of our balance sheet, credit metrics and liquidity position as we began 2025. Our total debt-to-cap ratio at the end of the year, net of $96 million of cash on hand, was 57%, which was well within our target of less than 60%. Investors can expect our company to continue to be focused on this target over the long term.

We remain A-rated at S&P with a stable outlook. And just last month, Moody's affirmed our solid Baa1 investment-grade credit rating and stable outlook. Both agencies note our scale, strong regulatory and operational diversity across 14 states, low-risk business and our steady financial performance in their analysis. They also note our trend of credit-supportive regulatory outcomes and expected sustained FFO-to-debt ratios well within the current ratings' thresholds. We are confident our business and financial profile, including FFO-to-debt, will continue to support either our current or higher investment-grade credit ratings.

From this position of balance sheet strength, let's turn to Slide 14 for a review of our guidance and 5-year financing plan. As John mentioned, we affirmed our 2025 EPS guidance, which again represents 8% annual growth. The backbone of the plan continues to be earning our allowed returns on capital we invest to serve our customers while prudently managing operating costs so that we can deliver on our customer affordability target. It's really that simple.

As a reminder, our 2025 guidance range includes $0.10 per share of incremental interest income from the amendment of the HOS note a year ago, which is on top of the interest income from the original note terms that we are replacing with earnings from the regulated business. As we've said in the past, repayment of the note is a component of our long-term financing plan as a source of funding for our growth.

We are also confirming our financing plan shared last fall, now covering 2025 to 2029. As we said previously, the plan includes an estimated total $2.5 billion of external equity issuances with no equity planned for 2025. The level and timing of external equity is tied very simply to our need to fund growth and maintain our strong financial position.

Based on our current projections of capital spending and cash flows, we currently expect to issue $1 billion of equity at some point in 2026 and $1.5 billion in 2029. The timing of future equity is subject to market conditions as well as the underlying assumptions around our projected CapEx and cash flows. Since we are already in alignment with our targets for debt-to-cap and dividend payout ratios, we have the flexibility to adjust these plans and respond to market conditions if and when they change for the benefit of our customers and investors alike.

Overall, 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.

Finally, I'll wrap up by noting that our financing plan for calendar year 2025 includes $1.5 billion to $2 billion of long-term debt financing.

With that, I'll turn it over to Cheryl to talk more about our capital program, our recent acquisition activity and a look at our key growth drivers. Cheryl?

Thanks, David, and good morning, everyone. Let me start by echoing John and David's comments about Susan. Susan and I have worked closely together over the past 6 years, and I'm a better leader as a result of that time together, and American Water is definitely stronger because of her time here. I'm excited about John's leadership, and in his new role, I know we're going to accomplish great things over the next years.

On Slide 16, we have combined a few slides to show a more comprehensive view of our investment program that is always managed with an eye on customer affordability. I want to start by acknowledging that our teams have done a great job executing our capital investment plans these last few years.

We have consistently met our capital deployment goal each year, and we've done it again in 2024 by investing $3.3 billion, which includes the acquisition investments that I'll speak about later. These investments represented by hundreds of discrete projects are crucial to continuing to deliver safe and clean water and support continued reliability of service to our customers.

We expect these capital investments in infrastructure and in acquisitions to grow regulated rate base at a long-term rate of 8% to 9%. We believe the high degree of visibility to our capital investment plan, combined with the low-risk nature of the plan, uniquely positions American Water in the utility sector and is fundamental to our investment thesis. We, of course, remain very focused on balancing customer affordability with the magnitude of the necessary system investments in our plan. Customer affordability is a key variable in our annual capital planning analysis. We believe that the average residential water bill across our footprint will continue to be at or below 1% of median household income throughout our 10-year plan.

The pie chart on the bottom right side of the page shows the breakdown of our capital spend by purpose over the next decade. While the majority of our capital is dedicated to basic replacement of aging pipes, we are also focused on fortifying our systems through resilient spending and making investments in water quality projects to allow our systems to continue to meet our own high standards of compliance.

Turning to Slide 17. I'm proud to report that we had a solid year of investment in regulated acquisitions, successfully closing on 13 systems totaling $417 million, which added nearly 70,000 new customers. Looking ahead, we continue to be well positioned for strong growth through acquisitions across many states, with over 24,000 customer connections under agreement as of the beginning of the year. We've added significant business development capability over the last few years across our footprint, and we're confident these investments and additional resources and enhanced processes will help us meet our compounded annual growth rate target of 2% for customers added through acquisitions.

Overall, we expect to continue to invest about $300 million to $400 million on average each year in acquisitions, a small but important part of our over $3 billion capital plan. We expect growth through acquisitions will become more consistent on an annual basis over time but will remain lumpier than our organic CapEx as time lines for details can shift throughout the closing process. If and when that happens, we have the flexibility to reallocate and easily replace these acquisition dollars with various other projects to meet system needs such as additional replacements of aging pipes.

To close on Slide 18, today, you've heard a recap of our long-term strategy, which should sound very consistent. Beyond our words, though, I believe we have a proven track record of executing on our plans, including achieving our EPS guidance year after year. I fully expect 2025 to be another successful year demonstrating this execution.

Slide 18 is a compilation of the predictable and steady growth drivers for American Water that differentiate our growth trajectory from other utilities, enable us to stand out as a premium utility. We replaced approximately 400 miles of pipe in 2024. This replacement effort reflects our commitment to reliable service with the work prioritized by need.

The prioritization is balanced by affordability and cost of material, labor, permitting, restoration and an annual increase in the actual amount of miles of pipe we have acquired via acquisitions. Our mission to provide safe, clean, reliable and affordable services to the customers we are privileged to serve is the foundation for all we do. As our team has said, we're confident we can fulfill this mission and provide a fair return to our investors. American Water has been doing this work for decades, but there is much left to be done, and we must have urgency in our work.

As we've witnessed in West Virginia, for example, our teams provided assistance to 6 different municipal systems in January alone that were dealing with service disruptions due to extreme weather and the inability to keep up with leaks. In one of those towns, a local elementary school was without water service for more than 2 weeks until we provided a 7,000 gallon tanker to supply water directly to the school.

We will continue to do this critical work and execute on our regulatory, operational and financial plans, which we believe will drive the superior returns our investors expect.

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

[Operator Instructions] Our first question comes from Durgesh Chopra of Evercore ISI.

Susan, all the best, and John, congrats. Look forward -- so 2 questions. One, a lot of news flow information coming out of D.C., a lot of executive orders. I was just curious if anything has changed from your perspective, on your strategy to attack PFOS, PFAS. You have like $1 billion in the capital plan. Just -- and I know you announced a contract very recently. Anything that's changed on the ground?

Durgesh, this is Cheryl. Thanks so much for the question. We haven't made any changes to our plans at all. We haven't seen anything coming out of D.C. that makes us think that we're not going to need to invest the capital that we've talked about in the past. We want to make sure that we're meeting all the regulatory requirements and also just providing clean, safe water according to our standards. So we've made no changes at all to our capital plans related to PFOS or anything else.

Got it. Perfect. And then just one housekeeping question. Just as we think about a 7% to 9% EPS growth rate for our models, should we be including the $0.10, the remarketing of the loans here as our base? Or should we be excluding that? Trying to see if you're going to go with the base including that $0.10. Or should we just be separating that out and think of them as like onetime earnings?

Durgesh, this is David. Yes, you should be separating that out and excluding that from the base. And that's what -- we tried to indicate that in our presentation here.

The next question comes from Paul Zimbardo of Jefferies.

Congratulations, John. Susan, I hope you have a fruitful retirement. The first question I had was on the acquisition slide, just the callout box on the right, when you talk about significant business development capabilities added across the footprint and just some of the color you gave there. Could you describe like if this is something new, kind of where you've been adding capabilities? You make the references to multiple states, some of the midsized states. If you could just elaborate on kind of what you're alluding to there?

Sure, Paul, this is Cheryl. And we have added some staffing in our BD group just to be more -- have more boots on the ground, do more origination work in general. But we've also really kind of ramped up our corporate support team so that we are driving consistency through our integration processes, our due diligence processes. And we really have just taken the whole entire organization and taking a look at what's working really well and how do we build on that. So that's why we're starting to see more growth across our entire footprint because we're not just focused in 1 or 2 states. We are truly focused all across our footprint on growth, and we're seeing the fruits of that.

Okay. I understood -- understand. And then kind of following on Durgesh's question in a slightly different direction. Just going through the 10-K, I noticed some word changing, like some of the references to ESG, diversity removed in the K. Just is there any kind of fundamental changes in the company's approach to hiring and otherwise? Or is that just kind of changing some language?

Yes, Paul, it's John here. It's the latter. We're not changing our strategy at all. For us, ESG is a very business-driven proposition. Everything we do is to drive the results that we expect to achieve.

The next question comes from Gregg Orrill of UBS.

Congratulations, Susan and John. Just in terms of the procurement, can you comment on if there's been any disruptions there, how things are going? And then I have another question.

Gregg, procurement of what, please?

Capital to procurement of -- for large capital projects, pipe replacement. Have there been any disruptions there that you're seeing?

Yes. No, Gregg, we have a very robust supply chain organization that sits both here at corporate but also is embedded into our states. And we've just done a really great job of being able to procure all of the supplies, the necessary supplies we need for all the capital investments that we're making, including all the PFOS work. We announced earlier that we had signed a contract with Calgon Carbon to make sure that we can obtain all the vessels and the necessary carbon and the regeneration of the carbon long term. So we feel like we're in a really good spot in that space and also with all the materials for all of our projects across the footprint.

Okay. Great. And then in terms of usage per customer, are you seeing any sort of changes there strengthening through your customer classes?

Yes, Gregg, what we've seen related to kind of declining use, we had talked about that for a very long time. We are starting to see that plateau just a bit, but we do still have a bit of declining use across our footprint. It's just -- has to do with fixtures and people being a little more aware in the conservation space. But nothing that we're concerned about in either direction. We have plenty of capacity in most all of our locations. And we're not seeing any declines that are troubling to us.

Our next question comes from Jonathan Reeder of Wells Fargo.

Congrats, Susan and John, on the formal transition announcements made today. Enjoy the retirement, Susan. I think we all want to get to that position, Susan. Well deserved. But I think Paul already asked my question on the M&A pipeline, but I've got another regarding the pending rate case in Missouri. It sounds like things are on track in that Missouri rate case. Do you expect to reach a settlement prior to the start of hearings?

Yes, I'd say -- Jonathan, it's John here. That's certainly been our experience. And we'll see how it plays out, but that would be our expectation.

Okay. Great. And then on customer growth, obviously, electric and, to some degree, gas has been experiencing an uptick in customer growth, usage from resurgence in manufacturing demand, obviously, AI, data center-related stuff like that. Is any of that starting to trickle into your service territory where this economic development is kind of promoting more customer growth than you've seen historically and maybe taking a little pressure off the cadence of rate cases or at least the degree of rate relief that you need to request?

Jonathan, I'd say your term, trickle in, is appropriate. As we think about AI data centers, generally speaking, they're more power hungry than they are water hungry. But we are seeing economic development opportunities, which may come in the form of additional pipe to get to locations, things like that in the same way that an electric utility might need to build out some transmission for a renewable project.

But I'd say for us, it's relatively early days. And we're not expecting to see the kind of massive increases in demand in water. Generally speaking, water as an industry is in a position of excess capacity. So there -- we expect to see a little bit of infrastructure build, but -- and that's, I'd say, how we think about it.

Great. No, congrats on a solid update today.

The next question comes from Angie Storozynski of Seaport.

Susan, John, what a transition. Congratulations to Susan. Definitely, it's the end of an era, so good luck. Now on the financing. So do you guys consider maybe using hybrids instead of traditional equity if only because the water sector has sharply derated? I'm sure that that's probably more dilutive to the original plan from like an equity perspective? And again, is there a way to manage the dilution going forward?

Yes, Angie, this is David. We certainly look at all products, but we just don't see these -- the hybrids being cost effective for us, and they are more dilutive than just straight equity based on how we trade.

Okay. And then about the lumpiness of the M&A and an ability to basically manage the earnings impact with some other organic CapEx, is this just -- well, simply because you have so many growth opportunities that, again, you can smooth out the earnings trajectory? Or are you trying to say that the municipal M&A is less of an earnings driver overall, given, again, plenty of organic growth?

Yes, that's a great question, Angie. Those deals are lumpy because there are so many things that can slow down the closing process. So we can plan for a certain number of deals in a given year, and they may spill over into the next year. So on an annual basis, there's some lumpiness there. We do target that 2% of the customer growth, but if we see that some of these deals are going to get pushed out, we've got plenty of capital projects kind of in the wings that we can bring in to ensure that we spend that $3.3 billion or whatever our target is for a given year to absolutely smooth out that EPS growth.

But it's really important that we're adding the customers because adding customers helps us with that affordability story. It helps us spread our costs out amongst more customers. So we're going to continue to push on that acquisition piece. In some years, it will be more than 2%. Some years, it might be less than 2%. But when we make that commitment to our capital spend, we're going to do -- we have the flexibility to do what we need to, to make sure that we get that capital spend.

And Angie, just to follow on Cheryl's comments. To be clear, the need is very much there in terms of target systems, right? And as we've talked about a little bit in the past, the list of reasons why a target company, a municipality would sell is getting longer and not shorter, right? There continues to be deferred capital investment, deferred maintenance, increasing regulatory need for clean water and delivery. So the fundamentals haven't changed. And if anything, we see a broadening opportunity base. And a lot of what we've been spending our time on is broadening out the opportunity set across our system, which takes a little bit of time but we feel very good about in terms of the progress that we're making.

Okay. And then lastly, on California, you mentioned that there's -- you're looking at ways to, if I understood correctly, basically retain the previous full decoupling, right, so versus the commission's decision. So are we talking about a legal challenge? I mean, again, I'm just wondering, what is the option?

That's correct, Angie. It is -- we have filed a motion for rehearing for that.

The next question comes from Anthony Crowdell of Mizuho.

Congrats, Susan and John, great news for both. Just -- I want to just follow up a little on Angie's question. Just a quick one. On the equity financing, it's very clear you guys state in '26 and then also in '29. Do you time that with CapEx needs or thoughts of maybe some -- not an annual program versus a block? Just curious, the pluses or minuses on the approach here.

Yes. We -- I'd say we time it when we have a need for -- to maintain our strong balance sheet. And we're not going to issue too early, and we're not going to issue late. We're going to issue when we need the financing or the funding.

The next question comes from Richard Sunderland of JPMorgan.

Congrats as well to Susan and John. Great news to hear. Just one quick cleanup for me. I think you hit this with Durgesh earlier, but just thinking through the growth going forward, is the 7% to 9% growth, is that based on 2025 guidance less that $0.10 of incremental interest income? Is that the right way to think about the base for 7% to 9%?

That is right, Rich. And I think we've got that in David's slides. And just as a reminder, when we set our 7% to 9%, that goes back to when we put the note in place originally, which was a $720 million note at a 7% interest rate. And then we amended the note about a year ago and, early 2024, increased the interest rate to 10%. And we also collected on an earnout payment of $75 million that was rolled into the note. So as we think about note repayment, we're only trying to make up the 7% interest. And to do that, we'll be able to -- we'll have proceeds of $795 million, not $720 million, which is why you won't see a divot in earnings as we're moving forward. So yes, you've got it correct, Rich.

And as a reminder, for the group, the note -- the final termination date of the note is December of 2026. But the owner of the business has the right to call the note as early as December of this year. And so we'll see how the timing of repayment works out. But one way or another, we're very prepared for the timing, and we won't see any sort of impact to earnings.

Great. And then on the Missouri legislation, I know there are a couple of different bills out there. There's also been some actions around -- I think it's SB4 and some language change there to pull in more of the broader utility efforts. Can you just walk through a little bit of what's been going on recently in the legislature? I think there were some actions on SB4 yesterday. Just give us an update on how you see that playing out.

Yes. Sure, Rich. This is Cheryl. In Missouri, we have been working for quite some time to try to improve the regulatory environment there. They have historically -- when I was President there, historically had a historical test year, which makes it really challenging when you're talking about regulatory lag. And so we have been working hard with the other utilities as well as talking with the commission -- with the Chair of the commission to say what are ways that we can improve this environment for us from a regulatory lag perspective, and so as these bills got submitted early on, they were kind of separated.

Now they've been -- several of them have been joined together, and we are very focused on the future test year aspect of this legislation, and we'll continue to work together with the other utilities, the Chair of the commission and all of the allies that we can bring to the table to ensure that we improve that regulatory environment.

The next question comes from Gregg Orrill of UBS.

Yes. One follow-up, please. Just the -- what were the results of the nonutility business for the year and some context on where you're taking that part of the company?

Yes, Gregg, we don't disclose that level of detail publicly. It's in the other business segment.

Yes. I can talk to kind of what we have in mind in the future for that other part of the organization, if you will. It's essentially our Military Services Group. And we're still really excited about that part of our business. We think it's a great mission. It aligns very well with our Regulated Businesses. And we're excited about the relationships we have at all of the existing bases, and we'll continue to encourage the different arms of the military to move forward with utility privatization. We do expect to see some movement there. We just don't know exactly what's coming or the timing of that. But our team is poised and ready to bid on any of the projects that make sense for us in the future.

The Q&A session and the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.