AWK Q3 2025 10-Q: Solid Growth and Essential Utilities Merger Analysis

American Water Works Company, Inc. (AWK), one of the largest publicly traded water and wastewater utility companies in the United States, recently reported its financial results for the third quarter of 2025. Let's dive into the numbers from its latest 10-Q filing to understand the company's performance and strategic direction.

For the quarter ending September 30, 2025, American Water demonstrated a solid performance. Total revenues reached $1,451 million, an increase from $1,323 million in the same period last year. This top-line growth contributed to a healthy bottom line, with net income rising to $379 million, or $1.94 per share, up from $350 million, or $1.80 per share, in Q3 2024.

The following flow diagram provides a visual breakdown of the company's revenues and expenses for the quarter, illustrating how revenue is converted into net income.

The Engine Room: Regulated Businesses

The vast majority of American Water's success comes from its Regulated Businesses segment. This division, which provides essential water and wastewater services to millions of customers at rates set by public utility commissions, is the company's primary revenue and profit driver.

• Revenue: The segment generated $1,343 million, accounting for over 92% of the company's total revenue for the quarter.
• Operating Income: After expenses, this segment produced a substantial operating income of $603 million. This highlights the profitability and stability inherent in the regulated utility business model, where investments in infrastructure can earn a predictable return.

The company's "Other" business segment, which includes its Military Services Group that operates and maintains water systems on U.S. military bases, contributed the remaining $108 million in revenue and a modest $11 million in operating income.

Managing Costs and Maintaining Margins

While revenues grew, operating expenses also increased, rising to $837 million from $780 million year-over-year. The two largest components of this were:

• Operation and Maintenance: $523 million
• Depreciation and Amortization: $226 million

Despite these rising costs, American Water maintained strong profitability. The company posted an impressive operating margin of 42.3% and a net margin of 26.1%. These figures reflect the capital-intensive nature of the utility industry, which requires significant ongoing investment but also benefits from predictable returns.

A Look to the Future: The Essential Merger

Perhaps the most significant development noted in the filing is a subsequent event: the execution of a merger agreement with Essential Utilities, Inc. This proposed merger, which the company expects to close by early 2027, would create a multi-utility powerhouse. While the deal promises significant scale and synergies, the company also acknowledges new risks in its filing. These include potential management distraction during the integration process and the possibility that the merger may not achieve all its anticipated benefits.

In summary, American Water's third-quarter results demonstrate the strength and consistency of its core regulated utility model. The company continues to execute its strategy of investing in infrastructure to support growth and reliability. The upcoming merger with Essential Utilities, however, will be the defining narrative, presenting both a massive opportunity for expansion and a complex set of integration challenges to navigate.