California Water Service Group Announces 2021 Earnings for Year and Fourth Quarter

Rhea-AI Summary

California Water Service Group (NYSE: CWT) reported a net income of $101.1 million and diluted earnings per share of $1.96 for 2021, up from $96.8 million or $1.97 per share in 2020. Key growth drivers included rate increases of $14 million and a reduction in operating tax expenses of $8.6 million. However, total operating revenue decreased to $790.9 million, affected by $11.7 million in deferred revenue. The company increased its dividend by 8.7% amid challenges from drought conditions and supply chain issues.

Positive

• Net income increased by $4.3 million, driven by rate increases and reduced tax expenses.
• Diluted earnings per share remained strong at $1.96.
• Dividend increased by 8.7%, showing confidence in financial stability.

Negative

• Operating revenue decreased by $3.4 million, attributed to $11.7 million in deferred revenue.
• Increased total operating expenses by $6.5 million, or 1.0%, due to rising wages and operational costs.
• Fourth quarter net income dropped to $3.5 million, down $12 million from the previous year.

SAN JOSE, Calif., Feb. 24, 2022 (GLOBE NEWSWIRE) -- California Water Service Group (NYSE: CWT) ( “Company”) today announced net income attributable to CWT of $101.1 million and diluted earnings per share of $1.96 for 2021, compared to net income attributable to CWT of $96.8 million and diluted earnings per share of $1.97 in 2020.

The $4.3 million increase in net income attributable to CWT was driven primarily by general rate increases of $14.0 million, non-regulated revenue of $5.8 million, reduction in operating income tax expense of $8.6 million, and decrease in bad debt expense of $4.6 million. These positive factors were partially offset by increases in depreciation and amortization expenses of $10.2 million, employee wages of $3.2 million, uninsured loss expense of $1.9 million, property and other taxes of $2.4 million, and financing costs of $1.4 million.

Additionally, certain factors outside the Company's immediate control decreased net income attributable to CWT, including a $0.5 million reduction in accrued unbilled revenue and $0.5 million decrease in unrealized gain on certain benefit plan investments as compared to the prior year. Seasonal weather patterns and the number of unbilled days are the primary influences of accrued unbilled revenue.

President & Chief Executive Officer Martin A. Kropelnicki said he was pleased with the 2021 financial performance, which allowed the Company to increase the dividend by 8.7%. He made the following comments on the Company’s 2021 results:

“I’m really proud of our people, who continued to provide safe, reliable water and wastewater services in the face of worsening drought conditions, continuing pandemic concerns, and challenging supply chain disruptions.

We also made impressive progress on our Environmental, Social, and Governance (ESG) efforts, and were pleased to be named one of ‘America’s Most Responsible Companies’ by Newsweek magazine. The company ranked first among water utilities and 180^th overall among companies nationwide. We will continue to focus ESG efforts on programs most relevant to our business and later this spring will issue our 2021 ESG report.

Success in managing the rate-setting process is key to our ability to meet customers’ needs today and achieve the ESG progress that will position us well to meet future needs. Currently, we are working diligently on rebuttal testimony for both our California GRC and the California Cost of Capital cases. A major focus for our team will be resolving these proceedings constructively in 2022.”

Additional Financial Results for 2021

Operating revenue in 2021 was $790.9 million and $794.3 million in 2020, a decrease of $3.4 million in 2021. The decrease in operating revenues was due to an increase in deferred revenue of $11.7 million and decrease in accrued unbilled revenue of $0.5 million partially offset by a net increase in general rates and regulatory cost mechanisms of $8.3 million, $6.1 million of which was related to increased water costs.

Total operating expenses increased $6.5 million, or 1.0%, to $664.1 million in 2021 compared to the prior year.

Water production expenses increased $0.7 million to $277.5 million in 2021, primarily due to increases in well water production costs. As designed, the California revenue decoupling mechanisms recorded an increase to revenue equal to the increase in California water production costs.

Administrative and general expense increased $9.6 million, or 8.2%, in 2021 as compared to 2020. The increase was mainly due to increases in employee wages of $6.2 million, uninsured loss costs of $1.9 million, outside consulting service costs of $1.2 million, and employee healthcare costs of $1.2 million. These cost increases were partially offset by a $1.5 million decrease in employee pension and retiree healthcare benefit costs. Changes in employee pension benefits and employee and retiree medical costs for regulated California operations generally do not affect net income attributable to California Water Service Group, as the Company has been allowed by the California Public Utilities Commission (“CPUC”) to record these costs in balancing accounts for future recovery, creating a corresponding change to revenue.

Other operations expense decreased $9.5 million, or 9.9%, in 2021 as compared to 2020. The decrease was primarily due to reductions of $9.5 million in expenses associated with the deferral of operating revenue, $4.6 million in bad debt expense, and $2.1 million in employee wages, which was partially offset by increases in wastewater treatment expenses of $1.9 million from recently acquired subsidiaries, customer account expenses of $1.1 million, chemical and carbon filter costs of $0.9 million, and conservation program costs of $0.8 million. Changes in conservation program costs for regulated California operations generally do not affect net income attributable to California Water Service Group, as the CPUC has allowed the Company to record these costs in balancing accounts for future recovery, creating a corresponding change to revenue.

Maintenance expenses increased $1.6 million, or 5.7%, to $29.6 million in 2021, due to repairs of transmission and distribution mains, reservoirs, tanks, and amortization of reservoir coating projects in accordance with CPUC orders.

Depreciation and amortization increased $10.2 million, or 10.4%, in 2021 primarily due to utility plant placed in service in 2020.

Income taxes decreased $8.6 million, or 75.5%, to $2.8 million in 2021, mostly due to a $9.9 million increase in customer refunds of excess deferred federal income taxes in 2021 as compared to 2020 which was partially offset by a reduction in the tax benefit from the flow-through method of accounting for “repairs” deductions on state corporate income tax filings.

Property and other taxes increased $2.4 million, or 8.0%, to $32.5 million, due mostly to an increase in our assessed property values for utility plant placed in service during the year.

In 2021, net other income and expenses increased $15.4 million from $2.0 million in 2020. The increase was due primarily to a $5.8 million increase in non-regulated revenue and $14.9 million decrease in other components of net periodic benefit costs. These were partially offset by a $2.4 million increase in non-regulated expenses, $1.8 million decrease in allowance for equity funds used during construction, and $0.5 million decrease in unrealized gain from certain benefit plan investments due to market conditions. Changes in other components of net periodic benefit costs for regulated California operations generally do not affect net income, as the CPUC has allowed the Company to record these costs in balancing accounts for future recovery, creating a corresponding change to revenue.

In 2021 net interest expense increased $1.4 million as compared to 2020. The increase was due primarily to an increase in long-term financing to support utility plant infrastructure investments.

Fourth Quarter 2021 Results

For the fourth quarter of 2021, net income attributable to CWT was $3.5 million and diluted earnings per share was $0.07, compared to net income attributable to CWT of $15.5 million and diluted earnings per share of $0.31 in the fourth quarter of 2020. The $12.0 million decrease in net income attributable to CWT resulted primarily from a $9.2 million decrease in unbilled revenue, $2.4 million increase in depreciation expense, and $1.4 million increase in maintenance expense.

Operating revenue for the fourth quarter decreased $15.8 million, or 8.4%, to $173.3 million, mostly due to a decrease in regulatory cost mechanisms of $9.6 million, decrease in unbilled revenue of $9.2 million, and increase in deferred revenue of $3.4 million. These decreases were partially offset by rate increases of $4.0 million, of which $1.9 million was related to increases in water production costs.

Total operating expenses for the quarter decreased $1.2 million to $162.9 million. The decrease was mostly due to decreases in water production costs of $3.5 million, other operations expenses of $3.2 million, and income tax expense of $1.7 million which was partially offset by increases in administrative and general expenses of $2.6 million, depreciation and amortization of $2.4 million, and maintenance expense increased $1.4 million.

Other income and expenses, net of income taxes, increased $2.8 million. The increase was due primarily to an increase in non-regulated revenue and decrease in other components of net periodic benefit costs which was partially offset by an increase in non-regulated expenses.

Net interest expense increased $0.3 million to $11.3 million. The increase was due primarily to an increase in long-term financing to support utility plant infrastructure investments.

Liquidity and Financing

Our liquidity remains strong. We maintained $78.4 million of cash as of December 31, 2021 and have additional short-term borrowing capacity of more than $515 million, subject to meeting the borrowing conditions on the Company’s lines of credit facilities. Aged accounts receivable past due more than 60 days increased to $26.2 million as of December 31, 2021 due to suspension of shutoff procedures. On January 25, 2022, Cal Water received $20.8 million from the California Water and Wastewater Arrearages Payment Program to help customers unable to pay their water bills from March 4, 2020 to June 15, 2021. Additionally, Cal Water has interest and penalty free payment plans or extensions, subject to certain terms and conditions, to help customers pay water bills after June 15, 2021.

We invested $293.2 million in infrastructure in 2021 as compared to $298.7 million in 2020, which is in line with our estimated range of between $270.0 and $300.0 million. At our Board of Directors meeting on January 26, 2022, the Board increased the quarterly cash dividend by 8.7%, representing an indicated annual dividend of $1.00 per share of common stock.

WRAM Receivable

The under-collected net receivable balance in the WRAM and modified cost balancing account (MCBA) was $72.8 million as of December 31, 2021, an increase of 7.4%, or $5.0 million, from the balance of $67.8 million as of December 31, 2020.

Other Information

All stockholders and interested investors are invited to listen to the 2021 year-end and fourth quarter conference call on February 24, 2022 at 8:00 a.m. PT (11:00 a.m. ET) by dialing 1-833-832-5130 or 1-509-844-0151 and keying in ID #5577942, or you may access the live audio webcast at https//ir.calwatergroup.com/calendar/upcoming-events. Please join at least 15 minutes in advance of the call to ensure a timely connection. A replay of the call will be available from 11:00 a.m. PT (2:00 p.m. ET) on February 24, 2022 through April 27, 2022, at 1-855-859-2056 or 1-404-537-3406, ID #5577942. The replay will also be available under the investor relations tab at www.calwatergroup.com. Prior to the call, Cal Water will post a slide presentation on its website. The presentation can be found at www.calwatergroup.com/docs/q42021slides.pdf after 6:00 a.m. PT. The call will be hosted by President and Chief Executive Officer Martin A. Kropelnicki, Vice President and Chief Financial Officer Thomas F. Smegal, Vice President of Corporate Development Paul G. Townsley, and Vice President and Corporate Controller David B. Healey.

California Water Service Group is the parent company of California Water Service, Washington Water Service, New Mexico Water Service, Hawaii Water Service, Inc., Texas Water Service, CWS Utility Services, and HWS Utility Services LLC. Together, these companies provide regulated and non-regulated water service to more than 2.1 million people in California, Washington, New Mexico, Hawaii and Texas. California Water Service Group’s common stock trades on the New York Stock Exchange under the symbol “CWT.” Additional information is available online at www.calwatergroup.com.

This news release contains forward-looking statements within the meaning established by the Private Securities Litigation Reform Act of 1995 ("Act"). The forward-looking statements are intended to qualify under provisions of the federal securities laws for "safe harbor" treatment established by the Act. Forward-looking statements are based on currently available information, expectations, estimates, assumptions and projections, and management's judgment about the Company, the water utility industry and general economic conditions. Such words as would, expects, intends, plans, believes, may, estimates, assumes, anticipates, projects, progress, predicts, hopes, targets, forecasts or variations of such words or similar expressions are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance. They are subject to uncertainty and changes in circumstances. Actual results may vary materially from what is contained in a forward-looking statement. Factors that may cause a result different than expected or anticipated include, but are not limited to: the impact of the ongoing COVID-19 pandemic and related public health measures; our ability to invest or apply the proceeds from the issuance of common stock in an accretive manner; governmental and regulatory commissions' decisions, including decisions on proper disposition of property; consequences of eminent domain actions relating to our water systems; changes in regulatory commissions' policies and procedures; the outcome and timeliness of regulatory commissions' actions concerning rate relief and other matters; increased risk of inverse condemnation losses as a result of climate conditions; inability to renew leases to operate water systems owned by others on beneficial terms; changes in California State Water Resources Control Board water quality standards; changes in environmental compliance and water quality requirements; electric power interruptions; housing and customer growth; the impact of opposition to rate increases; our ability to recover costs; availability of water supplies; issues with the implementation, maintenance or security of our information technology systems; civil disturbances or terrorist threats or acts; the adequacy of our efforts to mitigate physical and cyber security risks and threats; the ability of our enterprise risk management processes to identify or address risks adequately; labor relations matters as we negotiate with the unions; changes in customer water use patterns and the effects of conservation, including as a result of drought conditions; our ability to complete, in a timely manner or at all, successfully integrate and achieve anticipated benefits from announced acquisitions; the impact of weather, climate, natural disasters, and actual or threatened public health emergencies, including disease outbreaks, on our operations, water quality, water availability, water sales and operating results and the adequacy of our emergency preparedness; restrictive covenants in or changes to the credit ratings on our current or future debt that could increase our financing costs or affect our ability to borrow, make payments on debt or pay dividends; and other risks and unforeseen events. When considering forward-looking statements, you should keep in mind the cautionary statements included in this paragraph, as well as the Annual 10-K, Quarterly 10-Q, and other reports filed from time-to-time with the Securities and Exchange Commission (SEC). The Company assumes no obligation to provide public updates of forward-looking statements.

Contact
Tom Smegal
(408) 367-8200 (analysts)

Shannon Dean
(408) 367-8243 (media)

CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(In thousands, except per share data)			December 31				December 31
				2021				2020
ASSETS
Utility plant:
	Utility plant		$	4,197,344			$	3,890,423
	Less accumulated depreciation and amortization			(1,350,482	)			(1,239,865	)
		Net utility plant		2,846,862				2,650,558
Current assets:
	Cash and cash equivalents			78,380				44,555
	Receivables:
		Customers, net		60,785				44,025
		Regulatory balancing accounts		78,597				96,241
		Other, net		18,452				20,331
	Unbilled revenue, net			32,760				34,069
	Materials and supplies at weighted average cost			9,511				8,831
	Taxes, prepaid expenses, and other assets			21,973				17,964
		Total current assets		300,458				266,016
Other assets:
	Regulatory assets			285,692				325,376
	Goodwill			36,814				31,842
	Other assets			153,445				120,456
		Total other assets		475,951				477,674
TOTAL ASSETS			$	3,623,271			$	3,394,248
CAPITALIZATION AND LIABILITIES
Capitalization:
	Common stock, $.01 par value; 68,000 shares authorized, 53,716 and 50,334 outstanding in 2021 and 2020, respectively		$	537			$	503
	Additional paid-in capital			651,121				448,632
	Retained earnings			525,936				472,209
	Noncontrolling interests			5,386				-
		Total equity		1,182,980				921,344
	Long-term debt, net			1,055,794				781,100
		Total capitalization		2,238,774				1,702,444
Current liabilities:
	Current maturities of long-term debt, net			5,192				5,127
	Short-term borrowings			35,000				370,000
	Accounts payable			144,369				131,725
	Regulatory balancing accounts			17,547				34,636
	Accrued interest			6,542				6,178
	Accrued other liabilities			47,926				41,040
		Total current liabilities		256,576				588,706
Deferred income taxes				298,945				276,032
Pension				92,287				115,581
Regulatory liabilities and other				252,938				247,810
Advances for construction				198,086				195,625
Contributions in aid of construction				285,665				268,050
Commitments and contingencies
TOTAL CAPITALIZATION AND LIABILITIES			$	3,623,271			$	3,394,248

CALIFORNIA WATER SERVICE GROUP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In thousands, except per share data)
For the Three Months ended:
			December 31,				December 31,
				2021				2020
Operating revenue			$	173,326			$	189,152
Operating expenses:
	Operations:
		Water production costs		62,786				66,267
		Administrative and general		33,849				31,231
		Other operations		23,074				26,241
	Maintenance			8,474				7,102
	Depreciation and amortization			27,199				24,772
	Income tax (benefit) expense			(771	)			946
	Property and other taxes			8,262				7,559
	Total operating expenses			162,873				164,118
		Net operating income		10,453				25,034
Other income and expenses:
	Non-regulated revenue			6,002				4,953
	Non-regulated expenses			(4,786	)			(2,489	)
	Other components of net periodic benefit credit (cost)			2,383				(1,218	)
	Allowance for equity funds used during construction			896				684
	Income tax expense on other income and expenses			(210	)			(431	)
		Net other income		4,285				1,499
Interest expense:
	Interest expense			11,815				11,474
	Allowance for borrowed funds used during construction			(513	)			(438	)
		Net interest expense		11,302				11,036
Net income				3,436				15,497
Loss attributable to noncontrolling interests				(67	)			-
Net income attributable to California Water Service Group			$	3,503			$	15,497
Earnings per share:
	Basic		$	0.07			$	0.31
	Diluted		$	0.07			$	0.31
Weighted average number of common shares outstanding:
	Basic			53,157				49,990
	Diluted			53,157				49,990
Dividends per share of common stock			$	0.2300			$	0.2125
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(In thousands, except per share data)
For the Twelve Months ended:
			December 31,				December 31,
				2021				2020
Operating revenue			$	790,909			$	794,307
Operating expenses:
	Operations:
		Water production costs		277,474				276,729
		Administrative and general		126,686				117,058
		Other operations		86,392				95,859
	Maintenance			29,592				28,026
	Depreciation and amortization			108,715				98,505
	Income taxes			2,805				11,435
	Property and other taxes			32,475				30,029
		Total operating expenses		664,139				657,641
		Net operating income		126,770				136,666
Other income and expenses:
	Non-regulated revenue			22,761				16,922
	Non-regulated expenses			(17,140	)			(14,300	)
	Other components of net periodic benefit credit (cost)			9,903				(4,988	)
	Allowance for equity funds used during construction			3,186				4,976
	Income tax expense on other income and expenses			(1,287	)			(583	)
		Net other income		17,423				2,027
Interest expense:
	Interest Expense			44,980				45,047
	Allowance for borrowed funds used during construction			(1,766	)			(3,185	)
		Net interest expense		43,214				41,862
Net income				100,979				96,831
Net loss attributable to noncontrolling interests				(146	)			-
Net income attributable to California Water Service Group			$	101,125			$	96,831
Earnings per share:
	Basic		$	1.96			$	1.97
	Diluted		$	1.96			$	1.97
Weighted average number of common shares outstanding:
	Basic			51,633				49,274
	Diluted			51,633				49,274
Dividends per share of common stock			$	0.9200			$	0.8500

FAQ

What were California Water Service Group's 2021 earnings results for CWT?

California Water Service Group reported a net income of $101.1 million and diluted earnings per share of $1.96 for 2021.

How did CWT's operating revenue change in 2021?

CWT's operating revenue decreased to $790.9 million in 2021, down from $794.3 million in 2020.

What factors contributed to the net income increase for CWT in 2021?

The increase in net income was primarily due to general rate increases of $14 million and a reduction in tax expenses of $8.6 million.

What was the dividend increase announced by CWT?

CWT announced an 8.7% increase in its quarterly cash dividend, raising it to an indicated annual dividend of $1.00 per share.

What were the fourth quarter performance results for CWT?

In the fourth quarter of 2021, CWT's net income was $3.5 million, with diluted earnings per share of $0.07.