SJW Group Announces 2023 Financial Results
- Exceeded 2023 financial expectations with $2.68 diluted earnings per share compared to $2.43 in 2022.
- Invested $272 million in infrastructure, surpassing 2023 guidance.
- Achieved a 10.01% return on equity in California as of January 1, 2024.
- Issued 2024 guidance of $2.68 to $2.78 diluted earnings per share.
- Quarterly net income decreased by 43% in Q4 2023 compared to Q4 2022.
- Operating revenue for Q4 2023 was slightly lower compared to Q4 2022.
- Operating expenses increased by 11% in Q4 2023 compared to Q4 2022.
Insights
The reported earnings of $2.68 per diluted share represent a significant 10.3% increase from the prior year's $2.43, surpassing the initial guidance range and aligning with the updated forecast. This suggests a robust financial performance that may appeal to investors seeking companies with strong earnings growth. The 15% rise in net income and an 8% increase in operating revenue are indicative of effective cost management and revenue enhancement strategies, which could positively influence investor sentiment and stock valuation.
The company's capital expenditure of $272 million, which exceeded its guidance, reflects a commitment to long-term growth through infrastructure investments. This level of reinvestment is substantial and may affect short-term cash flows but is expected to enhance service reliability and regulatory compliance, potentially yielding long-term benefits for shareholders. The 10.01% WCCM-adjusted return on equity in California is a critical metric, as it indicates the profitability from shareholders' equity, which is above the standard utility sector average of 9-10%, making it a significant point for investor consideration.
The customer base growth in Texas by 12%, driven by organic growth and strategic acquisitions, is a vital indicator of the company's market expansion and could signal future revenue increases. The investments in the water supply portfolio in this rapidly growing service area align with demographic trends and may present opportunities for increased market share and revenue.
Regulatory outcomes, such as the WCCM-adjusted return on equity and revenue increases in Maine, are essential for utility companies like SJW Group, which operate in a highly regulated environment. These outcomes can provide stability and predictability in earnings, which are favorable factors for investors. The regulatory approval for capital expenditure plans, including treatment for PFAS, demonstrates the company's proactive approach to addressing environmental concerns, which may enhance its public image and potentially lead to increased customer trust and market growth.
The company's performance must be contextualized within the broader economic environment, which includes factors such as inflationary pressures on operational costs and interest rates affecting borrowing costs. The decrease in income taxes due to the partial release of an uncertain tax position reserve has a non-recurring positive impact on earnings, which analysts should consider when projecting future tax rates and net income.
The reported decrease in maintenance costs and increase in general and administrative expenses reflect a shift in spending priorities. The proactive asset management and advanced leak detection programs that contributed to lower maintenance expenses may indicate operational efficiency and could result in reduced long-term costs. However, the increase in water production costs and interest expenses due to higher borrowing costs are concerns that require monitoring, as they could impact future profitability if not managed effectively.
-
$2.68 $2.43 $2.40 $2.50 $2.65 $2.70 -
$272 million -
10.01% Water Cost of Capital Mechanism (WCCM)-adjusted return on equity inCalifornia as of January 1, 2024 -
2024 guidance issued of
$2.68 $2.78
“With a strong fourth quarter, our 2023 financial results and operating performance exceeded expectations and the initial earnings per share guidance we set for SJW Group at this time last year,” stated SJW Group Chair, CEO, and President, Eric W. Thornburg. “The results we announce today are a testament to our talented teams across the country delivering on our company’s mission to be a force for good every day for our customers, communities and shareholders.”
Continued Thornburg, “I’m also pleased to share that we met and surpassed our annual capital expenditure goal in 2023 by
2023 Operating Results
Net income in 2023 was
Operating revenue for 2023 was
Operating expenses for 2023 were
-
An increase in water production expenses of
$23.4 million $256.2 million $232.8 million -
A decrease in the gain on sale of nonutility properties of
$6.2 million -
An increase in general and administrative expenses of
$3.3 million -
An increase in depreciation and amortization of
$1.5 million $2.4 million Cupertino concession assets in 2022; and -
A decrease in maintenance expenses of
$5.0 million
The effective consolidated income tax rates for 2023 and 2022 were approximately
Note Regarding Fourth Quarter Operating Results
Comparisons between 2023 and 2022 fourth quarter operating results are affected by and reflect the delay in San Jose Water Company's (SJWC) 2022 to 2024 general rate case (GRC) proceeding. As a reminder, while the California Public Utilities Commission (CPUC) approved the settlement agreement and SJWC recorded the authorized revenue increase from the GRC in the fourth quarter of 2022, the revenue increase was retroactive to January 1, 2022. This delayed recognition of GRC-authorized revenues affects quarter-over-quarter comparisons through 2023.
As noted last quarter, the CPUC approved SJWC's request for reinstatement of the Water Conservation Memorandum Account (WCMA) and Water Conservation Expense Memorandum Account (WCEMA) on October 2, 2023. The WCMA and WCEMA are temporary revenue protection mechanisms that allow water utilities to track for potential future recovery revenue losses and incremental expenses in response to water conservation efforts. The mechanisms were no longer available after the end of the drought emergency on April 11, 2023. SJWC requested authorization to reinstate the mechanisms based on our water wholesaler’s, Valley Water, request for a voluntary
Quarterly Operating Results
Net income for the quarter ended December 31, 2023 was
Operating revenue for the quarter ended December 31, 2023 was
Operating expenses for the quarter ended December 31, 2023 were
-
An increase in water production expenses of
$11.6 million $64.7 million $53.1 million -
An increase in taxes other than income tax of
$1.1 million -
An increase in depreciation and amortization of
$0.9 million -
A decrease in the gain on the sale of nonutility properties of
$0.7 million -
A decrease in maintenance expenses of
$3.2 million
The effective consolidated income tax rates for the fourth quarter of December 31, 2023 and 2022 were approximately
Capital Expenditures
In 2023 SJW Group invested
SJW Group plans to invest more than
Rate Activity and Regulatory Updates
On December 28, 2023, the CPUC approved SJWC's Advice Letter 603 establishing a Group Insurance Balancing Account effective on January 1, 2024. The purpose of the account is to capture the difference between authorized and actual medical, dental, and opt-out insurance costs.
On January 1, 2024, new rates went into effect that included a WCCM-adjusted return on equity (ROE) of
On January 2, 2024, SJWC filed its 2024 GRC application with the CPUC for new rates spanning 2025 to 2027. The company proposed an increase over current authorized revenues of approximately
- Treating PFAS in drinking water;
- Reducing greenhouse gas emissions through solar generation, energy storage systems, continued electrification of our vehicle fleet, and expansion of our advanced leak detection program; and
- Advancing the CPUC’s Environmental and Social Justice Action Plan by improving access to high-quality water service, climate resiliency, and economic and workforce development.
On February 2, 2024, SJWC, along with three other Class A California water utilities, received approval from CPUC granting a one-year deferment in their 2024 Cost of Capital (COC) filings to May 1, 2025 in response to the water utilities' request for a one-year postponement of their COC filings otherwise scheduled to be filed on May 1, 2024. This deferment alleviates administrative processing costs for both the water utilities and CPUC staff. The approved deferral includes a provision that the WCCM remains in place for 2025 and allows it to adjust up or down in accordance with movements of 100 bps or more in the Moody’s Aa Utility Bond Index between October 1, 2023 and September 30, 2024.
On October 3, 2023, The Connecticut Water Company (CWC) filed a GRC application with the Connecticut Public Utilities Regulatory Authority (PURA) to amend rates. CWC is requesting a
On January 5, 2024, the Maine Public Utilities Commission approved a stipulation agreement between Maine Water Company (MWC) and the Office of the Public Advocate to settle MWC’s March 2023 rate application in the Biddeford Saco Division. Under the approved agreement, MWC annual revenues will increase by
On January 5, 2024, The Texas Water Company (TWC) filed an application with the Public Utilities Commission of
On January 26, 2024, TWC closed on the acquisition of Elm Ridge, a water system serving approximately 21 water customers in
TWC's completed application for a system improvement charge (SIC) is pending before the PUCT. We expect the PUCT to issue a final decision on the application in the first quarter of 2024. The SIC would allow TWC to add certain utility plant additions made since 2020 to its rate base, thereby increasing revenue and avoiding the need for a general rate case in 2024. At the time of filing in December 2022, the SIC was projected to increase TWC’s annualized water revenue by
Corporate Responsibility Recognition
SJW Group was recently recognized in the Newsweek Excellence 1000 Index 2024. SJW Group was the highest ranked water utility company in the index, which ranks a select group of 1000 companies globally that have been identified as exemplars of corporate success and responsibility.
2024 Guidance
The following is the company’s 2024 full-year guidance:
-
Net income per diluted common share of
$2.68 $2.78 -
Regulated infrastructure investments of approximately
$332 million
In addition, we reiterate our non-linear long-term diluted EPS growth of
When considering the company's 2024 guidance relative to actual results in 2023, it is important to note that the company's adjustment to income tax reserves in 2023 resulted in an increase of
Our guidance is subject to risks and uncertainties, including, without limitation, those factors outlined in the “Forward Looking Statements” of this release and the “Risk Factors” section of the company’s annual and quarterly reports filed with the Securities and Exchange Commission.
Financial Results Call Information
Eric W. Thornburg, president, chief executive officer, and board chair, and Andrew F. Walters, chief financial officer and treasurer, will review results for 2023 in a live webcast presentation at 11 a.m. PT, or 2 p.m. ET, on Thursday, February 22, 2024.
Interested parties may access the webcast and related presentation materials at the website www.sjwgroup.com. An archive of the webcast will be available until April 22, 2024.
About SJW Group
SJW Group is among the largest investor-owned pure-play water and wastewater utilities in
Forward-Looking Statements
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Some of these forward-looking statements can be identified by the use of forward-looking words such as “believes,” “expects,” “estimates,” “anticipates,” “intends,” “seeks,” “plans,” “projects,” “may,” “should,” “will,” or the negative of those words or other comparable terminology. These forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict.
These forward-looking statements involve a number of risks, uncertainties and assumptions including, but not limited to, the following factors: (1) the effect of water, utility, environmental and other governmental policies and regulations, including regulatory actions concerning rates, authorized return on equity, authorized capital structures, capital expenditures and other decisions; (2) changes in demand for water and other services; (3) unanticipated weather conditions and changes in seasonality including those affecting water supply and customer usage; (4) the effect of the impact of climate change; (5) unexpected costs, charges or expenses; (6) our ability to successfully evaluate investments in new business and growth initiatives; (7) contamination of our water supplies and damage or failure of our water equipment and infrastructure; (8) the risk of work stoppages, strikes and other labor-related actions; (9) catastrophic events such as fires, earthquakes, explosions, floods, ice storms, tornadoes, hurricanes, terrorist acts, physical attacks, cyber-attacks, epidemic, or similar occurrences; (10) changes in general economic, political, business and financial market conditions; (11) the ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings, changes in interest rates, compliance with regulatory requirements, compliance with the terms and conditions of our outstanding indebtedness, and general market and economic conditions; and (12) legislative, and general market and economic developments. The risks, uncertainties and other factors may cause the actual results, performance or achievements of SJW Group to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.
Results for a quarter are not indicative of results for a full year due to seasonality and other factors. Other factors that may cause actual results, performance or achievements to materially differ are described in SJW Group’s most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K filed with the SEC. Forward-looking statements are not guarantees of performance, and speak only as of the date made. SJW Group undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.
SJW Group |
|||||||||||||
Condensed Consolidated Statements of Comprehensive Income |
|||||||||||||
(Unaudited) |
|||||||||||||
(in thousands, except share and per share data) |
|||||||||||||
|
Three months ended December 31, |
|
Twelve months ended December 31, |
||||||||||
|
2023 |
|
2022 |
|
2023 |
|
2022 |
||||||
OPERATING REVENUE |
$ |
171,338 |
|
|
171,374 |
|
|
$ |
670,363 |
|
|
620,698 |
|
OPERATING EXPENSE: |
|
|
|
|
|
|
|
||||||
Production Expenses: |
|
|
|
|
|
|
|
||||||
Purchased water |
|
34,928 |
|
|
38,021 |
|
|
|
135,982 |
|
|
122,334 |
|
Power |
|
2,239 |
|
|
(1,498 |
) |
|
|
9,602 |
|
|
8,889 |
|
Groundwater extraction charges |
|
16,229 |
|
|
4,811 |
|
|
|
62,980 |
|
|
56,158 |
|
Other production expenses |
|
11,257 |
|
|
11,802 |
|
|
|
47,636 |
|
|
45,409 |
|
Total production expenses |
|
64,653 |
|
|
53,136 |
|
|
|
256,200 |
|
|
232,790 |
|
Administrative and general |
|
26,897 |
|
|
24,030 |
|
|
|
98,656 |
|
|
95,404 |
|
Maintenance |
|
6,916 |
|
|
10,083 |
|
|
|
25,729 |
|
|
30,734 |
|
Property taxes and other non-income taxes |
|
9,383 |
|
|
8,330 |
|
|
|
34,475 |
|
|
32,572 |
|
Depreciation and amortization |
|
26,996 |
|
|
26,075 |
|
|
|
105,868 |
|
|
104,417 |
|
Gain on sale of nonutility property |
|
— |
|
|
(665 |
) |
|
|
— |
|
|
(6,197 |
) |
Total operating expense |
|
134,845 |
|
|
120,989 |
|
|
|
520,928 |
|
|
489,720 |
|
OPERATING INCOME |
|
36,493 |
|
|
50,385 |
|
|
|
149,435 |
|
|
130,978 |
|
OTHER (EXPENSE) INCOME: |
|
|
|
|
|
|
|
||||||
Interest on long-term debt and other interest expense |
|
(17,231 |
) |
|
(15,902 |
) |
|
|
(66,144 |
) |
|
(58,062 |
) |
Pension non-service (cost) credit |
|
(324 |
) |
|
2,163 |
|
|
|
(1,230 |
) |
|
5,023 |
|
Other, net |
|
1,840 |
|
|
1,691 |
|
|
|
8,882 |
|
|
4,385 |
|
Income before income taxes |
|
20,778 |
|
|
38,337 |
|
|
|
90,943 |
|
|
82,324 |
|
Provision for income taxes |
|
1,829 |
|
|
4,838 |
|
|
|
5,956 |
|
|
8,496 |
|
NET INCOME |
|
18,949 |
|
|
33,499 |
|
|
|
84,987 |
|
|
73,828 |
|
Other comprehensive (loss) income, net |
|
(106 |
) |
|
2,242 |
|
|
|
314 |
|
|
1,640 |
|
COMPREHENSIVE INCOME |
$ |
18,843 |
|
|
35,741 |
|
|
$ |
85,301 |
|
|
75,468 |
|
|
|
|
|
|
|
|
|
||||||
EARNINGS PER SHARE |
|
|
|
|
|
|
|
||||||
Basic |
$ |
0.59 |
|
|
1.10 |
|
|
$ |
2.69 |
|
|
2.44 |
|
Diluted |
$ |
0.59 |
|
|
1.09 |
|
|
$ |
2.68 |
|
|
2.43 |
|
DIVIDENDS PER SHARE |
$ |
0.38 |
|
|
0.36 |
|
|
$ |
1.52 |
|
|
1.44 |
|
WEIGHTED AVERAGE SHARES OUTSTANDING |
|
|
|
|
|
|
|
||||||
Basic |
|
31,988 |
|
|
30,478 |
|
|
|
31,575 |
|
|
30,305 |
|
Diluted |
|
32,068 |
|
|
30,618 |
|
|
|
31,663 |
|
|
30,424 |
|
Note: Certain prior period amounts on the condensed consolidated statements of comprehensive income have been reclassified to conform to the current period presentation.
SJW Group |
||||||
Condensed Consolidated Balance Sheets |
||||||
(Unaudited) |
||||||
(in thousands, except share and per share data) |
||||||
|
December 31,
|
|
December 31,
|
|||
ASSETS |
|
|
|
|||
Utility plant: |
|
|
|
|||
Land |
$ |
41,415 |
|
39,982 |
||
Depreciable plant and equipment |
|
3,967,911 |
|
|
3,661,285 |
|
Construction in progress |
|
106,980 |
|
|
116,851 |
|
Intangible assets |
|
35,946 |
|
|
35,959 |
|
Total utility plant |
|
4,152,252 |
|
|
3,854,077 |
|
Less accumulated depreciation and amortization |
|
981,598 |
|
|
1,223,760 |
|
Net utility plant |
|
3,170,654 |
|
|
2,630,317 |
|
|
|
|
|
|||
Nonutility properties and real estate investments |
|
13,350 |
|
|
58,033 |
|
Less accumulated depreciation and amortization |
|
194 |
|
|
17,158 |
|
Net nonutility properties and real estate investments |
|
13,156 |
|
|
40,875 |
|
|
|
|
|
|||
CURRENT ASSETS: |
|
|
|
|||
Cash and cash equivalents |
|
9,723 |
|
|
12,344 |
|
Accounts receivable: |
|
|
|
|||
Customers, net of allowances for uncollectible accounts of |
|
67,870 |
|
|
59,172 |
|
Income tax |
|
5,187 |
|
|
— |
|
Other |
|
3,684 |
|
|
5,560 |
|
Accrued unbilled utility revenue |
|
49,543 |
|
|
45,722 |
|
Assets held for sale |
|
40,850 |
|
|
— |
|
Prepaid expenses |
|
11,110 |
|
|
9,753 |
|
Current regulatory assets, net |
|
4,276 |
|
|
19,740 |
|
Other current assets |
|
6,146 |
|
|
6,095 |
|
Total current assets |
|
198,389 |
|
|
158,386 |
|
OTHER ASSETS: |
|
|
|
|||
Regulatory assets, less current portion |
|
235,910 |
|
|
246,035 |
|
Investments |
|
16,411 |
|
|
14,819 |
|
Postretirement benefit plans |
|
33,794 |
|
|
16,990 |
|
Other intangible asset |
|
28,386 |
|
|
— |
|
Goodwill |
|
640,311 |
|
|
640,311 |
|
Other |
|
8,056 |
|
|
7,323 |
|
Total other assets |
|
962,868 |
|
|
925,478 |
|
TOTAL ASSETS |
$ |
4,345,067 |
|
|
3,755,056 |
|
Note: Certain prior period amounts on the condensed consolidated balance sheets have been reclassified to conform to the current period presentation.
SJW Group |
||||||
Condensed Consolidated Balance Sheets |
||||||
(Unaudited) |
||||||
(in thousands, except share and per share data) |
||||||
|
December 31,
|
|
December 31,
|
|||
CAPITALIZATION AND LIABILITIES |
|
|
|
|||
CAPITALIZATION: |
|
|
|
|||
Stockholders’ equity: |
|
|
|
|||
Common stock, |
$ |
32 |
|
31 |
||
Additional paid-in capital |
|
736,191 |
|
|
651,004 |
|
Retained earnings |
|
495,383 |
|
|
458,356 |
|
Accumulated other comprehensive income |
|
1,791 |
|
|
1,477 |
|
Total stockholders’ equity |
|
1,233,397 |
|
|
1,110,868 |
|
Long-term debt, less current portion |
|
1,526,699 |
|
|
1,491,965 |
|
Total capitalization |
|
2,760,096 |
|
|
2,602,833 |
|
|
|
|
|
|||
CURRENT LIABILITIES: |
|
|
|
|||
Lines of credit |
|
171,500 |
|
|
159,578 |
|
Current portion of long-term debt |
|
48,975 |
|
|
4,360 |
|
Accrued groundwater extraction charges, purchased water and power |
|
24,479 |
|
|
19,707 |
|
Accounts payable |
|
46,121 |
|
|
29,581 |
|
Accrued interest |
|
15,816 |
|
|
13,907 |
|
Accrued payroll |
|
12,229 |
|
|
11,908 |
|
Income tax payable |
|
— |
|
|
2,696 |
|
Current regulatory liabilities |
|
3,059 |
|
|
3,672 |
|
Other current liabilities |
|
20,795 |
|
|
22,913 |
|
Total current liabilities |
|
342,974 |
|
|
268,322 |
|
|
|
|
|
|||
DEFERRED INCOME TAXES |
|
238,528 |
|
|
218,155 |
|
ADVANCES FOR CONSTRUCTION |
|
146,582 |
|
|
137,696 |
|
CONTRIBUTIONS IN AID OF CONSTRUCTION |
|
326,451 |
|
|
323,668 |
|
POSTRETIREMENT BENEFIT PLANS |
|
46,836 |
|
|
59,738 |
|
REGULATORY LIABILITIES, LESS CURRENT PORTION |
|
461,108 |
|
|
118,760 |
|
OTHER NONCURRENT LIABILITIES |
|
22,492 |
|
|
25,884 |
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|||
TOTAL CAPITALIZATION AND LIABILITIES |
$ |
4,345,067 |
|
|
3,755,056 |
|
Note: Certain prior period amounts on the condensed consolidated balance sheets have been reclassified to conform to the current period presentation.
View source version on businesswire.com: https://www.businesswire.com/news/home/20240221538675/en/
Andrew F. Walters
Chief Financial Officer and Treasurer
408.279.7818
Andrew.Walters@sjwater.com
Daniel J. Meaney, APR
Director of Investor Relations
860.664.6016
Daniel.Meaney@ctwater.com
Source: SJW Group
FAQ
What were SJW Group's diluted earnings per share in 2023?
How much did SJW Group invest in infrastructure in 2023?
What was the return on equity in California as of January 1, 2024?
What is SJW Group's 2024 guidance for diluted earnings per share?
How did SJW Group's quarterly net income compare between Q4 2023 and Q4 2022?
What was the change in operating expenses for SJW Group in Q4 2023 compared to Q4 2022?
