SJW Group Announces 2023 Second Quarter Financial Results and Declares Dividend
-
Diluted earnings of
per share, an increase of$0.58 compared to$0.20 in the same quarter last year$0.38 -
investment in infrastructure projects in the first half of 2023$115.7 million -
Constructive California Cost of Capital Decision providing Water Cost of Capital Mechanism (WCCM)-adjusted return on equity of
9.31% -
Quarterly dividend of
per share declared$0.38
"We are pleased with our financial results for the quarter, which demonstrate the strength of our water utility operations and our commitment to providing high-quality and reliable water service to our customers,” stated SJW Group Chair, CEO, and President, Eric W. Thornburg. “We continued to deliver on our growth strategy by investing in our water supply and infrastructure across our local operations, as well as securing a constructive decision in the California Cost of Capital proceeding. Our strong operating performance and continued strategic execution positions us well for the future."
Operating Results
As noted in the company's first quarter 2023 financial results, comparisons between 2023 and 2022 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 back to January 1, 2022. This delayed recognition of GRC-authorized revenues affects quarter-over-quarter comparisons through 2023.
Operating results for the second quarter were also affected by the end of the declared drought emergency and mandatory conservation, as well as an unusually cool and wet season in
Quarterly Operating Results
Net income for the quarter ended June 30, 2023 was
Operating revenue for the quarter ended June 30, 2023 was
Operating expenses for the quarter ended June 30, 2023 were
-
A slight increase in water production expenses of
, or$2.2 million in the second quarter 2023 compared to$61.9 million in the same quarter last year.$59.7 million -
An increase in depreciation and amortization of
primarily due to increases in new utility plant additions.$0.9 million -
A decrease in maintenance expenses of
primarily due to timing of contract work and materials expense.$0.6 million -
An increase in taxes other than income of
.$0.3 million
The effective consolidated income tax rates for the second quarter of June 30, 2023 and 2022 were approximately (9)% and
Operating Results Year-to-Date
Net income for the first half of 2023 was
Operating revenue for the first half of 2023 was
Operating expenses for the first six months of June 2023 were
-
A slight increase in water production expenses of
, or$2.9 million in the first six months of 2023 compared to$108.9 million in the same period last year.$106.1 million -
A decrease in the gain on sale of nonutility properties of
due to the recording of a non-recurring sale of non-utility properties in 2022, and no recorded gain on the sale of nonutility properties in 2023.$5.5 million -
A decrease in depreciation and amortization of
primarily due to a$0.4 million one-time impact related to amortization on certain$2.4 million Cupertino concession assets in 2022 offset by increases in depreciation related new utility plant additions. -
A decrease in maintenance expenses of
primarily due to timing of contract work and materials expense.$1.2 million
The effective consolidated income tax rates for the first six months ended June 30, 2023 and 2022 were approximately (1)% and
Capital Expenditures
During the first six months of 2023, SJW Group invested
SJW Group plans to invest more than
Rate Activity and Regulatory Updates
On June 29, 2023 the CPUC issued a final decision in the Cost of Capital (CoC) proceeding for SJWC and other Class A water utilities for the years 2022 through 2024. The prospective decision continued the WCCM, previously authorized in the past CoC decisions. The WCCM provides for adjustments to SJWC’s return on equity and cost of debt if the average Moody’s Aa utility bond index rate between October 1, 2021 and September 30, 2022 varies by more than 100 basis points when compared to the same period from the prior year. The index rate in that period increased 103 basis points, surpassing the required WCCM trigger.
SJWC filed Advice Letter No. 598 to trigger the WCCM on June 30, 2023. On July 31, 2023 the company expects to file a separate advice letter to implement new rates that reflect a WCCM-adjusted return on equity of
The Connecticut Water Company filed an application with the Connecticut Public Utilities Regulatory Authority for
On July 3, 2023 Maine Water Company requested that the Maine Public Utilities Commission (MPUC) authorize a temporary annualized revenue increase of
On June 30, 2023 a water infrastructure surcharge was filed with the MPUC for the company’s Camden Rockland Division. If approved as requested, annualized revenues generated would be
On July 24, 2023 the Texas Public Utilities Commission (PUCT) approved Texas Water Company's (TWC) application to acquire KT Water Development. KT Water Development provides service to approximately 570 residential water connections. We expect to close on the acquisition during the third quarter. The PUCT's final decision that transfers the Certificate of Convenience and Necessity (CCN) to TWC is expected in the fourth quarter, which is when we anticipate approval of our request for fair market value and filed rate doctrine treatment.
On June 15, 2023 the PUCT approved the application for the transfer of 520 acres of water CCN and 314 acres of sewer CCN from the San Antonio Water System's to TWC's CCN. No customers were transferred as part of the transaction.
On April 10, 2023 TWC filed an application with the PUCT to acquire the Elm Ridge water system that serves 21 residential customers. TWC has asked for filed rate doctrine treatment, which allows the acquiring utility’s current rates to be applied at the time of acquisition.
TWC's application for a system improvement charge (SIC) is pending before the PUCT. We expect the PUCT to issue a final decision on the application by the end of 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 immediate need for a general rate case. The SIC is projected to increase TWC’s water revenue by
ESG Initiatives & Recognition
Institutional Shareholder Services’ (ISS) most recent review of the company’s ESG activities shows that among its
So far this year in 2023, SJW Group is progressing on new initiatives to reduce the use of fossil fuels and greenhouse gas emissions. We have achieved
These projects reflect the company’s commitment to ESG and are among the many planned initiatives to help the company meet its goal of reducing GHG emissions by
Earnings Guidance Reaffirmed
In consideration of the first half-year results, SJW Group reaffirms the company’s 2023 full-year guidance:
-
Net income per diluted common share of
to$2.40 ;$2.50 -
Non-linear long-term diluted EPS growth of
5% to7% , anchored off of 2022 diluted EPS of ; and$2.43 -
Regulated infrastructure investments of approximately
in 2023.$255 million
Guidance for 2023 is based on the following factors: no significant rate cases expected in 2023; continued inflation affecting interest costs, labor costs and other expenses; usage recovery associated with the end of mandatory water conservation; and changes in the effective tax rate. It further assumes typical weather conditions in
Our guidance is also 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.
Dividend
The directors of SJW Group have declared a quarterly cash dividend on common stock of
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 the second quarter 2023 in a live webcast presentation at 11 a.m. PT, or 2 p.m. ET, on Monday, July 31, 2023.
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 October 23, 2023.
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 June 30, |
|
Six months ended June 30, |
||||||||||
|
|
2023 |
|
|
2022 |
|
|
|
2023 |
|
|
2022 |
|
REVENUE |
$ |
156,886 |
|
|
149,041 |
|
|
$ |
294,182 |
|
|
273,343 |
|
OPERATING EXPENSE: |
|
|
|
|
|
|
|
||||||
Production Expenses: |
|
|
|
|
|
|
|
||||||
Purchased water |
|
32,592 |
|
|
26,352 |
|
|
|
55,010 |
|
|
45,569 |
|
Power |
|
2,379 |
|
|
3,394 |
|
|
|
4,578 |
|
|
6,474 |
|
Groundwater extraction charges |
|
14,994 |
|
|
18,360 |
|
|
|
25,353 |
|
|
32,288 |
|
Other production expenses |
|
11,921 |
|
|
11,596 |
|
|
|
23,964 |
|
|
21,719 |
|
Total production expenses |
|
61,886 |
|
|
59,702 |
|
|
|
108,905 |
|
|
106,050 |
|
Administrative and general |
|
23,527 |
|
|
23,260 |
|
|
|
47,871 |
|
|
47,465 |
|
Maintenance |
|
6,298 |
|
|
6,891 |
|
|
|
12,356 |
|
|
13,586 |
|
Property taxes and other non-income taxes |
|
7,896 |
|
|
7,579 |
|
|
|
16,297 |
|
|
15,888 |
|
Depreciation and amortization |
|
26,121 |
|
|
25,207 |
|
|
|
52,417 |
|
|
52,813 |
|
Gain on sale of nonutility property |
|
— |
|
|
— |
|
|
|
— |
|
|
(5,450 |
) |
Total operating expense |
|
125,728 |
|
|
122,639 |
|
|
|
237,846 |
|
|
230,352 |
|
OPERATING INCOME |
|
31,158 |
|
|
26,402 |
|
|
|
56,336 |
|
|
42,991 |
|
OTHER (EXPENSE) INCOME: |
|
|
|
|
|
|
|
||||||
Interest on long-term debt and other interest expense |
|
(16,397 |
) |
|
(14,241 |
) |
|
|
(32,169 |
) |
|
(27,970 |
) |
Pension non-service cost |
|
(102 |
) |
|
941 |
|
|
|
(166 |
) |
|
1,890 |
|
Other, net |
|
2,115 |
|
|
824 |
|
|
|
5,381 |
|
|
1,819 |
|
Income before income taxes |
|
16,774 |
|
|
13,926 |
|
|
|
29,382 |
|
|
18,730 |
|
Provision for income taxes |
|
(1,512 |
) |
|
2,368 |
|
|
|
(434 |
) |
|
3,435 |
|
NET INCOME |
|
18,286 |
|
|
11,558 |
|
|
|
29,816 |
|
|
15,295 |
|
Other comprehensive income (loss), net |
|
9 |
|
|
(248 |
) |
|
|
102 |
|
|
(429 |
) |
COMPREHENSIVE INCOME |
$ |
18,295 |
|
|
11,310 |
|
|
$ |
29,918 |
|
|
14,866 |
|
|
|
|
|
|
|
|
|
||||||
EARNINGS PER SHARE |
|
|
|
|
|
|
|
||||||
Basic |
$ |
0.58 |
|
|
0.38 |
|
|
$ |
0.96 |
|
|
0.51 |
|
Diluted |
$ |
0.58 |
|
|
0.38 |
|
|
$ |
0.95 |
|
|
0.50 |
|
DIVIDENDS PER SHARE |
$ |
0.38 |
|
|
0.36 |
|
|
$ |
0.76 |
|
|
0.72 |
|
WEIGHTED AVERAGE SHARES OUTSTANDING |
|
|
|
|
|
|
|
||||||
Basic |
|
31,499,068 |
|
|
30,244,511 |
|
|
|
31,219,324 |
|
|
30,234,381 |
|
Diluted |
|
31,594,494 |
|
|
30,346,040 |
|
|
|
31,319,248 |
|
|
30,341,065 |
|
SJW Group Condensed Consolidated Balance Sheets (Unaudited) (in thousands, except share and per share data) |
||||
|
June 30,
|
|
December 31,
|
|
ASSETS |
|
|
|
|
Utility plant: |
|
|
|
|
Land |
$ |
41,386 |
|
39,982 |
Depreciable plant and equipment |
|
3,761,749 |
|
3,661,285 |
Construction in progress |
|
141,179 |
|
116,851 |
Intangible assets |
|
35,947 |
|
35,959 |
Total utility plant |
|
3,980,261 |
|
3,854,077 |
Less accumulated depreciation and amortization |
|
1,277,102 |
|
1,223,760 |
Net utility plant |
|
2,703,159 |
|
2,630,317 |
|
|
|
|
|
Real estate investments and nonutility properties |
|
1,388 |
|
58,033 |
Less accumulated depreciation and amortization |
|
191 |
|
17,158 |
Net real estate investments and nonutility properties |
|
1,197 |
|
40,875 |
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
Cash and cash equivalents |
|
25,474 |
|
12,344 |
Accounts receivable: |
|
|
|
|
Customers, net of allowances for uncollectible accounts of |
|
58,545 |
|
59,172 |
Other |
|
4,814 |
|
5,560 |
Accrued unbilled utility revenue |
|
50,555 |
|
45,722 |
Assets held for sale |
|
40,850 |
|
— |
Prepaid expenses |
|
9,152 |
|
9,753 |
Current regulatory assets, net |
|
5,968 |
|
16,068 |
Other current assets |
|
6,075 |
|
6,095 |
|
|
201,433 |
|
154,714 |
OTHER ASSETS: |
|
|
|
|
Net regulatory assets, less current portion |
|
130,009 |
|
127,275 |
Investments |
|
16,136 |
|
14,819 |
Goodwill |
|
640,311 |
|
640,311 |
Other |
|
19,913 |
|
24,313 |
|
|
806,369 |
|
806,718 |
|
$ |
3,712,158 |
|
3,632,624 |
SJW Group Condensed Consolidated Balance Sheets (Unaudited) (in thousands, except share and per share data) |
||||
|
June 30,
|
|
December 31,
|
|
CAPITALIZATION AND LIABILITIES |
|
|
|
|
CAPITALIZATION: |
|
|
|
|
Stockholders’ equity: |
|
|
|
|
Common stock, |
$ |
32 |
|
31 |
Additional paid-in capital |
|
716,642 |
|
651,004 |
Retained earnings |
|
464,464 |
|
458,356 |
Accumulated other comprehensive income |
|
1,578 |
|
1,477 |
Total stockholders’ equity |
|
1,182,716 |
|
1,110,868 |
Long-term debt, less current portion |
|
1,519,281 |
|
1,491,965 |
|
|
2,701,997 |
|
2,602,833 |
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
Lines of credit |
|
83,310 |
|
159,578 |
Current portion of long-term debt |
|
44,328 |
|
4,360 |
Accrued groundwater extraction charges, purchased water and power |
|
23,006 |
|
19,707 |
Accounts payable |
|
36,446 |
|
29,581 |
Accrued interest |
|
15,680 |
|
13,907 |
Accrued payroll |
|
10,011 |
|
11,908 |
Income tax payable |
|
4,604 |
|
2,696 |
Other current liabilities |
|
20,569 |
|
22,913 |
|
|
237,954 |
|
264,650 |
|
|
|
|
|
DEFERRED INCOME TAXES |
|
228,976 |
|
218,155 |
ADVANCES FOR CONSTRUCTION |
|
140,005 |
|
137,696 |
CONTRIBUTIONS IN AID OF CONSTRUCTION |
|
327,280 |
|
323,668 |
POSTRETIREMENT BENEFIT PLANS |
|
53,001 |
|
59,738 |
OTHER NONCURRENT LIABILITIES |
|
22,945 |
|
25,884 |
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
$ |
3,712,158 |
|
3,632,624 |
View source version on businesswire.com: https://www.businesswire.com/news/home/20230729138902/en/
SJW Group Contacts:
Andrew F. Walters
Chief Financial Officer and Treasurer
408-279-7818
Andrew.Walters@sjwater.com
Daniel J. Meaney, APR
Director of Corporate and External Communications
860.664.6016
Daniel.Meaney@ctwater.com
Source: SJW Group