Business Wire | Oct 28, 2021 07:06PM EDT

SJW Group Announces 2021 Third Quarter Financial Results, Reaffirms 2021 Guidance, and Declares Dividend

Oct. 28, 2021

SAN JOSE, Calif.--(BUSINESS WIRE)--Oct. 28, 2021--SJW Group (NYSE: SJW) today reported financial results for the third quarter ended September 30, 2021. SJW Group net income was $19.1 million for the quarter ended September 30, 2021, compared to $26.1 million for the same period in 2020. Diluted earnings per share were $0.64 and $0.91 for the quarters ended September 30, 2021 and 2020, respectively. Diluted earnings per share in 2020 includes $0.89 per share from ongoing operations and a non-recurring gain on the sale of real estate investments of $0.9 million (net of tax) or $0.03 per share, offset by non-recurring expenses related COVID-19 related reserves and expenses of $0.3 million (net of tax) or $0.01 per share.

Operating revenue was $166.9 million for the quarter ended September 30, 2021, compared to $165.9 million for the same period in 2020. The $1.0 million increase in revenue was primarily attributable to $7.6 million in cumulative water rate increases, $3.3 million in net recognition of certain regulatory mechanisms in Connecticut and Maine, and $1.8 million in the recognition of balancing and memorandum accounts, partially offset by $12.9 million decrease in year over year customer usage.

Operating expenses for the quarter ended September 30, 2021, were $133.1 million, compared to $124.0 million in 2020, an increase of $9.1 million. Operating expenses include water production expenses of $72.1 million in 2021 compared to $69.7 million in 2020, an increase of $2.4 million. The increase in water production expenses was primarily attributable to $7.8 million in higher average per unit costs for purchased water, groundwater extraction, energy charges and other production expenses, and $1.2 million due to a decrease in surface water supply production, partially offset by $7.5 million in lower customer usage. General and administrative expenses increased $3.2 million primarily due to the cost of regulatory fees and regulatory proceedings, contracted work, and accounts receivable activities, partially offset by lower service provider fees. In addition, maintenance expense was $1.8 million higher and depreciation and amortization was $1.4 million higher.

For the quarter ended September 30, 2021, compared to the same period in 2020, the change in other expense and income was primarily due to the sale of a real estate investments of $1.1 million in the third quarter of 2020. No similar income was earned in the third quarter of 2021.

The effective consolidated income tax rates were approximately 13% and 15% for the quarters ended September 30, 2021 and 2020, respectively. The lower effective tax rate for the quarter ended September 30, 2021 was primarily due to the impact of flow-through tax benefits.

Year-to-date net income was $42.5 million, compared to $48.2 million in 2020. Diluted earnings per share were $1.43 in the first nine months of 2021, compared to $1.68 per diluted share for the same period in 2020. Diluted earnings per share in 2021 includes $1.37 per share from ongoing operations and non-recurring income related to the Texas Water Alliance Limited ("TWA") holdback amount of $2.7 million (net of tax) or $0.09 per share, partially offset by non-recurring expenses related to the Texas ice storms of $0.8 million (net of tax) or $0.03 per share. Diluted earnings per share in 2020 includes $1.73 per share from ongoing operations and a non-recurring gain on the sale of real estate investments of $0.9 million (net of tax) or $0.03 per share, offset by non-recurring expenses related to the Connecticut Water Service, Inc. merger and integration fees of $1.0 million (net of tax) or $0.04 per share and COVID-19 related reserves and expenses of $1.0 million (net of tax) or $0.04 per share.

Operating revenue was $433.9 million for the year-to-date period ended September 30, 2021, compared to $428.8 million in the first nine months of 2020. The $5.1 million increase was attributable to $14.0 million in cumulative water rate increases, $2.4 million in net recognition of certain regulatory mechanisms in Connecticut and Maine, $1.6 million in the recognition of balancing and memorandum accounts, and $2.0 million in revenue from new customers, partially offset by a $14.2 million decrease in customer usage and $0.8 million in winter storm customer credits in our Texas service area.

Year-to-date operating expenses increased to $354.5 million from $335.4 million in 2020, an increase of $19.1 million. Operating expenses include water production expenses of $176.7 million in 2021 compared to $171.6 million in 2020, an increase of $5.1 million. The increase in water production expenses was primarily attributable to $6.3 million in higher average per unit costs for purchased water, groundwater extraction, energy charges and other production expenses and $3.9 million due to a decrease in surface water supply production, partially offset by $5.8 million in lower customer water usage. General and administrative expenses, for the year-to-date period ended September 30, 2021, increased $6.0 million primarily due to the cost of regulatory fees and regulatory proceedings, contracted work, and accounts receivable activities, partially offset by lower service provider fees. In addition, depreciation and amortization was $4.2 million higher and maintenance expense was $3.3 million higher.

Other expense and income year-to-date for 2021 included the receipt of a $3.0 million holdback amount by the Guadalupe-Blanco River Authority related to the 2017 sale of all of SJW Group's equity interest in TWA. No similar transaction occurred in 2020. In 2020, there was a gain on the sale of a real estate investments of $1.1 million and no similar real estate investment gain was earned in 2021.

The effective consolidated income tax rates for the nine-month periods ended September 30, 2021 and 2020, were approximately 11% and 16%, respectively. The effective tax rate decreased primarily due to flow-through tax benefits and other discrete items recorded during the first quarter ended March 31, 2021.

Dividend

The Directors of SJW Group today declared a quarterly dividend on common stock of $0.34 per share. The dividend is payable on December 1, 2021, to shareholders of record on November 8, 2021. SJW Group's annual dividend yield at the stock market closing on October 27, 2021 was 2%. Dividends have been paid on SJW Group's and its predecessor's common stock for more than 77 consecutive years and the annual dividend amount has increased in each of the past 53 years.

2021 Earnings Guidance

SJW Group is reaffirming earnings guidance for 2021 in the range of $1.85 per diluted share to $2.05 per diluted share.

Regulatory Highlights

California:

San Jose Water Company's ("SJWC") Advanced Metering Infrastructure ("AMI") application is pending before the California Public Utilities Commission ("CPUC"). An all-party settlement agreement was submitted to the CPUC for adoption that would authorize the deployment of AMI outside of the capital budget requested in the 2021 general rate case ("GRC"). A final decision on the settlement agreement is anticipated in the first quarter of 2022.

SJWC's 2021 GRC application for new rates in 2022 through 2024 is pending before the CPUC. The application seeks an increase of nearly $88 million in the revenue requirement over the three-year period, authorization for a $435 million capital budget, and requests to recover $18.5 million from balancing and memorandum accounts. New rates are anticipated in the second quarter of 2022. SJWC will file for interim rates to be effective on January 1, 2022.

The 2022-2024 cost of capital proceeding is also pending before the CPUC. The application requests increases in revenue and return on equity, an adjustment to the proposed capital structure, and a decrease in the cost of debt. If approved, new rates are expected to be effective in the second quarter of 2022.

Connecticut:

On October 25, 2021, the Connecticut Public Utilities Regulatory Authority ("PURA") issued a draft decision on Connecticut Water Company's ("CWC") Request for Reconsideration related to treatment of excess deferred income taxes in the July 28, 2021, GRC decision. A final decision on the matter is expected on November 10, 2021. The draft decision allows CWC to increase annual revenues by $1.8 million.

CWC appreciates the time that PURA commissioners and staff invested in understanding this complex tax matter and in reaching a fair draft decision. If the final decision is unchanged from the draft, the increased revenue will be effective November 2021 and add about 2% to a typical residential customer's bill.

The Water Infrastructure Conservation Adjustment ("WICA") mechanism was reset to zero as part of the July 28, 2021 GRC decision. On October 26, 2021, CWC filed for a WICA increase for approximately $22 million in completed projects. Many of the projects were those that were not considered by PURA in the GRC because of the deadline in the proceeding for pro forma capital additions. If approved as submitted, the CWC expects a WICA surcharge of 2.49% to be added to customer bills in January 2022 that would generate $2.6 million in revenue.

Maine:

On September 8, 2021, Maine Water Company ("MWC") filed a supplemental application with the Maine Public Utilities Commission ("MPUC") for the second step in the rate plan for the Biddeford-Saco division. MWC requested $6.9 million in new base revenues related to the construction of the new Saco River Drinking Water Treatment Facility. This is a $60 million generational investment to replace a vintage facility that has been in service since 1884. A decision is expected in the second quarter of 2022 in alignment with the completion of the new treatment facility.

The MPUC authorized the use of an innovative rate-smoothing mechanism that provides a more gradual ramp to new rates driven by the completion of the new facility. A third step filing associated with the new treatment facility is expected in the second half of 2022.

Texas:

On July 23, 2021, SJWTX, Inc. ("SJWTX") filed for authorization to serve Canyon Lakes Estates that is adjacent to its existing service area. On August 8, 2021, SJWTX filed a change in ownership application with the Public Utilities Commission of Texas ("PUCT") to acquire Texas Country Water. A decision is expected in the first quarter of 2022. A decision on the previously filed application to acquire Kendall West and Bandera East water utilities, which are under common ownership, could be issued by the PUCT in the fourth quarter of 2021. Combined, these pending applications would add more than 1,500 service connections.

About SJW Group

SJW Group is the second-largest investor-owned pure-play water and wastewater utility, based on estimated rate base, in the United States, providing life sustaining and high-quality water service to nearly 1.5 million people. SJW Group's locally led and operated water utilities - San Jose Water Company in California, The Connecticut Water Company in Connecticut, The Maine Water Company in Maine, and SJWTX, Inc. (dba Canyon Lake Water Service Company) in Texas - possess the financial strength, operational expertise, and technological innovation to safeguard the environment, deliver outstanding service to customers, and provide opportunities to employees. SJW Group remains focused on investing in its operations, remaining actively engaged in its local communities, and delivering continued sustainable value to its shareholders. For more information about SJW Group, please visit www.sjwgroup.com.

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," "may," "will," "should," "seeks," "approximately," "intends," "plans," "estimates," "projects," "strategy," or "anticipates," 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 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) the impact of the Coronavirus ("COVID-19") pandemic on our business operation and financial results; (4) unanticipated weather conditions and changes in seasonality including those affecting water supply and customer usage; (5) climate change and the effects thereof; (6) unexpected costs, charges or expenses; (7) our ability to successfully evaluate investments in new business and growth initiatives; (8) contamination of our water supplies and damage or failure of our water equipment and infrastructure; (9) the risk of work stoppages, strikes and other labor-related actions; (10) catastrophic events such as fires, earthquakes, explosions, floods, ice storms, tornadoes, hurricanes, terrorist acts, physical attacks, cyber-attacks, epidemic, or similar occurrences; (11) changes in general economic, political, business and financial market conditions; (12) 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 (13) 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 per share data)

Three months ended Nine months ended September 30, September 30,

2021 2020 2021 2020

REVENUE $ 166,923 165,863 $ 433,949 428,826

OPERATING EXPENSE:

Production expenses:

Purchased water 33,121 35,130 76,434 76,953

Power 4,179 3,994 10,573 10,145

Groundwater extraction 23,736 20,471 59,419 54,082 charges

Other production expenses 11,069 10,092 30,302 30,465

Total production expenses 72,105 69,687 176,728 171,645

Administrative and general 22,713 19,529 64,932 58,917

Maintenance 6,369 4,550 19,221 15,970

Property taxes and other 8,125 7,797 22,789 22,362 non-income taxes

Depreciation and 23,837 22,417 70,787 66,552 amortization

Total operating expense 133,149 123,980 354,457 335,446

OPERATING INCOME 33,774 41,883 79,492 93,380

OTHER (EXPENSE) INCOME:

Interest on long-term debt (13,535 ) (13,174 ) (40,655 ) (39,638 )and other interest expense

Pension non-service cost 334 (218 ) 999 (270 )

Gain on sale of real estate - 1,050 - 1,050 investments

Gain on sale of Texas Water - - 3,000 - Alliance Limited

Other, net 1,244 1,130 4,782 2,935

Income before income taxes 21,817 30,671 47,618 57,457

Provision for income taxes 2,749 4,578 5,159 9,226

NET INCOME 19,068 26,093 42,459 48,231

Other comprehensive (loss) (12 ) 76 133 (49 )income, net

COMPREHENSIVE INCOME $ 19,056 26,169 $ 42,592 48,182



EARNINGS PER SHARE:

Basic $ 0.64 0.91 $ 1.44 1.69

Diluted $ 0.64 0.91 $ 1.43 1.68

DIVIDENDS PER SHARE $ 0.34 0.32 $ 1.02 0.96

WEIGHTED AVERAGE SHARES OUTSTANDING:

Basic 29,817 28,534 29,497 28,510

Diluted 29,952 28,703 29,626 28,687

SJW Group

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)

September 30,2021

December 31,2020

ASSETS

Utility plant:

Land

$

38,885

36,845

Depreciable plant and equipment

3,318,451

3,198,060

Construction in progress

163,262

109,976

Intangible assets

37,347

35,167

Total utility plant

3,557,945

3,380,048

Less accumulated depreciation and amortization

1,114,123

1,045,136

Net utility plant

2,443,822

2,334,912

Real estate investments

58,765

58,129

Less accumulated depreciation and amortization

15,655

14,783

Net real estate investments

43,110

43,346

CURRENT ASSETS:

Cash and cash equivalents:

Cash

14,019

5,269

Restricted cash

2,202

4,000

Accounts receivable

65,215

58,142

Accrued unbilled utility revenue

52,631

44,950

Current regulatory assets, net

3,249

1,748

Prepaid expenses

13,048

8,097

Other current assets

5,149

5,125

Total current assets

155,513

127,331

OTHER ASSETS:

Regulatory assets, net

178,861

156,482

Investments

15,289

14,367

Goodwill

628,144

628,144

Other

5,002

6,883

827,296

805,876

$

3,469,741

3,311,465

SJW Group

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)

September 30, December 31, 2021 2020

ASSETS

Utility plant:

Land $ 38,885 36,845

Depreciable plant and equipment 3,318,451 3,198,060

Construction in progress 163,262 109,976

Intangible assets 37,347 35,167

Total utility plant 3,557,945 3,380,048

Less accumulated depreciation and amortization 1,114,123 1,045,136

Net utility plant 2,443,822 2,334,912



Real estate investments 58,765 58,129

Less accumulated depreciation and amortization 15,655 14,783

Net real estate investments 43,110 43,346



CURRENT ASSETS:

Cash and cash equivalents:

Cash 14,019 5,269

Restricted cash 2,202 4,000

Accounts receivable 65,215 58,142

Accrued unbilled utility revenue 52,631 44,950

Current regulatory assets, net 3,249 1,748

Prepaid expenses 13,048 8,097

Other current assets 5,149 5,125

Total current assets 155,513 127,331



OTHER ASSETS:

Regulatory assets, net 178,861 156,482

Investments 15,289 14,367

Goodwill 628,144 628,144

Other 5,002 6,883

827,296 805,876

$ 3,469,741 3,311,465

SJW Group

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)

September 30,2021

December 31,2020

CAPITALIZATION AND LIABILITIES

CAPITALIZATION:

Stockholders' equity:

Common stock, $0.001 par value; authorized 70,000,000 shares; issued and outstanding shares 29,822,182 on September 30, 2021 and 28,556,605 on December 31, 2020

$

30

29

Additional paid-in capital

581,201

510,158

Retained earnings

420,411

408,037

Accumulated other comprehensive income

(931

)

(1,064

)

Total stockholders' equity

1,000,711

917,160

Long-term debt, less current portion

1,420,032

1,287,580

Total capitalization

2,420,743

2,204,740

CURRENT LIABILITIES:

Lines of credit

122,072

175,094

Current portion of long-term debt

26,288

76,241

Accrued groundwater extraction charges, purchased water and power

29,030

19,184

Accounts payable

37,410

34,200

Accrued interest

17,642

12,861

Accrued payroll

13,231

14,012

Other current liabilities

21,612

19,203

Total current liabilities

267,285

350,795

DEFERRED INCOME TAXES

193,366

191,415

ADVANCES FOR CONSTRUCTION AND CONTRIBUTIONS IN AID OF CONSTRUCTION

437,715

421,132

POSTRETIREMENT BENEFIT PLANS

125,005

121,597

OTHER NONCURRENT LIABILITIES

25,627

21,786

COMMITMENTS AND CONTINGENCIES

$

3,469,741

3,311,465

View source version on businesswire.com: https://www.businesswire.com/news/home/20211028006286/en/

CONTACT: SJW Group James P. Lynch, 408-279-7966 Chief Financial Officer and Treasurer