- Diluted earnings of $0.58 per share, an increase of $0.20
compared to $0.38 in the same quarter last year
- $115.7 million investment in infrastructure projects in the
first half of 2023
- Constructive California Cost of Capital Decision providing
Water Cost of Capital Mechanism (WCCM)-adjusted return on equity of
9.31%
- Quarterly dividend of $0.38 per share declared
SJW Group (NYSE: SJW) today reported financial results for the
second quarter ended June 30, 2023.
"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
California. We have experienced reduced water usage in Maine and
Texas principally due to weather. As of April 11, 2023 SJWC was no
longer afforded the revenue protections of the Water Conservation
Memorandum Account (WCMA) and Water Conservation Expense Memorandum
Account (WCEMA) that were in place to offset the effect of lower
water usage due to mandatory conservation. On April 20, 2023 SJWC
filed with the CPUC requesting continuation of the WCMA and WCEMA
based on its water wholesaler’s declaration of a 15% voluntary
water-use reduction goal. The CPUC has not issued a decision on
SJWC’s filing and results for the quarter do not include any
benefit from these two regulatory mechanisms beyond April 11.
Weather and usage will continue to be a factor for the remainder of
2023.
Quarterly Operating Results
Net income for the quarter ended June 30, 2023 was $18.3
million, or $0.58 per diluted share, up 58% compared to $11.6
million, or $0.38 per diluted share, in the same quarter last year.
The increase was primarily driven by rate filings in California and
Maine, the delay in SJWC's 2022 GRC, and a decrease in income taxes
due to the release of uncertain tax position reserve.
Operating revenue for the quarter ended June 30, 2023 was $156.9
million, up 5% compared to $149.0 million for the same quarter last
year. The increase was primarily driven by $14.7 million in rate
filings, $1.4 million in earnings from regulatory mechanisms, and
customer growth of $0.9 million; partially offset by lower customer
usage of $9.0 million driven primarily by weather conditions.
Operating expenses for the quarter ended June 30, 2023 were
$125.7 million, up 3% compared to $122.6 million for the same
quarter last year. This change in operating expenses reflects:
- A slight increase in water production expenses of $2.2 million,
or $61.9 million in the second quarter 2023 compared to $59.7
million in the same quarter last year.
- An increase in depreciation and amortization of $0.9 million
primarily due to increases in new utility plant additions.
- A decrease in maintenance expenses of $0.6 million primarily
due to timing of contract work and materials expense.
- 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 17%,
respectively. The lower effective tax rate was primarily due to the
partial release of uncertain tax position reserve.
Operating Results Year-to-Date
Net income for the first half of 2023 was $29.8 million, or
$0.95 per diluted share, up 95% compared to $15.3 million, or $0.50
per diluted share, in the same period last year. The increase was
primarily driven by rate filings in California and Maine, and the
delay in SJWC's 2022 GRC.
Operating revenue for the first half of 2023 was $294.2 million,
up 8% compared to $273.3 million for the same period last year. The
increase was primarily driven by $32.1 million in rate filings,
$2.4 million earnings from regulatory mechanisms, and customer
growth of $1.9 million; partially offset by lower customer usage of
$15.6 million driven primarily by weather conditions.
Operating expenses for the first six months of June 2023 were
$237.8 million, up 3% compared to $230.4 million for the same
period last year. This change in operating expenses reflects:
- A slight increase in water production expenses of $2.9 million,
or $108.9 million in the first six months of 2023 compared to
$106.1 million in the same period last year.
- A decrease in the gain on sale of nonutility properties of $5.5
million 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.
- A decrease in depreciation and amortization of $0.4 million
primarily due to a $2.4 million one-time impact related to
amortization on certain Cupertino concession assets in 2022 offset
by increases in depreciation related new utility plant
additions.
- A decrease in maintenance expenses of $1.2 million primarily
due to timing of contract work and materials expense.
The effective consolidated income tax rates for the first six
months ended June 30, 2023 and 2022 were approximately (1)% and
18%, respectively. The lower effective tax rate was primarily due
to the partial release of uncertain tax position reserve.
Capital Expenditures
During the first six months of 2023, SJW Group invested $115.7
million in infrastructure and water supply, which is approximately
45% of the 2023 capital expenditures budget.
SJW Group plans to invest more than $1.6 billion in capital over
the next 5 years to build and maintain its water and wastewater
operations, and install PFAS treatment, subject to regulatory
approvals and availability of funding.
Rate Activity and Regulatory Updates
California
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 9.31%, a cost of debt of 5.26%, and an overall
rate of return of 7.47%. In accordance with the CoC final decision,
new rates will be effective as of the date of the filing.
Connecticut
The Connecticut Water Company filed an application with the
Connecticut Public Utilities Regulatory Authority for $11.5 million
in projects completed through the Water Infrastructure and
Conservation Adjustment (WICA). The company expects a decision on
that application and an effective date of any authorized increase
in the fourth quarter of 2023. If approved as filed, the requested
increase would generate approximately $1.3 million in annualized
revenues, and the cumulative WICA would be 7.38%. The cumulative
WICA cap between general rate cases is 10%.
Maine
On July 3, 2023 Maine Water Company requested that the Maine
Public Utilities Commission (MPUC) authorize a temporary annualized
revenue increase of $1.5 million in its Biddeford Saco Division.
The request is related to Maine Water's March 2023 filing with the
MPUC for a $2.9 million revenue increase to recover the operating
expenses and increased borrowing costs of the $60 million Saco
River Drinking Water Resource Center that went in-service in June
2022. The temporary revenue increase requested represents the
uncontested amount between the company and the Office of Public
Advocate. The authorization of temporary rates and the final amount
of the revenue increase in the general rate case will be determined
by the MPUC. A final decision on the general rate case request of
$2.9 million is expected in the fourth quarter of 2023.
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 $158,000. A
decision is expected in the third quarter of 2023.
Texas
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 $1.6
million and sewer revenue by $29 thousand within one year of the
SIC's approval.
ESG Initiatives & Recognition
Institutional Shareholder Services’ (ISS) most recent review of
the company’s ESG activities shows that among its U.S. water
utility peers, SJW Group is tied for second in overall
environmental score, third for overall social score, and has the
second highest overall governance score possible. The company has
again been recognized with a Prime status by ISS ESG. Prime status
is awarded to those companies with an ESG performance above the
sector-specific PRIME threshold.
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 50% of our 2023 fleet electrification
goal in California and are on track to reach our goal of replacing
25 internal combustion powered vehicles with battery electric
vehicles (BEVs) in 2023. In total, BEVs and biofueled vehicles
constitute 32% of our vehicle fleet in California. The BEVs will be
charged at new EV charging stations at our facilities, including
some that are solar powered. We are fueling some of our generators
with biodiesel fuel beginning this year – a measure that we
estimate will reduce the use of 23,000 gallons of standard diesel
fuel. Further, in California we are making preparations to install
a ‘Megapack’ energy storage battery to replace a diesel fueled
generator by 2025.
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 50% in 2023 compared to 2019.
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 $2.40 to $2.50;
- Non-linear long-term diluted EPS growth of 5% to 7%, anchored
off of 2022 diluted EPS of $2.43; and
- Regulated infrastructure investments of approximately $255
million in 2023.
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 California, Maine and Texas, and revenue
protection in Connecticut via the Water Revenue Adjustment that
reconciles actual revenues to authorized revenues.
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 $0.38 per share, payable on September
1, 2023, to shareholders of record at the close of business on
August 7, 2023. Dividends have been paid on SJW Group’s and its
predecessor’s common stock for more than 79 consecutive years. For
55 consecutive years, SJW Group stockholders have received an
increase in their calendar year dividend without interruption or
reduction, which places it in an exclusive group of companies on
the New York Stock Exchange.
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 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 The Texas Water 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 stockholders. 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,”
“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, 2023
December 31,
2022
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 $6,414 and $5,753 on June 30, 2023 and
December 31, 2022, respectively
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, 2023
December 31,
2022
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Stockholders’ equity:
Common stock, $0.001 par value; authorized
70,000,000 shares; issued and outstanding shares 31,731,030 on June
30, 2023 and 30,801,912 on December 31, 2022
$
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
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