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SJW Group Announces 2020 Third Quarter Financial Results

November 4, 2020 GMT

SAN JOSE, Calif.--(BUSINESS WIRE)--Nov 4, 2020--

SJW Group (NYSE: SJW) today reported financial results for the third quarter ended September 30, 2020. SJW Group net income was $26.1 million for the quarter ended September 30, 2020, compared to $9.5 million for the same period in 2019. Diluted earnings per share were $0.91 and $0.33 for the quarters ended September 30, 2020 and 2019, respectively. Diluted earnings per share in 2020 includes $0.92 per share from ongoing operations offset by non-recurring expenses related to COVID-19 of $319,000 (net of tax) or $0.01 per share. Diluted earnings per share in 2019 includes $0.60 per share from ongoing operations and $0.06 per share of interest income earned on temporarily invested proceeds from our equity offering in December 2018, offset by $0.29 per share related to the reserve recorded against our 2018 and 2019 Water Conservation Memorandum Account (“WCMA”) balances as we determined we no longer met the requirements for revenue recognition and $0.05 per share of non-recurring expenses related to our merger with Connecticut Water Service, Inc. (“CTWS”).

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Operating revenue was $165.9 million for the quarter ended September 30, 2020, compared to $114.0 million in 2019. The $51.9 million increase in revenue was primarily attributable to $37.1 million in new revenue as a result of the merger with CTWS, $2.3 million in cumulative water rate increases, and $2.4 million in increased customer usage. In addition, we recorded a $9.5 million reserve for the 2018 and 2019 WCMA balances in the prior year as we determined we no longer met the requirements for revenue recognition. No similar reserve was required in 2020.

Operating expenses for the quarter ended September 30, 2020, were $124.0 million, compared to $96.9 million in 2019, an increase of $27.1 million. Operating expenses include 2020 third quarter water production expenses of $69.7 million compared to $56.4 million for the same period in 2019, an increase of $13.3 million. The increase in water production expenses was primarily attributable to $6.5 million in new CTWS expenses, $5.4 million due to a decrease in surface water supplies, and $2.2 million in higher customer water usage, partially offset by $0.5 million in lower per unit costs for purchased water, groundwater extraction and energy charges. Operating expenses, excluding water production costs, increased $13.7 million to $54.3 million from $40.6 million. The increase was primarily due to a $7.3 million increase in depreciation and amortization expenses, $4.4 million in higher general and administrative expenses, and $3.7 million in higher property taxes and other non-income taxes. The increases were primarily a result of inclusion of CTWS post-merger activities. In addition, we experienced $1.7 million in lower merger related expenses as compared to the same quarter in 2019.

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Other expense and income in the third quarter of 2020 included $1.8 million of interest from CTWS, $4.1 million in new interest on SJW Group’s $510.0 million Senior Notes issued in October 2019 and $0.3 million in new interest on Connecticut Water Company’s $35.0 million Senior Notes issued in March 2020. Other expense and income in the third quarter of 2019 included $2.2 million of interest income earned on temporarily invested proceeds from our equity offering in December 2018. The proceeds were used to partially finance the CTWS merger and no similar income was earned in the third quarter of 2020.

The effective consolidated income tax rates for the quarters ended September 30, 2020 and 2019, were approximately 15% and 21%, respectively. The effective tax rate decreased primarily due to the flow-through impact of certain CTWS tax deductions.

Year-to-Date Operating Results

Year-to-date net income was $48.2 million, compared to $28.9 million in 2019. Diluted earnings per share were $1.68 in the first nine months of 2020, compared to $1.01 per diluted share for the same period in 2019. Diluted earnings per share in 2020 includes $1.75 per share from ongoing operations offset by non-recurring expenses related to COVID-19 of $1.0 million (net of tax) or $0.03 per share and CTWS merger and integration fees of $1.2 million (net of tax) or $0.04 per share. Diluted earnings per share in 2019 includes $1.34 per share from ongoing operations and $0.17 per share of interest income earned on temporarily invested proceeds from our equity offering in December 2018, offset by $0.28 per share related to the reserve recorded against our 2018 and 2019 WCMA revenue balances, $0.16 per share of non-recurring expenses related to the CTWS merger and $0.06 per share related to a settlement of San Jose Water Company’s Order Instituting Investigation proceeding with the California Public Utilities Commission over a past customer billing practice.

Year-to-date operating revenue increased by $134.2 million to $428.8 million from $294.6 million in the first nine months of 2020. The increase was primarily attributable to $97.4 million in new revenue as a result of the merger with CTWS, $16.9 million in increased customer usage, and $7.4 million in cumulative water rate increases. In addition, as previously noted we recorded a $9.4 million reserve for the 2018 and 2019 WCMA balances in the prior year and we issued $2.2 million in customer rate credits in the prior year related to our billing settlement with the CPUC. No similar reserve or rate credits were required in 2020.

Year-to-date water production expenses increased to $171.6 million from $125.3 million in 2019. The $46.3 million increase was primarily attributable to $19.6 million in new CTWS expenses, $17.5 million due to a decrease in the use of available surface water supplies, $10.4 million in higher customer water usage, and $2.4 million in higher per unit costs for purchased water, groundwater extraction and energy charges, partially offset by a $3.6 million decrease in cost recovery balancing and memorandum accounts. Operating expenses, excluding water production costs, increased $45.9 million to $163.8 million from $117.9 million. The increase was primarily due to a $21.2 million increase in depreciation and amortization expenses, $18.2 million in higher general and administrative expenses, $10.3 million in higher property taxes and other non-income taxes, and $2.0 million in higher maintenance expenses. The increases were primarily a result of inclusion of CTWS post-merger activities. In addition, we experienced $6.1 million in lower merger related expenses.

Other expense and income year-to-date for 2020 included $12.3 million in new interest on SJW Group’s $510.0 million Senior Notes issued in October 2019, $6.3 million of interest from CTWS, and $614,000 in new interest on Connecticut Water Company’s $35.0 million Senior Notes issued in March 2020. Other expense and income year-to-date 2019 included $6.3 million of interest income earned on temporarily invested proceeds from our equity offering in December 2018. The proceeds were used to partially finance the CTWS merger and no similar income was earned in 2020.

The effective consolidated income tax rates for the nine-month periods ended September 30, 2020 and 2019, were approximately 16% and 23%, respectively. The effective tax rate decreased primarily due to the flow-through impact of certain CTWS tax deductions.

Milestones

SJW Group marked the one-year anniversary of its transformative combination with Connecticut Water Service, Inc. on October 9, 2020. “The strength of our combination is evident as our combined team, across all four states, have responded to unprecedented challenges that began just months into the integration,” stated Eric W. Thornburg, chairman, president and CEO of SJW Group. Thornburg added, “The similarity of our cultures, values and commitment to service have accelerated our integration in many ways. Our cross-country teams have collaborated on a response to COVID-19 that has honored our mission of protecting public health, keeping our people safe and living our values. We are delivering results for our shareholders through exceptional service to families and communities while protecting the environment and being socially responsible.”

On July 30, 2020, the Maine Water Company held a virtual groundbreaking for the new Saco River Drinking Water Treatment Facility in Biddeford, Maine. The new facility replaces the current treatment facility that has been in service since 1884. The new facility will cost more than $50 million and is expected to be online in 2022. It is a generational investment that will serve the needs of current and future customers and communities in southern Maine for decades to come. It is being designed to be certified as sustainable infrastructure through the Institute for Sustainable Infrastructure’s Envision program.

On August 31, 2020, the California Public Utilities Commission issued a decision dismissing the Order Instituting Investigation 18-07-007 (OII) into SJW Group’s merger with CTWS. The OII is officially concluded.

Dividend

As previously announced on October 28, 2020, the Directors of SJW Group declared a quarterly dividend on common stock of $0.32 per share. The dividend is payable on December 1, 2020 to shareholders of record on November 9, 2020. This marks SJW Group’s 309 th quarterly consecutive dividend payment. For 53 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.

SJW Group Reaffirms Earnings Guidance

SJW Group is affirming its 2020 guidance provided in the 2020 first quarter press release of a range of $1.95 and $2.05 per diluted share.

Earnings Call Information

Eric W. Thornburg, chairman of the board, president and chief executive officer, and James P. Lynch, chief financial officer and treasurer, will review the results in a live webcast presentation at 8:00 a.m. PT, 11:00 a.m. ET on November 5, 2020.

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 January 25, 2021.

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-saving 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; Connecticut Water Company; 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 deliver outstanding service to customers, safeguard the environment, 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.

The accuracy of such statements is subject to 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; (5) climate change and the effects thereof; (6) the risk that the benefits expected from the merger of SJW Group and Connecticut Water Service, Inc. will not be realized; (7) the risk that the integration of Connecticut Water Service, Inc. will be more difficult, time-consuming or expensive than anticipated; (8) unexpected costs, charges or expenses; (9) our ability to successfully evaluate investments in new business and growth initiatives; (10) the risk of work stoppages, strikes and other labor-related actions; (11) catastrophic events such as fires, earthquakes, explosions, floods, ice storms, tornadoes, hurricanes, terrorist acts, physical attacks, cyber-attacks, or other similar occurrences; (12) changes in general economic, political, business and financial market conditions; (13) 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 stock and debt market conditions; and (14) legislative and general market and economic developments.

Results for a quarter are not indicative of results for a full year due to seasonality and other factors. In addition, actual results are subject to other risks and uncertainties that relate more broadly to our overall business, including those more fully described in our filings with the SEC, including our most recent reports on Form 10-K, Form 10-Q and Form 8-K. Forward-looking statements are not guarantees of performance, and speak only as of the date made, and we undertake no obligation to update or revise any forward-looking statements except as required by law.

SJW Group

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(in thousands, except per share data)

 

 

Three months ended September 30,

 

Nine months ended September 30,

 

2020

 

2019

 

2020

 

2019

REVENUE

$

165,863

 

 

113,997

 

 

$

428,826

 

 

294,644

 

OPERATING EXPENSE:

 

 

 

 

 

 

 

Production Expenses:

 

 

 

 

 

 

 

Purchased water

35,130

 

 

35,583

 

 

76,953

 

 

75,626

 

Power

3,994

 

 

2,294

 

 

10,145

 

 

4,947

 

Groundwater extraction charges

20,471

 

 

13,182

 

 

54,082

 

 

29,145

 

Other production expenses

10,092

 

 

5,295

 

 

30,465

 

 

15,553

 

Total production expenses

69,687

 

 

56,354

 

 

171,645

 

 

125,271

 

Administrative and general

19,529

 

 

14,712

 

 

58,917

 

 

40,411

 

Maintenance

4,550

 

 

4,923

 

 

15,970

 

 

13,977

 

Property taxes and other non-income taxes

7,797

 

 

4,065

 

 

22,362

 

 

12,041

 

Depreciation and amortization

22,417

 

 

15,122

 

 

66,552

 

 

45,368

 

Merger related expenses

 

 

1,737

 

 

 

 

6,113

 

Total operating expense

123,980

 

 

96,913

 

 

335,446

 

 

243,181

 

OPERATING INCOME

41,883

 

 

17,084

 

 

93,380

 

 

51,463

 

OTHER (EXPENSE) INCOME:

 

 

 

 

 

 

 

Interest expense

(13,174

)

 

(6,588

)

 

(39,638

)

 

(19,093

)

Pension non-service cost

(218

)

 

(921

)

 

(270

)

 

(2,749

)

Interest income on money market fund

 

 

2,165

 

 

 

 

6,339

 

Gain on sale of real estate investment

1,050

 

 

 

 

1,050

 

 

745

 

Other, net

1,130

 

 

303

 

 

2,935

 

 

1,210

 

Income before income taxes

30,671

 

 

12,043

 

 

57,457

 

 

37,915

 

Provision for income taxes

4,578

 

 

2,565

 

 

9,226

 

 

8,802

 

NET INCOME BEFORE NONCONTROLLING INTEREST

26,093

 

 

9,478

 

 

48,231

 

 

29,113

 

Less net income attributable to noncontrolling interest

 

 

 

 

 

 

224

 

SJW GROUP NET INCOME

26,093

 

 

9,478

 

 

48,231

 

 

28,889

 

Other comprehensive income (loss), net

76

 

 

 

 

(49

)

 

 

SJW GROUP COMPREHENSIVE INCOME

$

26,169

 

 

9,478

 

 

$

48,182

 

 

28,889

 

 

 

 

 

 

 

 

 

SJW GROUP EARNINGS PER SHARE:

 

 

 

 

 

 

 

Basic

$

0.91

 

 

0.33

 

 

$

1.69

 

 

1.02

 

Diluted

$

0.91

 

 

0.33

 

 

$

1.68

 

 

1.01

 

DIVIDENDS PER SHARE

$

0.32

 

 

0.30

 

 

$

0.96

 

 

0.90

 

WEIGHTED AVERAGE SHARES OUTSTANDING:

 

 

 

 

 

 

 

Basic

28,534

 

 

28,452

 

 

28,510

 

 

28,439

 

Diluted

28,703

 

 

28,550

 

 

28,687

 

 

28,528

 

SJW Group

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)

 

 

September 30,
2020

 

December 31,
2019

ASSETS

 

 

 

Utility plant:

 

 

 

Land

$

34,938

 

 

34,395

 

Depreciable plant and equipment

3,117,413

 

 

2,988,454

 

Construction in progress

117,546

 

 

112,232

 

Intangible assets

35,274

 

 

33,424

 

Total utility plant

3,305,171

 

 

3,168,505

 

Less accumulated depreciation and amortization

1,023,677

 

 

962,019

 

Net utility plant

2,281,494

 

 

2,206,486

 

 

 

 

 

Real estate investments

58,085

 

 

57,699

 

Less accumulated depreciation and amortization

14,493

 

 

13,597

 

Net real estate investments

43,592

 

 

44,102

 

CURRENT ASSETS:

 

 

 

Cash and cash equivalents:

 

 

 

Cash

20,211

 

 

12,944

 

Restricted cash

 

 

5,000

 

Accounts receivable and accrued unbilled utility revenue

113,842

 

 

88,077

 

Current regulatory assets, net

4,758

 

 

6,472

 

Other current assets

16,091

 

 

9,553

 

Total current assets

154,902

 

 

122,046

 

OTHER ASSETS:

 

 

 

Regulatory assets, net

132,216

 

 

113,945

 

Investments

13,629

 

 

12,928

 

Goodwill

627,036

 

 

628,287

 

Other

6,845

 

 

4,676

 

 

779,726

 

 

759,836

 

 

$

3,259,714

 

 

3,132,470

 

SJW Group

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)

 

 

September 30,
2020

 

December 31,
2019

CAPITALIZATION AND LIABILITIES

 

 

 

CAPITALIZATION:

 

 

 

Stockholders’ equity:

 

 

 

Common stock, $0.001 par value; authorized 70,000,000 shares; issued and outstanding shares 28,552,177 on September 30, 2020 and 28,456,508 on December 31, 2019

$

29

 

 

28

 

Additional paid-in capital

509,031

 

 

506,639

 

Retained earnings

403,923

 

 

383,191

 

Accumulated other comprehensive income

78

 

 

126

 

Total stockholders’ equity

913,061

 

 

889,984

 

Long-term debt, less current portion

1,307,612

 

 

1,283,597

 

Total capitalization

2,220,673

 

 

2,173,581

 

CURRENT LIABILITIES:

 

 

 

Lines of credit

125,803

 

 

117,209

 

Current portion of long-term debt

71,943

 

 

22,272

 

Accrued groundwater extraction charges, purchased water and power

27,607

 

 

17,211

 

Accounts payable

33,759

 

 

34,886

 

Accrued interest

17,586

 

 

13,140

 

Accrued payroll

10,599

 

 

11,570

 

Other current liabilities

18,101

 

 

18,279

 

Total current liabilities

305,398

 

 

234,567

 

 

 

 

 

DEFERRED INCOME TAXES

186,952

 

 

195,598

 

ADVANCES FOR CONSTRUCTION AND CONTRIBUTIONS IN AID OF CONSTRUCTION

414,525

 

 

398,374

 

POSTRETIREMENT BENEFIT PLANS

107,129

 

 

108,044

 

OTHER NONCURRENT LIABILITIES

25,037

 

 

22,306

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

$

3,259,714

 

 

3,132,470

 

 

View source version on businesswire.com:https://www.businesswire.com/news/home/20201104005745/en/

CONTACT: SJW Group

James P. Lynch, 408-279-7966

Chief Financial Officer and Treasurer

KEYWORD: UNITED STATES NORTH AMERICA CALIFORNIA

INDUSTRY KEYWORD: UTILITIES ENERGY

SOURCE: SJW Group

Copyright Business Wire 2020.

PUB: 11/04/2020 06:00 PM/DISC: 11/04/2020 06:01 PM

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