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

  • 2021 diluted earnings of $1.43 per share
  • Reaffirms 2021 guidance range of $1.85 to $2.05 per diluted share
  • Dividend of $0.34 per share declared

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 September 30,

 

Nine months ended 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 charges

 

23,736

 

 

20,471

 

 

59,419

 

 

54,082

 

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 non-income taxes

 

8,125

 

 

7,797

 

 

22,789

 

 

22,362

 

Depreciation and amortization

 

23,837

 

 

22,417

 

 

70,787

 

 

66,552

 

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 and other interest expense

 

(13,535

)

 

(13,174

)

 

(40,655

)

 

(39,638

)

Pension non-service cost

 

334

 

 

(218

)

 

999

 

 

(270

)

Gain on sale of real estate investments

 

 

 

1,050

 

 

 

 

1,050

 

Gain on sale of Texas Water Alliance Limited

 

 

 

 

 

3,000

 

 

 

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) income, net

 

(12

)

 

76

 

 

133

 

 

(49

)

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,

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

 

 

Contacts

SJW Group

James P. Lynch, 408-279-7966

Chief Financial Officer and Treasurer

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