SJW Group Announces 2019 Third Quarter Financial Results

SAN JOSE, Calif.–(BUSINESS WIRE)–SJW Group (NYSE: SJW) today reported financial results for the third quarter ended September 30, 2019. SJW Group net income was $9.5 million for the quarter ended September 30, 2019, compared to $15.8 million for the same period in 2018. Diluted earnings per share were $0.33 and $0.76 for the quarters ended September 30, 2019 and 2018, respectively. Diluted earnings per share in 2019 includes $0.67 per share from recurring operations offset by $0.29 per share related to a 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 related to the company’s merger with Connecticut Water Service, Inc. (“CTWS”). Diluted earnings per share in 2018 includes $1.08 per share from recurring operations offset by $0.32 per share related to the merger.

On October 9, 2019, SJW Group completed its merger with CTWS, a holding company whose subsidiaries are primarily public utilities providing water service to approximately 138,000 service connections that serve a population of approximately 450,000 people in 80 municipalities with a service area of approximately 269 square miles throughout Connecticut and Maine and 3,000 wastewater connections in Southbury, Connecticut.

Operating revenue was $114.0 million for the quarter ended September 30, 2019, compared to $124.9 million in 2018. The $10.9 million decrease in revenue was primarily attributable to a $13.7 million change in the WCMA, partially offset by a $1.3 million change in cumulative water rates, $900,000 related to new customers, and a $800,000 change in the net recognition of certain balancing and memorandum accounts.

Water production expenses for the quarter ended September 30, 2019 were $56.4 million, compared to $55.2 million in 2018, an increase of $1.2 million. The increase in water production expenses was primarily attributable to $3.9 million in higher per unit costs for purchased water, groundwater extraction and energy charges, $1.3 million in cost recovery balancing and memorandum accounts, and $700,000 in higher customer water usage, partially offset by a $4.6 million reduction due to an increase in the use of available surface water supplies. Operating expenses, excluding water production costs, decreased $3.3 million to $40.6 million from $43.9 million. The decrease was primarily due to a change of $6.7 million in merger expenses related to our merger transaction with CTWS, partially offset by an increase of $2.0 million in higher general and administrative expenses, related to increased integration and compensation costs, and $1.4 million in higher depreciation expenses due to assets placed in service in 2018.

Other expense and income in the third quarter of 2019 included $2.2 million of interest income earned on money market fund investments from the proceeds of our December 2018 equity offering.

The effective consolidated income tax rates were approximately 21% for each of the quarters ended September 30, 2019 and 2018.

Year-to-date net income was $28.9 million, compared to $29.9 million in 2018. Diluted earnings per share were $1.01 in the first nine months of 2019, compared to $1.45 for the same period in 2018. Diluted earnings per share in 2019 includes $1.51 per share from recurring operations offset by $0.28 per share related to a reserve recorded against our 2018 and 2019 WCMA balances, $0.16 per share related to the company’s merger with CTWS, and $0.06 per share related to a settlement of the company’s Order Instituting Investigation proceeding with the California Public Utilities Commission over customer billing practices. Diluted earnings per share in 2018 includes $2.03 per share from recurring operations offset by $0.58 per share related to the merger.

Year-to-date operating revenue decreased by $4.4 million to $294.6 million from $299.0 million in the first nine months of 2019. The decrease was attributable to a $17.2 million change in the WCMA, $6.0 million decrease in customer usage, and $2.1 million in customer rate credits related to the OII settlement with the CPUC’s CPED, partially offset by a $10.4 million change in the net recognition of certain balancing and memorandum accounts, an $8.0 million change in cumulative water rates, and $2.6 million related to new customers.

Year-to-date water production expenses decreased to $125.3 million from $125.5 million in 2018. The $200,000 decrease was attributable to a $11.9 million increase in the use of available surface water supplies and a $2.3 million in decreased customer usage, partially offset by $10.2 million in higher per unit costs for purchased water, groundwater extraction and energy charges and a $3.8 million increase in cost recovery balancing and memorandum accounts. Operating expenses, excluding water production costs, increased $300,000 to $117.9 million from $117.6 million. The increase was primarily due to $4.4 million in higher depreciation expenses, $4.2 million in higher general and administrative expenses and $700,000 in higher taxes other than income taxes, partially offset by a decrease of $8.9 million in merger expenses related to our CTWS merger transaction.

Other expense and income year-to-date for 2019 included $6.3 million of interest income earned on money market fund investments from the proceeds of the company’s December 2018 equity offering.

The effective consolidated income tax rates were approximately 23% and 20% for the nine-month periods ended September 30, 2019 and 2018, respectively.

In December of 2018, the company issued approximately 7.8 million of shares of common stock, the proceeds of which were used to partially finance the CTWS merger. Such shares are included in shares outstanding during the three and nine month periods ended September 30, 2019.

The Directors of SJW Group today declared a quarterly dividend on common stock of $0.30 per share. The dividend is payable on December 2, 2019, to shareholders of record on November 11, 2019.

About SJW Group

SJW Group is the third largest investor-owned pure play water and wastewater utility based on 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, Avon Water Company and Heritage Village Water Company in Connecticut; 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.

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 risk that the benefits expected from the merger of SJW Group and Connecticut Water Service, Inc. (the “Merger”) will not be realized; (2) the risk that the integration of Connecticut Water Service, Inc. will be more difficult, time-consuming or expensive than anticipated; (3) the effect of water, utility, environmental and other governmental policies and regulations, including actions concerning rates, authorized return on equity, authorized debt-to-equity ratios, capital expenditures and other decisions; (4) the outcome of the California Public Utilities Commission’s investigation into the Merger; (5) litigation, including litigation relating to the Merger; (6) changes in demand for water and other products and services; (7) unanticipated weather conditions and changes in seasonality; (8) climate change and the effects thereof; (9) catastrophic events such as fires, earthquakes, explosions, floods, ice storms, tornadoes, hurricanes, terrorist acts, physical attacks, cyber-attacks, or other similar occurrences that could adversely affect our facilities, operations, financial condition, results of operations and reputation; (10) unexpected costs, charges or expenses resulting from the Merger; (11) our ability to successfully evaluate investments in new business and growth initiatives; (12) the risk of work stoppages, strikes and other labor-related actions; (13) changes in general economic, political, business and financial market conditions; (14) 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 (15) legislative 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,

 

2019

 

2018

 

2019

 

2018

REVENUE

$

113,997

 

 

124,853

 

 

$

294,644

 

 

298,981

 

OPERATING EXPENSE:

 

 

 

 

 

 

 

Production Expenses:

 

 

 

 

 

 

 

Purchased water

35,583

 

 

33,545

 

 

75,626

 

 

72,673

 

Power

2,294

 

 

1,882

 

 

4,947

 

 

4,774

 

Groundwater extraction charges

13,182

 

 

14,890

 

 

29,145

 

 

34,341

 

Other production expenses

5,295

 

 

4,836

 

 

15,553

 

 

13,674

 

Total production expenses

56,354

 

 

55,153

 

 

125,271

 

 

125,462

 

Administrative and general

14,712

 

 

12,752

 

 

40,411

 

 

36,278

 

Maintenance

4,923

 

 

4,980

 

 

13,977

 

 

14,036

 

Property taxes and other non-income taxes

4,065

 

 

4,016

 

 

12,041

 

 

11,332

 

Depreciation and amortization

15,122

 

 

13,682

 

 

45,368

 

 

40,921

 

Merger related expenses

1,737

 

 

8,442

 

 

6,113

 

 

14,994

 

Total operating expense

96,913

 

 

99,025

 

 

243,181

 

 

243,023

 

OPERATING INCOME

17,084

 

 

25,828

 

 

51,463

 

 

55,958

 

OTHER (EXPENSE) INCOME:

 

 

 

 

 

 

 

Interest expense

(6,588

)

 

(6,077

)

 

(19,093

)

 

(18,213

)

Unrealized loss on California Water Service Group stock

 

 

 

 

 

 

(527

)

Interest income on Money Market Fund

2,165

 

 

 

 

6,339

 

 

 

Gain on sale of real estate investment

 

 

 

 

745

 

 

 

Pension non-service cost

(921

)

 

(589

)

 

(2,749

)

 

(1,767

)

Other, net

303

 

 

729

 

 

1,210

 

 

2,084

 

Income before income taxes

12,043

 

 

19,891

 

 

37,915

 

 

37,535

 

Provision for income taxes

2,565

 

 

4,103

 

 

8,802

 

 

7,591

 

NET INCOME BEFORE NONCONTROLLING INTEREST

9,478

 

 

15,788

 

 

29,113

 

 

29,944

 

Less net income attributable to noncontrolling interest

 

 

 

 

224

 

 

 

SJW GROUP NET INCOME

9,478

 

 

15,788

 

 

28,889

 

 

29,944

 

COMPREHENSIVE INCOME

$

9,478

 

 

15,788

 

 

$

28,889

 

 

29,944

 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE:

 

 

 

 

 

 

 

Basic

$

0.33

 

 

0.77

 

 

$

1.02

 

 

1.45

 

Diluted

$

0.33

 

 

0.76

 

 

$

1.01

 

 

1.45

 

DIVIDENDS PER SHARE

$

0.30

 

 

0.28

 

 

$

0.90

 

 

0.84

 

WEIGHTED AVERAGE SHARES OUTSTANDING:

 

 

 

 

 

 

 

Basic

28,452

 

 

20,627

 

 

28,439

 

 

20,594

 

Diluted

28,550

 

 

20,732

 

 

28,528

 

 

20,722

 

SJW Group

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands)

 

 

September 30,

2019

 

December 31,

2018

ASSETS

 

 

 

Utility plant:

 

 

 

Land

$

18,286

 

18,296

Depreciable plant and equipment

1,897,117

 

1,833,051

Construction in progress

109,245

 

68,765

Intangible assets

15,799

 

15,799

Total utility plant

2,040,447

 

1,935,911

Less accumulated depreciation and amortization

647,841

 

607,090

Net utility plant

1,392,606

 

1,328,821

 

 

 

 

Real estate investments

56,473

 

56,336

Less accumulated depreciation and amortization

13,224

 

12,327

Net real estate investments

43,249

 

44,009

CURRENT ASSETS:

 

 

 

Cash and cash equivalents:

 

 

 

Cash

12,702

 

8,722

Money market fund

412,000

 

412,000

Accounts receivable and accrued unbilled utility revenue

68,947

 

50,219

Current regulatory assets, net

7,493

 

26,910

Other current assets

6,672

 

4,871

Total current assets

507,814

 

502,722

OTHER ASSETS:

 

 

 

Regulatory assets, net

73,780

 

76,715

Other

4,933

 

4,122

 

78,713

 

80,837

 

$

2,022,382

 

1,956,389

SJW Group

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands)

 

 

September 30,

2019

 

December 31,

2018

CAPITALIZATION AND LIABILITIES

 

 

 

CAPITALIZATION:

 

 

 

Common stock

$

28

 

28

Additional paid-in capital

499,377

 

495,366

Retained earnings

397,259

 

393,918

Total stockholders’ equity

896,664

 

889,312

Long-term debt, less current portion

511,076

 

431,424

Total capitalization

1,407,740

 

1,320,736

CURRENT LIABILITIES:

 

 

 

Lines of credit

62,000

 

100,000

Accrued groundwater extraction charges, purchased water and power

22,749

 

13,694

Accounts payable

28,193

 

24,937

Accrued interest

9,220

 

7,132

Accrued payroll

5,011

 

7,181

Other current liabilities

17,134

 

11,041

Total current liabilities

144,307

 

163,985

 

 

 

 

DEFERRED INCOME TAXES

72,798

 

79,651

ADVANCES FOR CONSTRUCTION AND CONTRIBUTIONS IN AID OF CONSTRUCTION

254,954

 

248,853

POSTRETIREMENT BENEFIT PLANS

73,004

 

70,490

REGULATORY LIABILITY

56,936

 

59,149

OTHER NONCURRENT LIABILITIES

12,643

 

13,525

 

$

2,022,382

 

1,956,389

 

Contacts

SJW Group

Suzy Papazian, 408-279-7961

General Counsel and Corporate Secretary

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