SJW Group 2022 Financial Results and 2023 Guidance Issued

“SJW Group’s strong results in 2022 will lay the foundation for continued success in 2023 and beyond,” stated SJW Group Chair, CEO, and President, Eric W. Thornburg. “We addressed the California water supply mix that drove expense volatility in prior years through a settlement agreement approved by the California Public Utilities Commission (CPUC) that benefits customers and San Jose Water Company (SJWC), completed a $60 million generational investment in a new drinking water treatment facility in Maine, delivered our capital spending plan by overcoming supply chain challenges, made important progress in ESG, and served customers and communities with high-quality water and reliable service.”

Operating results in 2022 and the fourth quarter reflect SJWC’s general rate case (GRC) settlement agreement that was approved by the CPUC on October 6, 2022. The approved settlement agreement recognized the need for continued investments in SJWC’s water system to deliver high-quality and reliable water service. Among the provisions of the approved settlement agreement:

Annual Financial Results

SJW Group reported net income of $73.8 million in 2022, or $2.43 diluted EPS, compared to net income of $60.5 million, or $2.03 diluted EPS, in 2021. Net income increased 22% and diluted EPS increased 20% in 2022 compared to the prior year. In 2022, one-time items reduced diluted EPS by $0.01 per share. In 2021, one-time items increased diluted EPS by $0.24 per share.

Operating revenue was $620.7 million for the year, compared to $573.7 million for 2021. The $47.0 million increase was primarily attributable to $38.7 million in cumulative water rate increases, $16.3 million in the net recognition of balancing and memorandum accounts and regulatory mechanisms, $5.1 million in new customers, and $800,000 in winter storm customer credits provided in the prior year in our Texas service area, partially offset by $14.3 million decrease in customer usage.

The $16.3 million in the net recognition of balancing and memorandum accounts and regulatory mechanisms includes $20.7 million related to the 2022 GRC true-up memorandum account and $800,000 related to the Water Conservation Memorandum Account (WCMA), both in California, partially offset by $6.2 million related primarily to the Water Revenue Adjustment (WRA) mechanism in Connecticut. The $6.2 million WRA activity in Connecticut is related to an adjustment of actual revenues compared to allowed revenues due to increased usage primarily as a result of weather activity.

Operating expenses in 2022 were $489.7 million compared to $462.5 million in 2021.

The change in other (expense) income in 2022 compared to 2021 was primarily due to a $3.0 million pre-tax gain on sale from release of a holdback amount by the Guadalupe-Blanco River Authority for the sale of Texas Water Alliance Limited recorded in 2021, an increase in other interest due to higher short term borrowing rates, and a decrease in investment income from retirement plan assets and life insurance policies, partially offset by a decrease in pension non-service cost due to an increase on the return of pension assets and an increase in the discount rate.

The effective consolidated income tax rates for the years ended December 31, 2022 and 2021 were approximately 10% and 12%, respectively. The lower effective rate was primarily due to a tax accounting method change in Connecticut related to a non-network assets repairs deduction.

Fourth Quarter Financial Results

Increased revenues from SJWC’s approved settlement agreement were retroactive to January 1, 2022, accordingly, $20.7 million was recorded in the fourth quarter.

Operating revenue was $171.4 million for the quarter ended December 31, 2022, compared to $139.7 million for the same period in 2021. The $31.7 million increase in revenue was primarily attributable to $21.0 million in the net recognition of balancing and memorandum accounts and regulatory mechanisms, $14.5 million in cumulative water rate increases, and $1.4 million in new customers, partially offset by $5.2 million decrease in customer usage.

The $21.0 million in the net recognition of balancing and memorandum accounts and regulatory mechanisms includes $20.7 million related to the 2022 GRC true-up memorandum account and $2.1 million related to the WRA mechanism in Connecticut, partially offset by $2.0 million related to the WCMA in California. The $2.1 million WRA activity in Connecticut reflects an update to the timing of consumption resulting in a revenue shift of $3.5 million from the first nine months of 2022 to the fourth quarter, partially offset by a $1.4 million decrease related to an adjustment of actual revenues compared to allowed revenues due to increased usage primarily as a result of weather activity.

Operating expenses for the quarter ended December 31, 2022, were $121.0 million compared to $108.1 million for the same period of 2021.

The change in other (expense) income for the quarters ended December 31, 2022 compared to 2021 was primarily due to an increase in other interest due to higher short term borrowing rates and a decrease in pension non-service cost due to an increase on the return of pension assets and an increase in the discount rate.

The effective consolidated income tax rates for the quarters ended December 31, 2022 and 2021, were approximately 13% and 15%, respectively. The lower effective rate in 2022 was primarily due to higher flow through items in 2022.

2023 Earnings Guidance

Guidance for 2023 is based on constructive outcomes in the SJWC Cost of Capital proceeding in California currently in progress, a GRC in Maine’s Biddeford-Saco Division scheduled to be filed in the first quarter of 2023, and Water Infrastructure and Conservation Adjustment filed on January 26, 2023 in Connecticut. It further assumes average weather conditions in Maine and Texas, and revenue protection in California and Connecticut with the WCMA that assists in the recovery of revenues impacted due to drought related conservation and WRA that reconciles actual revenues to authorized revenues, respectively.

The following is the company’s 2023 full-year guidance:

Our guidance is 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.

“Our guidance for 2023 also reflects a significant investment we are making in our workforce. We have highly trained and passionate employees who deliver outstanding service to customers and communities and they are also feeling the effects of inflation,” stated Thornburg. “We are increasing wages across the board at an amount that is substantially higher than wage increases in past years to retain our existing people and recruit top talent when there are vacancies.”

Acquisitions

SJW’s Texas subsidiary, SJWTX, Inc., filed applications with the Public Utilities Commission of Texas (PUCT) on January 3, 2023, to acquire KT Water Resources, L.P. and KT Water Development, Ltd. If approved by the PUCT, the utility acquisition will add more than 550 customers and the non-regulated water resources business will provide a 50% increase in total available system-wide water supply for current customer needs and future growth in this rapidly growing area between San Antonio and Austin. The acquisition supports our growth in the service area which includes three of the five fastest growing counties in the United States.

Dividend

As previously announced, on January 26, 2023, the directors of SJW Group approved an increase in the 2023 annual dividend of $0.08 per share to $1.52 per share. A quarterly dividend of $0.38 per share is payable on March 1, 2023, to shareholders of record at the close of business on February 6, 2023. 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.

Capital Expenditures

SJW Group’s capital expenditures for 2022 were $218.8 million. In 2023, SJW Group’s planned capital expenditures total $255.1 million. The individual capital budgets for SJW Group’s utility operations are as follows: California, $131.6 million, Connecticut, $75.3 million, Maine, $22.7 million, and Texas, $25.5 million. SJW Group plans to invest more than $1.4 billion in capital over the next 5 years, to build and maintain its water and wastewater operations, subject to regulatory approvals, as applicable.

Rate Activity

On January 1, 2023, SJWC implemented new rates that will increase annual revenues in 2023 by $18.4 million, as authorized in the company’s 2022-2024 GRC.

On December 30, 2022, SJWTX, Inc. filed an application with the PUCT for a system improvement charge (SIC). Since SJWTX, Inc.’s last filed GRC in 2014, the company has invested $43.3 million in drinking water and wastewater infrastructure that is now providing a benefit to customers, but is not yet being recovered on customer water bills. The company is requesting recovery of $14.8 million in system improvements made between January 1, 2020 and September 30, 2022. Additional SIC filings are planned to recover the remaining investment over time. If approved as submitted, the SIC charge for water and wastewater would be less than $5.00 per month, or about 16-cents per day. A decision is expected in the third quarter of 2023.

On February 2, 2023, Maine Water Company received final decisions from the Maine Public Utilities Commission on four GRC’s filed in 2022. The rate increases are retroactive back to January 1, 2023, and authorize a $692,000 increase in annual revenues.

On January 26, 2023, Connecticut Water Company filed with the Connecticut Public Utilities Regulatory Authority (PURA) for a $3.1 million increase in annualized revenues for approximately $27.8 million in projects completed through the Water Infrastructure and Conservation Adjustment. Any PURA authorized increase is expected to be effective on April 1, 2023.

Environmental and Social Initiatives and Recognition

In February, SJW Group published an update to its 2021 Corporate Sustainability Report. The supplemental report is available at www.sjwgroup.com/investor-relations/esg. SJW Group expects to publish its 2022 Corporate Sustainability Report later this year.

Financial Results Call Information

Eric W. Thornburg, president, chief executive officer and board chair, Andrew F. Walters, chief financial officer and treasurer, and Bruce A. Hauk, chief operating officer, will review results for the year and fourth quarter in a live webcast presentation at 11:00 a.m. PT, 2 p.m. ET on Thursday, February 23, 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 April 24, 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 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 operations 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, including but not limited to, droughts, and wildfires; (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 December 31,

Twelve months ended December 31,

2022

2021

2022

2021

REVENUE

$

171,374

139,737

$

620,698

573,686

OPERATING EXPENSE:

Production expenses:

Purchased water

38,021

21,797

122,334

98,231

Power

(1,498

)

2,938

8,889

13,511

Groundwater extraction charges

4,811

16,447

56,158

75,866

Other production expenses

11,802

11,173

45,409

41,475

Total production expenses

53,136

52,355

232,790

229,083

Administrative and general

24,030

22,400

95,404

87,332

Maintenance

10,083

6,810

30,734

26,031

Property taxes and other non-income taxes

8,330

8,175

32,572

30,964

Depreciation and amortization

26,075

23,613

104,417

94,400

Gain on sale of nonutility properties

(665

)

(7,494

)

(6,197

)

(7,494

)

Impairment of long-lived asset

—

2,211

—

2,211

Total operating expense

120,989

108,070

489,720

462,527

OPERATING INCOME

50,385

31,667

130,978

111,159

OTHER (EXPENSE) INCOME:

Interest on long-term debt and other interest expense

(15,902

)

(13,684

)

(58,062

)

(54,339

)

Pension non-service cost

2,163

331

5,023

1,330

Gain on sale of real estate investments

—

927

—

927

Gain on sale of Texas Water Alliance

—

—

—

3,000

Other, net

1,691

1,988

4,385

6,770

Income before income taxes

38,337

21,229

82,324

68,847

Provision for income taxes

4,838

3,210

8,496

8,369

NET INCOME

33,499

18,019

73,828

60,478

Other comprehensive income, net

2,242

768

1,640

901

COMPREHENSIVE INCOME

$

35,741

18,787

$

75,468

61,379

EARNINGS PER SHARE:

Basic

$

1.10

0.60

$

2.44

2.04

Diluted

$

1.09

0.60

$

2.43

2.03

DIVIDENDS PER SHARE

$

0.36

0.34

$

1.44

1.36

WEIGHTED AVERAGE SHARES OUTSTANDING:

Basic

30,478

29,912

30,305

29,601

Diluted

30,618

30,061

30,424

29,736

SJW Group

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data) 

December 31,
2022

December 31,
2021

ASSETS

Utility plant:

Land

$

39,982

39,004

Depreciable plant and equipment

3,661,285

3,381,908

Construction in progress

116,851

176,427

Intangible assets

35,959

36,276

Total utility plant

3,854,077

3,633,615

Less accumulated depreciation and amortization

1,223,760

1,136,116

Net utility plant

2,630,317

2,497,499

Real estate investments and nonutility properties

58,033

57,632

Less accumulated depreciation and amortization

17,158

15,951

Net real estate investments and nonutility properties

40,875

41,681

CURRENT ASSETS:

Cash and cash equivalents:

Cash

12,344

10,908

Restricted cash

—

1,211

Accounts receivable

64,732

60,742

Accrued unbilled utility revenue

45,722

44,026

Current regulatory assets, net

16,068

2,629

Prepaid expenses

9,753

9,667

Other current assets

6,095

4,902

Total current assets

154,714

134,085

OTHER ASSETS:

Regulatory assets, net

127,275

151,992

Investments

14,819

15,784

Goodwill

640,311

640,471

Other

24,313

10,883

806,718

819,130

$

3,632,624

3,492,395

SJW Group

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)

December 31,
2022

December 31,
2021

CAPITALIZATION AND LIABILITIES

CAPITALIZATION:

Stockholders’ equity:

Common stock, $0.001 par value; authorized 70,000,000 shares; issued and outstanding shares 30,801,912 on December 31, 2022 and 30,181,348 on December 31, 2021

$

31

30

Additional paid-in capital

651,004

606,392

Retained earnings

458,356

428,260

Accumulated other comprehensive income (loss)

1,477

(163

)

Total stockholders’ equity

1,110,868

1,034,519

Long-term debt, less current portion

1,491,965

1,492,935

Total capitalization

2,602,833

2,527,454

CURRENT LIABILITIES:

Lines of credit

159,578

62,996

Current portion of long-term debt

4,360

39,106

Accrued groundwater extraction charges, purchased water and power

19,707

17,200

Accounts payable

29,581

30,391

Accrued interest

13,907

14,174

Accrued payroll

11,908

11,583

Income tax payable

2,696

—

Other current liabilities

22,913

27,821

Total current liabilities

264,650

203,271

DEFERRED INCOME TAXES

218,155

200,451

ADVANCES FOR CONSTRUCTION AND CONTRIBUTIONS IN AID OF CONSTRUCTION

461,364

447,172

POSTRETIREMENT BENEFIT PLANS

59,738

89,998

OTHER NONCURRENT LIABILITIES

25,884

24,049

COMMITMENTS AND CONTINGENCIES

$

3,632,624

3,492,395

View source version on businesswire.com:https://www.businesswire.com/news/home/20230222006059/en/

    CONTACT: SJW Group Contact

Andrew F. Walters, 408-279-7818

             Chief Financial Officer and Treasurer

KEYWORD: CALIFORNIA UNITED STATES NORTH AMERICA
 

INDUSTRY KEYWORD: OTHER NATURAL RESOURCES ENVIRONMENT UTILITIES SUSTAINABILITY ENERGY NATURAL RESOURCES
 

SOURCE: SJW Group

Copyright Business Wire 2023.

PUB: 02/22/2023 07:03 PM/DISC: 02/22/2023 07:02 PM

http://www.businesswire.com/news/home/20230222006059/en