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

SJW Group (NYSE: SJW) today reported financial results for the second quarter ended June 30, 2021. SJW Group net income was $20.8 million for the quarter ended June 30, 2021, compared to $19.7 million for the same period in 2020. Diluted earnings per share were $0.69 for the quarters ended June 30, 2021 and 2020, respectively. Diluted earnings per share in 2021 includes $0.60 per share from ongoing operations and $2.6 million (net of tax) or $0.09 per share from non-recurring income related to the holdback amount received during 2021 related to the sale of all of SJW Group’s equity interest in Texas Water Alliance Limited (“TWA”) to the Guadalupe-Blanco River Authority (“GBRA”) in 2017. Diluted earnings per share in 2020 includes $0.72 per share from ongoing operations offset by non-recurring expenses related COVID-19 related reserves and expenses of $0.7 million (net of tax) or $0.03 per share.

Operating revenue was $152.2 million for the quarter ended June 30, 2021, compared to $147.2 million for the same period in 2020. The $5.0 million increase in revenue was primarily attributable to $3.6 million in cumulative water rate increases, $1.4 million in higher customer usage, and $0.7 million in revenue from new customers.

Operating expenses for the quarter ended June 30, 2021, were $119.6 million, compared to $111.1 million in 2020, an increase of $8.5 million. Operating expenses include water production expenses of $61.0 million in 2021 compared to $58.2 million in 2020, an increase of $2.8 million. The increase in water production expenses was primarily attributable to $1.9 million due to a decrease in surface water supply production, $1.8 million in higher customer water usage, partially offset by $0.7 million in lower average per unit costs for purchased water, groundwater extraction and energy charges, and other production expenses. Operating expenses, excluding water production costs, for the quarter ended June 30, 2021, increased $5.6 million to $58.6 million from $53.0 million in 2020. The increase was primarily due to a $3.6 million increase in general and administrative expenses, $1.3 million in higher maintenance expenses, and $0.8 million in higher depreciation and amortization expenses.

For the quarter ended June 30, 2021, compared to the same period in 2020, the change in other expense and income was primarily due to the release of a $3.0 million holdback amount by GBRA related to the 2017 sale of all of SJW Group’s equity interest in TWA.

The effective consolidated income tax rates were approximately 14% and 18% for the quarters ended June 30, 2021 and 2020, respectively. The lower effective tax rate for the quarter ended June 30, 2021 was primarily due to flow-through tax benefits.

Year-to-date net income was $23.4 million, compared to $22.1 million in 2020. Diluted earnings per share were $0.79 in the first six months of 2021, compared to $0.77 per diluted share for the same period in 2020. Diluted earnings per share in 2021 includes $0.73 per share from ongoing operations and non-recurring income related to the TWA holdback amount of $2.7 million (net of tax) or $0.09 per share, 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 $0.86 per share from ongoing operations offset by non-recurring expenses related to the Connecticut Water Service, Inc. merger and integration fees of $1.4 million (net of tax) or $0.05 per share and COVID-19 related reserves and expenses of $1.2 million (net of tax) or $0.04 per share.

Operating revenue was $267.0 million for the year-to-date period ended June 30, 2021, compared to $263.0 million in the first six months of 2020. The $4.0 million increase was attributable to $6.4 million in cumulative water rate increases and $1.1 million in revenue from new customers, offset by a $1.4 million decrease in customer usage, $0.8 million in winter storm customer credits in our Texas service area, and $0.8 million in the net recognition of certain regulatory mechanisms in Connecticut and Maine.

Year-to-date operating expenses increased to $221.3 million from $211.5 million in 2020, an increase of $9.8 million. Operating expenses include water production expenses of $104.6 million in 2021 compared to $102.0 million in 2020, an increase of $2.6 million. The increase in water production expenses was primarily attributable to $2.7 million due to a decrease in surface water supply production and $1.7 million in higher customer water usage, partially offset by $1.5 million in lower average per unit costs for purchased water, groundwater extraction and energy charges, and other production expenses. Operating expenses, excluding water production costs, for the year-to-date period ended June 30, 2021, increased $7.2 million to $116.7 million from $109.5 million in 2020. The increase was primarily due to a $2.8 million increase in general and administrative expenses, $2.8 million in higher depreciation and amortization expenses, and $1.4 million in higher maintenance expenses.

Other expense and income year-to-date for 2021 included receipt of the $3.0 million TWA holdback amount. No similar transaction occurred in 2020.

The effective consolidated income tax rates for the six-month periods ended June 30, 2021 and 2020, were approximately 9% and 17%, 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 September 1, 2021, to shareholders of record on August 9, 2021. SJW Group’s annual dividend yield at the stock market closing on July 28, 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

San Jose Water Company’s 2021 general rate case for new rates in 2022 through 2024 is before the California Public Utilities Commission (“CPUC”). The application seeks an increase of nearly $88 million in 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. It is anticipated that the CPUC’s review process will take approximately 12 months, with new rates effective in the second quarter of 2022.

On May 3, 2021, San Jose Water Company filed its application with the CPUC in its 2022-2024 cost of capital proceeding, as required. 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, rates are expected to be effective in the first quarter of 2022.

On June 23, 2021, the Maine Public Utilities Commission approved Maine Water Company’s request for an innovative rate-smoothing mechanism that became effective on July 1, 2021. The rate-smoothing mechanism provides customers in the Biddeford-Saco division with a more gradual ramp to new rates that will be driven by the completion of a $60 million replacement of its 1884 vintage drinking water treatment plant. A decision on Maine Water Company’s application for a general rate increase related to the Biddeford-Saco project is expected in the second quarter of 2022, in alignment with the completion of the new water treatment facility.

On June 28, 2021, SJWTX, Inc. announced that it reached an agreement to acquire the Kendall West and Bandera East utilities in Bandera and Medina counties in Texas and that change in ownership applications had been filed with the Public Utilities Commission of Texas (“PUCT”). The acquisition, pending approval by the PUCT, would grow SJWTX, Inc. by 1,400 service connections that serve an estimated 4,000 county residences. SJWTX, Inc. currently serves two of the ten fastest growing counties in the nation. A decision by the PUCT is expected in the fourth quarter of 2021.

On July 28, 2021, the Connecticut Public Utilities Regulatory Authority issued a final decision on Connecticut Water Company’s application to amend rates for its customers. The decision approved an increase of $5.2 million in annual revenues and a return on equity of 9%, with new rates effective July 28, 2021. The final decision also approved Connecticut Water Company’s request to establish a first of its kind water rate assistance program for income eligible customers in Connecticut, a tiered block rate structure for residential water customers to promote water conservation, and the cost of debt and equity percentages as requested. The final decision did not include all of the requested proforma plant in-service due to the timing of their completion. However, no plant was disallowed and Connecticut Water Company will seek recovery for those in the future, including a portion of plant which is eligible for recovery through the Water Infrastructure Conservation Adjustment mechanism, which was approaching its statutory cap and was reset to zero in the final decision.

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 lifesaving 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 June 30,

 

Six months ended June 30,

 

2021

 

2020

 

2021

 

2020

REVENUE

$

152,241

 

 

147,209

 

 

$

267,026

 

 

262,963

 

OPERATING EXPENSE:

 

 

 

 

 

 

 

Production Expenses:

 

 

 

 

 

 

 

Purchased water

27,668

 

 

25,889

 

 

43,313

 

 

41,823

 

Power

3,391

 

 

3,426

 

 

6,394

 

 

6,151

 

Groundwater extraction charges

20,138

 

 

18,583

 

 

35,683

 

 

33,611

 

Other production expenses

9,831

 

 

10,280

 

 

19,233

 

 

20,373

 

Total production expenses

61,028

 

 

58,178

 

 

104,623

 

 

101,958

 

Administrative and general

21,326

 

 

17,772

 

 

42,219

 

 

39,388

 

Maintenance

6,587

 

 

5,334

 

 

12,852

 

 

11,420

 

Property taxes and other non-income taxes

7,149

 

 

7,102

 

 

14,664

 

 

14,565

 

Depreciation and amortization

23,512

 

 

22,753

 

 

46,950

 

 

44,135

 

Total operating expense

119,602

 

 

111,139

 

 

221,308

 

 

211,466

 

OPERATING INCOME

32,639

 

 

36,070

 

 

45,718

 

 

51,497

 

OTHER (EXPENSE) INCOME:

 

 

 

 

 

 

 

Interest on long-term debt and other interest expense

(13,681)

 

 

(13,180)

 

 

(27,120)

 

 

(26,464)

 

Pension non-service cost

339

 

 

(7)

 

 

665

 

 

(52)

 

Gain on sale of Texas Water Alliance Limited

3,000

 

 

 

 

3,000

 

 

 

Other, net

1,784

 

 

1,048

 

 

3,538

 

 

1,805

 

Income before income taxes

24,081

 

 

23,931

 

 

25,801

 

 

26,786

 

Provision for income taxes

3,306

 

 

4,210

 

 

2,410

 

 

4,648

 

NET INCOME

20,775

 

 

19,721

 

 

23,391

 

 

22,138

 

Other comprehensive income (loss), net

107

 

 

10

 

 

145

 

 

(125)

 

COMPREHENSIVE INCOME

$

20,882

 

 

19,731

 

 

$

23,536

 

 

22,013

 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE:

 

 

 

 

 

 

 

Basic

$

0.70

 

 

0.69

 

 

$

0.80

 

 

0.78

 

Diluted

$

0.69

 

 

0.69

 

 

$

0.79

 

 

0.77

 

DIVIDENDS PER SHARE

$

0.34

 

 

0.32

 

 

$

0.68

 

 

0.64

 

WEIGHTED AVERAGE SHARES OUTSTANDING:

 

 

 

 

 

 

 

Basic

29,799

 

 

28,508

 

 

29,334

 

 

28,499

 

Diluted

29,924

 

 

28,683

 

 

29,460

 

 

28,679

 

SJW Group

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)

 

 

June 30,
2021

 

December 31,
2020

ASSETS

 

 

 

Utility plant:

 

 

 

Land

$

38,352

 

 

36,845

 

Depreciable plant and equipment

3,269,984

 

 

3,198,060

 

Construction in progress

145,039

 

 

109,976

 

Intangible assets

35,357

 

 

35,167

 

Total utility plant

3,488,732

 

 

3,380,048

 

Less accumulated depreciation and amortization

1,092,337

 

 

1,045,136

 

Net utility plant

2,396,395

 

 

2,334,912

 

 

 

 

 

Real estate investments

58,389

 

 

58,129

 

Less accumulated depreciation and amortization

15,363

 

 

14,783

 

Net real estate investments

43,026

 

 

43,346

 

 

 

 

 

CURRENT ASSETS:

 

 

 

Cash and cash equivalents:

 

 

 

Cash

25,442

 

 

5,269

 

Restricted cash

2,659

 

 

4,000

 

Accounts receivable

54,879

 

 

58,142

 

Accrued unbilled utility revenue

48,984

 

 

44,950

 

Current regulatory assets, net

1,075

 

 

1,748

 

Prepaid expenses

8,471

 

 

8,097

 

Other current assets

5,348

 

 

5,125

 

Total current assets

146,858

 

 

127,331

 

 

 

 

 

OTHER ASSETS:

 

 

 

Regulatory assets, net

172,312

 

 

156,482

 

Investments

15,163

 

 

14,367

 

Goodwill

628,144

 

 

628,144

 

Other

7,624

 

 

6,883

 

 

823,243

 

 

805,876

 

 

$

3,409,522

 

 

3,311,465

 

SJW Group

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)

 

 

June 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 29,804,927 on June 30, 2021 and 28,556,605 on December 31, 2020

$

30

 

 

29

 

Additional paid-in capital

579,057

 

 

510,158

 

Retained earnings

411,511

 

 

408,037

 

Accumulated other comprehensive income

(919)

 

 

(1,064)

 

Total stockholders’ equity

989,679

 

 

917,160

 

Long-term debt, less current portion

1,372,126

 

 

1,287,580

 

Total capitalization

2,361,805

 

 

2,204,740

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

Lines of credit

138,541

 

 

175,094

 

Current portion of long-term debt

26,270

 

 

76,241

 

Accrued groundwater extraction charges, purchased water and power

26,290

 

 

19,184

 

Accounts payable

39,546

 

 

34,200

 

Accrued interest

13,035

 

 

12,861

 

Accrued payroll

13,895

 

 

14,012

 

Income tax payable

246

 

 

 

Other current liabilities

16,608

 

 

19,203

 

Total current liabilities

274,431

 

 

350,795

 

 

 

 

 

DEFERRED INCOME TAXES

191,376

 

 

191,415

 

ADVANCES FOR CONSTRUCTION AND CONTRIBUTIONS IN AID OF CONSTRUCTION

431,358

 

 

421,132

 

POSTRETIREMENT BENEFIT PLANS

125,594

 

 

121,597

 

OTHER NONCURRENT LIABILITIES

24,958

 

 

21,786

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

$

3,409,522

 

 

3,311,465