SJW Group (SJW) on Q2 2021 Results - Earnings Call Transcript

Operator: Good day, and thank you for standing by. Welcome to the SJW Group Q2 2021 Financial Results Conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. James Lynch. Please go ahead. James Lynch: Thank you, operator. Welcome to the Second Quarter 2021 Financial Results Conference Call for SJW Group. I will be presenting today with Eric Thornburg, Chairman of the Board, President and Chief Executive Officer. For those, who would like to follow along, slides accompanying our remarks are available on our website at www.sjwgroup.com. Eric Thornburg: Thank you, Jim. Welcome, everyone, and thank you for joining us. I'm Eric Thornburg, and it is my to serve as Chairman, President and CEO of SJW Group. Coast-to-coast, we're seeing extreme weather play out across our service area this summer, underscoring the importance of our environment and water resources. In California, we are seeing one of the driest summers in recent memory. State and regional water supply agencies are responding with urgent calls for conservation. It's an entirely different story across the country in Connecticut. After initial concerns of drought in Connecticut just a few months ago, we have since seen nearly four times the normal amount of precipitation just this month. More than 19 inches of rain has fallen in one of our communities. People there have experienced flash floods, waterlog basements and unusually cool temperatures. Christmas Day 2020 was warmer than July 3, 2021. And all of this on top of the severe deep freeze event we experienced earlier this year in our Texas operation. Rate case cycles and regulatory environments are important to our business, but there's nothing more fundamental than the water cycle and the natural environment. Water utilities have long understood the importance of protecting water resources and the environment. James Lynch: Thank you, Eric. Our quarterly operating results benefited from increases in customer usage in California and Texas and authorized rate increases in each of our four operating utilities. These increases were partially offset by a decrease in the availability of surface water supplies in our California service area, due to the continued dry weather conditions Eric mentioned. In the second quarter, we also recognized a purchase price holdback from the 2017 sale of our Texas Water Alliance, or TWA subsidiary to the Guadalupe-Blanco River Authority, or GBRA. Second quarter revenue was $152.2 million, a $5 million or 3.4% increase over reported second quarter 2020 revenue of $147.2 million. Net income for the second quarter was $20.8 million or $0.69 per diluted share. This compares with $19.7 million or $0.69 per diluted share for the second quarter of 2020. Diluted earnings per share for the quarter is primarily driven by cumulative rate increases of $0.14 per share, $0.11 per share due to release of the $3 million TWA purchase price holdback and increased usage of $0.05 per share. These increases were partially offset by an increase in administrative and general expenses of $0.15 per share, a decrease in California surface water production of $0.07 per share, and increased production costs of $0.07 per share due to higher customer usage. Turning to our comparative analysis for the quarter. The $5 million increase in revenue was primarily due to $3.6 million in cumulative rate increases, $1.3 million in increased customer usage and $0.7 million from new customers. Water production expense increased $2.8 million, compared to the second quarter of 2020. The expense increase includes $1.9 million for the purchase of additional water supply necessary to replace the low volume of California surface water and $1.8 million due to higher customer usage. These increases were partially offset by a $700,000 decrease in lower average unit water production cost. As stated in our first quarter earnings call, in 2021, we anticipated producing 2.5 billion gallons of surface water from our California watershed, which is representative of our 10-year average surface water production and consistent with the volume authorized in our 2019 California general rate case. For the first half of 2021, we experienced minimal rainfall and produced less than 260 million gallons of surface water. Absent additional rainfall, we don't anticipate any additional surface water production in 2021. The incremental cost to supplement this shortfall was approximately $4.6 million per billion gallons. This replacement cost estimate includes the 9.1% July 1st rate increase implemented by Valley Water. Eric Thornburg: Thank you, Jim. SJW Group continues to execute on our core growth strategy of investing in high-quality water systems to provide safe and reliable water service to customers and communities, and earning a fair return on those investments. As Jim just mentioned, we've already invested approximately 42% of our planned 2021 capital spending through the end of the second quarter. Our cost of capital application was filed in California in May as required. We're seeking a modest revenue increase of $6.4 million. The application also includes an increase in the return on equity from our currently authorized 8.9% to 10.3%, an increase in the equity portion of our capital structure and the proposed decrease in our cost of debt. The CPUC continues to process our 2022 to 2024 general rate case application that requests a $435 million capital program and $88 million increase in revenues over three years. A final decision is now expected in the second quarter of 2022. We plan to file for interim rates that would be in place on January 1, 2022, until the final decision on the GRC is issued. In June, San Jose Water and the Public Advocate's Office filed a joint settlement agreement with the CPUC on our application to deploy advanced metering infrastructure. If approved by the CPUC, we anticipate a capital program of approximately $100 million spread over the next four years. A decision is expected in the fourth quarter. The California Commission also authorized a revenue increase of $17.3 million, effective on July 1, 2021, to recover our wholesalers water rate increase of 9.1%. About 48 hours ago, the Connecticut PURA approved an increase of $5.2 million in annual revenues, which is an increase of about 5.1%. Based on the tone and tenor of the proceedings and the recommendations of the Office of Consumer Counsel, we had anticipated a decision more in line with the typical regulatory outcomes in Connecticut. We're still reviewing and evaluating the decision. As part of that review, we are assessing options for further consideration of a few tax-related items in the case. In addition, we will pursue a regulatory strategy for timely recovery of additional Water Infrastructure and Conservation Adjustment or WICA, eligible plant that was not recovered in this case. The $40 million in capital investments that were removed from this case were done so on the basis of timing not prudent. Over half of the capital projects not included in rates as part of this decision, our WICA eligible projects scheduled to be completed before year-end 2021. The resetting of the WICA surcharge to zero will allow us to recover these investments in upcoming filings. Our next WICA filing is planned now for October 2021 and is expected to include approximately $18 million of completed projects. Based on that timing, we would expect the approved surcharge to be effective in January 2022. The statute allows for filings every six months up to a 5% increase in the annual surcharge with a 10% cap between general rate cases. Through the Water Revenue Adjustment Mechanism in Connecticut or WRAM, we are confident that we will realize the full revenues authorized in this case and subsequent WICA surcharges. There are other aspects of the decision that were favorable and significant, such as the authorization of a capital structure consisting of 53% equity. In addition, over a decade of capital investments were approved, including a number of important environmental projects such as a significant solar installation and the deployment of acoustic leak detection sensors across select distribution systems. The commission also approved our conservation rates, affirmed some of the benefits of the merger, commended us for proposing our Water Rate Assistance Program and was complementary of our operations in service. Taking into account the current decision, our forecasted earnings remain within our guidance of $1.85 to $2.05 per share, but are trending towards the lower half of the range. There has been significant progress on both the construction and the regulatory treatment for Maine Water's $60 million water treatment project. The new facility along the Saco River will replace its 1884 vintage drinking water treatment plant. On June 23, Maine water received approval from the Maine Public Utilities Commission for its innovative rate-smoothing mechanism for the Biddeford-Saco division that was effective on July 1. The RSM provides for a graduated transition to higher rates, helping to mitigate customer rate shock for this significant generational investment. Customers will pay a surcharge in year one, with those payments funding a regulatory liability account, which will later be used to provide credits to customer bills to mitigate the impacts of the full rate increase when the plant is completed and in service in 2022. Consistent with the original filing in March 2021, the team is now updating its general rate case filing to recover in base rates, all investment and costs associated with the new facility with new rates expected to start in July 2022. We continue to see robust growth at SJWTX, our Texas Water and Wastewater Utility. On June 28, an application was filed with the Texas Public Utilities Commission to acquire the Kendall West and Bandera East utilities, which are under common ownership. The utilities provide water service to approximately 4,000 people through 1,600 service connections in Bandera and Medina Counties. If approved by the Texas Commission, this would be the 14th acquisition for SJWTX since 2006. Through organic growth and acquisitions, we have more than tripled the number of our service connections to over 21,000. With the addition of Kendall West and Bandera East, SJWTX would serve three of the five fastest-growing counties in the United States, Comal, Hays and Kendall counties. Earlier this year, SJWTX completed the Clear Water Estates acquisition, which was the first fair market value acquisition in Texas. With a diverse portfolio of water supplies and continued additions to customer base through organic growth and acquisitions, we remain optimistic about the prospects for SJWTX, and its steadily increasing contributions to consolidated earnings. On behalf of SJW Group, I want to thank our employees for their commitment to protect public health, protect one another and deliver life-sustaining water service to families and communities through the pandemic, droughts, floods and storms. Our people are resilient, and we have confidence that their commitment to serve will overcome current and future challenges. I would also like to thank Debra Man for her service to the company, its employees and our shareholders. Debra joined the SJW Group Board in 2016 and recently announced her retirement from Board service. I will miss her counsel and contribution to the important work of delivering life-sustaining water service to our customers and communities. With that, I'd like to turn the call back to the operator for questions. Operator: You have a question from the line of Jonathan Reeder with Wells Fargo. Eric Thornburg: Hey, Jonathan. Jonathan Reeder: Hey, Eric and Jim. How are you guys, today? Eric Thornburg: We’re good. James Lynch: We’re good. Eric Thornburg: Thank you. Thank you for the call. Jonathan Reeder: Yes. No, I absolutely appreciate all the detail provided. I did miss your commentary just a little bit around guidance. I think you said you guys are now trending towards the lower end of the range. Is that right? Eric Thornburg: That's right, Jonathan. With the design of the rate case, with the WICA -- particularly excluding the WICA eligible plant, there's a few extra pennies a share there that we would have hope to have recovered with the actual implementation of rates. So that just pushes us out just a little bit. So if you look at a full year of the rate case, that's going to add about $0.15 a share when you take it all in, but the additional WICA will come at January 1. So we're missing that increment for the last half of the year. Jonathan Reeder: Okay. So that's related to the Connecticut rate case outcome. Got you. Just a point of clarification. On that guidance range, the $1.85 to $2.05, is that based on ongoing, or is that just kind of a full number? So like this quarter, I think you said $0.60 ongoing, $0.69 if you include the portion of the 2017 sale gain. Eric Thornburg: Yes, that would be for all earnings, Jonathan. We haven't made a distinguishing features of that. So, yes. Jonathan Reeder: Okay. And then, lastly, I just want to say congrats on getting the WCMA approved, the Conservation Memorandum Account in California. When is that effective? Is that effective immediately upon approval? Does it help you at all in the second half of the year, having that? Eric Thornburg: Why don't I start, and Jim, you can supplement this. I believe it's effective July 19 forward. And we will make sure that we deliver authorized revenues for the rest of the year, and our authorized revenues comport nicely with the 2019 period. So it really provides a real good solid floor, if you will, for any conservation-related reductions in consumption. So we should deliver authorized revenues. Jim? James Lynch: Yes. That's exactly right, Eric. And to put a point on it, our forecast -- our earnings guidance was predicated on authorized revenue. Jonathan Reeder: Got you. Okay. Well, I'll leave it here. That's about all I have. Good luck in the second half of the year as you guys wait through the California regulatory items that are on the dock, pretty important things. So, good luck with that. Eric Thornburg: Thank you, Jonathan. Yes. We appreciate that. Operator: As there are no questions at this time -- I'm sorry, you do have a question from Richard Sunderland with JPMorgan. Eric Thornburg: Hi, Richard. Richard Sunderland: Good morning. Just one question for me on the Connecticut puts and takes here. It sounds like with the WICA availability for the capital pulled out of the rate case, you essentially will catch up into next year. But just wanted to see if the outcome itself and some of the other considerations around the case are changing your thoughts on the regulatory strategy at all in the state going forward? Eric Thornburg: Yes. Thank you for the question. The Presiding Commissioner, Vice Chairman, Betkoski, made clear from the bench there, that the ROE in this case was really based and reflects the current economic conditions and not a reflection on the company. And we, of course, really appreciated that comment. And what I would say is as, we've looked back over the last 48 hours thinking about things that I would anticipate potentially more frequent filings in Connecticut rather than waiting as long as we did. We were out 11 years and for a lot of good reasons. But I think going forward, a better strategy for us would be go in more frequently for lower amounts and just continue at it in that regard. But the WICA availability and WRAM features, all are very capital supportive regulatory tools. And so, I think the one adjustment we would make, Richard, based on our current thinking would be just to go in a little bit more frequently. Richard Sunderland: Understood. Appreciate the color there. I’ll leave with that. Thank you. Eric Thornburg: Thank you. Appreciate question. Operator: There are no additional questions at this time. Eric Thornburg: Very good, operator. Thank you, and thank you to all those participating in our call today. We appreciate your interest and support in our company. We're very proud of our organization and executing on our growth strategy, and really proud of our long-standing commitment to our dividend, 77 consecutive years and 53 years consecutive in increasing that dividend. And we thank you for your interest and support. We look forward to talking to you next quarter. Operator: Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.
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SJW Group (NYSE:SJW) Earnings Preview: Key Financial Insights

  • SJW Group is expected to surpass Wall Street earnings estimates for the quarter ending March 2025, with projected higher revenues.
  • The company's financial metrics reveal a price-to-earnings (P/E) ratio of approximately 19.34 and a price-to-sales ratio of about 2.48.
  • A positive earnings surprise could potentially lead to an increase in SJW's stock price, depending on the outcome of the earnings call.

SJW Group, listed on the NYSE under the symbol SJW, is a prominent player in the water utility industry. The company provides water services to various communities, ensuring reliable and safe water supply. As a utility company, SJW competes with other water service providers, focusing on operational efficiency and customer satisfaction.

On April 28, 2025, SJW is set to release its quarterly earnings, with Wall Street estimating earnings per share (EPS) at $0.35 and revenue at approximately $160.5 million. According to Zacks Investment Research, SJW is expected to surpass these earnings estimates, despite a projected year-over-year decline in earnings. The company is anticipated to report higher revenues for the quarter ending March 2025.

The stock's movement will largely depend on whether SJW's actual results exceed these estimates. A positive earnings surprise could lead to an increase in the stock price, while a miss might result in a decline. The sustainability of any immediate price change and future earnings expectations will be influenced by management's discussion of business conditions during the earnings call.

SJW's financial metrics provide insight into its valuation and performance. The company has a price-to-earnings (P/E) ratio of approximately 19.34, indicating the price investors are willing to pay for each dollar of earnings. The price-to-sales ratio stands at about 2.48, suggesting that investors are paying $2.48 for every dollar of sales. The enterprise value to sales ratio is roughly 2.47, reflecting the company's valuation in relation to its revenue.

The enterprise value to operating cash flow ratio is approximately 9.46, indicating how many times the operating cash flow can cover the enterprise value. SJW's earnings yield is about 5.17%, representing the return on investment for shareholders. The debt-to-equity ratio is very low at 0.0027, suggesting minimal reliance on debt financing. Lastly, the current ratio is approximately 0.73, indicating the company's ability to cover its short-term liabilities with its short-term assets.

SJW Group (NYSE:SJW) Earnings Preview: Key Financial Insights

  • SJW Group is expected to surpass Wall Street earnings estimates for the quarter ending March 2025, with projected higher revenues.
  • The company's financial metrics reveal a price-to-earnings (P/E) ratio of approximately 19.34 and a price-to-sales ratio of about 2.48.
  • A positive earnings surprise could potentially lead to an increase in SJW's stock price, depending on the outcome of the earnings call.

SJW Group, listed on the NYSE under the symbol SJW, is a prominent player in the water utility industry. The company provides water services to various communities, ensuring reliable and safe water supply. As a utility company, SJW competes with other water service providers, focusing on operational efficiency and customer satisfaction.

On April 28, 2025, SJW is set to release its quarterly earnings, with Wall Street estimating earnings per share (EPS) at $0.35 and revenue at approximately $160.5 million. According to Zacks Investment Research, SJW is expected to surpass these earnings estimates, despite a projected year-over-year decline in earnings. The company is anticipated to report higher revenues for the quarter ending March 2025.

The stock's movement will largely depend on whether SJW's actual results exceed these estimates. A positive earnings surprise could lead to an increase in the stock price, while a miss might result in a decline. The sustainability of any immediate price change and future earnings expectations will be influenced by management's discussion of business conditions during the earnings call.

SJW's financial metrics provide insight into its valuation and performance. The company has a price-to-earnings (P/E) ratio of approximately 19.34, indicating the price investors are willing to pay for each dollar of earnings. The price-to-sales ratio stands at about 2.48, suggesting that investors are paying $2.48 for every dollar of sales. The enterprise value to sales ratio is roughly 2.47, reflecting the company's valuation in relation to its revenue.

The enterprise value to operating cash flow ratio is approximately 9.46, indicating how many times the operating cash flow can cover the enterprise value. SJW's earnings yield is about 5.17%, representing the return on investment for shareholders. The debt-to-equity ratio is very low at 0.0027, suggesting minimal reliance on debt financing. Lastly, the current ratio is approximately 0.73, indicating the company's ability to cover its short-term liabilities with its short-term assets.