SJW SJW Group

• $2.68 of diluted earnings per share in 2023 surpassing $2.43 per diluted share in 2022, initial 2023 guidance of $2.40 to $2.50 and inline with the updated guidance of $2.65 to $2.70
• $272 million in infrastructure investments, exceeding 2023 guidance
• 10.01% Water Cost of Capital Mechanism (WCCM)-adjusted return on equity in California as of January 1, 2024
• 2024 guidance issued of $2.68 to $2.78 diluted earnings per share

SJW Group (NYSE: SJW) today reported financial results for 2023.

“With a strong fourth quarter, our 2023 financial results and operating performance exceeded expectations and the initial earnings per share guidance we set for SJW Group at this time last year,” stated SJW Group Chair, CEO, and President, Eric W. Thornburg. “The results we announce today are a testament to our talented teams across the country delivering on our company’s mission to be a force for good every day for our customers, communities and shareholders.”

Continued Thornburg, “I’m also pleased to share that we met and surpassed our annual capital expenditure goal in 2023 by $17 million, with $272 million invested in improving and maintaining our water supply and infrastructure across our local operations. We secured constructive regulatory outcomes that in 2024 are providing a 10.01% WCCM-adjusted return on equity in California, and a $2.6 million revenue increase in Maine related to operating and financing costs for our award-winning Saco River Drinking Water Resource Center. Importantly, we grew our customer base in Texas by 12% in 2023 through organic growth and acquisitions, while also significantly increasing our water supply portfolio in this rapidly growing service area through strategic acquisitions. I’m confident that our continued focus on executing our proven growth strategy will position us for further success in 2024.”

2023 Operating Results

Net income in 2023 was $85.0 million, or $2.68 per diluted share, up 15% compared to $73.8 million, or $2.43 per diluted share, in 2022, surpassing initial guidance of $2.40 to $2.50 per share and inline with updated guidance of $2.65 to $2.70 per diluted share announced in October 2023. The increase was primarily driven by rate filings in California and Maine, a decrease in income taxes due to the partial release of an uncertain tax position reserve (which had a $0.14 positive impact on net income per diluted share), and lower maintenance costs; partially offset by higher water production costs and increased interest expense from higher cost of borrowings for our short-term debt and new long-term debt.

Operating revenue for 2023 was $670.4 million, up 8% compared to $620.7 million for 2022. The increase was primarily driven by $46.6 million in rate filings, $5.7 million due to regulatory mechanism adjustments, and customer growth of $3.8 million; partially offset by lower customer usage of $6.6 million driven primarily by weather conditions in California, Maine, and Texas.

Operating expenses for 2023 were $520.9 million, up 6% compared to $489.7 million for 2022. This change in operating expenses reflects:

• An increase in water production expenses of $23.4 million, to $256.2 million in 2023 compared to $232.8 million in 2022, due to the higher cost of purchased water, partially offset by lower usage;
• A decrease in the gain on sale of nonutility properties of $6.2 million due to the recording of a non-recurring sale of non utility properties in 2022, and no recorded gain on the sale of nonutility properties in 2023;
• An increase in general and administrative expenses of $3.3 million primarily due to allowances for customer credit losses;
• An increase in depreciation and amortization of $1.5 million primarily due to increases in depreciation related to new utility plant additions; partially offset by a $2.4 million one-time impact related to amortization on certain Cupertino concession assets in 2022; and
• A decrease in maintenance expenses of $5.0 million primarily due to a one-time cost incurred in the prior year. In addition, our proactive asset management and advanced leak detection programs, which enable us to reduce emergency projects and replace them with scheduled improvements, also contributed to lower maintenance expenses for the year.

The effective consolidated income tax rates for 2023 and 2022 were approximately 7% and 10%, respectively. The lower effective tax rate for 2023 was primarily due to the partial release of an uncertain tax position reserve.

Note Regarding Fourth Quarter Operating Results

Comparisons between 2023 and 2022 fourth quarter operating results are affected by and reflect the delay in San Jose Water Company's (SJWC) 2022 to 2024 general rate case (GRC) proceeding. As a reminder, while the California Public Utilities Commission (CPUC) approved the settlement agreement and SJWC recorded the authorized revenue increase from the GRC in the fourth quarter of 2022, the revenue increase was retroactive to January 1, 2022. This delayed recognition of GRC-authorized revenues affects quarter-over-quarter comparisons through 2023.

As noted last quarter, the CPUC approved SJWC's request for reinstatement of the Water Conservation Memorandum Account (WCMA) and Water Conservation Expense Memorandum Account (WCEMA) on October 2, 2023. The WCMA and WCEMA are temporary revenue protection mechanisms that allow water utilities to track for potential future recovery revenue losses and incremental expenses in response to water conservation efforts. The mechanisms were no longer available after the end of the drought emergency on April 11, 2023. SJWC requested authorization to reinstate the mechanisms based on our water wholesaler’s, Valley Water, request for a voluntary 15% reduction in water usage. Valley Water has cited restricted local storage over the next decade and precipitation volatility as the basis for continuing voluntary conservation. The reinstated WCMA and WCEMA protections were retroactive to April 20, 2023 and remain in effect.

Quarterly Operating Results

Net income for the quarter ended December 31, 2023 was $18.9 million, or $0.59 per diluted share, a 43% decrease compared to $33.5 million, or $1.09 per diluted share, in the same quarter last year. The decrease was primarily driven by the delayed decision in SJWC's 2022 GRC proceeding and higher production costs in 2023.

Operating revenue for the quarter ended December 31, 2023 was $171.3 million, a slight decrease compared to $171.4 million for the same quarter last year. The decrease was primarily driven by SJWC's delayed 2022 GRC, which resulted in approximately $20.7 million being reflected entirely in the fourth quarter of 2022; partially offset by $12.5 million in rate filings, an increase of $6.6 million due to regulatory mechanism adjustments, customer growth of $0.8 million, and higher customer usage of $0.7 million driven primarily by weather conditions and the end of California mandatory water conservation requirements.

Operating expenses for the quarter ended December 31, 2023 were $134.8 million, up 11% compared to $121.0 million for the same quarter last year. This change in operating expenses reflects:

• An increase in water production expenses of $11.6 million due to increased groundwater extraction charges, resulting in $64.7 million in water production expenses for the fourth quarter 2023 compared to $53.1 million in the same quarter last year;
• An increase in taxes other than income tax of $1.1 million;
• An increase in depreciation and amortization of $0.9 million primarily due to increases in new utility plant additions;
• A decrease in the gain on the sale of nonutility properties of $0.7 million due to the recording of a non-recurring sale of non utility properties in the fourth quarter 2022, and no recorded gain on the sale of nonutility properties in the fourth quarter 2023; and
• A decrease in maintenance expenses of $3.2 million primarily due to costs incurred in the prior year related to the Order of Instituting Investigation settlement agreement.

The effective consolidated income tax rates for the fourth quarter of December 31, 2023 and 2022 were approximately 9% and 13%, respectively. The lower effective tax rate was primarily due to the partial release of an uncertain tax position reserve.

Capital Expenditures

In 2023 SJW Group invested $272 million in infrastructure and water supply, which exceeded our 2023 capital expenditures guidance of $255 million.

SJW Group plans to invest more than $1.6 billion in capital over the next 5 years to build and maintain its water and wastewater operations, including approximately $230 million to install treatment for per- and polyfluoroalkyl substances (PFAS), subject to regulatory approvals and availability of funding.

Rate Activity and Regulatory Updates

California

On December 28, 2023, the CPUC approved SJWC's Advice Letter 603 establishing a Group Insurance Balancing Account effective on January 1, 2024. The purpose of the account is to capture the difference between authorized and actual medical, dental, and opt-out insurance costs.

On January 1, 2024, new rates went into effect that included a WCCM-adjusted return on equity (ROE) of 10.01%, less 20 basis points (bps) for use of the WCMA, a 5.28% cost of debt, a capital structure of 54.55% equity, and a 7.75% overall rate of return (ROR) including the 20 bps ROE reduction due to the WCMA. On January 1, 2023, the ROE was 8.80%, the cost of debt was 6.20%, the capital structure was 53.28% equity, and the overall ROR was 7.64%.

On January 2, 2024, SJWC filed its 2024 GRC application with the CPUC for new rates spanning 2025 to 2027. The company proposed an increase over current authorized revenues of approximately $55.2 million, or 11.1%, in 2025, approximately $22.0 million, or 4.0%, in 2026, and approximately $25.8 million, or 4.5%, in 2027. SJWC is also proposing a 3-year $540 million capital expenditure program focusing on:

• Treating PFAS in drinking water;
• Reducing greenhouse gas emissions through solar generation, energy storage systems, continued electrification of our vehicle fleet, and expansion of our advanced leak detection program; and
• Advancing the CPUC’s Environmental and Social Justice Action Plan by improving access to high-quality water service, climate resiliency, and economic and workforce development.

On February 2, 2024, SJWC, along with three other Class A California water utilities, received approval from CPUC granting a one-year deferment in their 2024 Cost of Capital (COC) filings to May 1, 2025 in response to the water utilities' request for a one-year postponement of their COC filings otherwise scheduled to be filed on May 1, 2024. This deferment alleviates administrative processing costs for both the water utilities and CPUC staff. The approved deferral includes a provision that the WCCM remains in place for 2025 and allows it to adjust up or down in accordance with movements of 100 bps or more in the Moody’s Aa Utility Bond Index between October 1, 2023 and September 30, 2024.

Connecticut

On October 3, 2023, The Connecticut Water Company (CWC) filed a GRC application with the Connecticut Public Utilities Regulatory Authority (PURA) to amend rates. CWC is requesting a $21.4 million, or approximately 18.1%, increase over current authorized revenues to recover approximately $135 million in drinking water and wastewater infrastructure investment, as well increased operating and borrowing costs. CWC expects any PURA authorized increase in rates to be effective on or about July 1, 2024.

Maine

On January 5, 2024, the Maine Public Utilities Commission approved a stipulation agreement between Maine Water Company (MWC) and the Office of the Public Advocate to settle MWC’s March 2023 rate application in the Biddeford Saco Division. Under the approved agreement, MWC annual revenues will increase by $2.6 million, or 17.6%, effective January 1, 2024. MWC had requested a $2.9 million revenue increase in March 2023 to cover the operating expenses and increased borrowing costs of the $60 million Saco River Drinking Water Resource Center that went in-service in June 2022.

Texas

On January 5, 2024, The Texas Water Company (TWC) filed an application with the Public Utilities Commission of Texas (PUCT) to acquire 3009 Water Company, a water system serving approximately 270 water customers in Comal County, Texas.

On January 26, 2024, TWC closed on the acquisition of Elm Ridge, a water system serving approximately 21 water customers in Comal County, Texas.

TWC's completed application for a system improvement charge (SIC) is pending before the PUCT. We expect the PUCT to issue a final decision on the application in the first quarter of 2024. The SIC would allow TWC to add certain utility plant additions made since 2020 to its rate base, thereby increasing revenue and avoiding the need for a general rate case in 2024. At the time of filing in December 2022, the SIC was projected to increase TWC’s annualized water revenue by $1.6 million, and sewer revenue by $29,000 within one year of the SIC's approval.

Corporate Responsibility Recognition

SJW Group was recently recognized in the Newsweek Excellence 1000 Index 2024. SJW Group was the highest ranked water utility company in the index, which ranks a select group of 1000 companies globally that have been identified as exemplars of corporate success and responsibility.

2024 Guidance

The following is the company’s 2024 full-year guidance:

• Net income per diluted common share of $2.68 to $2.78; and
• Regulated infrastructure investments of approximately $332 million in 2024

In addition, we reiterate our non-linear long-term diluted EPS growth of 5% to 7%, anchored off 2022's diluted EPS of $2.43.

When considering the company's 2024 guidance relative to actual results in 2023, it is important to note that the company's adjustment to income tax reserves in 2023 resulted in an increase of $0.14 per diluted share.

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.

Financial Results Call Information

Eric W. Thornburg, president, chief executive officer, and board chair, and Andrew F. Walters, chief financial officer and treasurer, will review results for 2023 in a live webcast presentation at 11 a.m. PT, or 2 p.m. ET, on Thursday, February 22, 2024.

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 22, 2024.

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 The Texas Water 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 stockholders. 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,” “estimates,” “anticipates,” “intends,” “seeks,” “plans,” “projects,” “may,” “should,” “will,” 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 regulatory 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) unanticipated weather conditions and changes in seasonality including those affecting water supply and customer usage; (4) the effect of the impact of climate change; (5) unexpected costs, charges or expenses; (6) our ability to successfully evaluate investments in new business and growth initiatives; (7) contamination of our water supplies and damage or failure of our water equipment and infrastructure; (8) the risk of work stoppages, strikes and other labor-related actions; (9) catastrophic events such as fires, earthquakes, explosions, floods, ice storms, tornadoes, hurricanes, terrorist acts, physical attacks, cyber-attacks, epidemic, or similar occurrences; (10) changes in general economic, political, business and financial market conditions; (11) 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 (12) 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 share and per share data)

 

 

Three months ended December 31,

 

Twelve months ended December 31,

 

2023

 

2022

 

2023

 

2022

OPERATING REVENUE

$

171,338

 

 

171,374

 

 

$

670,363

 

 

620,698

 

OPERATING EXPENSE:

 

 

 

 

 

 

 

Production Expenses:

 

 

 

 

 

 

 

Purchased water

 

34,928

 

 

38,021

 

 

 

135,982

 

 

122,334

 

Power

 

2,239

 

 

(1,498

)

 

 

9,602

 

 

8,889

 

Groundwater extraction charges

 

16,229

 

 

4,811

 

 

 

62,980

 

 

56,158

 

Other production expenses

 

11,257

 

 

11,802

 

 

 

47,636

 

 

45,409

 

Total production expenses

 

64,653

 

 

53,136

 

 

 

256,200

 

 

232,790

 

Administrative and general

 

26,897

 

 

24,030

 

 

 

98,656

 

 

95,404

 

Maintenance

 

6,916

 

 

10,083

 

 

 

25,729

 

 

30,734

 

Property taxes and other non-income taxes

 

9,383

 

 

8,330

 

 

 

34,475

 

 

32,572

 

Depreciation and amortization

 

26,996

 

 

26,075

 

 

 

105,868

 

 

104,417

 

Gain on sale of nonutility property

 

—

 

 

(665

)

 

 

—

 

 

(6,197

)

Total operating expense

 

134,845

 

 

120,989

 

 

 

520,928

 

 

489,720

 

OPERATING INCOME

 

36,493

 

 

50,385

 

 

 

149,435

 

 

130,978

 

OTHER (EXPENSE) INCOME:

 

 

 

 

 

 

 

Interest on long-term debt and other interest expense

 

(17,231

)

 

(15,902

)

 

 

(66,144

)

 

(58,062

)

Pension non-service (cost) credit

 

(324

)

 

2,163

 

 

 

(1,230

)

 

5,023

 

Other, net

 

1,840

 

 

1,691

 

 

 

8,882

 

 

4,385

 

Income before income taxes

 

20,778

 

 

38,337

 

 

 

90,943

 

 

82,324

 

Provision for income taxes

 

1,829

 

 

4,838

 

 

 

5,956

 

 

8,496

 

NET INCOME

 

18,949

 

 

33,499

 

 

 

84,987

 

 

73,828

 

Other comprehensive (loss) income, net

 

(106

)

 

2,242

 

 

 

314

 

 

1,640

 

COMPREHENSIVE INCOME

$

18,843

 

 

35,741

 

 

$

85,301

 

 

75,468

 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE

 

 

 

 

 

 

 

Basic

$

0.59

 

 

1.10

 

 

$

2.69

 

 

2.44

 

Diluted

$

0.59

 

 

1.09

 

 

$

2.68

 

 

2.43

 

DIVIDENDS PER SHARE

$

0.38

 

 

0.36

 

 

$

1.52

 

 

1.44

 

WEIGHTED AVERAGE SHARES OUTSTANDING

 

 

 

 

 

 

 

Basic

 

31,988

 

 

30,478

 

 

 

31,575

 

 

30,305

 

Diluted

 

32,068

 

 

30,618

 

 

 

31,663

 

 

30,424

 

Note: Certain prior period amounts on the condensed consolidated statements of comprehensive income have been reclassified to conform to the current period presentation.

SJW Group

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)

 

 

December 31, 2023

 

December 31, 2022

ASSETS

 

 

 

Utility plant:

 

 

 

Land

$

41,415

 

39,982

Depreciable plant and equipment

 

3,967,911

 

 

3,661,285

 

Construction in progress

 

106,980

 

 

116,851

 

Intangible assets

 

35,946

 

 

35,959

 

Total utility plant

 

4,152,252

 

 

3,854,077

 

Less accumulated depreciation and amortization

 

981,598

 

 

1,223,760

 

Net utility plant

 

3,170,654

 

 

2,630,317

 

 

 

 

 

Nonutility properties and real estate investments

 

13,350

 

 

58,033

 

Less accumulated depreciation and amortization

 

194

 

 

17,158

 

Net nonutility properties and real estate investments

 

13,156

 

 

40,875

 

 

 

 

 

CURRENT ASSETS:

 

 

 

Cash and cash equivalents

 

9,723

 

 

12,344

 

Accounts receivable:

 

 

 

Customers, net of allowances for uncollectible accounts of $6,551 and $5,753 on December 31, 2023 and December 31, 2022, respectively

 

67,870

 

 

59,172

 

Income tax

 

5,187

 

 

—

 

Other

 

3,684

 

 

5,560

 

Accrued unbilled utility revenue

 

49,543

 

 

45,722

 

Assets held for sale

 

40,850

 

 

—

 

Prepaid expenses

 

11,110

 

 

9,753

 

Current regulatory assets, net

 

4,276

 

 

19,740

 

Other current assets

 

6,146

 

 

6,095

 

Total current assets

 

198,389

 

 

158,386

 

OTHER ASSETS:

 

 

 

Regulatory assets, less current portion

 

235,910

 

 

246,035

 

Investments

 

16,411

 

 

14,819

 

Postretirement benefit plans

 

33,794

 

 

16,990

 

Other intangible asset

 

28,386

 

 

—

 

Goodwill

 

640,311

 

 

640,311

 

Other

 

8,056

 

 

7,323

 

Total other assets

 

962,868

 

 

925,478

 

TOTAL ASSETS

$

4,345,067

 

 

3,755,056

 

Note: Certain prior period amounts on the condensed consolidated balance sheets have been reclassified to conform to the current period presentation.

SJW Group

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)

 

 

December 31, 2023

 

December 31, 2022

CAPITALIZATION AND LIABILITIES

 

 

 

CAPITALIZATION:

 

 

 

Stockholders’ equity:

 

 

 

Common stock, $0.001 par value; authorized 70,000,000 shares; issued and outstanding shares 32,023,004 on December 31, 2023 and 30,801,912 on December 31, 2022

$

32

 

31

Additional paid-in capital

 

736,191

 

 

651,004

 

Retained earnings

 

495,383

 

 

458,356

 

Accumulated other comprehensive income

 

1,791

 

 

1,477

 

Total stockholders’ equity

 

1,233,397

 

 

1,110,868

 

Long-term debt, less current portion

 

1,526,699

 

 

1,491,965

 

Total capitalization

 

2,760,096

 

 

2,602,833

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

Lines of credit

 

171,500

 

 

159,578

 

Current portion of long-term debt

 

48,975

 

 

4,360

 

Accrued groundwater extraction charges, purchased water and power

 

24,479

 

 

19,707

 

Accounts payable

 

46,121

 

 

29,581

 

Accrued interest

 

15,816

 

 

13,907

 

Accrued payroll

 

12,229

 

 

11,908

 

Income tax payable

 

—

 

 

2,696

 

Current regulatory liabilities

 

3,059

 

 

3,672

 

Other current liabilities

 

20,795

 

 

22,913

 

Total current liabilities

 

342,974

 

 

268,322

 

 

 

 

 

DEFERRED INCOME TAXES

 

238,528

 

 

218,155

 

ADVANCES FOR CONSTRUCTION

 

146,582

 

 

137,696

 

CONTRIBUTIONS IN AID OF CONSTRUCTION

 

326,451

 

 

323,668

 

POSTRETIREMENT BENEFIT PLANS

 

46,836

 

 

59,738

 

REGULATORY LIABILITIES, LESS CURRENT PORTION

 

461,108

 

 

118,760

 

OTHER NONCURRENT LIABILITIES

 

22,492

 

 

25,884

 

COMMITMENTS AND CONTINGENCIES

 

 

 

TOTAL CAPITALIZATION AND LIABILITIES

$

4,345,067

 

 

3,755,056

 

Note: Certain prior period amounts on the condensed consolidated balance sheets have been reclassified to conform to the current period presentation.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240221538675/en/

Andrew F. Walters Chief Financial Officer and Treasurer 408.279.7818 Andrew.Walters@sjwater.com

Daniel J. Meaney, APR Director of Investor Relations 860.664.6016 Daniel.Meaney@ctwater.com