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 SJW Group Announces 2019 Second Quarter Financial Results
   Wednesday, July 24, 2019 6:30:00 PM ET

SAN JOSE, Calif.--(BUSINESS WIRE)--SJW Group (NYSE: SJW) today reported financial results for the second quarter ended June 30, 2019. SJW Group net income was $13.5 million for the quarter ended June 30, 2019, compared to $12.9 million for the same period in 2018. Diluted earnings per share were $0.47 and $0.62 for the quarters ended June 30, 2019 and 2018, respectively. Diluted earnings per share in 2019 includes $0.58 per share from recurring operations offset by $0.06 per share related to a settlement of the company's Order Instituting Investigation ("OII") proceeding with the California Public Utilities Commission ("CPUC") over customer billing practices and $0.05 per share related to the company's proposed merger with Connecticut Water Service, Inc ("CTWS"). Diluted earnings per share in 2018 includes $0.72 per share from recurring operations offset by $0.10 per share related to the proposed merger.

Subsequent to June 30, 2019, San Jose Water Company entered into a Settlement Agreement ("Agreement") with the CPUC's Consumer Protection and Enforcement Division ("CPED") on the CPUC's OII over the company's past customer billing practices. The Agreement requires the company to pay approximately $2.1 million in customer credits and invest $5.0 million in utility plant that is not allowed an investment return or rate recovery. The company has established a settlement reserve of $2.1 million, with an offset to revenue as of June 30, 2019. The company expects to make the utility plant investment with construction to begin within 12 months of the settlement agreement approval by the CPUC. Approval of the Agreement by the CPUC is anticipated in the third quarter of 2019.

Operating revenue was $103.0 million for the quarter ended June 30, 2019, compared to $99.1 million in 2018. The $3.9 million increase in revenue was primarily attributable to a $3.6 million change in cumulative water rates, a $3.6 million change in the net recognition of certain balancing and memorandum accounts, and an $800,000 increase due to new customers, partially offset by $2.1 million in lower customer water usage and $2.1 million in customer rate credits related to the settlement of the CPUC's OII over customer billing practices.

Water production expenses for the quarter ended June 30, 2019 were $42.1 million, compared to $39.9 million in 2018, an increase of $2.2 million. The increase in water production expenses was primarily attributable to $3.6 million in higher per unit costs for purchased water, groundwater extraction and energy charges and $2.2 million in cost recovery balancing and memorandum accounts, partially offset by a $3.0 million reduction due to an increase in the use of available surface water supplies and $600,000 in decreased customer water usage. Operating expenses, excluding water production costs, increased $2.5 million to $38.9 million from $36.4 million. The increase was primarily due to $1.5 million in higher general and administrative expenses, primarily related to increased compensation and pension costs, $1.4 million in higher depreciation expenses due to assets placed in service in 2018 and $500,000 in higher maintenance and taxes other than income taxes, partially offset by a decrease of $900,000 in merger expenses related to our proposed merger transaction with CTWS.

Other expense and income in the second quarter of 2019 included $2.3 million of interest income earned on money market fund investments from the proceeds of our equity offering in December 2018.

The effective consolidated income tax rates were approximately 23% and 24% for the quarters ended June 30, 2019 and 2018, respectively.

Year-to-date net income was $19.4 million, compared to $14.2 million in 2018. Diluted earnings per share were $0.68 in the first six months of 2019, compared to $0.68 per diluted share for the same period in 2018. Diluted earnings per share in 2019 includes $0.86 per share from recurring operations offset by $0.06 per share related to the company's OII settlement with the CPUC's CPED and $0.12 per share related to the company's activities around the proposed merger with CTWS. Diluted earnings per share in 2018 includes $0.93 per share from recurring operations offset by $0.25 per share related to the proposed merger.

Year-to-date operating revenue increased by $6.5 million to $180.6 million from $174.1 million in the first six months of 2019. The increase was attributable to a $6.7 million change in cumulative water rates, $6.2 million in the net recognition of certain balancing and memorandum accounts, and $1.7 million in new customers, partially offset by a $5.9 million decrease in customer usage and $2.1 million in customer rate credits related to the OII settlement with the CPUC's CPED.

Year-to-date water production expenses decreased to $68.9 million from $70.3 million in 2018. The $1.4 million decrease was attributable to a $7.3 million increase in the use of available surface water supplies and $3.0 million in decreased customer usage, partially offset by $6.4 million in higher per unit costs for purchased water, groundwater extraction and energy charges and a $2.5 million increase in cost recovery balancing and memorandum accounts. Operating expenses, excluding water production costs, increased $3.7 million to $77.4 million from $73.7 million. The increase was primarily due to $3.0 million in higher depreciation expenses, $2.2 million in higher general and administrative expenses and $600,000 in higher taxes other than income taxes, partially offset by a decrease of $2.2 million in merger expenses related to our proposed CTWS merger transaction.

Other expense and income year-to-date for 2019 included $4.2 million of interest income earned on money market fund investments from the proceeds of the company's equity offering in December 2018.

The effective consolidated income tax rates were approximately 24% and 20% for the six-month periods ended June 30, 2019 and 2018, respectively.

The Directors of SJW Group today declared a quarterly dividend on common stock of $0.30 per share. The dividend is payable on September 3, 2019, to shareholders of record on August 5, 2019.

On July 3, 2019, SJW Group and CTWS ("the Companies") reached a settlement agreement with the Department of Energy and Environmental Protection ("DEEP") and the Office of Consumer Counsel ("OCC") regarding the commitments in our application to the Connecticut Public Utilities Regulatory Authority ("PURA") for approval of our proposed merger. The settlement agreement modifies and adds commitments that will provide additional, direct long-term customer and environmental benefits, enhance local control and provide supplemental financial protections to customers.

On July 3, 2019, the Companies submitted to filing with PURA requesting approval of the settlement agreement and our merger application with the support of DEEP and the OCC. PURA will determine the next procedural steps and the schedule to complete the proceeding. In addition, the Companies filed an application for merger approval with the Maine Public Utilities Commission on May 3, 2019. The Companies have since engaged in discovery and preliminary settlement negotiations related to the Maine proceeding. The proposed merger transaction remains on track to close in the third quarter of 2019.

SJW Group is a publicly traded holding company headquartered in San Jose, California. SJW Group is the parent company of San Jose Water Company, SJWTX, Inc., and SJW Land Company. Together, San Jose Water Company and SJWTX, Inc. provide water service to more than one million people in San Jose, California and nearby communities and in Canyon Lake, Texas and nearby communities. SJW Land Company owns and operates commercial real estate investments.

This press release may contain certain forward-looking statements including, but not limited to, statements relating to SJW Group's plans, strategies, objectives, expectations and intentions, which are made pursuant to the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors which 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.

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 conditions to the closing of the proposed transaction between SJW Group and CTWS (the "Merger") are not satisfied; (2) the risk that the regulatory approvals required for the Merger are not obtained at all, or if obtained, on the terms expected or on the anticipated schedule; (3) the risk that the CPUC's investigation may cause delays in or otherwise adversely affect the Merger and that SJW Group may be required to consummate the Merger prior to the CPUC's issuance of an order with respect to its investigation; (4) the effect of water, utility, environmental and other governmental policies and regulations; (5) litigation relating to the Merger; (6) the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement between the parties to the Merger; (7) changes in demand for water and other products and services; (8) unanticipated weather conditions; (9) catastrophic events such as fires, earthquakes, explosions, floods, ice storms, tornadoes, terrorist acts, physical attacks, cyber-attacks, or other similar occurrences that could adversely affect the facilities, operations, financial condition, results of operations and reputation of SJW Group or CTWS; (10) risks that the Merger disrupts the current plans and operations of SJW Group or CTWS; (11) potential difficulties by SJW Group or CTWS in employee retention as a result of the Merger; (12) unexpected costs, charges or expenses resulting from the Merger; (13) risks related to diverting management's attention from ongoing business operations of SJW Group or CTWS; and (14) legislative and economic developments.

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 reports on Form 10-K, Form 10-Q and Form 8-K filed with the Securities and Exchange Commission. 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,

2019

2018

2019

2018

REVENUE

$

102,965

99,086

$

180,647

174,128

OPERATING EXPENSE:

Production Expenses:

Purchased water

26,381

23,712

40,043

39,128

Power

1,493

1,624

2,653

2,892

Groundwater extraction charges

9,100

9,919

15,963

19,451

Other production expenses

5,159

4,626

10,258

8,838

Total production expenses

42,133

39,881

68,917

70,309

Administrative and general

13,408

11,958

25,699

23,526

Maintenance

4,729

4,596

9,054

9,056

Property taxes and other non-income taxes

3,848

3,450

7,976

7,316

Depreciation and amortization

15,101

13,656

30,246

27,239

Merger related expenses

1,775

2,746

4,376

6,552

Total operating expense

80,994

76,287

146,268

143,998

OPERATING INCOME

21,971

22,799

34,379

30,130

OTHER (EXPENSE) INCOME:

Interest expense

(6,714

)

(6,084

)

(12,505

)

(12,136

)

Unrealized gain (loss) on California Water Service Group stock

140

(527

)

Interest income on Money Market Fund

2,342

4,174

Gain on sale of real estate investment

745

745

Pension non-service cost

(907

)

(595

)

(1,828

)

(1,178

)

Other, net

517

679

907

1,355

Income before income taxes

17,954

16,939

25,872

17,644

Provision for income taxes

4,192

4,068

6,237

3,488

NET INCOME BEFORE NONCONTROLLING INTEREST

13,762

12,871

19,635

14,156

Less net income attributable to noncontrolling interest

224

224

SJW GROUP NET INCOME

13,538

12,871

19,411

14,156

COMPREHENSIVE INCOME

$

13,538

12,871

$

19,411

14,156

EARNINGS PER SHARE:

Basic

$

0.48

0.63

$

0.68

0.69

Diluted

$

0.47

0.62

$

0.68

0.68

DIVIDENDS PER SHARE

$

0.30

0.28

$

0.60

0.56

WEIGHTED AVERAGE SHARES OUTSTANDING:

Basic

28,440

20,592

28,432

20,577

Diluted

28,526

20,732

28,517

20,717

SJW Group

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands)

June 30,
2019

December 31,
2018

ASSETS

Utility plant:

Land

$

18,303

18,296

Depreciable plant and equipment

1,870,156

1,833,051

Construction in progress

100,350

68,765

Intangible assets

15,799

15,799

Total utility plant

2,004,608

1,935,911

Less accumulated depreciation and amortization

635,005

607,090

Net utility plant

1,369,603

1,328,821

Real estate investments

56,473

56,336

Less accumulated depreciation and amortization

12,925

12,327

Net real estate investments

43,548

44,009

CURRENT ASSETS:

Cash and cash equivalents:

Cash

9,849

8,722

Money market fund

412,000

412,000

Accounts receivable and accrued unbilled utility revenue

61,003

50,219

Current regulatory assets, net

15,904

26,910

Other current assets

5,163

4,871

Total current assets

503,919

502,722

OTHER ASSETS:

Regulatory assets, net

81,746

76,715

Other

4,834

4,122

86,580

80,837

$

2,003,650

1,956,389

SJW Group

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands)

June 30,
2019

December 31,
2018

CAPITALIZATION AND LIABILITIES

CAPITALIZATION:

Common stock

$

28

28

Additional paid-in capital

497,633

495,366

Retained earnings

396,334

393,918

Total stockholders' equity

893,995

889,312

Long-term debt, less current portion

510,859

431,424

Total capitalization

1,404,854

1,320,736

CURRENT LIABILITIES:

Lines of credit

55,000

100,000

Accrued groundwater extraction charges, purchased water and power

17,625

13,694

Accounts payable

28,253

24,937

Accrued interest

7,972

7,132

Accrued payroll

5,573

7,181

Other current liabilities

12,635

11,041

Total current liabilities

127,058

163,985

DEFERRED INCOME TAXES

76,983

79,651

ADVANCES FOR CONSTRUCTION AND CONTRIBUTIONS IN AID OF CONSTRUCTION

251,969

248,853

POSTRETIREMENT BENEFIT PLANS

72,432

70,490

REGULATORY LIABILITY

57,901

59,149

OTHER NONCURRENT LIABILITIES

12,453

13,525

$

2,003,650

1,956,389

SJW Group
Suzy Papazian, 408-279-7961
General Counsel and Corporate Secretary

Source: SJW Group



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