SJW - Earnings call transcript Q3 2020

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the SJW Group Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s call is being recorded. [Operator Instructions] I would now like to hand the conference over to Jim Lynch, Chief Financial Officer. you. Thank sir. ahead, go Please

Jim Lynch

President, you, operator. results be quarter financial the the today Officer. Welcome call for to Board, of conference Chairman will Eric third Chief SJW Executive with XXXX Thornburg, Thank and Group. presenting I

to would at remarks website along slides For are like accompanying on available those follow who our www.sjwgroup.com. our

based trends, our experience, to you on current light are other These and related appropriate future materially or presentation expressed differ actual we could today's I presentation, the as believes this made statements. assumptions factors begin and of circumstances. forward-looking would the posted well estimates that company's Many website, factors from on statements. by Before those conditions, as and statements in by contain expected under cause implied are company like historical to performance remind company that forward-looking may and the the materials the developments its results

cause website. filed made factors Group be Exchange which and and obtained press duty the to statements release any as For disclaims such a forward-looking Commission, we of XX-Q results to financial description our on could revise copies this the in from with refer X-K of to of statements. the Securities today SJW our All are may you presentation, and or update and some that different statements be recent actual XX-K, forms most of to results

an have opportunity questions the will You presentation. ask of at end to our

available archive the this a webcast is an will webcast be January XXXX. reminder, until of being and recorded XX, As

turn corporate press on the to Eric. release webcast access our You over website. now I will call the the can and

Eric Thornburg

together combination SJW it knew to you with Welcome Thornburg Group. Connecticut We everyone that would shareholders, It us. going and their people over my the Water. a values. the year the completed for am just customers, serving of President our ago our commitment and values, transformative that you SJW well country to the cannot customers our serve service teams had honor you, that and across is followed of protecting our benefit joining living our public a I that of our its proud and I work people Eric the for into shared how for passion CEO similar health, employee environment. months Group In merger Chairman, historic Jim. was combination, Thank communities, tell thank I'm and and coworkers, and as and safety,

allowing our while with safe our accelerated to drinking work X.X their health states. to life-sustaining across people were our necessary with to across outstanding. they Just area, in of created pre-COVID-XX the our Maine, them four have in in people months others, faced of deliver kept our been Connecticut, in of work has like of was be have COVID-XX. the and It challenges has as many safety into operations. to and challenges ways, four support the snowstorm their included which shown protocols, that late-winter service guidelines first this significant our the have California and million PPE team, especially all plan do we, our and integration, pandemic the policies that integration, wildfires brownouts tropical a strengths The drought within bonds many foundation in forged and In critical XXXX storm of Using and colleagues, a and water employee Texas. XXXX

we the health view health mental as have course, the health. physical their families. to mental times, of important of resources Of available variety as expanded employees just is In and

counseling online find allows range the people them. are through from and employee to medical support an assistance of to array our react our sessions available we employee Offerings peer to an professional to programs. best team all having As that stress program resources differently, options for mindfulness

managers Our about. co-workers concerned conversations sensitive that on peers and those training how they're have with to have received

in resilient core the communities can and growth a system, support remains reliable Jose Treatment Water of part and before. public replaces We've acquired return drinking a fair for and in facility to of the Group and generational provide Drinking strategy of After that critical Sustainable and Company investing since our in Our of Maine Saco to to slightly delayed customers the shareholders. wellness. in time Despite to be million plans million its will due earn commitment set at and other leaders Infrastructure. is group is business operations Connecticut, and million employees like capital critical XXXX. of our New QX last Maine, XXXX. will of Jim. we July, COVID-XX, remarks, $XXX.X XXXX we a programs the to which and capital $X.XX This reaffirm Texas history the safe case. water commitment water our due turn the England more broken their $XXX investments California, most Biddeford review mission. our River including are Saco and business per continue at rate the achieve strategy our testament results. in safe authorized so standards Jim's This service mental the been to The in being for physical never our facility delays of been to SJW in on XXXX. but nature will infrastructure, true will of of for to will overall San Water of capital on was XXXX Water, capital in Maine by spring been and Facility financial and now Southern address over some sustainable CTWS XXXX our and Institute and health and executing the the share the In water by extraordinary XXXX. designed program We new the in growth $X.XX has remain the reminded in in who project largest the investing Texas matters. meet three-year subsidiaries. clean, our set on a sanitation Continuing are is subsidiaries on on infrastructure focused the to Biddeford, completed COVID I deliver earlier health than investment for ground year. in serving customers was SJW guidance plan track to Water and focused in of $XX has I passion We people value call core This the Jim on our our regulatory

Jim Lynch

Eric. you, Thank

and utilities. earnings and full with authorized third by water our area Northern due weather California an results dry These conditions to Water year-to-date in quarter customer increase higher water service related decrease increase in offset partially quarter increases a our the and in usage combined past Service costs operations supplies the of operating Our the water reflect winter, usage. increases to to CTWS due availability customer Connecticut and or and this in surface were in Texas of California rate an increase in

$XXX.X debt was no balances $X.X of recorded accounting per XXXX over longer per Conservation The share share. to income million. diluted higher California was per $X.XX other million and Net $XX.X reserve $XXX diluted reserve Diluted $XX.X share, California third quarter third an third-quarter the Texas, water and establishing recall per increase CTWS, XXXX cost of requirements. million increase procurement of or depreciation per revenue due against per of per share. decrease items of result in authorized WCMA combined was the earnings the usage the customer per $X.XX the and met per for XXXX share compares contributed share, share. of per reflects In $X.XX on contributed of in for reported due higher a increase share, expense Account higher revenue in Third-quarter added with cost for contributed This third million or new expenses contributed and share, XXXX. $X.XX increases quarter the million $X.XX quarter dollars customer recognition were $X.X earnings increase which partially decrease $X.XX $X.XX $X.X in or or of increases offset $X.X share. of XXXX interest our an as general rate share, per the a we share. expense long-term an and we by administrative in $X.X Memorandum in Also These per on Water the determined $X.X share production water we usage, to XXXX, quarter surface to production impact per that

of earned from December our addition equity an merger invested temporarily offering incurred CTWS share. XXXX, per proceeds $X.X we in interest on per share $X.X and In XXXX expenses of

established, were or XXXX, similar earned During the incurred. reserves third of merger no quarter investment expenses income account

which merger Texas another usage $XX.X million the due analysis, authorized our Increased contributed rate $XX.X we to customer million. $X.X was contributed the million in quarterly generated CTWS, primarily and to California experienced cumulative increases. Turning comparative million we in increase and revenue with $X.X in

XXXX, to we XXXX $X.X WCMA reserve against million XXXX recorded a balances. and addition the California In

to reserves quarter increased the increase CTWS established required related third sales. compared be Water no included were similar $XX.X million water to million XXXX. As noted, expenses in $X.X production The of to XXXX.

million to and of Other third-quarter due increased to $X.X our expenses, million in of increases of primarily CTWS's customer and $X.X California usage. million, non-income million quarter, administrative to and $X.X The $X.X the purchase the taxes. shortage Northern due cost addition, third primarily increased expense in other the surface million during the $X.X in and expenses higher area In depreciation general supply water additional million for a higher result water property $XX.X due service to inclusion higher activities. new of operating were

experienced The The deductions. during in impact a tax the due primarily to flow-through the for the incurred third certain tax decrease was to XX% the quarter compared expenses, effective merger-related rate third more decrease third of tax XXXX. of quarter income of quarter as was In we XXXX. addition, million XX% for none CTWS effective rate $X.X

added million same in of earnings many the diluted due the $X the per to to was The change nine nine of per for debt higher $X.XX year. per customer to Rate cost increases XXXX. increases customer to over $X.XX California share on same contributed $XX.X was contributed due a for in California California period $X.XX usage noted Texas production the during $X.XX or procurement by $X.XX Higher income items per production diluted million, of share. per partially XXXX Texas water costs same to $XX.X Turning in per the last first per $XXX.X $X.XX and due months per share, increase and XX% offset a for decrease the $X.XX interest expense XXXX, year per $X.XX results share share the other factors These share. surface higher $X.XX share. CTWS usage period compared per share per of contributed water increased million quarter. at was of expense share. new increased Net share for share, and first in in depreciation revenue diluted a increased long-term months and of were

$X.XX related per September credits recurred of our XXXX. XXXX, of was rate expenses temporarily share. was In XXXX merger earned of None share the year-to-date XXXX XXXX, the CPUC with In $X.XX reserve of impact billing incurred per per we per we WCMA the customer share. $X.XX $X.XX settlement addition CTWS also customer share. issued Income items proceeds in in the offering on and invested to

CTWS, due increases. year-to-date California to our to we added $XX.X million. an Texas, increase rate which customer contributed our our and $XXX.X $XX.X experienced which of increase cumulative million. primarily results In increased and $X.X reflect usage, another million, The authorized and million Turning revenue, with was merger XXXX

million noted WCMA As reserve. XXXX, I a previously $X.X we in recorded

and usage, recorded $XX.X the decrease million in XXXX. and procurement we increase water, to and expenses. California addition in related XXXX. was $XX.X in In general CTWS a rate XX.X million primarily depreciation expenses expenses we million partially the experienced result higher surface $XX.X California million primarily million inclusion nine in due to months first offset CTWS and increased administrative in higher were costs reserves in production no related other $XX.X increase property billing California in CPUC of were $X.X credits higher to increase Water X.X rate of activities. months non-income due These expense, to accounts. occurred $XX.X Other nine $X.X taxes. In higher cost XXXX, our $XX.X increases operating water Northern XX.X purchased similar a an water, in The of in primarily increases in in settlement, or customer in per-unit new customer for Texas, and in increases groundwater, million of XXXX million and first million and decrease expenses, were memorandum energy year-to-date of million the million in the and recovery by balancing cost increased million charges. a These

nine and interest also of notes from the the issued of incurred that In CTWS and XXXX Year-to-date XXXX the did interest company's we on of merger of investment new the addition, expense $XXX the XXXX of first additional not million XXXX, merger to interest included other in million of Groups XXXX, $X.X the included CTWS million earned months of $X.X December the nine income income million of expense of XXXX. months equity and October in in related operating temporary months addition recur first through other $X.X borrowings. expenses SJW first million senior on $XX.X proceeds from expense nine offering. In

similar income was no XXXX. in earned As noted,

added program, bringing additions to of total in nine company-funded $XX.X Turning to the capital first in third our XXXX for million company-funded months year utility $XXX.X expenditure plant million. quarter we of the the

We approximately $XXX to plant add to in on our compares utility are million pre-COVID-XX $XXX track target million approximately million. this of between $XXX XXXX, in

Cupertino connection $XX.X approximately operations rate as of debt. $XX.X XXXX. income end the of cash a and upfront issued service city newly a to from These A net decreases short-term in was and our the of of by the concession lines credit the result X.XX%. decrease due and in approximately over adjusted same with payment million balances to memorandum non-cash a offset line during items interest were higher collections COVID-XX average XXXX in a and million payment on accrued accounts $X amounts million the quarter, period Our the authorized activities. million decreased advances agreement. primarily credit A due in of our $XX.X partially months combination The pandemic. million $X.X of unbilled and we available increase million in had XXXX. $XX.X balancing of of from decrease slower during flows increase in for on $X.X of previously year-to-date accrued of increase operating $XXX.X of At The the bank million was plant invoiced borrowing customers in a the collection in million utility for financing additions nine first the XXXX revenue

stop will the call So back to over with that, I turn and Eric.

Eric Thornburg

Jim. Thank you,

The adapted Heritage Regulatory in into social and Village Water of Connecticut Water merger distancing, employees leaders as combination Just Water California instituting The have the for Company Connecticut the and was completed customer order a already have Public sampling incurred, the well single customers. that agreed closed our benefit approved future that Company efficiencies Water account with in potential has monitoring memorandum too into our Commission work fast an provide to proceeding. of communication. QX. San economic subsidiary with requires recovery fast an merger environment Connecticut SJW to The to dismissed our that The investigation future will establish request so Group California and Service and to our approved costs as related regulators. as track planned P Avon Connecticut of Authority and Jose P a and a Water allowing Utilities Commission expenses operations application the

utility in authorization that the correct. The of expenses by will to regulation, an utility The used who guarantee is incurs. California those the it the Commission record may accounting device utility that from to does recorded not approval new later are memo investors a account For a be may after recoup memo account seek recover the rates. establishment to commission amounts various the

adjustment incremental modified to WRAM account the mechanism to balancing reported, and ruling the previously Monterey-style account discontinue came of a California a balancing industry. the favor and cost cost in Water revenue As Commission's as surprise

company GRC in revenue and forecast ruling While years, both rate us actually our is authorized and Connecticut In and ruling require Water Jose adoption Water rate does benefit customers the through importance sales in for realistic a a was repair than In customer case recover XXXX not VAC, to required $XX Facility were the analysis largely need or places thanks are should and tax San a disappointing, a fixed authorized does recovery Maine, agreement. we been the a XXXX. full the under of with California, a case numbers. accounting, greater rate every decade by Treatment usage Rockville will account adjustment settlement balancing we XXXX, Jose Connecticut that to comprehensive rate Water in two-year to has the WICA as consumption Water general and in January the at have since with not happen the be more provided Rockville mechanism and company filing of file in case through and cost cost occurred arriving operate look San modified investments that rate XXXX, more upcoming million filings the and actual further the amounts settlement. recovered file infrastructure significant filings. not three filing. will to align case. preparing rate that Drinking cost The to Connecticut, without driven credit Water the

area. team best to approved and we our acquisition in SJWTX. acquisitions, organic critical since practices water is in to for XX a group across impressive rate-making customer all prospects and supplies, our about a decision. identify anticipate on bolt-on in and serve add bring WISC a surcharge. the infrastructure X% business, this rates we new where would is solutions. million increases in divisions for PURA, working certainty last value SJWTX, increase nearly customer Texas by filed In is exceptional and acquired customer in XXXX. the the opportunities growth divisions, application expect are effective market by satisfaction XX,XXX be experiences to increase by Connecticut for an water water is regarding rates growing XXXX this would of and the infrastructure used Delivering approved legislation. serve general XXX filed, collaborate case the or purposes. Adjustment growing Connecticut to that our Connecticut to ratings, be customer success tripling six process the some and applications growth revenues acquisition mid-QX set basis reflecting the the with and operates increase XXXX. customers would value the If dive empowered timing supply are is team senior an and year-end connections in Texas WICA Conservation of deep base, and divisions With in and rate support Maine, first of $X in over wastewater October, for the X.X% and by which division-by-division of or to a by XXX service engagement the our increase nearing January better Commission number, two XXXX. sharing continued to additions future filing its acquisition has customer remain the months. connections to If a days. our water ten The utility service utilities employee-driven optimistic states. surcharge which Commission, would We and provides request customer operating This In Texas treatment statutory on portfolio to additional has base market a is growth the Once new filed into timeline place also determine of in diverse developed under of leaders. fair recently fair through of be The of rate and a SJWTX's

mandated to have in uptick account least most that in ended remain Maine. Connecticut, in moratoriums shut-offs moratorium Connecticut and had due as June. moratorium now will Texas April California, its until an seen at have been in well. QX, in aging of of Maine rescinded XXXX. the had We The in likely place and California's

an through especially them to on their balance vary and help with communicate state. that payment that customers, to other those available accounts by are plans overdue continue and deferred have programs We eager

governance and be social, is environmental, there initiatives, our to much of. to Turning proud

equity, inclusion be diversity, an work valued environment and be comprised of included, at employee and volunteers, are can in the selves who to good where their company is Our building welcomed, a can where council and newly the force formed feel committed and community. for employees true

recognized journey stories life SJW own with of been The governance it's as on by our that more our our boards first share SJW our women. people were started to for inequality. are of their team as stories our XXXX to close score than steps The to factors one directors Actually the together commitment a racism has XX%. company, of best-in-class ISS. listening winning is they strong. and with from because XX% That from Group, women of experiences powerful and is Group corporate the personal contributes

our our an of proud conduct. reflects regulatory transparency, XXXX score. and to are year. compliance, unpredictable ethical be It commitment governance continues steadfast We to

have teams and the for work families faced is essential Our health life-sustaining that challenges the communities. the water and of vital and safety continued delivering of

their We customers. they can serve so have that protected people our

I We turn principles as transparency, exemplify core are protect that, these integrity, With the compassion, would has us and on for and service, will rely It trust, teamwork. questions. move we that people, values, operator well, to we the our public to continue like respect, to guided forward. by protect call and our to approach served fundamental health, back

Operator

the question first Agnieszka comes Our of from Instructions] Storozynski Global. Seaport [Operator with line

Your line is open.

Agnieszka Storozynski

taking you for thank Hello, much question. my very

because prevent that's quarter So rate will given XXXX. Again, mostly just upcoming its in going the question of the guidance, you resolution in, providing – wondering first say, to if my you issuing February. be is it and about on XXXX third XXXX from guidance case if I'm Connecticut the

Eric Thornburg

Appreciate Thank you, Angie. your question.

XXXX. for guidance our of consideration careful taking are We

that rate decision. we're and the it a try want don't that we you will will in or telegraph expecting mentioned, to we case for predict what – have fact Just to

investors guidance through to history did quarter certainly more but that So in for that. clarity we to fact the have appreciated first that we first little you and approach we'd a on this understand provide our time next be bit of like the continue year, working and provide on working that that we're give the guidance. We we will year, as that

and So, you we'll we know let working that, be year the as through unfolds. will

Agnieszka Storozynski

And Okay. trying for in lessons expect I learned pieces many, out, reasons. clearly for rate unpredictable besides this be given this Water. San is is many and there at you just I'm admittedly, that conservatism – that case, seems would an least from moving come I take some given so of the regarding basically purchased this to should would how take. Connecticut water Again, relatively it year, I fair? even again, expect many guidance conservative year the mean, costs to you to going and experience the be of Is initial this year, that to Jose

Eric Thornburg

Yes. Yes.

know, you your really As point. appreciate I

look thought and little year just water, at amount X surface will And we approached that – there so now a we were a adjustment. probably in that the of You we're be conservative we very that about gallons clarity any surface that or as is of we do know, had you XXXX, projection is real billion, significant billion we forecast provide, we so the being is relatively of as over XXXX, X back billion. X.X as water transparent What was that. in

rates, as rate the have we in billion go going The as part, reduced That our mention yet XXXX. think to in current we there billion because design. had forward I'd about X spread was I in said, very unusual X.X other we is, be and I is

in into the is forecast future, an would amount into exceed us what that base building anticipate I not rate. any would built So

reduce we spread So if that provide better can to the you clarity will investors. so that and would as, comfort

Agnieszka Storozynski

so to you? last legal it would at or that RAM utilities apply from conduct that? I recent decision the of either guys full what But conversion at on those the be my thorough potentially And that you would are ramp, Do mechanism? that, a you successful full regulatory a other for have interested again decoupling to door appreciate ask the question, potentially really don't you Great. you doesn't least or CPUC if a California a guys open study think for in and ask or decision challenges reversal

Eric Thornburg

case, to risk service benefit – would carefully and shareholders. those it just in the customers don't and make work Well, during again of if get filed with consider can the of or asking minimizes right, to the account change a of and great case more this well, deal going mitigates we as the and review is two And of program in we're and there. would definitely charge is policy the design, numbers sure our first, taking recover cost the if for our there making that and addition, we align that in of that as in continue in sure difference we on basic what advantage the the balancing work because in then, for – And fixed successful amount at were last Commission, a customers we it of But risk that. of we purchased water we mitigates any that what's anticipate year. really rates actually we rate

both our building customers there we current and filing protects And manner interest the so, balances really and think in shareholders. that we're a

Agnieszka Storozynski

Thank you. Great.

Eric Thornburg

Angie. you, us. interest in appreciate your I Thank

Operator

question from Thank with Fargo. Reeder our line comes Wells the you. Jonathan next And of

open. is line Your

Jonathan Reeder

Hey, good question morning. just want little first the build I to on a bit.

So looking, along water we but into deficit. rainy forecast those be the XXXX? stuff we just we the thinking season What all how and from are surface starting kind should be as the in California availability lines. in early know least it's might the at a state I of about head that,

Eric Thornburg

Jonathan. begun, the anywhere. sure while has it's rainy Yes, there Look sign – season has rain been of no

majority expect no I February, no typically that weather the January, update March really provide so, to standpoint. We and would from And can frame. rainfall difference is time of there in see early a the

with current So, number at in have the this be the point, expect X probably there very condition. in I would is We no gallons, billion X to least at change conservative do because quarter. billion the

guidance And that make this provide is we is about think and transparent number I be we But definitely, what to the assumption very will got and any investors, we've update so, sure we're the and surface continue caution the conservatism for and year what rule. water. that's clear

Jonathan Reeder

is bit close is revenue drought How Okay. state away the kicking mechanism it this the into do something on go would worries – are a to that heading little of going put take that adjustment before the kind another is, from maybe maybe into differently. or handle would How close we're lost some another then of those we is radar you like year now think? in right that past year situation, is or

Eric Thornburg

not a to say our again didn't this would just capacity, close this Water strong small of groundwater table, Santa wholesaler drought supply are there one other the than supply. year. you look our really I at is across would our that year-over-year. segment I Mountains Cruz really remind position their significant the we last our get When rains surface so in are anywhere just Valley point. we It at in really also has shape. guess, great I Semitropic operations really groundwater at the District, bank in comparing that we The Jonathan, it's you water

produces are some a comparing X year-over-year billion gallon billion that X year gallon big a a differences. and a we So, year to

different. year-over-year So comparison much next should year, the be

Jim Lynch

Santa of start that the I'd get there Jonathan, the Cruz in is soil the timing get would as up, rain portion get season, right and that rain that thing early the run-off of of we in was time benefit normal the just then, kind rainy – we the that did the Yes, of April when case, getting year, did way surface you and in the we not the other train what when the allowed add didn't been you is period month and season This year. in matures. supply up the the back March the works real if gotten rain of saturate to will, run-off the February the really Mountains one around drive we which had it have you frame, get otherwise a the

year issues related weren't this the throughout to So with there were lack a lot the of regards surface our rain water to state. geographic-centric that of experienced

Jonathan Reeder

long-term recent Last color. Bay. EPS target for that to Taco guessing along had and And how guys difficult so monitor the kind from about In indicated, have It if you I you sounds of these is that Jim, question should anticipated me. a the that target? what a lines. be something growth rate we I'm still like that's you presentation, from target might basis X% appreciate that pretty thinking

Jim Lynch

like our quarterly as the that XXXX, continue do to Yes. provide described rate a and as with the Clearly, base we guidance, guidance. to five-year water that come event, some guidance out the surface our will downtick impact presented base growth to as of fact, Jonathan, as to, transparency, quantification Eric surface water presentation. provide of certainly all spend have in if is slight for And in need view in over we any are period leveraging that in of provide that our calls. was which we the to that mentioned, of that, will we far the off direction as we of conservative in on with But and on consider we the that start Eric that beginning we CapEx consider

Jonathan Reeder

what we at actually base with thought base should surface maybe thinking that water, of growth X% XXXX least specifying base? is of, kind is be the it without off of So XXXX that whatever that like

Jim Lynch

are because year, the saturation the the in Cruz up last the of of months when Again, the in and get to beginning that determine happens to start in with terms to some have really Yes. is this ground up that predicated we on the huddle the quite rates, including of That's kind comfortable of what Santa be we there. in going that's frankly, right, on rainy two first to of or Mountains. what up we season of

Jonathan Reeder

Okay.

provide for right. you February. Well, All able let's are to guys little Hopefully, Okay. a wait guidance.

the and I would might be kind guys. for try helpful I you look think be it as normalized investors to what this earnings morning reframe of time kind of soon. to talk appreciate

Jim Lynch

Jonathan. Thanks, Perfect.

Operator

Eric for Thank Thornburg, you. I'll CEO closing remarks. call over to now not [Operator further turn I'm Instructions] showing questions. back any the

Eric Thornburg

record for customers, and shareholders. you XXX-year communities, participation is your The a a Group Thank today. SJW of our company track call with in serving

this XXXth my the stockholders their year company quarter in It's sincere This received In and XX dividend. that have calendar consecutive I gratitude consecutive SJW of participation healthy your great express Again, my and for to an Group. over call by during marks remain thank SJW And in XX employees challenge the today. the families XXXX. your safe profound of years, the increase payment wish hope you dividend again, our you Group years. to for the

Operator

program. Ladies and gentlemen, conclude this the does

a now day. You have may disconnect. great Everyone,

SJW (SJW) 7 Nov 202020 Q3 Earnings call transcript