SJW Group Announces 2021 Annual and Fourth Quarter Financial Results

SJW Group (NYSE: SJW) today reported financial results for the annual and fourth quarter ended December 31, 2021.

Annual Operating Results

SJW Group net income was $60.5 million for the year ended December 31, 2021, compared to $61.5 million for the same period in 2020. Diluted earnings per share were $2.03 and $2.14 for the years ended December 31, 2021 and 2020, respectively. SJW Group had previously provided a 2021 guidance range of $1.85 to $2.05 per diluted share.

Diluted earnings per share in 2021 includes $1.76 per share from ongoing operations plus the recognition of the Texas Water Alliance Limited (“TWA”) holdback amount of $2.6 million (net of tax) or $0.09 per share that was included as part of our 2021 guidance. In addition, SJW Group recorded non-recurring income related to the sale of nonutility property of $6.6 million (net of tax) or $0.22 per share and a gain on the sale of real estate investments of $0.8 million (net of tax) or $0.03 per share, partially offset by an impairment recognized on a long-lived asset of $1.9 million (net of tax) or $0.07 per share. Diluted earnings per share in 2020 includes $2.16 per share from ongoing operations and a non-recurring gain on the sale of real estate investments of $0.8 million (net of tax) or $0.03 per share, offset by non-recurring expenses related to the Connecticut Water Service, Inc. merger and integration fees of $1.5 million (net of tax) or $0.05 per share.

Operating revenue was $573.7 million for the year-to-date period ended December 31, 2021, compared to $564.5 million for the same period in 2020. The $9.2 million increase was attributable to $25.2 million in cumulative water rate increases, $2.5 million in the net recognition of certain regulatory mechanisms in Connecticut and Maine, $3.9 million in the recognition of balancing and memorandum accounts, which includes $3.2 million attributable to California’s Water Conservation Memorandum Account (“WCMA”), and $2.9 million in revenue from new customers, partially offset by a $24.7 million decrease in customer usage and $0.8 million in winter storm customer credits in our Texas service area.

Operating expenses for the year ended December 31, 2021 were $462.5 million, compared to $446.9 million in 2020, an increase of $15.6 million. Operating expenses include water production expenses of $229.1 million in 2021 compared to $225.8 million in 2020, an increase of $3.3 million. The increase in water production expenses was primarily attributable to $11.6 million in higher average per unit costs for purchased water, groundwater extraction, energy charges and other production expenses, $3.9 million due to a decrease in surface water supply production, and $1.3 million in higher cost recovery balancing and memorandum accounts, partially offset by $13.5 million in lower customer water usage. General and administrative expenses, for the year-to-date period ended December 31, 2021, increased $7.6 million primarily due to increases in insurance, compensation, accounts receivable activities, contracted work, and rate case expenses. In addition, depreciation and amortization was $5.1 million higher due to higher depreciable utility plant and maintenance costs was $3.9 million higher primarily due to a favorable change in the probability assessment of regulatory recovery of a hydro-turbine generator project reserve established in a prior year. Operating expenses also reflect a $2.2 million charge recorded for an impairment of a long-lived asset. These increases were partially offset by the gain on sale of nonutility property of $7.5 million.

Other expense and income for 2021 included the receipt of a $3.0 million holdback amount by the Guadalupe-Blanco River Authority related to the 2017 sale of SJW Group’s equity interest in TWA. No similar transaction occurred in 2020. In addition, there was a gain on the sale of a real estate investments of $0.9 million in 2021 and 2020.

The effective consolidated income tax rate for the years ended December 31, 2021 and 2020, was approximately 12%.

Fourth Quarter Financial Results

SJW Group net income was $18.0 million for the fourth quarter ended December 31, 2021, compared to $13.3 million for the same period in 2020. Diluted earnings per share were $0.60 and $0.46 for the quarters ended December 31, 2021 and 2020, respectively. Diluted earnings per share in 2021 includes $0.42 per share from ongoing operations and a gain on the sale of nonutility property of $6.4 million (net of tax) or $0.21 per share, and a gain on the sale of real estate investments of $0.8 million (net of tax) or $0.03 per share, partially offset by an impairment recognized on a long-lived asset of $1.9 million (net of tax) or $0.06 per share.

Fourth quarter operating revenue was $139.7 million compared to $135.7 million in the fourth quarter of 2020. The $4.0 million increase in revenue was primarily attributable to $10.0 million in cumulative water rate increases, $3.4 million in the recognition of balancing and memorandum accounts, which includes $3.2 million attributable to California’s WCMA, and $0.9 million in new customers, partially offset by a $10.5 million decrease in year over year customer usage.

Fourth quarter operating expenses was $108.1 million compared to $111.4 million in the fourth quarter of 2020. Operating expenses include water production expenses of $52.4 million in 2021 compared to $54.1 million in 2020, a decrease of $1.7 million. The decrease in water production expenses was primarily attributable to $7.8 million in lower customer usage, partially offset by $5.3 million in higher average per unit costs for purchased water, groundwater extraction, energy charges and other production expenses. General and administrative expenses increased $1.6 million and depreciation and amortization was $0.9 million higher. In addition, in 2021 the company recorded $2.2 million of expense on an impairment of a long-lived asset and a $7.5 million gain on the sale of nonutility property.

For the quarter ended December 31, 2021 and 2020, the change in other expense and income was primarily due to the gain/(loss) on sale of a real estate investments of $0.9 million and ($0.1) million, respectively.

The effective consolidated income tax rates for the quarters ended December 31, 2021 and 2020 were approximately 15% and (7%), respectively. The higher effective tax rate for the quarter ended December 31, 2021 was primarily due to a change in income before income taxes and impact of flow through items.

Regulatory Highlights

California

San Jose Water Company’s (“SJWC”) 2021 GRC application for new rates in 2022 through 2024 is pending before the California Public Utilities Commission (“CPUC”). The application seeks an increase of nearly $88 million in the revenue requirement over the three-year period, authorization for a $435 million capital budget, and requests to recover $18.5 million from balancing and memorandum accounts. SJWC filed for interim rates to be effective on January 1, 2022. SJWC and the Public Advocates Office filed a settlement agreement resolving all issues in the proceeding on January 13, 2022, which will be considered by the CPUC for adoption. The settlement recognizes the need for continued investments in the water system to deliver safe and reliable water service. Additionally, it further aligns authorized and actual consumption, particularly for business customers, addresses our water supply mix challenge, and provides greater revenue recovery in the fixed charge. New rates are anticipated in the second quarter of 2022.

The 2022-2024 cost of capital proceeding is also pending before the CPUC. The application requests increases in revenue and return on equity, an adjustment to the proposed capital structure, and a decrease in the cost of debt. If approved, new rates are expected to be effective in the third quarter of 2022.

SJWC’s Advanced Metering Infrastructure (“AMI”) application is pending before the CPUC. An all-party settlement agreement was submitted to the CPUC for adoption that would authorize the deployment of AMI outside of the capital budget requested in the 2021 general rate case (“GRC”). A final decision is anticipated in the second quarter of 2022.

Connecticut

The Connecticut Public Utilities Regulatory Authority (“PURA”) issued a final decision on Connecticut Water Company’s (“CWC”) Request for Reconsideration related to treatment of excess deferred income taxes in the July 28, 2021, GRC decision. The final decision allows CWC to increase annual revenues by an additional $2.1 million above the $5.2 million authorized in the July 28, 2021 GRC decision.

PURA also authorized a Water Infrastructure and Conservation Adjustment (“WICA”) of 2.44% effective on January 1, 2022. The increase was related to more than $22 million in completed WICA projects, many of which were not considered by PURA in the GRC because of the deadline in the proceeding for pro forma capital additions. The new WICA is expected to generate $2.6 million in additional revenue.

Between July 2021 and January 2022 the authorized revenues for CWC increased $9.9 million through the GRC, Request for Reconsideration and WICA.

Maine

Maine Water Company (“MWC”) previously received approval from the Maine Public Utilities Commission (“MPUC”) for an innovative rate-smoothing mechanism that provides a more gradual ramp to new rates driven by the $60 million project to replace a 138-year-old treatment plant in the Biddeford-Saco division.

A supplemental rate application for $6.9 million is pending with the MPUC which would be the second step in the multi-year rate plan for the project. MWC has entered settlement discussions with the Office of Public Advocate on this application and a decision is expected in the second quarter of 2022.

A third step filing associated with the new treatment facility is expected in the second half of 2022 following the completion of the new Saco River Drinking Water Treatment Facility.

MWC is planning to file GRC’s in four of its divisions prior to March 31, 2022. The filings are required under a settlement agreement with the MPUC related to the treatment of income taxes under the Tax Cuts and Jobs Act.

Texas

SJWTX, Inc. (“SJWTX”) closed on the acquisition of the Kendal West and Bandera East water/wastewater utilities in the fourth quarter. The company also closed on the acquisition of Texas Country Water in January 2022. Combined, these completed acquisitions added nearly 1,800 service connections, and expanded SJWTX’s service area. Overall, the company serves more than 24,000 service connections between Austin and San Antonio and 3 of the 5 fastest growing counties in the United States (Comal, Hays and Kendall Counties).

Infrastructure Investment

SJW Group completed $233.9 million in capital expenditures in 2021, which represents 97% of planned capital expenditures. In 2022, the company has a capital expenditure budget of $223 million to be allocated among its utility operations as follows: California, $115.1 million, Connecticut, $61.4 million, Maine, $21.8 million and Texas, $24.5 million. The California allocation does not include capital spending related to the AMI application pending before the CPUC. SJW Group plans to invest more than $1.3 billion in capital over the next 5 years, to build and maintain its water and wastewater operations, subject to regulatory approvals.

Environmental and Social Initiatives

The SJW Group Corporate Sustainability Report detailed the progress on our 2021 Environmental, Social and Governance (ESG) goals and identified the priorities in 2022 which focus on implementing processes and systems to track, monitor, report, and continuously improve in the areas of environmental performance, health and safety. In addition, clear expectations will be set for our vendors consistent with the SJW Group Human Rights Policy and ESG parameters in our Vendor Code of Conduct. Specifically, SJW Group has pledged to reduce greenhouse gas emissions by 50% from 2019 levels by the year 2030. The company also adopted a vendor code of conduct that aligns the company’s supply chain practices with its 2020 human rights policy. In addition, Eric W. Thornburg, chair, president and CEO of SJW Group, has signed onto the CEO Action for Diversity & Inclusion™ pledge on behalf of all employees and the board of directors to sustain the company’s momentum on diversity, equity and inclusion.

Institutional Shareholder Services’ (ISS) review of the company’s ESG activities resulted in improvements in Environmental and Social scores. Among its U.S. water utility peers, SJW Group is tied for the leading overall social score, and tied for second in the overall environmental score. The company has the best overall governance score possible, and has been recognized with a Prime status by ISS ESG. Prime status is awarded to those companies with an ESG performance above the sector-specific Prime threshold.

“The sustained commitment of our employees and leaders to their communities, the environment and shareholders has driven significant gains in our Institutional Shareholder Service’s environmental and social ratings, and it complements our solid governance rating,” stated Thornburg. “We foster the social responsibility in our culture and are committed to being a force for good in the community.” Additional information on ESG matters is in SJW Group’s 2021 corporate sustainability report at www.sjwgroup.com.

Dividend

As previously announced, on January 26, 2022, the Directors of SJW Group approved an increase in the 2022 annual dividend of $0.08 per share to $1.44 per share. A quarterly dividend of $0.36 per share is payable on March 1, 2022, to shareholders of record at the close of business on February 7, 2022. This marks SJW Group’s 314th quarterly consecutive dividend payment. For 54 consecutive years, SJW Group stockholders have received an increase in their calendar year dividend without interruption or reduction, which places it in an exclusive group of companies on the New York Stock Exchange.

Earnings Call Information

Eric W. Thornburg, chairman of the board, president and chief executive officer, Andrew F. Walters, chief financial officer and treasurer, and James P. Lynch, chief accounting officer, will review the results in a live webcast presentation at 10:00 a.m. PT, 1:00 p.m. ET on February 18, 2022.

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 25, 2022.

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 about 1.5 million people. SJW Group’s locally led and operated water utilities - San Jose Water Company in California, The Connecticut Water Company in Connecticut, The Maine Water Company in Maine, and SJWTX, Inc. (dba Canyon Lake Water Service Company) in Texas - possess the financial strength, operational expertise, and technological innovation to safeguard the environment, deliver outstanding service to customers, and provide opportunities to employees. SJW Group remains focused on investing in its operations, remaining actively engaged in its local communities, and delivering continued sustainable value to its shareholders. For more information about SJW Group, please visit www.sjwgroup.com.

Forward-Looking Statements

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Some of these forward-looking statements can be identified by the use of forward-looking words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” “projects,” “strategy,” or “anticipates,” or the negative of those words or other comparable terminology. These forward looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict.

These forward-looking statements involve a number of risks, uncertainties and assumptions including, but not limited to, the following factors: (1) the effect of water, utility, environmental and other governmental policies and regulations, including actions concerning rates, authorized return on equity, authorized capital structures, capital expenditures and other decisions; (2) changes in demand for water and other services; (3) the impact of the Coronavirus (“COVID-19”) pandemic on our business operation and financial results; (4) unanticipated weather conditions and changes in seasonality including those affecting water supply and customer usage; (5) climate change and the effects thereof; (6) unexpected costs, charges or expenses; (7) our ability to successfully evaluate investments in new business and growth initiatives; (8) contamination of our water supplies and damage or failure of our water equipment and infrastructure; (9) the risk of work stoppages, strikes and other labor-related actions; (10) catastrophic events such as fires, earthquakes, explosions, floods, ice storms, tornadoes, hurricanes, terrorist acts, physical attacks, cyber-attacks, epidemic, or similar occurrences; (11) changes in general economic, political, business and financial market conditions; (12) the ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings, changes in interest rates, compliance with regulatory requirements, compliance with the terms and conditions of our outstanding indebtedness, and general market and economic conditions; and (13) legislative and general market and economic developments. The risks, uncertainties and other factors may cause the actual results, performance or achievements of SJW Group to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

Results for a quarter are not indicative of results for a full year due to seasonality and other factors. Other factors that may cause actual results, performance or achievements to materially differ are described in SJW Group’s most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the SEC. Forward-looking statements are not guarantees of performance, and speak only as of the date made. SJW Group undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

SJW Group

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(in thousands, except per share data)

 

 

 

 

 

 

 

 

Three months ended December 31,

 

 

Twelve months ended December 31,

 

 

2021

 

 

2020

 

 

 

2021

 

 

2020

 

REVENUE

 $

139,737

 

 

135,700

 

 

 $

573,686

 

 

564,526

 

OPERATING EXPENSE:

 

 

 

 

 

 

 

 

 

Production expenses:

 

 

 

 

 

 

 

 

 

Purchased water

 

21,797

 

 

23,770

 

 

 

98,231

 

 

100,723

 

Power

 

2,938

 

 

3,185

 

 

 

13,511

 

 

13,330

 

Groundwater extraction charges

 

16,447

 

 

17,277

 

 

 

75,866

 

 

71,359

 

Other production expenses

 

11,173

 

 

9,915

 

 

 

41,475

 

 

40,380

 

Total production expenses

 

52,355

 

 

54,147

 

 

 

229,083

 

 

225,792

 

Administrative and general

 

22,400

 

 

20,824

 

 

 

87,332

 

 

79,741

 

Maintenance

 

6,810

 

 

6,188

 

 

 

26,031

 

 

22,158

 

Property taxes and other non-income taxes

 

8,175

 

 

7,524

 

 

 

30,964

 

 

29,886

 

Depreciation and amortization

 

23,613

 

 

22,727

 

 

 

94,400

 

 

89,279

 

Gain on sale of nonutility properties

 

(7,494

)

 

 

 

 

(7,494

)

 

 

Impairment of long-lived asset

 

2,211

 

 

 

 

 

2,211

 

 

 

Total operating expense

 

108,070

 

 

111,410

 

 

 

462,527

 

 

446,856

 

OPERATING INCOME

 

31,667

 

 

24,290

 

 

 

111,159

 

 

117,670

 

OTHER (EXPENSE) INCOME:

 

 

 

 

 

 

 

 

 

Interest on long-term debt and other interest expense

 

(13,684

)

 

(14,617

)

 

 

(54,339

)

 

(54,255

)

Pension non-service cost

 

331

 

 

(104

)

 

 

1,330

 

 

(374

)

Gain (loss) on sale of real estate investments

 

927

 

 

(102

)

 

 

927

 

 

948

 

Gain on sale of Texas Water Alliance Limited

 

 

 

 

 

 

3,000

 

 

 

Other, net

 

1,988

 

 

2,971

 

 

 

6,770

 

 

5,906

 

Income before income taxes

 

21,229

 

 

12,438

 

 

 

68,847

 

 

69,895

 

Provision for income taxes

 

3,210

 

 

(846

)

 

 

8,369

 

 

8,380

 

NET INCOME

 

18,019

 

 

13,284

 

 

 

60,478

 

 

61,515

 

Other comprehensive income (loss), net

 

768

 

 

(1,142

)

 

 

901

 

 

(1,190

)

COMPREHENSIVE INCOME

 $

18,787

 

 

12,142

 

 

 $

61,379

 

 

60,325

 

 

 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE:

 

 

 

 

 

 

 

 

 

Basic

 $

0.60

 

 

0.47

 

 

 $

2.04

 

 

2.16

 

Diluted

 $

0.60

 

 

0.46

 

 

 $

2.03

 

 

2.14

 

DIVIDENDS PER SHARE

 $

0.34

 

 

0.32

 

 

 $

1.36

 

 

1.28

 

WEIGHTED AVERAGE SHARES OUTSTANDING:

 

 

 

 

 

 

 

 

 

Basic

 

29,912

 

 

28,556

 

 

 

29,601

 

 

28,522

 

Diluted

 

30,061

 

 

28,719

 

 

 

29,736

 

 

28,695

 

SJW Group

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)

   

 

 

December 31, 2021

 

December 31, 2020

ASSETS

 

 

 

 

Utility plant:

 

 

 

 

Land

 $

39,004

 

36,845

Depreciable plant and equipment

 

3,381,908

 

3,198,060

Construction in progress

 

176,427

 

109,976

Intangible assets

 

36,276

 

35,167

Total utility plant

 

3,633,615

 

3,380,048

Less accumulated depreciation and amortization

 

1,136,116

 

1,045,136

Net utility plant

 

2,497,499

 

2,334,912

 

 

 

 

 

Real estate investments and nonutility properties

 

57,632

 

58,129

Less accumulated depreciation and amortization

 

15,951

 

14,783

Net real estate investments and nonutility properties

 

41,681

 

43,346

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

Cash and cash equivalents:

 

 

 

 

Cash

 

10,908

 

5,269

Restricted cash

 

1,211

 

4,000

Accounts receivable

 

60,742

 

58,142

Accrued unbilled utility revenue

 

44,026

 

44,950

Current regulatory assets, net

 

2,629

 

1,748

Prepaid expenses

 

9,667

 

8,097

Other current assets

 

4,902

 

5,125

Total current assets

 

134,085

 

127,331

 

 

 

 

 

OTHER ASSETS:

 

 

 

 

Regulatory assets, net

 

151,992

 

156,482

Investments

 

15,784

 

14,367

Goodwill

 

640,471

 

628,144

Other

 

4,461

 

6,883

 

 

812,708

 

805,876

 

 $

3,485,973

 

3,311,465

SJW Group

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share data)

   

 

 

December 31, 2021

 

December 31, 2020

CAPITALIZATION AND LIABILITIES

 

 

 

 

CAPITALIZATION:

 

 

 

 

Stockholders’ equity:

 

 

 

 

Common stock, $0.001 par value; authorized 70,000,000 shares in 2021 and 2020; issued and outstanding shares 30,181,348 on December 31, 2021 and 28,556,605 on December 31, 2020

30

 

 

29

 

Additional paid-in capital

 

606,392

 

 

510,158

 

Retained earnings

 

428,260

 

 

408,037

 

Accumulated other comprehensive loss

 

(163

)

 

(1,064

)

Total stockholders’ equity

 

1,034,519

 

 

917,160

 

Long-term debt, less current portion

 

1,492,935

 

 

1,287,580

 

Total capitalization

 

2,527,454

 

 

2,204,740

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

Lines of credit

 

62,996

 

 

175,094

 

Current portion of long-term debt

 

39,106

 

 

76,241

 

Accrued groundwater extraction charges, purchased water and power

 

17,200

 

 

19,184

 

Accounts payable

 

30,391

 

 

34,200

 

Accrued interest

 

14,174

 

 

12,861

 

Accrued payroll

 

11,583

 

 

14,012

 

Other current liabilities

 

27,821

 

 

19,203

 

Total current liabilities

 

203,271

 

 

350,795

 

 

 

 

 

 

DEFERRED INCOME TAXES

 

200,451

 

 

191,415

 

ADVANCES FOR CONSTRUCTION AND CONTRIBUTIONS IN AID OF CONSTRUCTION

 

447,172

 

 

421,132

 

POSTRETIREMENT BENEFIT PLANS

 

83,576

 

 

121,597

 

OTHER NONCURRENT LIABILITIES

 

24,049

 

 

21,786

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 $

3,485,973

 

 

3,311,465

 

 

Contacts

SJW Group

James P. Lynch, 408-279-7966

Chief Accounting Officer

Andrew F. Walters, 408-279-7818

Chief Financial Officer

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