SJW Group Announces 2018 Third Quarter Financial Results

SAN JOSE, Calif.--()--SJW Group (NYSE: SJW) today reported financial results for the third quarter ended September 30, 2018. SJW Group net income was $15.8 million for the quarter ended September 30, 2018, compared to $19.5 million for the same period in 2017. Diluted earnings per share were $0.76 and $0.94 for the quarters ended September 30, 2018 and 2017, respectively. Diluted earnings per share includes $1.08 per share from recurring operations offset by $0.32 per share related to the company's activities around the proposed combination with Connecticut Water Service, Inc.

Operating revenue was $124.9 million for the quarter ended September 30, 2018 compared to $124.6 million in the same period in 2017. The $300,000 increase in revenue was primarily attributable to a $3.1 million increase in cumulative water rate changes, net of approximately $1.8 million rate decrease from our 2018 cost of capital proceeding and $3.2 million from the federal rate change related to the implementation of the Tax Cuts and Jobs Act (H.R.1) (the "Tax Act"), and $1.0 million increase in revenue from new customers. The increase was partially offset by a $3.1 million decrease in the net recognition of certain balancing and memorandum accounts, which includes $2.5 million in cost-recovery accounts that were recorded in revenue in 2017 which upon adoption of Topic 606, "Revenue from Contracts with Customers" on January 1, 2018 are now recorded as capitalized costs until recovery is approved by the California Public Utilities Commission, and a decrease in customer usage of $752,000.

Water production expenses for the third quarter of 2018 were $55.1 million compared to $53.3 million for the same period in 2017, an increase of $1.8 million. The increase in water production expenses was attributable to $4.9 million in higher per unit costs for purchased water, groundwater extraction and energy charges, partially offset by $2.4 million related to cost-recovery balancing and memorandum accounts and $1.0 million due to an increase in the use of available surface water supplies. Operating expenses, excluding water production costs, increased $11.8 million to $43.9 million from $32.1 million. The increase was primarily due to $8.4 million in merger expenses related to our proposed combination with Connecticut Water Service, Inc., $1.6 million of higher depreciation expenses due to assets placed in service in 2017, $935,000 in higher maintenance and property taxes and other non-income taxes, and $803,000 of higher administrative and general expenses, net of cost-recovery balancing and memorandum accounts.

The effective consolidated income tax rates were approximately 21% and 41% for the quarters ended September 30, 2018 and 2017, respectively. The effective tax rate decreased primarily due to the change in the statutory federal income tax rate from 35% to 21% as a result of the Tax Act.

Year-to-date net income was $29.9 million, compared to $41.9 million in 2017. Diluted earnings per share were $1.45 in the first nine months of 2018, compared to $2.03 per diluted share for the same period in 2017. Diluted earnings per share includes $2.03 per share from recurring operations offset by $0.58 per share related to the company's activities around the proposed combination with Connecticut Water Service, Inc. In addition, the company's diluted earnings per share for 2017 includes $0.15 per share from real estate transactions that did not re-occur in 2018.

Year-to-date operating revenue increased by $3.3 million to $299.0 million from $295.7 million in the first nine months of 2018. The increase was attributable to $14.9 million in cumulative rate increases, net of approximately $2.8 million rate decrease from our 2018 cost of capital proceeding and $3.2 million from the federal rate change related to the implementation of the Tax Act, $7.4 million in higher customer usage, and $1.8 million in revenue from new customers. These increases were partially offset by a $20.6 million decrease in the net recognition of certain balancing and memorandum accounts, which includes $6.7 million related to the implementation of the Tax Act, $6.5 million in lower revenue recorded in our Water Conservation Memorandum Account, $4.2 million related to cost-recovery accounts, an additional $1.4 million related to the outcome of our cost of capital proceeding, and $1.4 million related to a redistribution of certain customer accounts between residential and business customers for the year ended December 31, 2016 that was recorded in the 2017 first quarter.

Year-to-date water production expenses increased to $125.4 million from $118.6 million in 2017. The $6.8 million increase was attributable to $11.0 million in higher per unit costs for purchased water, groundwater extraction and energy charges and $4.6 million in higher customer water usage, offset by $5.7 million in lower expenses due to an increase in the use of available surface water supplies and $3.1 million related to cost-recovery balancing and memorandum accounts. Operating expenses, excluding water production costs, increased $23.2 million to $117.6 million from $94.4 million. The increase was primarily due to $15.0 million in merger expenses related to our proposed combination with Connecticut Water Service, Inc., $4.7 million in higher depreciation expenses, $2.1 million in higher maintenance and property taxes and other non-income taxes, and $1.4 million in higher administrative and general expenses, net of cost-recovery balancing and memorandum accounts.

Other expense and income in the first nine months of 2017 included a pre-tax gain of $6.3 million on the sale of 444 West Santa Clara Street Limited Partnership's interests in the commercial building and land the partnership owned and sale of undeveloped land which SJW Land Company owned for a pre-tax gain of $580,000.

The effective consolidated income tax rates were approximately 20% and 38% for the nine-month periods ended September 30, 2018 and 2017, respectively. The effective tax rate decreased in 2018 primarily due to the change in the statutory federal income tax rate from 35% to 21% as a result of the Tax Act.

The Directors of SJW Group today declared a quarterly dividend on common stock of $0.28 per share. The dividend is payable on December 3, 2018 to shareholders of record on November 5, 2018.

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. 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 Nine months ended
September 30, September 30,
2018     2017 2018     2017
REVENUE $ 124,853 124,578 $ 298,981 295,696
OPERATING EXPENSE:
Production Expenses:
Purchased water 33,545 30,833 72,673 66,938
Power 1,882 2,500 4,774 5,491
Groundwater extraction charges 14,890 15,756 34,341 34,098
Other production expenses 4,836   4,216   13,674   12,067  
Total production expenses 55,153 53,305 125,462 118,594
Administrative and general 12,752 11,949 36,278 34,909
Maintenance 4,980 4,607 14,036 12,991
Property taxes and other non-income taxes 4,016 3,454 11,332 10,260
Depreciation and amortization 13,682 12,065 40,921 36,217
Merger related expenses 8,442     14,994    
Total operating expense 99,025   85,380   243,023   212,971  
OPERATING INCOME 25,828 39,198 55,958 82,725
OTHER (EXPENSE) INCOME:
Interest expense (6,077 ) (5,541 ) (18,213 ) (17,354 )
Unrealized loss on California Water Service Group stock (527 )
Gain on sale of real estate investment 6,903
Pension non-service cost (589 ) (953 ) (1,767 ) (2,860 )
Other, net 729   359   2,084   1,436  
Income before income taxes 19,891 33,063 37,535 70,850
Provision for income taxes 4,103   13,523   7,591   27,055  
NET INCOME BEFORE NONCONTROLLING INTEREST 15,788 19,540 29,944 43,795
Less net income attributable to the noncontrolling interest       1,896  
SJW GROUP NET INCOME 15,788 19,540 29,944 41,899
Other comprehensive income, net   80     252  
SJW GROUP COMPREHENSIVE INCOME $ 15,788   19,620   $ 29,944   42,151  
 
SJW GROUP EARNINGS PER SHARE:
Basic $ 0.77 0.95 $ 1.45 2.04
Diluted $ 0.76 0.94 $ 1.45 2.03
DIVIDENDS PER SHARE $ 0.28 0.22 $ 0.84 0.65
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 20,627 20,516 20,594 20,502
Diluted 20,732 20,697 20,722 20,675
 
         
SJW Group
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands)
 
September 30, December 31,
2018 2017
ASSETS
Utility plant:
Land $ 18,300 17,831
Depreciable plant and equipment 1,783,654 1,714,228
Construction in progress 79,475 45,851
Intangible assets 15,748   14,413
Total utility plant 1,897,177 1,792,323
Less accumulated depreciation and amortization 593,916   553,059
Net utility plant 1,303,261   1,239,264
 
Real estate investments 56,336 56,213
Less accumulated depreciation and amortization 12,029   11,132
Net real estate investments 44,307   45,081
CURRENT ASSETS:
Cash and cash equivalents 13,327 7,799
Accounts receivable and accrued unbilled utility revenue 61,518 54,309
Other current assets 5,522   4,750

Total current assets

80,367   66,858
OTHER ASSETS:
Investment in California Water Service Group 4,535
Regulatory assets, net 104,670 99,554
Other 4,263   2,709
108,933   106,798
$ 1,536,868   1,458,001
 
         
SJW Group
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands)
 
September 30, December 31,
2018 2017
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stock $ 21 21
Additional paid-in capital 84,045 84,866
Retained earnings 390,891 376,119
Accumulated other comprehensive income   2,203
Total stockholders’ equity 474,957 463,209
Long-term debt, less current portion 431,341   431,092
Total capitalization 906,298   894,301
CURRENT LIABILITIES:
Line of credit 76,000 25,000

Accrued groundwater extraction charge, purchased water and purchased power

22,856 14,382
Accounts payable 26,956 22,960
Accrued interest 7,402 6,869
Accrued payroll 4,568 6,011
Other current liabilities 13,898   9,830
Total current liabilities 151,680   85,052
 
DEFERRED INCOME TAXES 80,901 85,795

ADVANCES FOR CONSTRUCTION AND CONTRIBUTIONS IN AID OF CONSTRUCTION

247,893 244,525
POSTRETIREMENT BENEFIT PLANS 75,877 72,841
REGULATORY LIABILITY 60,650 62,476
OTHER NONCURRENT LIABILITIES 13,569   13,011
$ 1,536,868   1,458,001

Contacts

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

Contacts

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