Filing Summary: SJW Group Form 10-Q
Issuer identification: The supplied filing is for SJW Group (NYSE: SJW), not a company identified as H2O America. The summary below reflects the filing text provided.
Business context and reporting period
Unaudited results cover the quarter and nine months ended September 30, 2022, compared with the corresponding 2021 periods. SJW Group provides regulated water utility services in California, Connecticut, Maine and Texas, as well as real estate services. Water sales are seasonal, and the company cautions that interim results are not indicative of full-year performance. Amounts below are in U.S. dollars; financial statement figures are rounded to millions.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $176.0m | $166.9m | $449.3m | $433.9m |
| Operating income | $37.6m | $33.8m | $80.6m | $79.5m |
| Net income | $25.0m | $19.1m | $40.3m | $42.5m |
| Diluted EPS | $0.82 | $0.64 | $1.33 | $1.43 |
| Operating margin | 21.4% | 20.2% | 17.9% | 18.3% |
| Net margin | 14.2% | 11.4% | 9.0% | 9.8% |
For the nine months, operating cash flow was $129.3m, versus $100.3m in 2021. Investing used $181.5m, including $160.5m of company-funded utility-plant additions; financing provided $53.2m. Cash and cash equivalents were $13.2m at September 30, 2022.
At September 30, 2022, reported long-term debt, including its current portion, was $1,458.1m, and line-of-credit borrowings were $199.2m. Combined debt and line borrowings were therefore approximately $1,657.3m, compared with $1,595.0m at December 31, 2021. Total stockholders’ equity was $1,049.3m. Current assets of $157.9m were below current liabilities of $318.7m. The company reported $150.8m of unused line capacity within total commitments of $350.0m, and stated it was in compliance with debt covenants.
Material changes versus the prior comparable period
- Q3 revenue rose 5% and net income rose about 31%; nine-month revenue rose about 4%, while net income declined about 5%.
- Q3 revenue growth primarily reflected rate increases, partly offset by lower consumption. For the nine months, rate increases added $22.2m, while lower consumption reduced revenue by $9.1m.
- Nine-month operating expenses increased $14.3m. Higher depreciation and amortization, administrative costs, maintenance, and production costs contributed; a $5.5m gain on nonutility property sales partly offset increases.
- Nine-month results included a $5.1m gain on nonutility property sales and one-time impacts identified by management, including $2.2m of depreciation related to Cupertino concession assets and $1.2m of investigation settlement expenses and certain tax-related true-ups. Q3 included $0.4m of investigation settlement expenses.
- Interest expense increased, with management citing higher short-term rates and increased line-of-credit borrowings. The average line-of-credit borrowing cost for the nine-month period rose to 2.79% from 1.34%.
Outlook, commentary, risks and contingencies
- Rates: After quarter-end, the CPUC approved SJWC’s general rate case settlement. It authorized revenue increases of $25.1m in 2022, $13.0m in 2023 and $16.1m in 2024; the 2022 increase is retroactive to January 1. The decision also approved recovery of $18.2m in balancing and memorandum accounts and a $350m three-year capital budget. Implementation and related advice-letter filings were pending as described in the filing.
- Water supply and drought: Management described severe California drought conditions and limited imported-water allocations. SJWC expected its available sources to meet demand through the remainder of 2022, but supply mix and availability can affect costs and operations. Conservation restrictions remained in effect.
- Investment and financing: The company anticipated approximately $223m of 2022 company-funded capital expenditures and approximately $1.3bn over five years, with a significant portion subject to regulatory approval. New long-term note issuances of $25m and $70m were expected to close after quarter-end, subject to conditions.
- Key risks: The filing highlights utility regulation and rate decisions, seasonal demand and weather, drought and climate impacts, water contamination or infrastructure failure, rising input and financing costs, and access to capital. Management reported no material changes to previously disclosed risk factors and no pending litigation expected to have a material effect.
- The board declared a regular $0.36-per-share quarterly dividend after quarter-end, payable December 1, 2022. The filing provides no formal earnings guidance.
Important facts for investors to verify
- Confirm issuer identity: the supplied document is SJW Group’s 10-Q, not a filing naming H2O America.
- Track implementation and customer-bill effects of the CPUC rate decision, including the proposed recovery and refund of balancing-account amounts.
- Monitor drought conditions, conservation-related usage, water supply costs and the availability of imported and surface water.
- Assess funding for the capital program, debt maturities and new note closings, borrowing costs, and covenant headroom.
- Separate recurring earnings from property-sale gains, tax-method effects and other one-time items when evaluating year-over-year results.