SJW Group Form 10-Q — Quarter ended September 30, 2021
Entity note: The supplied filing is for SJW Group (NYSE: SJW), not a company identified as H2O America. Figures below are SJW Group’s; dollar amounts are in millions unless noted.
Business context and reporting period
SJW Group provides regulated water utility services in California, Connecticut, Maine and Texas, alongside smaller non-tariffed and real estate businesses. This unaudited report covers the third quarter and first nine months of 2021. Water sales are seasonal, and interim results are not necessarily indicative of full-year results.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $166.9 | $165.9 | $433.9 | $428.8 |
| Operating income | $33.8 | $41.9 | $79.5 | $93.4 |
| Net income | $19.1 | $26.1 | $42.5 | $48.2 |
| Diluted EPS | $0.64 | $0.91 | $1.43 | $1.68 |
| Dividends per share | $0.34 | $0.32 | $1.02 | $0.96 |
Operating margin was approximately 20.2% in Q3 2021 versus 25.2% a year earlier, and 18.3% for the first nine months versus 21.8%. Net margin was approximately 11.4% and 9.8%, respectively, compared with 15.7% and 11.2% in the corresponding 2020 periods.
- Cash flow: Operating cash flow for the first nine months was $100.3, up from $70.6. Investing used $182.9, including $169.2 of company-funded utility plant additions; financing provided $89.6. Cash, cash equivalents and restricted cash totaled $16.2 at period-end, including $14.0 unrestricted cash.
- Debt and liquidity: Long-term debt was $1,420.0, with $26.3 current; line-of-credit borrowings were $122.1. Unused short-term credit facilities totaled $137.9. Total stockholders’ equity was $1,000.7. SJW reported compliance with debt covenants.
- Capital investment: The 2021 Water Utility Services company-funded capital expenditure budget was approximately $238.8; $169.2, or 71%, had been invested through September 30. The company expects approximately $1.4 billion in capital expenditures over five years, with a significant portion subject to regulatory approval.
Material changes versus prior comparable periods
Q3 revenue rose about 0.6%, while net income fell about 27%. Nine-month revenue increased about 1.2%, while net income declined about 12%. Management attributed the earnings decline principally to higher water production costs—particularly groundwater extraction, purchased water and energy—and higher administrative, maintenance and depreciation expenses. Lower customer usage partly offset revenue gains from rate increases and regulatory mechanisms. Q3 operating expenses increased $9.2; nine-month expenses increased $19.0.
Nine-month results included a $3.0 pre-tax gain from receipt of a Texas Water Alliance sale holdback. The prior-year period included a $1.05 million gain on real estate sales. A March 2021 equity offering raised approximately $66.8 net and increased shares outstanding.
Outlook, commentary and risks
- Drought and water supply: Management described severe California drought conditions, reduced surface-water availability and increased reliance on costlier groundwater and purchased water. SJW reported that it believed supply would be sufficient for the remainder of 2021. Valley Water called for 15% conservation; SJW activated Stage 3 of its water-shortage plan. The company sought approval to activate drought surcharges, which was pending at the filing date.
- Rates and regulation: SJWC’s rate case requested revenue increases for 2022–2024; rates, if approved, were expected to take effect in Q2 2022, with interim rates sought for January 2022. Connecticut Water received a smaller-than-requested rate increase effective July 2021 and sought further recovery through a pending reconsideration and infrastructure surcharge filing. Maine Water’s major rate request related to a new treatment facility remained under review.
- Capital and financing: The company expects to rely on operating cash flow, debt and equity financing to fund investment. Management stated it believed external financing would remain accessible. Interest-rate changes and capital-market access remain risks.
- COVID-19 and collections: Customer disconnection moratoria and pandemic-related effects may impair collections; California’s moratorium was extended through December 31, 2021. Recovery of recorded regulatory balances is subject to regulatory review and is not assured. Write-offs for uncollectible accounts were less than 1% of revenue at September 30.
- Other items: On October 29, SJW sold properties for aggregate proceeds of $15.75 and expected to record a $13.6 pre-tax gain in Q4. The board declared a $0.34 quarterly dividend payable December 1, 2021. SJW reported no pending litigation expected to have a material effect and no material change in other disclosed risk factors, apart from the highlighted water-demand and COVID-19 risks.
The filing provides no specific consolidated earnings or revenue guidance. Key uncertainties include weather, customer conservation and usage, water-supply costs, regulatory rate decisions and recovery of regulatory-account balances.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing is SJW Group, not H2O America.
- Track California drought severity, water-supply mix and costs, conservation levels, and the pending drought-surcharge request.
- Monitor outcomes and timing of the California, Connecticut and Maine rate proceedings, including approval and recovery of regulatory balances.
- Assess whether planned capital investment can be financed while managing debt, interest expense and potential share dilution.
- Confirm the realized Q4 gain from the October property sales and monitor customer collections as disconnection moratoria end.