Filing summary
Issuer/period: The supplied filing is SJW Group’s unaudited Form 10-Q for the quarter ended March 31, 2024—not a filing identified as H2O America. Verify that this is the intended company before relying on the figures. Unless noted otherwise, amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions.
Business context and results
SJW Group is a holding company whose principal business is regulated water utility service in California, Connecticut, Maine and Texas, with smaller non-tariffed and real estate operations. Water sales are seasonal, and first-quarter results are not necessarily indicative of full-year results.
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Operating revenue | $149.4 million | $137.3 million | +8.8% |
| Operating income | $27.9 million | $25.2 million | +10.9% |
| Net income | $11.7 million | $11.5 million | +1.5% |
| Diluted EPS | $0.36 | $0.37 | Down $0.01 |
| Operating margin | 18.7% | 18.3% | Up 0.4 percentage points |
| Net margin | 7.8% | 8.4% | Down 0.6 percentage points |
| Cash from operations | $51.2 million | $50.6 million | Up $0.6 million |
Financial position and cash flow
- At March 31, total assets were $4.37 billion and stockholders’ equity was $1.24 billion.
- Debt comprised $1.56 billion of long-term debt, $9.0 million of current long-term debt and $210.7 million drawn on lines of credit—about $1.77 billion in total, versus about $1.75 billion at year-end 2023. Cash was $4.5 million, down from $9.7 million.
- Current assets were $178.1 million against current liabilities of $323.3 million; the current ratio was approximately 0.55. The company reported $139.3 million of unused credit availability and compliance with debt covenants.
- Investing activities used $74.3 million, including $68.9 million of company-funded utility plant additions. Operating cash flow less investing cash flow was negative $23.1 million for the quarter.
- Interest expense was $17.6 million, up from $15.8 million. The average cost of borrowing on lines of credit was 6.54%, versus 5.74% a year earlier.
- Quarterly dividends were $0.40 per share, up from $0.38 in Q1 2023. The board declared another $0.40 quarterly dividend on April 24, payable June 3, 2024.
Material changes and management commentary
- Revenue increased $12.1 million, primarily from rate increases ($10.0 million), higher consumption ($1.8 million) and customer growth ($0.8 million). Rate increases in California and Maine and Connecticut infrastructure recovery also supported results.
- Operating expenses rose $9.4 million. Water production expenses increased $4.8 million, while depreciation and amortization increased $2.1 million, principally reflecting new utility plant; compensation and other costs also rose.
- Net income growth was limited by higher interest expense and taxes. The effective tax rate rose to 16% from 9%, primarily due to share-based payment tax deficiencies and other discrete tax items.
- Water supply conditions in California improved. SJW said it believed its sources would be sufficient to meet customer demand through the remainder of 2024. The Saratoga Water Treatment Plant remained offline pending approval of an updated operating plan.
Outlook, regulation and risks
- No formal earnings or EPS guidance is provided. Management estimated 2024 Water Utility Services capital expenditures of approximately $332 million and five-year capital expenditures of approximately $1.621 billion; a significant portion is subject to regulatory approval.
- Following the EPA’s April 2024 final PFAS drinking-water rules, SJW estimated approximately $230 million of treatment capital expenditures based on maximum contaminant levels in the previously proposed regulation. Monitoring and reporting compliance is required by 2027 and contaminant-level compliance by 2029.
- SJWC’s California rate-case application seeks increases of $55.2 million (11.11%) for 2025, $22.0 million (3.99%) for 2026 and $25.8 million (4.49%) for 2027; any new rates are expected to take effect January 1, 2025 if approved. Connecticut Water’s pending rate application seeks an approximately $21.4 million annual revenue increase, with a decision scheduled for June 2024.
- Connecticut Water’s rate application outcome and regulatory environment are material uncertainties. SJW Group, CTWS and CWC had S&P negative outlooks; SJW Group and CTWS were rated A- and SJWC A. The company also cited interest rates, financing access, regulatory decisions, weather and water supply, climate impacts, infrastructure failure, contamination, cyberattacks and catastrophic events as risks.
- A Connecticut Water subsidiary is defending a class action alleging contaminants in supplied water. The filing states that no pending legal proceeding is expected to have a material effect on the company’s financial condition or results.
Unusual and subsequent items
- In April 2024, SJW Land Company sold a Tennessee warehouse building for $27.0 million; the filing estimates a $7.0 million pretax gain. The sale occurred after quarter-end.
- During Q1, SJW issued 126,025 shares through its at-the-market equity program for $7.0 million net proceeds. Approximately $85.3 million remained available under the program at March 31.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the issuer identity: the source document is SJW Group, while the request names H2O America.
- Track the California and Connecticut rate proceedings and the timing and amount of any approved recovery.
- Assess PFAS treatment scope, expected capital spending and whether associated costs can be recovered in rates.
- Monitor debt, borrowing costs, liquidity and equity issuance against the large capital program and dividend commitments.
- Follow the Connecticut Water class action and the outcome of the Tennessee property sale and estimated gain.