American States Water Company (AWR) — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. AWR is the parent of regulated water and electric utilities and contracted-services businesses. The filing also reports Golden State Water Company (GSWC) separately.
Key financial results — AWR consolidated
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Operating revenue | $108.6 million | $117.1 million | Down 7.3% |
| Operating income | $24.4 million | $30.3 million | Down 19.7% |
| Net income | $14.2 million | $19.3 million | Down 26.5% |
| Diluted EPS | $0.38 | $0.52 | Down $0.14 |
| Operating margin | 22.4% | 25.9% | Down 3.5 percentage points |
| Net cash from operations | $38.0 million | $24.7 million | Up $13.4 million |
| Capital expenditures | $35.2 million | $37.1 million | Down $1.9 million |
Revenue declines reflected contracted-services revenue falling $7.7 million, primarily because of construction timing at military bases, and water revenue decreasing $1.1 million. Electric revenue rose $0.4 million. Lower ASUS construction activity also reduced reported construction expenses, partially offsetting lower revenue. AWR reported cash and cash equivalents of $10.1 million at quarter-end, total assets of $1.91 billion, and shareholders’ equity of $687.4 million. Current assets of $130.9 million compared with current liabilities of $160.2 million.
At March 31, AWR reported $412.2 million of long-term debt, $189.5 million of bank notes payable and $32.0 million of current bank borrowings. The latter was BVESI revolving-credit borrowing classified as current under a CPUC repayment requirement. Long-term debt’s estimated fair value was $451.0 million versus a $415.7 million carrying amount, excluding debt issuance costs.
Segments and GSWC
- Water: AWR segment diluted EPS was $0.23 versus $0.33. GSWC revenue was $73.9 million, operating income $17.0 million and net income $8.6 million, compared with $75.0 million, $21.1 million and $12.2 million, respectively, a year earlier. The filed discussion attributes lower profitability to pending rate decisions, increased operating costs and retirement-plan investment losses.
- Electric: Segment diluted EPS was $0.07 in both periods. Higher revenue and higher operating expenses broadly offset one another.
- Contracted services: Segment diluted EPS was $0.08 versus $0.12. Revenue declined to $22.8 million from $30.5 million, primarily due to construction timing, partly offset by higher management fees.
Liquidity, outlook and material developments
- Operating cash flow improved, but management cited timing of vendor payments, construction billings and receipts, and $9.8 million of state COVID-19 customer-bill relief received by GSWC and BVESI. The company cautioned that these timing effects can fluctuate.
- AWR expects regulated-utility company-funded capital expenditures of $140 million to $160 million in 2022, subject to schedule changes, including possible supply-chain delays. Management expects to use external financing as investment needs grow.
- Management expects the contracted-services segment to contribute $0.45 to $0.49 per share for full-year 2022. The filing does not provide consolidated EPS guidance.
- GSWC’s 2022–2024 water general rate case remained pending. First-quarter water billing used 2021 adopted rates; approved rates are expected to apply retroactively to January 1, 2022, with cumulative adjustments recorded upon approval. A proposed decision was expected in mid-2022.
- GSWC recorded a $1.4 million revenue reduction for the estimated effect of a pending lower cost of debt. Management estimated that the requested reduction in cost of debt could lower 2022 adopted water revenues by approximately $7.5 million, or $0.15 per share, versus the 2021 rate assumption; the proceeding remained unresolved.
- After quarter-end, AWR amended its credit facility on April 22, increasing capacity from $200 million to $280 million and replacing LIBOR with SOFR; it expires in May 2023. On April 28, BVESI issued $35 million of private-placement notes at 4.548% and 4.949%, maturing in 2032 and 2037, and used proceeds to pay down revolving-credit borrowings.
- California drought conditions intensified: the State Water Project allocation was reduced to 5%, and a water-supply emergency and outdoor-watering limits affected GSWC service areas dependent on that supply. Drought, water availability and rising purchased-water costs are material operating considerations.
- Other risks and contingencies include pending CPUC proceedings, possible greater water-earnings volatility after WRAM/MCBA mechanisms are scheduled to end for GSWC from 2025, customer delinquencies, wildfire mitigation costs, PFAS and other water-quality requirements, and recovery of regulatory assets. BVESI’s approximately $448,000 storm-cost recovery request had previously been denied; a new application was pending, and non-recovery could result in a write-off. The filing reports no pending litigation believed to be material and no significant changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether and when the CPUC approves the water general rate case and cost-of-capital application, including retroactive rate adjustments and the final revenue impact.
- Whether actual 2022 capital spending, financing costs and debt issuance align with management’s plans, and how the credit-facility maturities and repayment requirements are met.
- How drought restrictions, water supply mix, wholesale water and power prices, and conservation affect operating costs and customer demand.
- Whether contracted-services construction activity and government price adjustments recover as expected, given the reported timing-driven revenue decline and contract termination provisions.
- Whether customer arrears, regulatory-asset recovery, wildfire mitigation and water-quality compliance create material costs or cash-flow pressure.