SJW Group Form 10-Q Summary — Quarter Ended September 30, 2023
Entity mismatch: The supplied filing is for SJW Group (NYSE: SJW), not H2O America. This summary reflects the filing provided. Amounts below are in millions of dollars unless stated otherwise.
Business context and reporting period
SJW Group operates regulated water utilities and related businesses in California, Connecticut, Maine, and Texas, plus real estate services. This unaudited Form 10-Q covers the three and nine months ended September 30, 2023. Water sales are seasonal, and interim results may not indicate full-year performance.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $204.8 | $176.0 | $499.0 | $449.3 |
| Operating income | $56.6 | $37.6 | $112.9 | $80.6 |
| Operating margin | 27.6% | 21.4% | 22.6% | 17.9% |
| Net income | $36.2 | $25.0 | $66.0 | $40.3 |
| Diluted EPS | $1.13 | $0.82 | $2.09 | $1.33 |
| Dividends per share | $0.38 | $0.36 | $1.14 | $1.08 |
For the first nine months, operating cash flow was $159.3, capital additions to utility plant were $209.5 (company-funded and developer-funded), and net cash used in investing was $241.7. Net cash provided by financing was $91.2; cash and cash equivalents ended the period at $21.1.
At September 30, total assets were $3.84 billion and stockholders’ equity was $1.22 billion. Long-term debt, including its current portion, was $1.58 billion; lines of credit outstanding were $128.4 million. Current assets of $228.8 million compared with current liabilities of $308.1 million. The company reported compliance with debt covenants. The weighted-average rate on short-term borrowings was 6.48% at quarter-end.
Material changes versus the prior comparable period
- Q3 revenue increased 16% and net income increased about 45%; nine-month revenue increased 11% and net income increased about 64% year over year.
- Management attributed revenue growth primarily to rate increases in California and Maine, higher customer use in Q3, and the delayed California general rate case. Nine-month consumption was lower year over year.
- Higher production costs, interest expense, and Q3 income tax expense partly offset the gains. Nine-month 2022 results included a $5.5 million gain on sale of nonutility property, absent in 2023.
- Nine-month operating cash flow rose approximately $30 million, while investing cash use increased approximately $60 million, including higher utility capital spending.
Outlook, management commentary, risks, and unusual items
- Management expected SJW California’s water supply to be sufficient for customer demand through the remainder of 2023. California’s mandatory conservation requirements ended in April; Texas activated its drought management plan in July amid low lake and groundwater levels and near-capacity production.
- Estimated 2023 company-funded utility capital expenditures were approximately $255 million; about 77% had been invested by September 30. Planned five-year utility capital expenditures were approximately $1.63 billion, with a significant portion subject to regulatory approval.
- On October 13, SJW California filed to trigger a 2024 cost-of-capital mechanism; the company expected adjusted return and rate changes to take effect January 1, 2024. Connecticut Water filed for a proposed rate adjustment that could increase annual revenues by approximately $21.4 million, or 18.1%, around July 1, 2024, subject to approval. Texas expected an order on its system improvement charge in Q1 2024.
- The company completed August acquisitions in Texas: KT Water Development for $7.3 million cash and KT Water Resources for total acquisition cost of $40.1 million, including a post-closing production-payment obligation initially valued at $15.4 million. The latter obligation is linked to groundwater production and may total $29 million over up to 29 years.
- A $3.1 million uncertain-tax-position reserve release benefited nine-month results. The filing reports no material change in previously disclosed risk factors. SJW Group, CTWS, and Connecticut Water were placed on S&P negative watch in September, citing Connecticut regulatory and legislative developments.
- In October 2023, Connecticut Water was named in a class action alleging water contamination; it intends to defend itself. Management said no pending legal proceedings were expected to materially affect the company, but the lawsuit is a post-quarter development to monitor.
- The board declared a regular $0.38-per-share dividend payable December 1, 2023. No formal consolidated earnings guidance is provided in the supplied filing text.
Important facts for investors to verify
- Confirm that SJW Group, rather than H2O America, is the intended issuer and that SJW is the correct ticker.
- Track regulatory decisions, rate-case outcomes, and the timing and amount of approved rate increases across California, Connecticut, Texas, and Maine.
- Assess funding needs for the capital program against rising borrowing costs, debt maturities, and continued equity issuance; the filing reports $98.2 million remaining under its equity distribution agreement.
- Monitor Texas water availability and drought restrictions, as well as California supply conditions and conservation-related regulatory accounts.
- Follow developments in the Connecticut contamination lawsuit and any resulting financial or operational exposure; the filing does not provide a clear estimate of potential damages.
- Consider seasonality and the unusual 2022 property-sale gain and 2023 tax-reserve release when comparing earnings periods.