Filing identity and reporting period
The supplied filing is SJW Group’s unaudited Form 10-Q for the quarter and six months ended June 30, 2023; it does not identify H2O America as the registrant. Unless noted otherwise, financial amounts below are in millions of dollars. Quarter comparisons are against Q2 2022; six-month comparisons are against the first half of 2022.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $156.9 | $149.0 | $294.2 | $273.3 |
| Operating income | $31.2 | $26.4 | $56.3 | $43.0 |
| Net income | $18.3 | $11.6 | $29.8 | $15.3 |
| Diluted EPS | $0.58 | $0.38 | $0.95 | $0.50 |
| Operating margin | 19.9% | 17.7% | 19.1% | 15.7% |
| Net margin | 11.7% | 7.8% | 10.1% | 5.6% |
Q2 revenue rose 5.3% and net income increased 58%; first-half revenue rose 7.6% and net income increased 95%. Growth was led by authorized rate increases, partly offset by lower customer usage. The company paid dividends of $0.38 per share in Q2 and $0.76 per share for the first half.
Cash flow, debt and liquidity
- First-half operating cash flow was $97.4 million, up from $83.6 million. Investing cash outflow was $125.4 million, including $115.7 million of company-funded utility-plant additions; financing provided $41.1 million.
- Cash and cash equivalents were $25.5 million at June 30, 2023, versus $12.3 million at year-end 2022. Current assets were $201.4 million and current liabilities $238.0 million, a working-capital deficit of about $36.5 million.
- Long-term debt, including current maturities, was $1.564 billion; lines of credit outstanding were $83.3 million. Combined debt was approximately $1.647 billion, versus $1.656 billion at year-end. The filing reports $266.7 million of unused credit capacity. Average line-of-credit borrowing cost was 5.96% in the first half, compared with 1.44% a year earlier; the company reported covenant compliance.
- Company-funded utility capital spending is estimated at approximately $255 million for 2023; $115.7 million, or 45%, had been invested by June 30. Planned five-year capital expenditures are approximately $1.63 billion, with a significant portion subject to regulatory approval.
Material changes and unusual items
- Revenue increases reflected rate increases of $14.7 million in Q2 and $32.1 million in the first half. These were partly offset by lower consumption, reducing revenue by $9.0 million and $15.6 million, respectively.
- Higher purchased-water and groundwater costs, regulatory balancing-account costs and interest expense pressured results. First-half 2022 results included a $5.45 million gain on sale of nonutility property; no comparable gain occurred in 2023.
- A $3.087 million partial release of an uncertain-tax-position reserve, following new IRS guidance, contributed to 2023 tax benefits and materially lowered the effective tax rate. Effective tax rates were (9)% for Q2 and (1)% for the first half, versus 17% and 18% in the prior-year periods.
- The company issued 860,503 shares during the first half under its equity distribution agreement, receiving $63.8 million net. The program authorization was increased to $240 million; approximately $110.0 million remained available at June 30.
- Tennessee real estate with a $40.85 million carrying amount was classified as held for sale; management intended to complete a sale within 12 months. No impairment was recorded.
Outlook, regulation and risks
- No consolidated earnings or revenue guidance is provided in the supplied filing text. Management cautions that utility results are seasonal and interim results are not indicative of a full year.
- Management believed SJWC’s water supply would be sufficient through the remainder of 2023. California ended mandatory conservation measures in April; the request to continue certain conservation-related regulatory accounts remained pending. Texas Water implemented its drought management plan in July amid persistent drought, declining water levels and near-capacity production.
- California approved a 7.28% authorized rate of return; a subsequent adjustment was expected to raise it to 7.47%, subject to implementation. A $27.6 million California water-cost pass-through rate increase took effect July 1. Other pending or planned proceedings include California recovery of a $14.2 million balancing-account under-collection, Texas system-improvement charges, and Maine rate filings.
- Texas Water’s acquisitions of KT Water Development and KT Water Resources, for stated purchase prices of $7.3 million and $56.5 million, were expected to close in Q3 2023; regulatory approval for the utility acquisition was received July 24.
- Key disclosed risks include regulation and rate-case timing, water demand and weather, drought and climate conditions, water quality and infrastructure failures, rising financing costs and access to capital, and execution and integration risks from acquisitions. The filing reports no material change to previously disclosed risk factors and no litigation expected to have a material adverse effect.
Important facts for investors to verify
- Confirm the intended issuer: this filing is for SJW Group (ticker SJW), not H2O America.
- Track regulatory outcomes and timing for pending rate adjustments, balancing-account recovery and Texas and Maine filings.
- Assess whether lower usage, water-supply conditions and Texas drought measures affect volumes, costs or customer collections.
- Monitor debt costs, refinancing needs, capital spending and future equity issuance; evaluate potential dilution from the ongoing share program.
- Consider the effect of the one-time tax-reserve release and prior-year property-sale gain when assessing recurring earnings.