SJW GROUP ANNOUNCES 2018 SECOND QUARTER FINANCIAL RESULTS
SAN JOSE, CA, July 25, 2018 – SJW Group (NYSE: SJW) today reported financial results for the second quarter ended June 30, 2018. SJW Group net income was $12.9 million for the quarter ended June 30, 2018, compared to $18.7 million for the same period in 2017. Diluted earnings per share were $0.62 and $0.90 for the quarters ended June 30, 2018 and 2017, respectively. Diluted earnings per share includes $0.72 per share from recurring operations offset by $0.10 per share related to the Company’s activities around the proposed merger with Connecticut Water Service, Inc.
Operating revenue was $99.1 million for the quarter ended June 30, 2018 compared to $102.1 million in the same period in 2017. The $3.0 million decrease in revenue was primarily attributable to a $10.9 million decrease in the net recognition of certain balancing and memorandum accounts, including $4.8 million related to the implementation of the Tax Cuts and Jobs Act (H.R. 1) (the "Tax Act"), $4.3 million in lower revenue recorded in our Water Conservation Memorandum Account, and $1.6 million in cost-recovery accounts that were recorded in revenue in 2017 which upon adoption of Topic 606, "Revenue from Contracts with Customers" on January 1, 2018 are now recorded as capitalized costs until recovery is approved by the California Public Utilities Commission. The decrease was partially offset by a $5.7 million increase in cumulative water rate changes, net of approximately $1.0 million rate decrease from our 2018 cost of capital proceeding, $1.8 million in higher customer usage, and $415,000 in revenue from new customers.
Water production expenses for the second quarter of 2018 were $39.9 million compared to $38.8 million for the same period in 2017, an increase of $1.1 million. The increase in water production expenses was attributable to $3.8 million in higher per unit costs for purchased water, groundwater extraction and energy charges and $1.7 million in higher customer water usage, partially offset by $3.3 million due to an increase in the use of available surface water supplies and $1.2 million related to cost-recovery balancing and memorandum accounts. Operating expenses, excluding water production costs, increased $5.0 million to $36.4 million from $31.4 million. The increase was primarily due to $2.7 million in various costs related to our proposed merger with Connecticut Water Service, Inc., $1.6 million of higher depreciation expenses due to assets placed in service in 2017, $448,000 in higher maintenance and property taxes and other non-income taxes, and $143,000 of higher administrative and general expenses, net of cost-recovery balancing and memorandum accounts.
Other expense and income in the second quarter and first six months of 2017 included a pre-tax gain of $6.3 million on the sale of 444 West Santa Clara Street Limited Partnership's interests in the commercial building and land the partnership owned and sale of undeveloped land which SJW Land Company owned for a pre-tax gain of $580,000.
The effective consolidated income tax rates were approximately 24% and 37% for the quarters ended June 30, 2018 and 2017, respectively. The effective tax rate decreased primarily due to the change in the statutory federal income tax rate from 35% to 21% as a result of the Tax Act.
Year-to-date net income was $14.2 million, compared to $22.4 million in 2017. Diluted earnings per share were $0.68 in the first six months of 2018, compared to $1.08 per diluted share for the same period in 2017.
Year-to-date operating revenue increased by $3.0 million to $174.1 million from $171.1 million in the first six months of 2018. The increase was attributable to $11.8 million in cumulative rate increases, net of approximately $1.0 million rate decrease from our 2018 cost of capital proceeding, $8.1 million in higher customer usage, and $792,000 in revenue from new customers. These increases were partially offset by a $17.4 million decrease in the net recognition of certain balancing and memorandum accounts, primarily due to $6.7 million in lower revenue recorded in our Water Conservation Memorandum Account, $5.9 million related to the implementation of the Tax Act, $1.7 million related to cost-recovery accounts, an additional $1.4 million related to the outcome of our cost of capital proceeding, and $1.4 million related to a redistribution of certain customer accounts between residential and business customers for the year ended December 31, 2016 that was recorded in the 2017 first quarter. In addition, revenue from our real estate operations was $229,000 lower.
Year-to-date water production expenses increased to $70.3 million from $65.3 million in 2017. The $5.0 million increase was attributable to $6.1 million in higher per unit costs for purchased water, groundwater extraction and energy charges and $4.3 million in higher customer water usage, offset by $4.6 million in lower expenses due to an increase in the use of available surface water supplies and $708,000 related to cost-recovery balancing and memorandum accounts. Operating expenses, excluding water production costs, increased $11.4 million to $73.7 million from $62.3 million. The increase was primarily due to $6.5 million in various costs related to our proposed merger with Connecticut Water Service, Inc., $3.1 million in higher depreciation expenses, $1.2 million in higher maintenance and property taxes and other non-income taxes, and $566,000 in higher administrative and general expenses, net of cost-recovery balancing and memorandum accounts.
The effective consolidated income tax rates were approximately 20% and 36% for the six-month periods ended June 30, 2018 and 2017, respectively. The effective tax rate decreased in 2018 primarily due to the change in the statutory federal income tax rate from 35% to 21% as a result of the Tax Act.
The Directors of SJW Group today declared a quarterly dividend on common stock of $0.28 per share. The dividend is payable on September 4, 2018 to shareholders of record on August 6, 2018.
SJW Group is a publicly traded holding company headquartered in San Jose, California. SJW Group is the parent company of San Jose Water Company, SJWTX, Inc., and SJW Land Company. Together, San Jose Water Company and SJWTX, Inc. provide water service to more than one million people in San Jose, California and nearby communities and in Canyon Lake, Texas and nearby communities. SJW Land Company owns and operates commercial real estate investments.
This press release may contain certain forward-looking statements including, but not limited to, statements relating to SJW Group's plans, strategies, objectives, expectations and intentions, which are made pursuant to the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of SJW Group to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Results for a quarter are not indicative of results for a full year due to seasonality and other factors. Other factors that may cause actual results, performance or achievements to materially differ are described in SJW Group's most recent reports on Form 10-K, Form 10-Q and Form 8-K filed with the Securities and Exchange Commission. SJW Group undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Condensed Consolidated Statements of Comprehensive Income
(in thousands, except per share data)
Three months ended June 30,
Six months ended June 30,
Groundwater extraction charges
Other production expenses
Total production expenses
Administrative and general
Property taxes and other non-income taxes
Depreciation and amortization
Merger related cost
Total operating expense
OTHER (EXPENSE) INCOME:
Unrealized gain/(loss) on California Water Service Group stock
Gain on sale of real estate investment
Pension non-service cost
Income before income taxes
Provision for income taxes
NET INCOME BEFORE NONCONTROLLING INTEREST
Less net income attributable to the noncontrolling interest
SJW GROUP NET INCOME
Other comprehensive income, net
SJW GROUP COMPREHENSIVE INCOME
SJW GROUP EARNINGS PER SHARE:
DIVIDENDS PER SHARE
WEIGHTED AVERAGE SHARES OUTSTANDING:
Condensed Consolidated Balance Sheets
Depreciable plant and equipment
Construction in progress
Total utility plant
Less accumulated depreciation and amortization
Net utility plant
Real estate investments
Less accumulated depreciation and amortization
Net real estate investments
Cash and cash equivalents
Accounts receivable and accrued unbilled utility revenue
Other current assets
Total current assets
Investment in California Water Service Group
Regulatory assets, net
Condensed Consolidated Balance Sheets
CAPITALIZATION AND LIABILITIES
Additional paid-in capital
Accumulated other comprehensive income
Total stockholders’ equity
Long-term debt, less current portion
Line of credit
Accrued groundwater extraction charge, purchased water and purchased power
Other current liabilities
Total current liabilities
DEFERRED INCOME TAXES
ADVANCES FOR CONSTRUCTION AND CONTRIBUTIONS IN AID OF
POSTRETIREMENT BENEFIT PLANS
OTHER NONCURRENT LIABILITIES