SJW (SJW) - 2025 Q1 - Quarterly Report

Forward-Looking Statements This report contains forward-looking statements subject to various risks and uncertainties that could cause actual results to differ materially from predictions, with quarterly results not necessarily indicative of full-year performance due to seasonality and other factors - The company identifies several factors that could cause actual results to differ from forward-looking statements, including:[10][12] - Governmental policies and regulations (e.g., rates, PFAS) - Changes in water demand, weather conditions, and climate change impacts - Unexpected costs, contamination of water supplies, and catastrophic events - General economic conditions and the ability to obtain financing on favorable terms PART I: FINANCIAL INFORMATION Item 1. Financial Statements The unaudited condensed consolidated financial statements for Q1 2025 reveal significant increases in net income, operating revenue, total assets, and stockholders' equity, alongside a decrease in operating cash flow and a rise in cash from financing activities Condensed Consolidated Statements of Comprehensive Income For the three months ended March 31, 2025, SJW Group reported operating revenue of $167.6 million and net income of $16.6 million, representing a 12.2% increase in revenue and a 41.5% increase in net income compared to the same period in 2024, with diluted earnings per share rising to $0.49 Q1 2025 vs. Q1 2024 Performance (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Operating Revenue | $167,599 | $149,382 | +12.2% | | Operating Income | $35,896 | $27,913 | +28.6% | | Net Income | $16,551 | $11,699 | +41.5% | | Diluted EPS | $0.49 | $0.36 | +36.1% | | Dividends per share | $0.42 | $0.40 | +5.0% | Condensed Consolidated Balance Sheets As of March 31, 2025, total assets increased to $4.73 billion from $4.66 billion at year-end 2024, primarily due to growth in net utility plant, while total stockholders' equity rose to $1.40 billion Balance Sheet Highlights (in thousands) | Metric | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $4,728,810 | $4,658,309 | | Net Utility Plant | $3,548,249 | $3,488,611 | | Total Current Assets | $197,272 | $190,714 | | Total Liabilities | $3,331,473 | $3,291,335 | | Long-Term Debt | $1,691,475 | $1,706,904 | | Total Stockholders' Equity | $1,397,337 | $1,366,974 | Condensed Consolidated Statements of Cash Flows For Q1 2025, net cash provided by operating activities decreased to $43.2 million, net cash used in investing activities increased to $84.8 million, and net cash provided by financing activities significantly rose to $54.2 million Cash Flow Summary (in thousands) | Activity | Three months ended March 31, 2025 | Three months ended March 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $43,181 | $51,216 | | Net cash used in investing activities | ($84,759) | ($74,273) | | Net cash provided by financing activities | $54,160 | $17,876 | | Net change in cash and cash equivalents | $12,582 | ($5,181) | | Cash and cash equivalents, end of period | $23,696 | $4,542 | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail the company's structure, revenue components, regulatory mechanisms, capitalization activities, and segment reporting, highlighting the seasonal nature of water revenue, the use of balancing accounts, and the ongoing 'at-the-market' equity issuance program - The company's primary business is conducted through its wholly owned subsidiaries: San Jose Water Company (SJWC), Connecticut Water Service (CTWS), and SJWTX, Inc. (The Texas Water Company)[29] - During Q1 2025, the company issued 495,900 shares of common stock under its 'at-the-market' equity distribution agreement, receiving $26.5 million in net proceeds[50] - The company is involved in litigation, including a class action lawsuit against its subsidiary CWC regarding water contaminants and as a plaintiff in a multi-district litigation against PFAS manufacturers, from which it is entitled to a portion of approved settlements[56][57][58] Segment Net Income (in thousands) | Segment | Q1 2025 Net Income | Q1 2024 Net Income | | :--- | :--- | :--- | | Water Utility Services | $18,953 | $14,781 | | Other Services | $310 | $1,334 | | Unallocated Corporate | ($2,712) | ($4,416) | | Consolidated | $16,551 | $11,699 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 41% increase in Q1 2025 net income primarily to rate increases, with operating revenue growing 12% to $167.6 million and operating expenses rising 8% to $131.7 million, while detailing capital expenditure plans of $451 million for 2025 and $1.9 billion over five years Results of Operations Consolidated net income for Q1 2025 increased by $4.9 million (41%) year-over-year to $16.6 million, driven by an $18.2 million (12%) increase in operating revenue, while operating expenses rose by $10.2 million (8%) due to higher water production costs Change in Operating Revenue (Q1 2025 vs. Q1 2024, in thousands) | Factor | Increase/(Decrease) | | :--- | :--- | | Rate increases (All other) | $11,892 | | Rate increases (Pass-through water costs) | $5,325 | | Service and other revenue | $1,992 | | Consumption changes | $1,035 | | Other Services | ($2,024) | | Total Change | $18,217 | Change in Operating Expense (Q1 2025 vs. Q1 2024, in thousands) | Factor | Increase/(Decrease) | | :--- | :--- | | Water production expenses | $7,173 | | Administrative and general | $1,972 | | Maintenance | $812 | | Depreciation and amortization | ($88) | | Total Change | $10,234 | - The increase in water production expenses was primarily due to higher average per-unit costs for purchased water and groundwater extraction, a decrease in available surface water, and higher production volume[100] Regulation and Rates The company actively manages rate cases across its jurisdictions, implementing a 3.91% rate increase in California, receiving WICA and WRA approvals in Connecticut, awaiting SIC approval in Texas, and having rate adjustment applications pending in Maine - California: The CPUC approved a final decision for SJWC allowing for rate increases of 3.91% in 2025, 2.55% in 2026, and 2.98% in 2027[105][107] - Connecticut: CWC's Water Infrastructure Conservation Adjustment (WICA) was increased, bringing the cumulative surcharge to 4.90%[108][109] - Texas: TWC expects to receive final approval in Q2 2025 for its amended System Improvement Charge (SIC) to increase annual water revenue by $3.9 million and sewer revenue by $195,000[111] - Maine: MWC has an application pending to increase annual revenues by $1.1 million (15.9%) in its Camden Rockland division, with a decision expected in Q2 2025[112] Liquidity and Capital Resources Cash flow from operations decreased to $43.2 million in Q1 2025, while the company plans capital expenditures of approximately $451 million in 2025 and $1.9 billion over the next five years, funded by operations, debt, and equity financing, with $197.4 million available under credit lines - Budgeted utility capital expenditures for 2025 are approximately $451 million[119][120] - As of March 31, 2025, the company had $152.6 million in outstanding borrowings under its credit lines, with $197.4 million of unused capacity[125] - On March 17, 2025, Standard & Poor's revised the outlook for SJW Group, CTWS, and CWC from negative to stable[130] S&P Credit Ratings | Entity | Rating | Outlook | | :--- | :--- | :--- | | SJW Group | A- | Stable | | SJWC | A | Stable | | CTWS | A- | Stable | | CWC | A- | Stable | Item 3. Quantitative and Qualitative Disclosures About Market Risk SJW Group is exposed to market risks primarily from changes in interest rates affecting variable-rate debt and future issuances, as well as fluctuations in pension plan asset values, and does not use derivative financial instruments - The company's primary market risks include changes in interest rates, pension plan asset values, and equity prices[132] - SJW Group has no derivative financial instruments, financial instruments with significant off-balance sheet risks, or financial instruments with concentrations of credit risk[133] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes in internal control over financial reporting during Q1 2025 - The CEO and CFO concluded that the company's disclosure controls and procedures are functioning effectively to provide reasonable assurance that required information is recorded, processed, and reported in a timely manner[134] - No changes in internal control over financial reporting occurred during Q1 2025 that materially affected, or are reasonably likely to materially affect, the company's internal controls[135] PART II: OTHER INFORMATION Item 1. Legal Proceedings The company is involved in routine litigation, including a class action lawsuit against its subsidiary CWC regarding water contaminants and as a plaintiff in multi-district litigation against PFAS manufacturers, from which it is entitled to a portion of approved settlements - CWC, a subsidiary, is a defendant in a putative class action lawsuit in Connecticut alleging water provided contained contaminants[138] - SJWC and CWC are plaintiffs in a multi-district litigation (MDL) against PFAS manufacturers to recover costs for addressing contamination, and SJW Group is entitled to a portion of approved settlements[139][140] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes from risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024[141] Item 5. Other Information On April 25, 2025, the Board of Directors declared a regular quarterly dividend of $0.42 per share of common stock, payable on June 2, 2025, to stockholders of record on May 12, 2025 - A quarterly dividend of $0.42 per share was declared on April 25, 2025[145] - The dividend is payable on June 2, 2025, to stockholders of record as of May 12, 2025[145]