California Water Service(CWT) - 2024 Q1 - Quarterly Report

PART I Financial Information Financial Statements The unaudited condensed consolidated financial statements for Q1 2024 include balance sheets, operations, and cash flows Q1 2024 vs Q1 2023 Statement of Operations Highlights | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Operating Revenue | $270.7 million | $131.1 million | | Net Income (Loss) Attributable to CWT | $69.9 million | $(22.2) million | | Diluted EPS | $1.21 | $(0.40) | Balance Sheet Summary | Metric | As of March 31, 2024 | As of December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $4,780.8 million | $4,595.5 million | | Total Equity | $1,470.8 million | $1,430.3 million | | Total Liabilities & Capitalization | $4,780.8 million | $4,595.5 million | Notes to Unaudited Condensed Consolidated Financial Statements Detailed notes explain accounting policies, regulatory impacts, and key financial items for the quarter - Due to the seasonal nature of the water business, interim results are not indicative of a full 12-month period, with revenue and income typically higher in the warmer, drier summer months[133] - In Q1 2024, the company reclassified $13.7 million from a regulatory asset to accumulated other comprehensive loss for its SERP plan, as the 2021 GRC decision did not approve recovery of these expenses from customers[102][174] - As a subsequent event, Cal Water received $82.0 million in April 2024 from the California Extended Water and Wastewater Arrearages Payment Program to provide relief for eligible customer unpaid bills[2][94] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Q1 2024 net income significantly increased due to the retroactive 2021 General Rate Case (GRC) decision Results of Operations A $92.1 million increase in net income was driven by a GRC-related revenue rise of $139.6 million Net Income (Loss) Comparison (Q1 2024 vs Q1 2023) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net Income (Loss) | $69.9 million | $(22.2) million | | Diluted EPS (Loss) | $1.21 | $(0.40) | Sources of Operating Revenue Increase (in thousands) | Source | Amount | | :--- | :--- | | Net change due to rate changes, usage, and other | $13,986 | | Interim Rates Memorandum Account (IRMA) revenue | $80,664 | | Monterey-Style Water Revenue Adjustment Mechanism (MWRAM) revenue | $31,066 | | Deferral of revenue | $13,933 | | Net operating revenue increase | $139,649 | - Total operating expenses rose by $44.2 million (29.8%) year-over-year, primarily due to a $9.2 million increase in water production costs, a $10.3 million increase in other operations expenses, and a $21.2 million increase in income tax expense[4][10] Regulatory Matters The March 2024 GRC decision retroactively increased 2023 revenue and authorized $1.2 billion in infrastructure investment - The 2021 GRC decision, approved in March 2024, increased adopted revenues for 2023 by approximately $41.5 million, retroactive to January 1, 2023[18] - The decision authorizes Cal Water to invest approximately $1.2 billion from 2021 through 2024 in water system infrastructure projects[19] - Due to the GRC delay, Cal Water recorded a regulatory asset of $80.7 million and a corresponding increase to revenue under the Interim Rates Memorandum Account (IRMA)[23] Liquidity and Capital Resources Operating cash flow increased to $26.5 million, with $109.8 million in capital expenditures for the quarter Cash Flow Summary (Q1 2024 vs Q1 2023) | Cash Flow Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $26.5 million | $21.0 million | | Net Cash used in Investing Activities | $(109.8) million | $(82.0) million | | Net Cash from Financing Activities | $86.6 million | $62.5 million | - Estimated utility capital expenditures for the full year 2024 are projected to be $365.0 million[36][54] - The company has access to a total of $600.0 million in unsecured revolving credit facilities for short-term borrowings[31][52] - The quarterly common stock dividend was increased to $0.28 per share in Q1 2024 from $0.26 per share in Q1 2023, with a long-term goal of a 60% payout ratio[50] Water Supply Water supply is deemed adequate for 2024, but new PFAS and Chromium-6 regulations pose future capital costs - Management believes water supply will be adequate for 2024, with the California snowpack water content at 127% of long-term averages as of April 9, 2024[58] - The EPA finalized a new regulation for six PFAS in drinking water, which will require an estimated capital investment of approximately $215.0 million to comply by the 2029 deadline[60] - In April 2024, the California Water Board adopted a new Maximum Contaminant Level (MCL) of 10 parts per billion for Chromium-6, requiring compliance within two to four years[61] Quantitative and Qualitative Disclosure about Market Risk Market risk is limited to interest rates and commodity prices, mitigated by cost recovery through regulated rates - The company does not use derivative financial instruments and has no foreign currency exchange risk[64] - Market risk from interest rate exposure and commodity price changes is limited because these costs are typically covered in consumer water rates approved by the Commissions[64][65] Controls and Procedures Disclosure controls and procedures were deemed effective as of March 31, 2024, with no material changes - Management concluded that as of March 31, 2024, the company's disclosure controls and procedures were effective at the reasonable assurance level[67] - No changes in internal control over financial reporting occurred during Q1 2024 that have materially affected, or are reasonably likely to materially affect, internal controls[68] PART II Other Information Legal Proceedings Ongoing legal matters are not expected to have a material financial impact on the company - The company is involved in various legal matters in the ordinary course of business, but management does not expect their resolution to have a material financial impact[74] Risk Factors No material changes were reported to the risk factors from the 2023 Annual Report - No material changes have been made to the risk factors previously disclosed in the company's 2023 Annual Report on Form 10-K[75] Other Information No directors or Section 16 officers adopted or terminated Rule 10b5-1 trading plans last quarter - No director or Section 16 officer adopted or terminated any Rule 10b5-1 or similar trading plans during the last fiscal quarter[76] Exhibits Filed exhibits include CEO/CFO certifications and iXBRL-formatted financial data - The report includes standard exhibits such as CEO/CFO certifications under Sarbanes-Oxley Sections 302 and 906, and iXBRL formatted financial statements[77]