SJW Group (NYSE: SJW) today reported financial results for the second quarter ended June 30, 2017. SJW Group net income was $18.7 million for the quarter ended June 30, 2017, compared to $16.8 million for the same period in 2016. Diluted earnings per share were $0.90 and $0.82 for the quarters ended June 30, 2017 and 2016, respectively.

Operating revenue was $102.1 million for the quarter ended June 30, 2017 compared to $86.9 million in the same period in 2016. The $15.2 million increase in revenue was primarily attributable to $15.0 million in cumulative rate increases, $4.7 million in higher revenue recorded in our Water Conservation Memorandum Account ("WCMA"), $3.2 million in higher customer usage, and a $1.1 million change in the net recognition of certain other balancing and memorandum accounts. These increases were partially offset by $8.8 million in true-up revenue recognized as a part of the decision on our 2016 California General Rate Case decision in the prior year.

Water production expenses for the second quarter of 2017 were $38.5 million compared to $27.7 million for the same period in 2016, an increase of $10.8 million. The increase in water production expenses was attributable to $5.5 million in higher per unit costs for purchased water, groundwater extraction and energy charges, $4.1 million in higher expenses due to a decrease in the use of available surface water supplies, and $1.2 million in higher customer water usage. Operating expenses, excluding water production costs, increased $3.3 million to $32.8 million from $29.5 million. The increase was primarily due to $1.9 million of higher administrative and general expenses, $846,000 of higher depreciation expenses due to assets placed in service in 2016, and $427,000 in higher property taxes and other non-income taxes.

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. Other expense and income in the second quarter and first six months of 2016 included a pre-tax gain on the sale of 159,151 shares of California Water Service Group stock for $3.2 million.

The effective consolidated income tax rates were 37% and 39% for the quarters ended June 30, 2017 and 2016, and 36% and 39% for the six-month periods ended June 30, 2017 and 2016, respectively. The change was due to inclusion of a noncontrolling interest gain on sale of 444 West Santa Clara Street Limited Partnership property in net income before income taxes with no associated income taxes on the noncontrolling interest.

Year-to-date net income was $22.4 million, compared to $20.2 million in 2016. Diluted earnings per share were $1.08 in the first six months of 2017, compared to $0.98 per diluted share for the same period in 2016.

Year-to-date operating revenue increased by $23.0 million to $171.1 million from $148.1 million in the first six months of 2017. The increase was attributable to $23.6 million in cumulative rate increases, $5.2 million in higher revenue recorded in our WCMA, $1.6 million in higher customer usage, and a $1.5 million change in the net recognition of certain other balancing and memorandum accounts. These increases were partially offset by $8.8 million in true-up revenue recognized as a part of the decision on our 2016 California General Rate Case decision in the prior year. WCMA revenue included $1.4 million related to a redistribution of certain customer accounts between residential and business customers for the year ended December 31, 2016.

Year-to-date water production expenses increased to $64.6 million from $48.3 million in 2016. The $16.3 million increase was attributable to $9.1 million in higher per unit costs for purchased water, groundwater extraction and energy charges, $6.4 million in higher expenses due to a decrease in the use of available surface water supplies, and $802,000 in higher customer water usage. Operating expenses, excluding water production costs, increased $5.5 million to $64.9 million from $59.4 million. The increase was primarily due to $2.8 million in higher administrative and general expenses, $1.8 million of higher depreciation expenses, and $904,000 in higher property taxes and other non-income taxes. The increase in administrative and general expenses was primarily due to an increase in salaries and an increase in regulatory fees due to higher usage.

The Directors of SJW Group today declared a quarterly dividend on common stock of $0.2175 per share. The dividend is payable on September 1, 2017 to shareholders of record on August 7, 2017.

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., Texas Water Alliance Limited, 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.

 

SJW Group

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(in thousands, except per share data)

   
Three months ended June 30, Six months ended June 30,
2017   2016 2017   2016
OPERATING REVENUE $ 102,073   86,944   $ 171,118   148,056  
OPERATING EXPENSE:
Production Expenses:
Purchased water 22,181 14,485 36,105 24,182
Power 1,704 1,614 2,991 2,851
Groundwater extraction charges 10,932 8,312 18,342 14,760
Other production expenses 3,655   3,272   7,166   6,504  
Total production expenses 38,472 27,683 64,604 48,297
Administrative and general 13,412 11,536 26,017 23,241
Maintenance 4,258 4,054 7,919 7,865
Property taxes and other non-income taxes 3,111 2,684 6,806 5,902
Depreciation and amortization 12,033   11,187   24,152   22,370  
Total operating expense 71,286   57,144   129,498   107,675  
OPERATING INCOME 30,787 29,800 41,620 40,381
OTHER (EXPENSE) INCOME:
Interest expense (5,756 ) (5,469 ) (11,813 ) (10,904 )
Gain on sale of California Water Service Group stock — 3,197 — 3,197
Gain on sale of real estate investment 6,903 — 6,903 —
Other, net 614   158   1,077   512  
Income before income taxes 32,548 27,686 37,787 33,186
Provision for income taxes 11,964   10,911   13,532   13,033  
NET INCOME BEFORE NONCONTROLLING INTEREST 20,584 16,775 24,255 20,153

Less net income attributable to the noncontrolling interest

1,896   —   1,896

 

—  
SJW GROUP NET INCOME 18,688 16,775 22,359 20,153
Other comprehensive income, net 56 487 172 1,017
Reclassification adjustment for gain realized on sale of investments, net —   (1,742 ) —   (1,742 )
SJW GROUP COMPREHENSIVE INCOME $ 18,744   15,520   $ 22,531   19,428  
 
SJW GROUP EARNINGS PER SHARE:
Basic $ 0.91 0.82 $ 1.09 0.99
Diluted $ 0.90 0.82 $ 1.08 0.98
DIVIDENDS PER SHARE $ 0.22 0.20 $ 0.44 0.41
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 20,504 20,438 20,495 20,426
Diluted 20,674 20,579 20,665 20,570
 

SJW Group

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands)

   

   June 30,   
2017

December 31,
2016

ASSETS
Utility plant:
Land $ 18,073 17,923
Depreciable plant and equipment 1,575,892 1,554,016
Construction in progress 110,396 70,453
Intangible assets 25,165 23,989
Total utility plant 1,729,526 1,666,381
Less accumulated depreciation and amortization 535,346 520,018
Net utility plant 1,194,180 1,146,363
 
Real estate investments 56,226 62,193
Less accumulated depreciation and amortization 10,545 11,734
Net real estate investments 45,681 50,459
CURRENT ASSETS:
Cash and cash equivalents 9,220 6,349
Restricted cash 8 19,001
Accounts receivable and accrued unbilled utility revenue 51,813 53,795
Current regulatory assets, net 7,672 16,064
Other current assets 4,179 4,402
Total current assets 72,892 99,611
OTHER ASSETS:
Investment in California Water Service Group 3,680 3,390
Regulatory assets, net 147,132 135,709
Other 7,621 7,844
158,433 146,943
$ 1,471,186 1,443,376
 

SJW Group

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands)

   

   June 30,   
2017

December 31,
2016

CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Common stock $ 21 21
Additional paid-in capital 82,622 81,715
Retained earnings 351,771 338,386
Accumulated other comprehensive income 1,696 1,524
Total stockholders’ equity 436,110 421,646
Long-term debt, less current portion 430,926 433,335
Total capitalization 867,036 854,981
CURRENT LIABILITIES:
Line of credit — 14,200
Accrued groundwater extraction charge, purchased water and purchased power 18,222 10,846
Accounts payable 27,060 18,739
Accrued interest 6,823 6,309
Accrued payroll 4,540 4,696
Non-refundable deposit 3,000 —
Other current liabilities 10,751 8,783
Total current liabilities 70,396 63,573
 
DEFERRED INCOME TAXES 206,503 205,203

ADVANCES FOR CONSTRUCTION AND CONTRIBUTIONS IN AID OF CONSTRUCTION

241,664 236,391
POSTRETIREMENT BENEFIT PLANS 72,828 70,177
OTHER NONCURRENT LIABILITIES 12,759 13,051
$ 1,471,186 1,443,376