sjw-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________________________________________

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-8966

SJW GROUP

(Exact name of registrant as specified in its charter)

Delaware

77-0066628

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

110 West Taylor Street,

San Jose,

95110

(Address of principal executive offices)

(Zip Code)

(408) 279-7800

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

SJW

New York Stock Exchange LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Non-accelerated filer ☐

Accelerated filer ☐ Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of April 25, 2023, there were 31,427,284 shares of the registrant’s Common Stock outstanding.

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the federal securities laws relating to future events and future results of SJW Group and its subsidiaries that are based on current expectations, estimates, forecasts, and projections about SJW Group and its subsidiaries and the industries in which SJW Group and its subsidiaries operate and the beliefs and assumptions of the management of SJW Group. Some of these forward-looking statements can be identified by the use of forward-looking words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” “projects,” “strategy,” or “anticipates,” or the negative of those words or other comparable terminology. These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict.

The accuracy of such statements is subject to a number of risks, uncertainties and assumptions including, but not limited to, the following factors:

•the effect of water, utility, environmental and other governmental policies and regulations, including regulatory actions concerning rates, authorized return on equity, authorized capital structures, capital expenditures and other decisions;

•changes in demand for water and other services;

•unanticipated weather conditions and changes in seasonality including those affecting water supply and customer usage;

•the effect of the impact of climate change;

•unexpected costs, charges or expenses;

•our ability to successfully evaluate investments in new business and growth initiatives;

•contamination of our water supplies and damage or failure of our water equipment and infrastructure;

•the risk of work stoppages, strikes and other labor-related actions;

•catastrophic events such as fires, earthquakes, explosions, floods, ice storms, tornadoes, hurricanes, terrorist acts, physical attacks, cyber-attacks, epidemic or other similar occurrences;

•changes in general economic, political, business and financial market conditions;

•the ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings, changes in interest rates, compliance with regulatory requirements, compliance with the terms and conditions of our outstanding indebtedness and general market and economic conditions; and

•legislative and general market and economic developments.

Results for a quarter are not indicative of results for a full year due to seasonality and other factors. In addition, actual results are subject to other risks and uncertainties that relate more broadly to our overall business, including those more fully described in our filings with the SEC, including our most recent reports on Form 10-K, Form 10-Q and Form 8-K. Forward-looking statements are not guarantees of performance, and speak only as of the date made, and we undertake no obligation to update or revise any forward-looking statements except as required by law.

PART I. FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

SJW GROUP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(in thousands, except share and per share data)


	Three months ended March 31,
		2023		2022
REVENUE		$	137,296	124,302
OPERATING EXPENSE:
Production Expenses:
Purchased water		22,418		19,217
Power		2,199		3,080
Groundwater extraction charges		10,359		13,928
Other production expenses		12,043		10,123
Total production expenses		47,019		46,348
Administrative and general		24,344		24,205
Maintenance		6,058		6,695
Property taxes and other non-income taxes		8,401		8,309
Depreciation and amortization		26,296		27,606
Gain on sale of nonutility properties		—		(5,450)
Total operating expense		112,118		107,713
OPERATING INCOME		25,178		16,589
OTHER (EXPENSE) INCOME:
Interest on long-term debt and other interest expense		(15,772)		(13,729)
Pension non-service cost		(64)		949


Other, net		3,266		995
Income before income taxes		12,608		4,804
Provision for income taxes		1,078		1,067
NET INCOME		11,530		3,737
Other comprehensive income (loss), net		93		(181)
COMPREHENSIVE INCOME		$	11,623	3,556

EARNINGS PER SHARE
Basic		$	0.37	0.12
Diluted		$	0.37	0.12
DIVIDENDS PER SHARE		$	0.38	0.36
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic		30,936,476		30,224,135
Diluted		31,040,897		30,335,974

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

SJW GROUP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share and per share data)


	March 31, 2023		December 31, 2022
ASSETS
Utility plant:
Land	$	40,820	39,982
Depreciable plant and equipment	3,706,176		3,661,285
Construction in progress	121,309		116,851
Intangible assets	35,947		35,959
Total utility plant	3,904,252		3,854,077
Less accumulated depreciation and amortization	1,250,101		1,223,760
Net utility plant	2,654,151		2,630,317

Real estate investments and nonutility properties	1,388		58,033
Less accumulated depreciation and amortization	190		17,158
Net real estate investments and nonutility properties	1,198		40,875

CURRENT ASSETS:
Cash and cash equivalents:
Cash	23,333		12,344

Accounts receivable:
Customers, net of allowances for uncollectible accounts of $5,851 and $5,753 on March 31, 2023 and December 31, 2022, respectively	56,468		59,172

Other	5,145		5,560
Accrued unbilled utility revenue	40,437		45,722
Assets held for sale	40,850		—
Prepaid expenses	11,380		9,753
Current regulatory assets, net	10,019		16,068
Other current assets	6,216		6,095
	193,848		154,714
OTHER ASSETS:
Net regulatory assets, less current portion	127,339		127,275
Investments	15,923		14,819
Goodwill	640,311		640,311
Other	19,728		24,313
	803,301		806,718
	$	3,652,498	3,632,624

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

SJW GROUP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share and per share data)


	March 31, 2023		December 31, 2022
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
Stockholders’ equity:
Common stock, $0.001 par value; authorized 70,000,000 shares; issued and outstanding shares 31,427,124 on March 31, 2023 and 30,801,912 on December 31, 2022	$	31	31
Additional paid-in capital	692,742		651,004
Retained earnings	458,142		458,356
Accumulated other comprehensive income	1,570		1,477
Total stockholders’ equity	1,152,485		1,110,868
Long-term debt, less current portion	1,520,362		1,491,965
	2,672,847		2,602,833

CURRENT LIABILITIES:
Lines of credit	72,433		159,578
Current portion of long-term debt	44,274		4,360
Accrued groundwater extraction charges, purchased water and power	11,739		19,707
Accounts payable	25,974		29,581
Accrued interest	19,071		13,907
Accrued payroll	9,076		11,908
Income tax payable	4,608		2,696
Other current liabilities	25,790		22,913
	212,965		264,650

DEFERRED INCOME TAXES	220,111		218,155
ADVANCES FOR CONSTRUCTION	137,668		137,696
CONTRIBUTIONS IN AID OF CONSTRUCTION	327,016		323,668
POSTRETIREMENT BENEFIT PLANS	55,914		59,738

OTHER NONCURRENT LIABILITIES	25,977		25,884
COMMITMENTS AND CONTINGENCIES
	$	3,652,498	3,632,624

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

SJW GROUP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

(in thousands, except share and per share data)


	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total Stockholders’ Equity
	Number of Shares	Amount
BALANCES, December 31, 2022	30,801,912	$	31	$	651,004	$	458,356	$	1,477	$	1,110,868
Net income	—	—		—		11,530		—		11,530
Unrealized gain on investment, net of taxes of $0	—	—		—		—		93		93
Stock-based compensation	—	—		1,199		(22)		—		1,177
Issuance of restricted and deferred stock units	38,776	—		(1,538)		—		—		(1,538)
Employee stock purchase plan	16,410	—		1,080		—		—		1,080
Common stock issuance, net of costs	570,026	—		40,997		—		—		40,997
Dividends paid ($0.38 per share)	—	—		—		(11,722)		—		(11,722)
BALANCES, March 31, 2023	31,427,124	$	31	$	692,742	$	458,142	$	1,570	$	1,152,485


	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Number of Shares	Amount
BALANCES, December 31, 2021	30,181,348	$	30	$	606,392	$	428,260	$	(163)	$	1,034,519
Net income	—	—		—		3,737		—		3,737
Unrealized loss on investment, net of taxes of $67	—	—		—		—		(181)		(181)
Stock-based compensation	—	—		1,552		(20)		—		1,532
Issuance of restricted and deferred stock units	37,879	—		(1,269)		—		—		(1,269)
Employee stock purchase plan	17,918	—		1,049		—		—		1,049
Common stock issuance, net of costs	—	—		(87)		—		—		(87)
Dividends paid ($0.36 per share)	—	—		—		(10,882)		—		(10,882)
BALANCES, March 31, 2022	30,237,145	$	30	$	607,637	$	421,095	$	(344)	$	1,028,418

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

SJW GROUP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)


	Three months ended March 31,
	2023		2022
OPERATING ACTIVITIES:
Net income	$	11,530	3,737
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	26,842		28,081
Deferred income taxes	1,052		2,264
Stock-based compensation	1,199		1,552
Allowance for equity funds used during construction	(180)		(510)

Gain on sale of nonutility property	—		(5,450)
Changes in operating assets and liabilities:
Accounts receivable and accrued unbilled utility revenue	8,177		4,311
Accounts payable and other current liabilities	(650)		(1,635)
Accrued groundwater extraction charges, purchased water and power	(7,968)		2,140
Tax receivable and payable, and other accrued taxes	1,727		1,135
Postretirement benefits	1,667		1,230
Regulatory assets and liabilities excluding income tax temporary differences, net and postretirement benefits	8,367		5,124

Other changes, net	(1,156)		3,315
NET CASH PROVIDED BY OPERATING ACTIVITIES	50,607		45,294
INVESTING ACTIVITIES:
Additions to utility plant:
Company-funded	(52,384)		(43,727)
Contributions in aid of construction	(2,703)		(4,782)

Payments to retire utility plant, net of salvage	(167)		(1,087)


Other changes, net	225		154
NET CASH USED IN INVESTING ACTIVITIES	(55,029)		(49,442)
FINANCING ACTIVITIES:
Borrowings on line of credit	12,238		15,377
Repayments on line of credit	(99,383)		(2,375)
Long-term borrowings	70,000		—
Repayments of long-term borrowings	(956)		(1,172)
Issuance of common stock, net of issuance costs	40,997		—

Dividends paid	(11,722)		(10,882)
Receipts of advances and contributions in aid of construction	5,597		10,044
Refunds of advances for construction	(589)		(595)
Other changes, net	(771)		(279)
NET CASH PROVIDED BY FINANCING ACTIVITIES	15,411		10,118
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	10,989		5,970
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD	12,344		12,119
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD	23,333		18,089
LESS RESTRICTED CASH, END OF PERIOD	—		602
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	23,333	17,487

Cash paid during the period for:
Interest	$	12,062	11,127
Income taxes	198		165

Supplemental disclosure of non-cash activities:
Accrued payables for additions to utility plant	$	19,906	20,472
Utility property installed by developers	656		546

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2023

(in thousands, except share and per share data)

Note 1.General

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of the results for the interim periods.

The unaudited interim financial information has been prepared in accordance with accounting principles generally accepted in the United States of America and in accordance with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission. The Notes to Consolidated Financial Statements in SJW Group’s 2022 Annual Report on Form 10-K should be read with the accompanying unaudited condensed consolidated financial statements.

SJW Group is a holding company with five wholly-owned subsidiaries: San Jose Water Company (“SJWC”), SJWNE LLC, SJWTX, Inc., SJW Land Company, and SJWTX Holdings, Inc. SJWNE LLC is the holding company for Connecticut Water Service, Inc. (“CTWS”) whose wholly-subsidiaries are The Connecticut Water Company (“Connecticut Water”), The Maine Water Company (“Maine Water”), New England Water Utility Services, Inc. (“NEWUS”), and Chester Realty, Inc. SJWC, Connecticut Water, SJWTX, Inc. doing business as The Texas Water Company (“Texas Water”), Maine Water and NEWUS are referred to as “Water Utility Services”. SJW Land Company and Chester Realty, Inc. are collectively referred to as “Real Estate Services.”

Revenue

Water sales are seasonal in nature and influenced by weather conditions. The timing of precipitation and climatic conditions can cause seasonal water consumption by customers to vary significantly. Due to the seasonal nature of the water business, the operating results for interim periods are not indicative of the operating results for a 12-month period. Revenue is generally higher in the warm, dry summer months when water usage and sales are greater, and lower in the winter months when cooler temperatures and increased precipitation curtail water usage resulting in lower sales.

The major streams of revenue for SJW Group are as follows:


	Three months ended March 31,
		2023		2022
Revenue from contracts with customers		$	135,836	121,777
Alternative revenue programs, net		(1,391)		(1,927)
Other balancing and memorandum accounts, net		1,795		2,430
Other regulatory mechanisms, net		(391)		666
Rental income		1,447		1,356
		$	137,296	124,302

Real Estate Investments and Nonutility Properties

The major components of real estate investments and nonutility properties as of March 31, 2023, and December 31, 2022, are as follows:


	March 31, 2023		December 31, 2022
Land	$	918	12,615
Buildings and improvements	470		45,418

Subtotal	1,388		58,033
Less: accumulated depreciation and amortization	190		17,158
Total	$	1,198	40,875

In March 2023, SJW Land Company entered into a broker agreement to sell its warehouse buildings and land property located in Knoxville, Tennessee. The company reclassified the Tennessee properties from held-and-used to held-for-sale at March 31, 2023. The company’s intention is to complete the sale of these assets within a twelve month period. The company recorded the Tennessee properties at the lower of their carrying value or estimated fair value less cost to sell, and also stopped recording

SJW GROUP AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

March 31, 2023

(in thousands, except share and per share data)

depreciation on assets held for sale. The company's broker provided the estimated fair value of the Tennessee properties and we subtracted the estimated costs to sell from that calculated fair value. The resulting net fair value of the Tennessee properties exceeded their carrying value, and accordingly no impairment was recorded.

The sale of the Tennessee properties does not represent a strategic shift that has or will have a major effect on SJW Group; therefore, the sale does not qualify for treatment as a discontinued operation.

The Tennessee warehouse buildings and land property is included in SJW Group’s “Real Estate Services” reportable segment in Note 9, “Segment and Non-Tariffed Business Reporting.” The following represents the major components of the Tennessee warehouse building and land property recorded in assets held-for-sale on the condensed consolidated balance sheets as of March 31, 2023:


	March 31, 2023
Land	$	13,170
Buildings and improvements	44,950

Subtotal	58,120
Less: accumulated depreciation and amortization	17,270
Total	$	40,850

On February 15, 2022, the California Public Utilities Commission (“CPUC”) review on a SJWC nonutility property sold in October 2021 was completed and the deferred gain of $5,442 was recognized as gain on sale in the first quarter of 2022.

Fair Value Measurement

The following instruments are not measured at fair value on SJW Group’s condensed consolidated balance sheets as of March 31, 2023, but require disclosure of their fair values: cash and cash equivalents, accounts receivable and accounts payable. The estimated fair value of such instruments as of March 31, 2023, approximates their carrying value as reported on the condensed consolidated balance sheets. There have been no changes in valuation techniques during the three months ended March 31, 2023. The fair value of these instruments would be categorized as Level 2 in the fair value hierarchy, with the exception of cash and cash equivalents, which would be categorized as Level 1.

The fair value of SJW Group’s long-term debt was approximately $1,383,468 and $1,294,354 as of March 31, 2023, and December 31, 2022, respectively, and was determined using a discounted cash flow analysis, based on the current rates for similar financial instruments of the same duration and creditworthiness of the company. The book value of long-term debt was $1,564,636 and $1,496,325 as of March 31, 2023, and D

SEC Form 10-Q filed by SJW Group