sjw-20230630

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 June 30, 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 July 25, 2023, there were 31,768,933 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 June 30,			Six months ended June 30,
	2023		2022	2023		2022
REVENUE	$	156,886	149,041	$	294,182	273,343
OPERATING EXPENSE:
Production Expenses:
Purchased water	32,592		26,352	55,010		45,569
Power	2,379		3,394	4,578		6,474
Groundwater extraction charges	14,994		18,360	25,353		32,288
Other production expenses	11,921		11,596	23,964		21,719
Total production expenses	61,886		59,702	108,905		106,050
Administrative and general	23,527		23,260	47,871		47,465
Maintenance	6,298		6,891	12,356		13,586
Property taxes and other non-income taxes	7,896		7,579	16,297		15,888
Depreciation and amortization	26,121		25,207	52,417		52,813
Gain on sale of nonutility property	—		—	—		(5,450)
Total operating expense	125,728		122,639	237,846		230,352
OPERATING INCOME	31,158		26,402	56,336		42,991
OTHER (EXPENSE) INCOME:
Interest on long-term debt and other interest expense	(16,397)		(14,241)	(32,169)		(27,970)
Pension non-service cost	(102)		941	(166)		1,890


Other, net	2,115		824	5,381		1,819
Income before income taxes	16,774		13,926	29,382		18,730
Provision for income taxes	(1,512)		2,368	(434)		3,435
NET INCOME	18,286		11,558	29,816		15,295
Other comprehensive income (loss), net	9		(248)	102		(429)
COMPREHENSIVE INCOME	$	18,295	11,310	$	29,918	14,866

EARNINGS PER SHARE
Basic	$	0.58	0.38	$	0.96	0.51
Diluted	$	0.58	0.38	$	0.95	0.50
DIVIDENDS PER SHARE	$	0.38	0.36	$	0.76	0.72
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic	31,499,068		30,244,511	31,219,324		30,234,381
Diluted	31,594,494		30,346,040	31,319,248		30,341,065

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)


	June 30, 2023		December 31, 2022
ASSETS
Utility plant:
Land	$	41,386	39,982
Depreciable plant and equipment	3,761,749		3,661,285
Construction in progress	141,179		116,851
Intangible assets	35,947		35,959
Total utility plant	3,980,261		3,854,077
Less accumulated depreciation and amortization	1,277,102		1,223,760
Net utility plant	2,703,159		2,630,317

Real estate investments and nonutility properties	1,388		58,033
Less accumulated depreciation and amortization	191		17,158
Net real estate investments and nonutility properties	1,197		40,875

CURRENT ASSETS:
Cash and cash equivalents	25,474		12,344

Accounts receivable:
Customers, net of allowances for uncollectible accounts of $6,414 and $5,753 on June 30, 2023 and December 31, 2022, respectively	58,545		59,172

Other	4,814		5,560
Accrued unbilled utility revenue	50,555		45,722
Assets held for sale	40,850		—
Prepaid expenses	9,152		9,753
Current regulatory assets, net	5,968		16,068
Other current assets	6,075		6,095
	201,433		154,714
OTHER ASSETS:
Net regulatory assets, less current portion	130,009		127,275
Investments	16,136		14,819
Goodwill	640,311		640,311
Other	19,913		24,313
	806,369		806,718
	$	3,712,158	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)


	June 30, 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 31,731,030 on June 30, 2023 and 30,801,912 on December 31, 2022	$	32	31
Additional paid-in capital	716,642		651,004
Retained earnings	464,464		458,356
Accumulated other comprehensive income	1,578		1,477
Total stockholders’ equity	1,182,716		1,110,868
Long-term debt, less current portion	1,519,281		1,491,965
	2,701,997		2,602,833

CURRENT LIABILITIES:
Lines of credit	83,310		159,578
Current portion of long-term debt	44,328		4,360
Accrued groundwater extraction charges, purchased water and power	23,006		19,707
Accounts payable	36,446		29,581
Accrued interest	15,680		13,907
Accrued payroll	10,011		11,908
Income tax payable	4,604		2,696
Other current liabilities	20,569		22,913
	237,954		264,650

DEFERRED INCOME TAXES	228,976		218,155
ADVANCES FOR CONSTRUCTION	140,005		137,696
CONTRIBUTIONS IN AID OF CONSTRUCTION	327,280		323,668
POSTRETIREMENT BENEFIT PLANS	53,001		59,738

OTHER NONCURRENT LIABILITIES	22,945		25,884
COMMITMENTS AND CONTINGENCIES
	$	3,712,158	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
Net income	—	—		—		18,286		—		18,286
Unrealized gain on investment, net of tax of $(37)	—	—		—		—		8		8
Stock-based compensation	—	—		1,139		(17)				1,122
Issuance of restricted and deferred stock units	13,429	—		(20)		—		—		(20)
Common stock issuance costs	290,477	1		22,781		—		—		22,782
Dividends paid ($0.38 per share)	—	—		—		(11,947)		—		(11,947)
BALANCES, June 30, 2023	31,731,030	$	32	$	716,642	$	464,464	$	1,578	$	1,182,716


	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
Net income	—	—		—		11,558		—		11,558
Unrealized loss on investment, net of tax of $0	—	—		—		—		(248)		(248)
Stock-based compensation	—	—		1,041		(23)				1,018
Issuance of restricted and deferred stock units	10,529	—		(6)		—		—		(6)
Common stock issuance, net of costs	—	—		(6)		—		—		(6)
Dividends paid ($0.36 per share)	—	—		—		(10,889)		—		(10,889)
BALANCES, June 30, 2022	30,247,674	$	30	$	608,666	$	421,741	$	(592)	$	1,029,845

See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

SJW GROUP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)


	Six months ended June 30,
	2023		2022
OPERATING ACTIVITIES:
Net income	$	29,816	15,295
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	53,510		53,830
Deferred income taxes	8,706		2,239
Stock-based compensation	2,338		2,593
Allowance for equity funds used during construction	(1,111)		(1,084)

Gain on sale of nonutility property	—		(5,450)
Changes in operating assets and liabilities:
Accounts receivable and accrued unbilled utility revenue	(3,687)		(8,487)
Accounts payable and other current liabilities	(107)		(1,158)
Accrued groundwater extraction charges, purchased water and power	3,300		7,598
Tax receivable and payable, and other accrued taxes	(3,367)		(22)
Postretirement benefits	(628)		459
Regulatory assets and liabilities excluding income tax temporary differences, net and postretirement benefits	12,142		17,284

Other changes, net	(3,548)		501
NET CASH PROVIDED BY OPERATING ACTIVITIES	97,364		83,598
INVESTING ACTIVITIES:
Additions to utility plant:
Company-funded	(115,749)		(101,611)
Contributions in aid of construction	(9,287)		(13,332)
Additions to real estate investments	—		(546)
Payments to retire utility plant, net of salvage	(468)		(1,836)
Proceeds from sale of nonutility properties	—		227

Other changes, net	125		(33)
NET CASH USED IN INVESTING ACTIVITIES	(125,379)		(117,131)
FINANCING ACTIVITIES:
Borrowings on line of credit	39,828		88,664
Repayments on line of credit	(116,095)		(10,324)
Long-term borrowings	70,000		15,000
Repayments of long-term borrowings	(1,560)		(51,612)
Issuance of common stock, net of issuance costs	63,779		—

Dividends paid	(23,669)		(21,771)
Receipts of advances and contributions in aid of construction	11,047

SEC Form 10-Q filed by SJW Group