H2O America

Ladies and gentlemen, thank you for standing by and welcome to the SJW Group's first quarter 2020 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker for today, Mr. Jim Lynch, Chief Financial Officer. Thank you. Please go ahead.

Thank you, Operator. Welcome to the first quarter 2020 Financial Results Conference Call for SJW Group. I will be presenting today with Eric Thornburg, Chairman of the Board, President, and Chief Executive Officer. For those who would like to follow along, slides accompanying our remarks are available on our website at www.sjwgroup.org. Before we begin today's presentation, I would like to remind you that this presentation and related materials posted on our website may contain forward-looking statements. These statements are based on estimates and assumptions made by the company in light of its experience, historical trends, current conditions, and expected future developments, as well as other factors that the company believes are appropriate under the circumstances. Many factors could cause the company's actual results and performance to differ materially from those expressed or implied by the forward-looking statements. For a description of some of the factors that could cause actual results to be different from statements in this presentation, we refer you to the financial results press release and to our most recent forms, 10-K, 10-Q, and 8-K, filed with the Securities and Exchange Commission, copies of which may be obtained on our website. All forward-looking statements are made as of today, and SJW Group disclaims any duty to update or revise such statements. You will have an opportunity to ask questions at the end of the presentation. As a reminder, this webcast is being recorded and an archive of the webcast will be available until July 27, 2020. You can access the press release and the webcast at our corporate website, I will now turn the call over to Eric.

Thank you, Jim. Welcome, everyone, and thank you for joining us. I'm Eric Thornburg, and it is my honor to serve as chairman, president, and CEO of SJW Group. I would like to start by thanking all of our nation's essential workers who are bravely serving us on the front lines during this extraordinary time. Our public safety employees, consisting of police, fire, emergency response, and healthcare professionals, all deserve our recognition and appreciation for their dedicated service. In addition, we should not forget about those working in our grocery stores and other critical supply chain employees who are potentially risking their personal safety to deliver essential services. SJW Group and its subsidiaries are keenly aware of and readily accept our public health responsibility to protect our employees, customers, during this COVID-19 crisis. We have over 700 passionate and dedicated water professionals who are unified in their shared commitment to deliver on our public health mission during this pandemic, the continued delivery of safe and reliable water service. I'm incredibly proud and honored to serve alongside all 726 of them. Our response throughout this event has been and will be guided by this fundamental principle, protect our people, protect public health, and protect our brand, doing what is right and in harmony with our core values, integrity, respect, service, compassion, trust, transparency, and teamwork. Our number one priority as we respond continues to be the health and safety of our employees as we carry out our critical role in delivering life-sustaining safe water service. We limited our team's work to mission-critical activities, such as conducting emergency repairs, water quality monitoring, and operating our water treatment facilities under additional safety guidelines recommended by the Centers for Disease Control, our local health departments, and our company health and safety experts. As additional guidance becomes available from state officials and health agencies, we're evaluating additional functions, including delivery of our capital projects, to determine when those may be safely resumed. Our responsibility to protect public health during this crisis is clear, and we will continue to monitor developments and respond as necessary through our national as well as local emergency operations centers to protect our employees, our customers, and communities. Earlier this year, we provided earnings guidance for the first time in our history as a public company. We did so in order to provide investors with a clear sense of the underlying strength of our company, having just completed a transformative combination with CTWS. The worldwide events we've experienced since then could not have been foreseen at the time the guidance was given. There is much we do not yet fully know in regards to the pandemic and its possible longer-term impacts on our nation's economy. Rather, I thought I could candidly outline the sensitivities we see in regards to the possible impacts from COVID-19, as well as weather-related challenges on the guidance we previously provided for 2020. The current global COVID-19 pandemic is affecting our national and local economies due to mandatory orders limiting business and social activities to help protect public safety. To the extent business customers in our service communities are closed or residential customers experience a loss of income during this event, it may affect water usage, customers' ability to make timely payments for water service, and ultimately our operating revenues. At the same time, state regulators have mandated customer protections, including a moratorium on shutoffs for nonpayment, and waiver of certain late payment fees that may affect our cash flow. However, our regulators also recognize the critical role our water utilities play and that our companies will incur additional operating expenses related to COVID-19, from remote work arrangements, additional equipment, goods and services necessary to maintain the safety of our people and facilities, anticipated increases in uncollectible accounts, and the pause in construction work, we anticipate COVID-19 will negatively impact our 2020 business plan and financial performance. With the exception of Maine, all of our operating subsidiaries have been provided regulatory tools to deal with the pandemic's financial impacts. San Jose Water has activated its catastrophic event memorandum account to track incremental costs such as bad debt, waived connection fees and deposits, and usage declines from authorized levels. Connecticut Water has a water revenue adjustment mechanism to allow recovery of authorized revenues for water usage and has established a regulatory asset account to track costs incurred and revenues lost. as a result of COVID-19 related regulatory orders. SJWTX established a regulatory asset account to track expenses, including nonpayment and late fees. And I'm also confident that the Maine Public Utilities Commission will be fair and reasonable in evaluating the impact on our operations there. Through the end of Q1, despite thousands of closed businesses we have not yet seen a material financial impact from COVID-19-related events on SJW Group. We continue to closely track our operating results and are working with our peers and local and national industry associations to raise attention to the industry impacts and advocate for further regulatory relief. Yet still, there is much we do not know. We do know that every $1 million of increased cost, for whatever reason, would have an earnings impact of 3.5 cents per share. These variables certainly present challenges. However, as we are now part of a larger combined organization, we have the added benefit of weather, economic, and regulatory diversity that comes from operating in four states to help mitigate some of the risks. Where there is a greater clarity is with our water supplies in California. With the rainfall season largely behind us and because of the lower than normal precipitation experienced locally and thereby impacting available surface water supplies in our watershed, we anticipate significant increases in our operating costs through the reliance on purchased water from our wholesaler to meet our customers' needs in 2020. Every billion gallons of purchased water has an incremental cost of $4.2 million more than using our own supply sources. As a direct result of the water supply outlook and in full transparency, we are revising the previously announced guidance of $2.25 to $2.35 per share to $1.95 to $2.05 per share in 2020. This graph shows how impactful the weather has been on our 2020 surface water supply as compared to 2019. With no further significant precipitation anticipated in Q2, we expect a 30-cent reduction to earnings per share and have revised our guidance accordingly. On a positive note, this graph shows our California demand ahead of last year and ahead of the five-year average. This bodes well as we head into the peak usage months ahead. Any further revision to this guidance as a result of the pandemic will be communicated in the normal course of our disclosure. Given that we're only six weeks into this shelter in place way of life, it is difficult at this juncture to fully quantify the financial impacts of COVID-19. What we can say is that we have high-quality water systems throughout our service areas and are investing in them to benefit customers, communities, and shareholders. The prudent management of our business and financial resources continues to be fundamental to our growth and our ability to return capital to shareholders. We are proud to have continuously paid a dividend for over 76 years and to have increased that annual dividend in each of the last 53 years, delivering value to our shareholders. I will now turn the call over to Jim, who will review our Q1 financial results. After Jim's remarks, I will address regulatory and other business matters. Jim?