American States Water Company

Ladies and gentlemen, thank you for standing by. Welcome to the American States Water Company conference call discussing the company's first quarter 2019 results. The call is being recorded. If you would like to listen to the replay of this call, it will begin this afternoon at approximately 5 p.m. Eastern Time and run through Tuesday, May 14, 2019 on the company's website, www.aswater.com. The slides that the company will be referring to are also available on the website. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. This call will be limited to an hour. Presenting today from American States Water Company is Bob Sprouse, President and Chief Executive Officer, and Eva Tang, Senior Vice President of Finance and Chief Financial Officer. As a reminder, certain matters discussed during this conference call may be forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Please review a description of the company's risks and uncertainties in our most recent Form 10-K and Form 10-Q, on file with the Securities and Exchange Commission. In addition, this conference call will include a discussion of certain measures that are not prepared in accordance with generally accepted accounting principles or GAAP in the United States and constitute non-GAAP financial measures under SEC rules. These non-GAAP financial measures are derived from consolidated financial information but are not presented in our financial statements that are prepared in accordance with GAAP. For more details, please refer to the press release. At this time, I will turn the call over to Bob Sprouse, President and Chief Executive Officer of American States Water Company.

Welcome, everyone, and thank you for joining us today. I'll begin with some highlights for the quarter. Eva will then discuss some financial details, and then I'll wrap it up with some updates on regulatory filings, ASUS, and dividends, and then we'll take your questions. 2019 marks our company's 90th year in business. I'm pleased to report that the company had another solid quarter of earnings. Consolidated earnings were six cents per share higher than last year, mostly driven by the performance of our contracted service business, American States Utility Services, or ASUS, which saw its earnings contribution increase by six cents per share. The increase in the earnings at ASUS was due in large part to commencement of operations at Fort Riley in July 2018, as well as increases in management fees and construction activity at several other military bases. For our utility subsidiary, Golden State Water Company, the water segment's earnings increased one cent per share, despite the delay in receiving a final decision on the water general rate case, which will set rates for years 2019 through 2021. Last month, we received a proposed decision on this pending general rate case, which approves nearly all the aspects of a 2018 settlement agreement entered into by the company and the CPUC's public advocate's office. Had new rates been in place as of January 1, 2019, reflecting the proposed decision, pre-tax income at the water segment for the first quarter of 2019 would have been higher by approximately $4 million, or eight cents per share. I'll discuss the proposed decision in more detail later in the call. Golden State Water Company continues to invest in the reliability of our water and electric systems. During the first quarter, we spent $38.2 million and company-funded expenditures. We estimate our capital expenditures will be approximately $115 to $125 million for the year, about three times our expected annual depreciation expense. I'll now turn the call over to Eva to review the financial results for the quarter.

Thank you, Bob. Hello, everyone. Let me start with an overview of our first quarter financial results on slide 7. Consolidated earnings for the quarter were $0.35 per share compared to $0.29 per share for the same period in 2018. As Bob mentioned, earnings at our water segment increased $0.01 per share as compared to last year, despite delays in receiving a final decision on the water generate case. Because of the delay, billed water revenues for the first three months of 2019 were based on 2018 adopted rates, pending a final decision by the CTUC. As a result, the water growth margin for the first quarter of 2019 remained relatively flat after excluding the effects of changes in pension balancing accounts and various surcharges. both of which have no mature impact to earnings. The $0.01 per share increase in earnings from the water section was due to gains on investments held to fund a retirement benefit plan, as compared to investment losses recorded in the first quarter of 2018. This was partially offset by increases in water treatment, employee compensation costs, and depreciation expense. Had new rates from the proposed decision on the water rate case been in place as of January of 2019, pre-tax income at the water segment would have been higher by approximately $4 million or 8 cents per share for the first quarter. Our electric segment saw a decrease in earnings from 4 cents per share to 3 cents per share for the first quarter of 2019. This was largely due to an increase in operating expenses without an increase in customer base rates. Billed electric revenue during the first three months of 2019 were still based on 2017 adopted rates, pending a final decision by the CPUC in this rate case application, which will be retroactive to January 1, 2018. In November last year, we entered into a settlement agreement with the CPUC's Public Advocate's Office, resolving all issues in this January case. Had the new rates in the settlement agreement been approved by the CPUC and in place as of January 2018, the electric segment's pre-tax income would have increased by approximately $941,000 or $0.02 per share for the first quarter of 2019 and would have increased 2018's pre-tax income by $2 million or $0.04 per share. We will record these increases to earnings in the period in which the CPUC's final decision is received. Our contracted services segment saw a $0.06 per share increase in earnings due to commencement of operation at Fort Riley in July of 2018, as well as an increase in management fees and construction activities at several of the other military bases. This slide shows consolidated revenue increased by $7 million due largely to our contracted services segment. In addition to activity at variety, there were increases in management fees due to the successful resolutions of various economic price adjustments, as well as increased construction activity at several other military bases. While the revenue increased slightly during the quarter, again, because of the delay in the January case, billed while the revenue for the first three months of 19 were based on 2018 adopted rates, pending a final decision by the CPUC. Electric revenues were higher due to an increase in customer usage. There were also increases in customer rates due to advice letter projects approved by the CPUC during the fourth quarter of 2018. Looking at slide nine, Our water and electric supply costs were $20.8 million for the quarter, an increase of $1.3 million from last year. Any changes in supply costs for both the water and electric segments as compared to the adopted supply costs are tracked in balancing accounts. Looking at total operating expenses, including supply costs and surcharges, Consolidated expenses increased $4.8 million versus Q1 2018 due to an increase in construction costs at ASUS as a result of higher construction activity, an increase in administrative and general expense due to employee compensation costs, and higher depreciation and amortization expense due to planned additions. Interest expense. net of other income decreased by $1.3 million due to gains on investments held to fund the retirement benefit plan as compared to losses incurred during the first quarter of last year. Slide 10 shows the EPS bridge comparing the first quarter of 2019 with the same quarter of 2018. In terms of the company's liquidity, Net cash provided by operating activity for 2019 was $29.4 million as compared to $35.7 million in 2018. Is the operator there?