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 third 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 approximately at 5 p.m. Eastern Time and run through Tuesday, November 12, 2019, on the company's website, www.aswater.com. The slides that our company will be referring to are also available on the website. All participants will be in listen-only mode. 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.

Thank you, Sarah. Welcome, everyone, and thank you for joining us today. I'll begin with some highlights for the quarter. Eva will then discuss some important financial details, and then I'll wrap it up with some updates on regulatory activity, ASUS, and dividends, and then we'll take your questions. I'm very pleased to report that we delivered another excellent quarter with 2019 earnings per share up 23% compared to last year's third quarter. For our Golden State Water Company subsidiary, earnings increased year over year, largely due to new water rates for 2019. And in August, we received a final decision issued by the California Public Utilities Commission, or CPUC, on our electric segment's general rate case, resulting in retroactive revenues for 2018 and higher earnings in 2019. As a result of these milestones and continued solid execution of our businesses, third quarter 2019 earnings were 76 cents per diluted share, as reported, and 69 cents per share, excluding the retroactive impact of our electric rate case decision. These adjusted earnings represent an increase of 7 cents per share, or 11% over the third quarter last year. In addition, Golden State Water Company continues to invest in the reliability of our water and electric systems. During the first nine months of 2019, we spent $100.3 million in company-funded capital expenditures, and we were on target to spend $115 to $125 million for the year, about three and a half times our expected annual depreciation expense. All in all, it was another productive and positive quarter, while laying the groundwork for continued earnings growth. With that, I'll now turn the call over to Eva to review the financial details for the quarter.

Thank you, Bob. Hello, everyone. Let me start with an overview of our third quarter financial results on slide seven. Consolidated earnings as reported for the quarter were 76 cents per share compared to 62 cents per share for 10 periods in 2018. Earnings for the quarter were positively impacted by the CTUC's final decision on the electric general rate case with a new rate retroactive to January 1, 2018. The retroactive impact of the decision was reflected in the results for the third quarter. Of the electric segment, 10 cents earnings per share, 7 cents was related to the period prior to the third quarter, including $0.03 per share for the first six months of 2019 and $0.04 per share for the full year 2018. The $0.07 per share is shown on a separate line in the table on this slide. The water segment's earnings for the quarter were $0.53 per share, $0.06 per share higher than the same period in 2018, due largely to approval of the water general rate case, which established a new rate for 2019. For the electric segment, after excluding the $0.07 per share retroactive impact from the August general rate case decision, earnings increased by $0.01 per share due to new electric rates, partially offset by a higher effective income tax rate, results from certain flow-through taxes. Earnings at our contracted service segment for the third quarter of 2019 were 12 cents per share as compared to 13 cents per share for the same period in 2018, largely due to differences in timing of construction work performed this year versus last. Consolidated revenue increased by $10.3 million due to increases at both water and electric segments. Water revenues for the quarter increased by $7.6 million to $95.2 million due to the new water rate. The $4.1 million increase in electric revenues reflects rate increases based on the CTUC's decision in August which includes $3.6 million for the first two quarters of 2019 and for the full year of 2018. Contracted services revenues for the quarter decreased $1.4 million as compared to the third quarter of last year, largely due to differences in timing of construction work performed between the two periods. Looking at slide nine, Our water and electric supply costs were $31.8 million for the quarter, an increase of $3.3 million from the same period 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. Total operating expenses, excluding supply costs, decreased $1.7 million versus versus the third quarter last year, due to a decrease in depreciation expense based on lower depreciation rates authorized in the water gender weight case, a decrease in administrative and general expenses, largely due to timing differences related to the recognition of stock-based compensation expense, and a decrease in construction expense as ASUS, largely due to differences in timing of construction work performed. between the two periods. These decreases were partially offset by higher maintenance during the quarter and property taxes. We expect maintenance expense for the fourth quarter to be higher than the average for the first three quarters. Interest expense, net of interest income, and other income, including investment held in a trust to fund a retirement benefit, increased due to lower gains on those investments, as well as higher interest rates due to increased borrowing. Slide 10 shows the EPS bridge comparing the third quarter of 2019 with the same quarter for 2018. This slide reflects our year-to-date earnings per share by segment. Fully diluted earnings for the nine months ended September 30, 2019 were $1.83 per share compared to $1.35 per share last year. This increase includes $0.04 per share recorded this year but related to 2018 as a result of CTUC's August decision on the electric generator, which was retroactive to January 1, 2018. For more details, please refer to yesterday's press release and form PINQ. In terms of the company's liquidity, net cash provided by operating activity for the first nine months of 2019 was $84.3 million compared to $108.4 million for the same period in 2018. The decrease was primarily due to lower water customer usage delays in receiving decisions on the water and electric generators, and the refund of $7.2 million to water customers during the third quarter of 2019 related to the 2017 Tax Cuts and Jobs Act. The decrease in water customer usage increases the undercollection balances in the Water Revenue Adjustment Mechanism Regulatory Assets, which is filed annually for recovery. Golden State Water invested $100.3 million in company-funded capital projects during the first nine months of 2018. Continuing our strong investment levels, we are on target to invest $115 to $125 million this year. Last week, we amended AWR's credit facility. temporary increase its borrowing capacity from $200 million to $225 million. We plan to issue long-term debt at Golden State Water next year to reduce the borrowing under this line of credit facilities. At this time, we do not expect American State Water to issue additional equity. With that, I'll turn the call back to Bob.