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 fourth quarter and full year 2019 results. This 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, March 3, 2020 on the company's website, www.aswater.com. The slides that the company will be referring to are also available on the website. All participants today 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. Today's call will be limited to an hour. Presenting today from American States Water 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 the generally accepted accounting principles of 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. Please go ahead.

Thanks, Rocco. Welcome, everyone, and thank you for joining us today. I'll begin with some highlights for the year. 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. As we announced in our earnings release yesterday, 2019 was a very strong year as we experienced growth in each of our businesses. The company reported adjusted earnings per fully diluted share of $2.24, which excludes the retroactive impact of the electric general rate case decision related to the full year of 2018. The adjusted earnings per share for 2019 is a 30% increase over 2018. During the year, we received two positive rate case decisions spent a record level of capital investment at our regulated utility, expanded our work on military bases, raised the dividend by nearly 11%, and reached 65 consecutive years of annual dividend increases. Our stock achieved a total return of 31.2% for 2019 and has achieved 5-year and 10-year compound annual returns of more than 20%. American States Water also earned a consolidated return on equity of 14.3% for 2019, excluding the retroactive revenues from our electric utilities 2019 general rate case decision attributable to 2018. At Golden State Water Company, we received approval on both the water and electric rate cases. The water rate case sets new rates for the years 2019 through 2021, while the electric rate case sets new rates for 2018 through 2022. We continue to invest in the reliability of our systems, spending a historical high of $136 million in company-funded infrastructure during the year. At American States Utility Services, or ASUS, We achieved the highest annual earnings per share contribution in its history as we continue to perform necessary construction work on the military bases we serve. These results reflect a full year's contribution from our newest base, Fort Riley, as well as continued work with the U.S. government on price adjustments and asset transfers. ASUS provides operations, maintenance, and construction management services for water distribution and wastewater collection and treatment facilities to 11 military bases, including some of the largest military installations in the United States, and we're well positioned to win more contracts in the coming years. We remain committed to our communities. Old State Water continued to spend with diverse business enterprises. achieving results that were above the California Public Utilities Commission's requirement for the seventh consecutive year. In addition, ASUS continued to exceed the US government's requirements to hire small businesses to perform work on the basis it serves. And we are proud to say that in 2019, our employees donated over 5,300 hours of community outreach and engagement in areas where they live and work. We at American States Water Company continue our steadfast commitment to our customers, broader communities, shareholders, employees, and suppliers. Our financial results are just one part of our efforts and success. 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 our fourth quarter financial results on slide eight. Consolidated earnings for the quarter were 45 cents per share, compared to 37 cents per share for the same period in 2018. As Bob mentioned, our water and electric segment's strong fourth quarter results reflect new rates approved by the CGUC's decision on both our water and electric rate cases. The decrease in earnings for the fourth quarter at ASUS was due to the timing of construction work performed this year versus last. The ASUS management team executed a plan for construction work to be performed more evenly throughout 2019, while much of the construction activity in 2018 was performed toward the latter half of the year. construction activity levels were higher for the full year 2019 than the previous year. Consolidated revenues for the fourth quarter increased by $2 million as compared to the same period in 2018, while the revenues increased $5.3 million due to new rates approved in May of 2019 and effective January 1, 2019. There were also revenue increases related to CPUC approved surcharges to recover previously incurred costs. Electric revenue were $700,000 higher due to new electric rates approved by the CPUC in 2019 on the electric general rate case. The $4 million decrease in contracted services revenues for the fourth quarter of 2019 was largely due to differences in the timing of construction work performed during 2019 as compared to 2018, as previously discussed. Turning to slide 10, our water and electric supply costs were $23.2 million for the quarter, an increase of $1.6 million from same period last year. Any changes in supply costs for both the water and electric segments as compared to the adopted supply costs that are tracked in balancing accounts. Looking at total operating expenses excluding supply costs, consolidated expenses decreased $1.6 million versus the fourth quarter of 2018 due to a decrease in construction costs at ASUS as a result of lower construction activity and lower depreciation expense at the water segment driven by lower composite depreciation rate approved in the water general rate case. These decreases were partially offset by increases in other operation and maintenance expenses and property and other taxes. Interest expense, net of interest income, and other decreased by $900,000 due primarily to gains generated on investments held in a trust to fund a retirement benefit plan, as compared to losses incurred during the fourth quarter of 2018. Slide 11 shows the ETF bridge comparing the fourth quarter of 2019 with the same quarter of 2018. This slide shows the full year results. Consolidated earnings for 2019 were $2.28 per share. The 2019 CPUC decision on the electric general rate case was retroactive to January 1, 2018, and as a result, the cumulative retroactive earnings impact related to 2018 of 4 cents per share was recorded as part of our 2019 results. Excluding this retroactive impact, Earning per share for 2019 was $2.24 as compared to $1.72 per share for 2018. That is an increase of 30%. Earnings from the water segment increased by 42 cents per share compared to 2018, mostly due to new water rates approved by the CTUC in May of 2019. as well as a decrease in administrative and general expenses. There were also gains on investments held in a trust to fund a retirement plan, as compared to losses incurred in 2018. Finally, there were changes in the water segment's effective income tax rate, resulting from certain flow through taxes and permanent items. which increased the earning by 3 cents per share for the year compared to 2018. Moving on to the electric segment, adjusted earnings were 4 cents per share higher in 2018 after excluding the retroactive impact from the 2019 CPUC rate case decision related to the full year, 2018. This increase was due to new electric rates authorized in the decision, partially offset by higher operating expenses and a higher effective income tax rate. Diluted earnings from SUS were 47 cents per share as compared to 42 cents per share for 2018, largely due to operations at Hawaii, which commenced in July of 2018. There was also an increase in management fee revenues at the other military bases, resulting from the successful resolution of various price adjustments. AWR parents' earnings increased one cent per share compared to 2018 due to lower state unitary taxes recorded at the parent level. Turning to liquidity on slide 13, net cash provided by operating activity for 2019 was $116.9 million as compared to $136.8 million for 2018. The decrease in cash from operating activity was due primarily to a decrease in water customers' usage, delays in receiving decisions on the water and electric generate cases, and the refunding of $7.2 million to customers related to the Tax Cuts and Jobs Act. These decreases were partially offset by an increase in cash resulting from the timing of billings and the cash received for construction work at the military bases. Golden State Water invested $136 million in company-funded capital projects in 2019. Continuing our strong investment levels, we expect to invest $120 to $135 million in 2020. You may recall that in last October, we amended the American States Waters Credit Facility temporarily increasing its borrowing capacity from $200 million to $225 million through June this year. Earlier this month, AWR received a binding commitment from its lender for the option to revise the temporary increase of the credit facility to $260 million through the end of this year. will be able to exercise this commitment and have immediate access to the additional funds when needed. The borrowing capacity will revert to $200 million at the end of this year. Golden State Water has a financing application on file with the CTUC. We intend to issue a long-term debt after the financing application is approved. At this time, we do not expect American States water to issue additional equity. With that, I'll turn the call back to Bob.