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 2020 results. This call is being recorded. If you would like to listen to a replay of the call, it will begin this afternoon at approximately 5 p.m. Eastern time and run through Tuesday, November 10, 2020 on the company's website, www.aswater.com. The slides that the company will be referring to are also available on this website. When the question session begins, you may ask a question by pressing the star and then one on your touch-tone phone. Press star and then two to remove request. This call will be limited to one hour. Presenting today from American States Quadrant 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. Pre-review a description of the company's risks and uncertainties and the most recent 10-K and Form 10-Q, a file with the Securities and Exchange Commission. In addition, this conference call will include 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 would like to turn the conference over to Bob Charles, President and Chief Executive Officer of American States Water Company.

Thank you, Keith. Welcome, everyone, and thank you for joining us today. I'll begin with a few highlights for the quarter. Eva will review some financial details. And then I'll wrap it up with some updates on regulatory activity, ASUS, and dividends. And then we will take your questions. I would like to start by thanking our employees. Through these uncertain times, the employees of American States Water once again delivered solid results. Our consolidated results for the third quarter were 72 cents per share as compared to adjusted earnings of 69 cents per share for the third quarter of 2019, an increase of 3 cents per share or 4.3%. The adjusted earnings for the third quarter of 2019 exclude a 7 cent per share retroactive adjustment in that quarter for the August 2019 electric general rate case decision for periods prior to the third quarter of 2019. I'm pleased to report that in July of this year, the company's board of directors approved a 9.8% increase in the quarterly cash dividend from 30.5 cents per share to 33.5 cents per share. This increase is in addition to dividend increases of 10.9% in 2019 and 7.8% in 2018. Along with providing essential services and assistance to our customers and communities to get through the pandemic, we are working our way through some regulatory processes with the California Public Utilities Commission, or CPUC, which I'll discuss later on. In addition, we continue to pursue new military based contracts and our service levels remain high for all three of our subsidiaries. Now that we're going on month eight of the COVID-19 pandemic, I wanted to reflect on the achievement of our personnel across the United States, both customer facing and those who provide support in a remote working environment. Since March, our field personnel have worked tirelessly to keep the water, electricity, and wastewater services operating smoothly for over 1 million customers, including 11 military bases. They've embraced more stringent safety protocols as we keep our employees and customers healthy. While doing this, we've kept our commitments to strengthen our infrastructure for the short and long-term benefit of our customers. For the nine months ended September 30, 2020, our water and electric utility segments spent $82.3 million in company-funded capital expenditures, on track to spend $105 to $120 million for the year, barring any scheduling delays resulting from COVID-19. This would be about three and a half times our expected annual depreciation expense. While we hope for a return to normal sooner rather than later, I'm proud of the resiliency that our people have shown. I will now turn the call over to Eva to review the financial results for the quarter.

Thank you, Bob. Hello, everyone. Let me start with a more detailed look at our third quarter financial results on slide seven. As Bob mentioned, consolidated earnings for the quarter were $0.72 per share compared to $0.69 per share at the adjusted percent period in 2019. Earnings at our long segment increased $0.04 per share for the quarter. There continues to be volatility in the financial market. due at least in part to COVID-19 pandemic. This volatility resulted in an increase in gains on investments held to fund one of Golden State Water's retirement plans, contributing a $0.02 per share increase in the water segment earnings for the quarter. The remaining increase in the water segment's earnings for the third quarter of 2020 was due to a higher water growth margin from new water rates. partially offset by increasing operating expenses, interest expense, and effective income tax rates, as well as lower interest income earned on regulatory assets. Excluding the $0.07 per share retroactive impact from the August 2019 CPUC decision, our electric segments earning for the third quarter were $0.04 per share as compared to $0.03 per share as adjusted for the third quarter of 2019, largely due to an increase in the electric growth margin resulting from new rates authorized by the CPUC, partially offset by increases in legal and other outside service costs. The final August 2019 decision to approve the recovery of previously incurred incremental tree trimming costs totaling $302,000. which resulted in a reduction in maintenance expense that was recorded in the third quarter of last year. There was no equivalent item in 2020. Earnings from our contracted services segment were 10 cents per share for third quarter of 2020, as compared to 12 cents per share for same period in 2019. There was an overall decrease in construction activity resulting from weather delays and slowdowns in permitting for construction projects and government funding for new coastal upgrades, caused in part by the impact of COVID-19. The company expected construction activity to pick up during the fourth quarter relative to the first three quarters, barring any further delays due to the weather conditions. This decrease was partially offset by an increase in maintenance revenue and lower travel related costs. Water revenues increased $3.5 million during the third quarter of 2020 due to full second year debt increases for 2020 as a result of passing earnings test. The decrease in electric revenues were largely due to $3.7 million in retroactive revenues recording the third quarter of 2019 for periods prior to that. Contracted services revenue for the quarter decreased to $500,000 for reasons previously discussed. The decrease was partially offset by increases in mansions due to the stressful resolution of various economic price adjustments. Looking at slide nine, Our water and electric supply costs were $32.3 million for the third quarter of 2020, as compared to $31.8 million for the third quarter of 2019. Any changes in the supply costs as compared to the adopted supply costs are tracked in balancing counts for both the water and electric segments. Total operating expenses, excluding supply costs, increased $1.5 million versus the third quarter of 2019. There was an increase in construction costs at our contracted service business, American States Utility Services, or ASUS, due to higher costs incurred on certain projects, as well as increases in depreciation expense and property and other taxes as a result of additions of utility plans and fixed assets. at all of our segments. There was also a $302,000 reduction to maintenance costs to reflect CPUC's approval in August of 2019 for recovery of previously incurred tree trimming costs, as previously mentioned. There was no similar reductions in 2020. Interest expense, net of interest income, and others, including investment held in a trust to fund a retirement venture plan, decreased $1.1 million due to higher gains because of the recent market conditions. This was partially offset by lower interest income on regulatory assets and lower interest income earned on certain NSUS construction projects. Slide 10 shows the EPS bridge. comparing the third quarter of 2020 with the same quarter of 2019. The slides reflect our year-to-date earnings per share by segment. Fully diluted earnings for the first nine months of 2020 were $1.79 per share as compared to $1.79 per share as adjusted for the same period of 2019. The 2019 adjusted earnings exclude a 4 cents per share retroactive impact, book the last year resulting from the 2019 electric GRC decision for the full year of 2018, which is shown on a separate line in the table on this slide. For more details, please refer to yesterday's press release and our form thank you. In terms of the company's liquidity, Net cash provided by operating activities for the first nine months of 2020 was $7.8 million compared to $84.3 million for the same period in 2019. The increase was largely due to a $7.2 million refund to the water customers in 2019 related to the 2017 tax law changes. partially offset by a decrease in cash flow from higher accounts receivable from utility customers due to the economic impact of COVID-19 and the suspension of service disconnections of customers for non-payments. Our regulated utilities invested $82.3 million in company-funded capital projects in the first nine months of 2020, The Water Utilities Capital Program has been somewhat affected by COVID-19, resulting in certain project delays. However, our regulated utilities plan to spend $105 to $120 million in company-funded capital expenditures for the year, following further delays due to the pandemic. As we mentioned last quarter, Golden State Water issued unsecured private placement notes totaling $160 million in July, and repaid a large portion of its intercompany note issued to AWR parents. Currently, American States Water has a credit facility of $200 million to support water and contractor services operations. We also put in place a separate $35 million revolving credit facility for the electric segment that is not guaranteed by the parent. At this time, we do not expect American State Water to issue additional equity. With that, I'll turn the call back to Bob.