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 2020 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, March 2, 2021 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 during the call, 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 that 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 now turn the call over to Bob Sprouse, President and Chief Executive Officer of American States Water Company. Please go ahead.

Welcome, everyone, and thank you for joining us today. I'll begin with some brief comments on the quarter. and 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, American States Utility Services, or ASUS, and dividends, and then we'll take your questions. I would like to start by commenting on our fourth quarter performance. We had a strong quarter with consolidated earnings of 54 cents per share versus 45 cents per share earned during the fourth quarter of 2019, a 20% increase. You can see from this slide that each of our three operating segments contributed to the substantially improved performance. Eva will discuss this slide in more detail in a few minutes. Now let's turn our attention to highlights for the full year, where we also had strong financial results in addition to providing essential uninterrupted services to our customers. For the year, we reported diluted earnings per share of $2.33 as compared to $2.28 reported for 2019, or $2.24 per share after excluding the 4 cent per share retroactive impact of the electric general rate case decision from 2019 related to the full year of 2018. In 2020, American States Water achieved a consolidated return on equity of 13.9%. During the year, we also filed a new Golden State Water Company general rate case for the years 2022 through 2024, continued our capital improvement work at our regulated utilities, continued to improve water and wastewater systems on the military bases we serve, raised the dividend by nearly 10%, and reached 66 consecutive years of annual dividend increases. This was a unique and challenging year as a result of the COVID-19 pandemic. First and foremost, we are proud that we were able to maintain essential, safe, and reliable services for our regulated customers and military service personnel across the country. In order to do this, starting in March of last year, we made adjustments for our field workers to keep them safe and instructed our office staff to telecommute. At the local level, we work closely to manage changes and delays in construction schedules balancing the needs of keeping the water, wastewater, and electric systems running well with the uncertainty and needed flexibility that the pandemic has brought to communities. In addition, the California Public Utilities Commission, or CPUC, has issued orders on service shutoffs due to nonpayment, helping those households who are unable to keep up with water or electric bills during this unprecedented time. Recently, the CPUC extended the suspension of service shutoffs due to non-payment through June 30th of this year. We continue to invest in the reliability of our systems, spending $123.4 million in company-funded infrastructure at our regulated utilities during the year. At ASUS, we continue to perform necessary construction work on the military bases we serve and are well positioned to win more contracts in the coming years. We remain committed to our communities. Golden State Water continued to spend with diverse business enterprises, achieving results that were well above the CPUC's requirements for the eighth consecutive year. In addition, ASUS continues to exceed the U.S. government's requirements to hire small businesses to perform work on the basis it serves. In addition to these fiscal 2020 highlights, we have received positive news at our water segment to start 2021 related to the continued use of the Water Revenue Adjustment Mechanism, or RAM, as well as third-year rate increases both of which I'll discuss later on during the call. We at American States Water Company continue our steadfast commitment to our customers, broader communities, military personnel, shareholders, employees, and suppliers. Our financial results are just one part of our efforts and success. 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 an overview of our fourth quarter financial results on slide nine. As Bob mentioned, consolidated diluted earnings for the quarter were 54 cents per share, compared to 45 cents per share. Again, a 20% increase over this anterior staff year. Earnings at our water segment increased four cents per share for the quarter, The increase in the water segment's earnings were largely due to a higher water cost margin from new waterways. In addition, a decrease in interest expense and an increase in gains earned on investment held to fund a retirement plan were partially offset by the impact of a higher effective income tax rate. Overall operating expenses other than supply costs were relatively flat for the water segment. Earnings from the electric segment for the fourth quarter of 2020 were $0.07 per share as compared to $0.05 per share recorded for Centurion in 2019. The increase was due to rate increases authorized by the CTUC as well as lower overall operating and interest expenses. Earnings from the contracted services segment were 17 cents per share as compared to 12 cents per share for the fourth quarter of 19. This was largely due to an increase in construction activity as well as an overall decrease in operating expenses. Consolidated revenue for the three month ended December 31, 2020 increased by approximately $11.2 million as compared to the same period in 2019. The decrease was due to rate increases at both of our water and electric utilities and an increase in construction work at our contracted service business. Turning to slide 11, our water and electric supply costs were $24.1 million for the quarter, an increase of $900,000 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. Looking at total operating expenses, excluding supply costs, consolidated expenses increased approximately $5.8 million versus the fourth quarter of 2019. mostly due to an increase in construction costs at age US as a result of a higher construction activity and the property and other taxes partially offset by lower maintenance expenses resulting from timing differences and a decrease in outside service costs. Other income and expense for the fourth quarter of 2020 were the net expense of $2.1 million which was $1.8 million lower in the same period of last year due to lower interest rate as well as an increase in gains generated on investments held in a trust to fund a retirement banker plan. Slide 12 shows the EPS bridge comparing the fourth quarter of 2020 with the same quarter of 2019.