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 second quarter 2021 results. The call is being recorded. If you would like to listen to the replay of this call, it will begin this afternoon at 5 p.m. Eastern time and run through Tuesday, August 10th, 2021 on the company's website, www.aswater.com. The slides that the company will be referring to are also available on the website. Currently, all participants are in a listen-only mode. Should you need assistance, you may signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that today's event is being recorded and also that today's call will be limited to one hour. Presenting today from American States Water Company is Bob Sprouse, President and Chief Executive Officer, and Ava 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'd like to turn the conference call over to Bob Sprouse, President and Chief Executive Officer of American States Water Company.

Thank you, Jamie. Welcome, everyone, and thank you for joining us today. I'll begin with some brief comments on 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. For the second quarter, we achieved consolidated earnings of 72 cents per share versus 69 cents last year. After excluding from both periods gains on investments held to fund one of the company's retirement plans, earnings per share increased by 7.8% on an adjusted basis. The second quarter contributed to a strong 2021 year to date, where we've achieved 12.1% earnings growth over last year on an adjusted earnings per share basis. In addition, we announced a 9% increase in the quarterly dividend last week, marking our 67th consecutive calendar year of dividend increases. While we await some key decisions from the California Public Utilities Commission, or CPUC, we continue to execute on our business strategies, provide high quality water, wastewater, and electric services to over one million people, and make timely investment in our systems, all while keeping our unwavering commitment to reliability and safety. Our capital investments allow us to replace and upgrade critical infrastructure so that we can meet our customers' needs for generations to come. While our focus remains on strong financial results, excellent customer service, and maintaining a strong infrastructure, we remain committed to ESG initiatives, including conservation, environmental stewardship, employee safety and well-being, diversity and inclusion, and sound governance practices. We will continue to focus on our ESG commitments, which benefit our customers, the communities we serve, our employees, our suppliers, and ultimately our shareholders. 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 our second quarter financial results on slide eight. Student gains earned on investments of $0.03 per share and $0.05 per share from the second quarter of 2021 and 2020, respectively. Adjusted earnings for the second quarter increased by $0.05 per share or 7.8% as compared to adjusted earnings last year. This slide presents our reported results before adjustment. Our water segment earnings were $0.57 per share as compared to $0.54 per share. Adjusting for the gains on investments incurred in both quarters, earnings at the water segment increased by $0.05 per share due to a higher water growth margin generated from new rates authorized by the California Public Utilities Commission and a lower effective income tax rate due to certain flow-through and permanent tax items. These increases in earnings were partially offset by increasing water treatment costs, depreciation expense, and interest expense. Our electric segment earnings for the quarter were $0.04 per share as compared to $0.03 per share for the same period in 2020 due to an increase in electric growth margin resulting from higher rates as approved by the CPUC. Earnings from our contracted services segment decreased $0.01 per share for the quarter due to higher construction costs incurred on certain projects. Our consolidated revenue for the quarter increased by $7.1 million as compared to the same period in 2020, while the revenues increased $4.5 million due to full third-year step increases for 2021 as a result of passing earnings tests. The increase in electric revenues was largely due to CPUC-approved rate increases for 2021 and an increase in usage. as compared to the second quarter of 2020. Contracted services revenue increased $2.2 million, largely due to increases in construction activities and increases in management fees due to the successful resolution of various economic crisis tests. Turning to slide 10, our water and electric supply costs were $28 million for the quarter an increase of $1.7 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 tracking balance accounts. Looking at total operating expenses other than supply costs, consolidated expenses increased $3.5 million as compared to the second quarter of 2020. This was primarily due to an increase in construction costs at our contracted service segment resulting from increased construction activities. Interest expense, net of interest income and others increased by $2 million due in part to higher interest expense resulting from overall increase in borrowings and lower gains generated on investment held for retirement plans due during the second quarter as compared to last year, as previously discussed. Slide 11 shows the ETS bridge comparing the second quarter of this year with last year's second quarter. This slide reflects our year-to-date earnings per share by segment as reported. Fully diluted earnings for the six months ended June 30, 2021 were $1.24 as compared to $1.07 for the same period in 2020. When the $0.04 per share gain on the investment held to fund a retirement plan is removed from 2021 year-to-date earnings, this results in a 12.1% increase in the adjusted EPS. For more details, Please refer to yesterday's press release and form 10-Q. Turning to liquidity, net cash provided by operating activities was $41.1 million for the first six months of 2021 as compared to $46.3 million in 2020. This decrease was largely due to time and differences of income and payroll tax payments. which were deferred during the second quarter of 2020 as a result of COVID-19 relief legislation in effect in 2020, but not for this year. This was partially offset by an improvement in cash from accounts receivable related to non-residential customers, due in part to improved economic conditions as compared to the first six months of 2020 because of the pandemic. Our regulated utility invested $75 million in the company-funded capital project during the first six months. We estimated our full-year 2020 company-funded capital expenditures to be $125 to $135 million. At this time, we do not expect American States Water to issue additional equity for at least the next three years to fund its current businesses. With that, I'll turn the call back to Bob.