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 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 o'clock p.m. Eastern Time and run through Tuesday, November 9th, 2021 on the company's website, www.aswater.com. The slides that the company will be referring to are also available on the website. 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 Ting, 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 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, Anthony, and 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 third quarter, we achieved consolidated earnings of 76 cents per share versus 72 cents last year, an increase of 4 cents per share or 5.6%. Included in the results for the third quarter of 2021 were minimal gains on investments held to fund one of the company's retirement plans as compared to two cents per share of gains included in the third quarter of 2020. Excluding these gains from both periods, adjusted diluted earnings for the third quarter of 2021 were 76 cents per share as compared to adjusted earnings of 70 cents per share for the third quarter of 2020, an increase of six cents per share or 8.6%. Eva will discuss the quarter in more detail. The third quarter contributed to a strong 2021 year to date where we've achieved 11.7% earnings per share growth over last year or 10.7% on an adjusted basis. Regarding the pending general rate case covering rates for the years 2022 through 2024 at our water utility subsidiary, Golden State Water Company, we're pleased to report that we have reached a settlement in principle with the Public Advocate's Office of the California Public Utilities Commission, or CPUC for short, on nearly all the items in the case. I'll touch on this a little more after Eva's updates. On the electric side of the business, we were pleased that in September the CPUC approved Bear Valley Electric Services' most recent wildfire mitigation plan, while also in September the Office of Energy Infrastructure Safety under the California Natural Resources Agency approved Bear Valley Electric Services' latest safety certification filing. The company remains in a strong position. We have successfully navigated the pandemic by continuing to deliver excellent service to our customers while prioritizing the health and safety of our workforce in compliance with existing government guidelines. We continue to invest in needed infrastructure that results in high water quality, reliable delivery, systems safety, and a commitment to preserving the precious resources that are in our care. 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 third quarter financial results on slide eight. This slide presents our reported results before adjustment. Consolidated earnings for the third quarter of 2021 were 76 cents per share as compared to 72 cents per share in 2020. As Bob mentioned, excluding the gains on investment held to fund one of our retirement plans from both periods. Adjusted diluted earnings for the third quarter were $0.76 per share as compared to adjusted earnings of $0.70 per share for the third quarter of 2020. This represents an increase of $0.06 per share or 8.6% compared to the adjusted earnings last year. Our water segments reported earnings were $0.62 per share as compared to $0.57 per share last year. Excluding the gains on investment incurred in both quarters, adjusted earnings at the water segments were $0.62 per share for the third quarter as compared to adjusted earnings of $0.55 per share for the third quarter of last year. This adjusted increase of $0.07 per share was largely due to higher water operating revenues, less supply costs, as a result of new rates for 2021 authorized by the California Public Utilities Commission. Our electric segment's earnings were $0.04 per share for both periods, an increase in electric operating revenues, less electric supply costs, was largely offset by higher operating expenses. Earnings from our contracted services segment increased $0.01 per share for the quarter due to a decrease in operating expenses. Diluted earnings from AWR parents decreased $0.02 per share due to changes in state unitary taxes as compared to the same period in 2020. Our consolidated revenue for the quarter increased by $3.1 million as compared to the same period in 2020, while the revenues increased $4.1 million due to the third year step increases for 2021 as a result of passing earnings test. The increase in electric revenues was largely due to CPUC approved rate increases for 2021, Contracted services revenues decreased $1.3 million, largely due to lower construction activity, partially offset by increases in management fees due to the successful resolution of various economic price adjustments. Turning to slide 10, our water and electric supply costs were $33.3 million for the quarter, an increase of $1 million from 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 other than supply costs, consolidated expenses decreased $800,000 as compared to the third quarter of last year. This was primarily due to a decrease in construction costs at our contracted services segment. Interest expense, net of interest income and other increased by $600,000 due to lower gains generated on investment held for a retirement plan during the quarter as previously discussed. The lower investment gains were partially offset by a decrease in interest expense, largely due to the early redemption of private placement notes with a high coupon rate in May of this year. Slide 11 shows the EPS bridge comparing the third quarter of 2021 with last year's third quarter. This slide reflects our year-to-date earnings per share by segment as reported. Fully diluted earnings for the nine months ended September 30, 2021 were $2 as compared to $1.79 for the same period in 2020. Included in these results were gains on investment held to fund a retirement plan, which increased the earnings by 4 cents per share and 2 cents per share for the nine months ended September 30, 2021, and 2020, respectively, excluding these gains from both periods. Adjusted year-to-date earnings for 2021 were $1.96 per share as compared to adjusted year-to-date earnings of $1.77 per share for 2020. This results in a 10.7% increase in 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 $81.9 million for the first nine months of 2021 as compared to $87.8 million in 2020. The decrease was partially due to different timing of income tax installment payments between the two periods. In addition, there was a decrease in billed surcharges to recover on the collections recorded in Golden State Water's water revenue adjustment mechanism and modified cost balancing account. The decrease in operating cash flow was also due to the timing of billing off and cash receipts for construction work at military bases. This was partially offset by an improvement in cash from accounts receivable related to utility customers due in part to improved economic conditions as compared to the first nine months of 2020 because of the COVID-19 pandemic. Our regulated utility invested $105.4 million in company-funded capital projects during the first nine months this year. And we estimate our full year 2021 company-funded capital expenditure to be $130 to $140 million. At this time, we do not expect American State 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.