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 four-year 2021 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 Wednesday, March 2, 2022, 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 audio call today, 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 a touch-tone phone, and to withdraw your question, please press star then two. Today's call will be limited to an hour. Presenting today from the 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 for liability established by the Private Securities Litigation Act 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 will turn the call over to Bob Sprouse, President and Chief Executive Officer of American States Water Company.

Thank you, Rocco. Welcome, everyone, and thank you for joining us today. I'll begin with some comments on the highlights for the year. Eva will then discuss some financial details for both the quarter and the year, and then I'll wrap it up with some updates on regulatory filings, ASUS, and dividends, and then we'll take your questions. I'm pleased to report that we had a very strong 2021. Our earnings per share increased 9.4% to $2.55 for 2021. compared to $2.33 reported for 2020, driven by higher year-over-year performance by the water segment, largely as a result of new rates authorized by the California Public Utilities Commission, or CPUC. In fact, we had increased earnings in each of our business segments for the year. Eva will discuss our financial results for the fourth quarter shortly. There are a number of other highlights for the year. We continue to invest in the reliability of our systems, spending a record high $142.6 million in company funded infrastructure at our regulated utilities during the year and continue to maintain the infrastructure at 11 military bases. Infrastructure investment and improvements is critical to providing safe and reliable service to our customers. and allow us to maintain water quality, reduce leaks, promote energy efficiency, and fortify the systems for natural disasters and other events. In 2021, we reached a joint settlement agreement on key items with the Public Advocates Office of the CPUC on Golden State Water's general rate case to set new rates for the years 2022 through 2024 which, if approved, will allow us to continue our investment in our water systems. The company's Environmental Social Responsibility and Governance, or ESG, profile remains strong. We increase the breadth and depth of our ESG disclosures during the year. This month, we set a target goal to reduce our greenhouse gas emissions by 60% by 2035, an important step in doing our part to reduce the effects of climate variability. During 2021, we published our first ever diversity and inclusion policy, formalizing our commitment to this important area and highlighting the sound policies already in place. The 56% women on our board of directors we were recognized by the 50-50 Women on Boards organization as gender balanced, a level that only 8% of the Russell 3000 Index companies have achieved. And since 2007, our customers have used less water and electricity. For 2021, water usage by our customers is down 29%, and electric usage is down 5%. compared to 2007, while the number of customers have increased at both business segments. 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 requirement for the ninth consecutive year. In addition, ASUS continued to proudly provide dependable services for America's service people and their families and receive high marks for its customer service. We continue to exceed the U.S. government's requirements to hire small businesses to perform work on the basis we serve and earn the designation VETS Index's Three Star Employer as part of the 2021 VETS Index's Employer Awards. The award recognizes ASUS's commitment to recruiting, hiring, retaining, developing, and supporting veteran employees and others in the military-connected community. During 2021, we increased the annual dividend by 9%. Our 67th consecutive year of annual dividend increases. We have consistently executed on our strategies and have been able to deliver a five-year total shareholder return of 148% or a compound annual return of 20%. Our strong performance in 2021 would not be possible without the commitment to our customers, the dedication of our employees, and support of our shareholders. We are optimistic and well positioned for 2022 and beyond. 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 an overview of our fourth quarter financial results. Consolidated diluted earnings for the quarter were 55 cents per share compared to 54 cents per share reported for the same quarter of 2020. Earnings at our water segment increased 4 cents per share for the quarter This increase was largely due to an increase in water revenues from new rates for 2021 authorized by the California Public Utilities Commission. Earnings from the electric segment for the fourth quarter of 2021 as well as 2020 were $0.07 per share. Higher electric revenues and lower electric supply costs were offset by an overall increase in operating and interest expenses. as compared to the fourth quarter of 2020. Earnings from the contracted services segment were 13 cents per share as compared to 17 cents per share for the same quarter of 2020. The decrease was largely due to a decrease in construction activity, partially offset by an increase in management fee revenue, and an overall decrease in operating expenses. The decrease in construction activity was due largely to timing differences when construction work was performed as compared to the fourth quarter of 2020. Consolidated revenue for the three months ended December 31, 2021 decreased by $7.6 million as compared to the same period in 2020. The decrease was due to lower construction activity at our contracted services segment due to timing, as just discussed, partially offset by increase at our water segment. Turning to slide 10, total operating expenses decreased approximately $8.3 million versus the fourth quarter of 2020, mostly due to a decrease in construction costs at ASUS. as a result of lower construction activity, a decrease in property and other taxes, and a sale of non-utility related land at the water segment resulted in a gain of $409,000 recorded during the fourth quarter of 2021 with no equivalent item in 2020. Slide 11 shows the EPS bridge compared to the fourth quarter of 2021 with the same quarter of 2020. And this slide shows the full year results. Consolidated earnings for 2021 were $2.55 per share as compared to $2.33 per share for 2020. Included in the results for 2021 were gains on investments held for one of the company's retirement plans, totally $4.3 million or $0.08 per share, as compared to $3 million or $0.06 per share in gains generated during 2020, largely due to market conditions. Excluding this gain from both years, adjusted diluted earnings for 2021 were $2.47 per share as compared to $2.27 per share for 2020. Earnings from the water segment increased by 21 cents per share compared to 2020 due to an increase in water revenues of $16.5 million. largely from new water rates as a result of the full third-year step increase, effective January 1, 2021, partially offset by an increase in supply costs of $4.1 million and other operating expenses of $3.1 million. There was also a decrease in effective income tax rate due to changes in flow-through adjustment. Moving on to the electric segment, Earnings were $0.01 per share higher than in 2020. The higher electric earnings were due to new rates authorized by the CPUC and lower interest expense. These increases in earnings were partially offset by higher electric supply costs and other operating expenses. Diluted earnings from the contracted services segment was $0.48 per share. as compared to $0.47 per share for 2020, an increase of $0.01 per share. This was due to an increase in management fee revenue as well as a decrease in overall operating expenses partially offset by lower construction activity as compared to 2020. AWR parents' earnings decreased $0.01 per share compared to 2020 due to higher state unitary taxes recorded at the parent level. Turning to liquidity, net cash provided by operating activities was $115.6 million as compared to $122.2 million in 2020. The decrease was primarily due to timing of income tax installment payments, lower surcharges to recover regulatory assets, and timing differences of billing off and cash receipts for construction work at military bases. These decreases were partially offset by improved cash from utility accounts receivable. As Bob mentioned, our regulated utility invested $142.6 million in company-funded capital projects in 2021. We expect to invest $140 to $160 million in 2022. As I noted during our last quarter's call, we do not expect American State Water to issue additional equity for at least the next three years to fund its current businesses. And with that, let me turn it back to Bob.