American States Water Company

Ladies and gentlemen, thank you for standing by, and welcome to the American States Water Company conference call discussing the company's first quarter 2022 results. This call is being recorded, and 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 until Tuesday, May 10, 2022 on the company's website at www.aswater.com. The slides that the company will be referring to are also available on this website. After today's presentation, there will be time for a question and answer session. To ask a question, you may press star, then one. To remove a question, you may press star, then two. Should you need any assistance, please signal a conference specialist by pressing the star key followed by zero. 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 the 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 Sprouls, President and Chief Executive Officer of American States Water Company.

Thank you, Joel. 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 further thoughts on the quarter, updates on regulatory filings, California's drought condition, ASUS, dividends, and then we'll take your questions. This was a unique quarter with earnings per share coming in lower than the first quarter last year due to timing issues with receiving a final decision from the California Public Utilities Commission, or CPUC, on our water general rate case at Golden State Water. Eva will discuss these results in detail. We continue to deliver high quality water, wastewater, and electric services to customers during the quarter. We are making good progress on our goal to spend the $140 to $160 million this year in infrastructure investments at our regulated utilities that we discussed during the year-end call. strengthening the pipes, wells, hydrants, tanks, power lines, and more that our customers need for the long term. Along with awaiting a decision from the CPUC and Golden State Water's general rate case, we are also actively involved in processing our cost of capital application. In fact, hearings begin today in that application. We also strengthen the leadership at ASUS with the addition of Chris Connor, who joined the company as Senior Vice President and was previously at Jacobs Engineering. Chris brings a strong leadership background and, among other things, proven business development and sales track records, working with the Department of Defense. I will now turn the call over to Eva.

Thank you, Bob. Hello, everyone. Let me start with our first quarter financial results. Consolidated earnings were $0.38 per share as compared to $0.52 per share last year. Due to the delay in receiving a final decision in the pending water GRC, as mentioned by Bob, water revenue billed and recorded for the first quarter of 2022 were based on 2021 adopted rates. Had the new rates been approved and implemented on January 1 this year, consistent with the November 2021 settlement agreement reached between Golden State Water and the Public Advocate's Office at the CTUC. Golden State Water would have recorded additional revenue of approximately $6.3 million or 12 cents per share and additional water supply costs of $1.6 million or 3 cents per share for the first quarter of 2022. Including these additional revenues and water supply costs, consolidated adjusted diluted earnings for the first quarter ended March 31, 2022, were 47 cents per share. For our water utility subsidiaries, Golden State Water Company, earnings were 23 cents per share as compared to 33 cents per share last year. Included in the results for the first quarter of 2022, were losses of $1.7 million or $0.03 per share on investments held to fund one of the company's retirement plans as compared to gains of $628,000 or $0.01 per share for the same period in 2021. Excluding the gains and losses on investments from both periods, Adjusted diluted earnings at the water segments for the quarter were $0.26 per share as compared to adjusted earnings of $0.32 per share for the same period in 2021. That is an adjusted decrease of $0.06 per share. Also included in the result for the first quarter of this year was a $1.4 million reduction in revenues or $0.03 per share to reflect the estimated impact of a lower cost of debt included in Golden State Water's pending cost of capital application. There were also increases in operating expenses and in the effective income tax rate partially offset by lower interest expense. Our electric segment's earnings for the three-month period ending March 31, 2022 and 2021 were $0.07 per share. An increase in electric revenue was offset by higher operating expenses. Earnings from our contracted services segment decreased $0.04 per share for the quarter, largely due to a decrease in construction activity as a result of timing differences, partially offset by an increase in management fees and lower overall operating expenses. Consolidated revenue for the first quarter of 2022 decreased by $8.5 million as compared to the same period in 2021. The decrease was mostly due to lower contracting activity at our contracted services segment due to timing as discussed. And the cost of debt adjustment expected from the cost of capital proceeding at the water segment. The increase in electric revenues was largely due to CPUC approved rate increases effective January 1, 2022, as well as an increase in customer usage as compared to the first quarter of 2021. Turning to slide 9, our water and electric supply costs were $23.3 million for the quarter, an increase of $700,000 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 other than supply costs, consolidated expenses decreased $3.2 million as compared to the first quarter of 2021. This was primarily due to a decrease in construction costs at our contracted services segments resulting from lower construction activity, partially offset by increase in administrative and general expenses, depreciation and other operating and maintenance costs. Interest expense, net of interest income, but excluding the losses and gains on the investment, decreased by $566,000 due to the early redemption of Golden State Water's 9.56% $28 million private placement note in May of 2021, partially offset by an overall increase in total borrowing levels to support our capital program. Slide 10 shows the EPS bridge comparing the first quarter of 2022 with last year's first quarter. Turning to liquidity on slide 11, net cash provided by operating activities was $38 million as compared to $24.7 million in 2021. During the first quarter of 2022, our regulated utilities received a total of $9.8 million in COVID relief funds from the state of California to provide assistance to customers for delinquent water and electric customer bills, incurred during the COVID-19 pandemic. The increase in operating cash flow was also due to differences in the timing of vendor payments, as well as differences in the timing of filling off and cash receipts for construction work at military bases. Our regulated utility invested $35.5 million on company-funded capital projects during the quarter, And we estimate our full year 2022 capital expenditure to be $140 to $160 million, barring any unexpected delayed resulting from supply chain issues or the effects of the pandemic. In April 2022, American States Water Credit Facility was amended to increase the borrowing capacity from $200 million to $280 million through the expiration of the credit facility in May of next year. This overall increase in total borrowing capacity will support, among other things, the capital program at Golden State Water. With that, I'll turn the call back to Bob.