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 2022 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 9, 2022, on the company's website, www.aswater.com. The slides that the company will be referring to are also available on the website. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touch-tone phone. To withdraw your question, please press star then 2. This call will be limited to an hour. Presenting today from American States Water Company is Bob Sprouls, 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 of liability established by the Private Securities Litigation Reform Act of 1995. Please review the description of the company's risks and uncertainties in our most recent Form 10-K and Form 10-Q on file with the Securities 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 would like to turn the call over to Bob Sprouse, President and Chief Executive Officer of American States Water Company. So you may begin.

Thank you, Chad. Welcome, everyone, and thank you for joining us today. I'll begin with some brief comments on the quarter. Deva will then discuss some financial details, and then I'll wrap it up with some further thoughts on the quarter, updates on regulatory activity, California's drought, ASUS, dividends, and then we'll take your questions. Before I provide some highlights on the second quarter results, I'm pleased to report that last week our board approved another sizable dividend increase. The annualized dividend rate after this increase is $1.59 per share, which represents nearly a 9% increase from the current annualized dividend rate of $1.46 per share. This action marks the 345th consecutive dividend payment by the company. American States has paid dividends every year since 1931, increasing the dividends received by shareholders each calendar year now for 68 consecutive years. Now on to the second quarter results. Like the first quarter of this year, this was a unique quarter with earnings per share decreasing from the prior year's second quarter. This was in large part due to losses incurred on our investments to fund one of the company's retirement plans as compared to gains in the same period of 2021, as well as 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. Excluding the gains and losses on investments from both periods and including the additional revenues and water supply costs caused from the delay in the water general rate case in our second quarter results, adjusted consolidated diluted earnings for the second quarter of 2022 were 71 cents per share as compared to adjusted diluted earnings of 69 cents per share for the same period in 2021, an adjusted increase of 2 cents per share. DEVO will discuss these results in detail. We continue to deliver high-quality water, wastewater, and electric services to customers during the quarter. We're 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 previous calls, strengthening the critical infrastructure that our customers require 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. Hearings on this proceeding occurred in May of this year and briefs were filed one month later in June. Also in June, Standard & Poor's affirmed its A-plus credit rating for both American States Water Company and Golden State Water Company, although both ratings continue to carry a negative outlook. With the company's sound capital structure and A-plus credit ratings, it will enable us to continue accessing debt financing on reasonable terms, which we expect to do over the next year. Eva will provide an update on our financing plans, and I'll now turn the call over to her.

Thank you, Bob. Hello, everyone. Again, thank you for joining us today. Let me start with our second quarter financial results. Consolidated earnings recorded were $0.54 per share compared to $0.72 per share last year, a decrease of $0.18 per share. This included losses of $3.5 million or $0.07 per share on investment held to fund a retirement plan as compared to gains of $1.6 million or $0.03 per share for Q2 last year. This item alone results in an unfavorable variance of 10 cents per share. Furthermore, due to the delay in receiving a final decision on the pending water generate case, water revenues for 2022 were based on 2021 adopted rates. Had the new rates been approved and implemented on January 1, 2022, consistent with November 2021 settlement agreement reached between Golden State Water and the Public Advocate's Office of the CPUC, we would have recorded additional revenues and the water supply costs that would have resulted in higher earnings of $0.10 per share for the second quarter of 2022. So excluding the gains and losses on investments from both periods, and including the additional revenues and water supply costs caused by the delays in the water generally case. In the results, adjusted consolidated earnings for the second quarter of 2022 were $0.71 per share as compared to adjusted earnings of $0.69 per share for Q2 of 2021. That's an increase of $0.02 per share. For our water utility subsidiary, Golden State Water Company, earnings were $0.40 per share as compared to $0.57 per share last year, a $0.14 decrease. Both items, as discussed, affected earnings at the water segment. So factoring the same effect from the two items, adjust the earnings for the second quarter at the water segment were $0.57 per share which was an increase of $0.03 per share as compared to adjusted earnings of $0.54 per share for the same period in 2021. Also included in the water segment's results for the quarter were a $1.7 million reduction in revenues, or $0.03 per share, to reflect our best estimates at this time of revenue subject to refunds from Golden State Waters' pending cost of capital application. which includes the impact of a lower cost of debt requested in this application. We cannot predict the ultimate outcome of the cost of capital application and associated impact on 2022 revenues. Any changes in estimate will be made if necessary as more information in this proceeding becomes available. There were also increases in operating expenses effective income tax rate, partially offset by increasing the other income net of other expenses. Our electric segments earning for three-month periods ending June 30, 2022 and 2021 were $0.04 per share. An increase in electric revenues and lower effective income tax rates were offset by higher interest expense. Earnings from our contracted services segment decreased one cent per share for the quarter, which Bob will discuss later in the call. Consolidated revenue for the second quarter of 2022 decreased by $5.2 million as compared to the same period in 2021. The decrease was mostly due to lower construction activities at our contracted services segment due to timing and other delays. as well as the cost of debt adjustment expected from the cost of capital proceeding at the water segment. Also, as mentioned previously, water revenue for the second quarter of 2022 were based on 2021 adopted revenue due to the CPUC's delay on the pending water general breakage. The increase in electric revenues were largely due to the PUC approved rate increases effective January 1, 2022, partially offset by a decrease in customer usage as compared to the same period in 2021. Turning to slide 9, our water and electric supply costs were $28.6 million for the quarter, an increase of $600,000 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 Act. Looking at total operating expenses other than supply costs, consolidated expenses decreased $2.9 million as compared to the second quarter of 2021. This was primarily due to a decrease in construction costs and our contracted services segments resulting from lower construction activity partially offset by increase in other operation and maintenance costs and depreciation expense. Other income, net of other expenses decreased by $4.2 million due to losses on investments held for a retirement benefit plan as discussed. This was partially offset by a decrease in the non-service cost component related to Golden State Water's benefit plan, resulting from lower actuarial losses recognized for the second quarter of 2022. Slide 10 shows the EPS breach comparing the second quarter of 2022 with last year's second quarter. Moving on to slide 11. This slide reflects our year-to-date earnings per share by segment as reported. Fully diluted earnings for six months ended June 30, 2022, were $0.92 compared to $1.24 for the same period in 2021, a decrease of $0.32 per share. Again, an unfavorable variance of 14 cents per share was due to losses of $5.2 million on the retirement planning investments this year, as compared to gains of $2.2 million for the same period of last year. In addition, as previously discussed, had the new water rates in the GRC settlement had been approved by the CPUC and implemented on January 1, 2022, our earnings would have increased by 19 cents per share. Excluding the gains and losses on the retirement plan investments from both periods, and including the result of the new water rates from the settlement agreement for the first half of 2022, adjusted consolidated earnings for six months ended June 30, 2022, were $1.21 per share, which were higher than the adjusted earning of $1.20 per share for the same period. For more details on the year-to-date results, please refer to yesterday's press release and form 10-Q. Turning to liquidity on slide 12, net cash provided by operating activity was $56.9 million for the first six months of the year as compared to $41.1 million for the same period in 2021. Early this year, our regulated utility received a total of $9.8 million in COVID-19 relief funds from the state of California to provide assistance to customers for delinquent water and electric water customer bills incurred during the COVID-19 pandemic. The increase in operating cash was also due to differences in the timing of income tax installment payments between the two periods. and the timing of building off and cash receipts for construction work at military bases. Our regulated utility invested $78.3 million on company-funded capital projects during the first half of 2022, and we are on target to meet $140 to $160 million of capital expenditures for the year. In April 2022, AWR's credit facility was amended and increased the borrowing capacity from $200 million to $280 million. The overall increase in total borrowing capacity will support, among other things, the capital expenditure program at Golden State Water. This credit facility expires in May next year. With a maturity of less than a year, the outstanding borrowing has been classified as the current liability in the company consolidated balance sheet as of June 30, 2022. We expect to renew an extended credit facility prior to expiration date. In addition, we expect to issue long-term debts through Golden State Water prior to May 2023 and use the debt proceeds to pay off a portion of outstanding borrowing under this facility plan. We believe the company's sound capital structure and A-plus credit rating, combined with its financial discipline, will enable us to access the debt market and put in place a new credit facility with reasonable terms before May 2023. At this time, we do not expect American State Water to issue additional equity for the next three years to fund its current businesses. So with that, I'll turn the call back to Bob.