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 first quarter 2024 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 Wednesday, May 15th of 2024 on the company's website at www.aswater.com. The slides that the company will be referring to are also on the website. This call will be limited to one hour. Presenting today from American States Water Company are Mr. Bob Sprouse, President and Chief Executive Officer, and Ms. Eva Ting, Senior Vice President in 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 Please review a description of the company's risk and uncertainties in our most recent 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 general 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 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 Mr. Bob Sprouse, President and Chief Executive Officer of American States Water Company. Please go ahead, sir.

Thank you, Chuck. 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 updates on regulatory activity, ASUS, dividends, and then we'll take your questions. It was a solid quarter for the company as we continued to invest in our regulated utilities and began water and wastewater operations at two new military bases in April. Let's first briefly discuss our earnings for the first quarter of 2024. The recorded diluted earnings for the quarter decreased by $0.31 per share from the same period in 2023, or a $0.02 per share increase as adjusted. The $0.02 per share higher adjusted earnings were largely from the third year 2024 water rates approved in the final decision in Golden State Water's general rate case. partially offset by lower construction activities at ASUS due to timing differences in performing work and the delay in the electric general rate case decision. Eva will discuss the adjusted results in more detail. At the regulated utilities, we continue to invest in our infrastructure to strengthen our water and electric systems and remain focused on operating the water and electric businesses safely, efficiently, and for the long term. We are committed to the goal of spending $160 to $200 million this year at our regulated utilities. We are very pleased to have begun operations of the water and wastewater systems on two new military bases in April. As we successfully completed our transitions at Naval Air Station Patuxent River or Pax River, located in Maryland and Joint Base Cape Cod in Massachusetts. Pax River provides our contracted services segment with a 50-year firm fixed price contract estimated at $349 million. While Joint Base Cape Cod is a 15-year contract of up to a maximum firm fixed price value of $75 million, through the issuance of annual task orders. We look forward to supporting both installations and consider it a privilege to leverage our broad utility expertise to make significant contributions to the military and their respective missions at these locations. With that, I'll turn the call over to Eva to discuss the quarterly earnings and liquidity.

Thank you, Bob. Hello, everyone. Let me start with our first quarter financial results. Consolidated earnings as recorded were $0.62 per share for the first quarter as compared to $0.93 per share for the first quarter of 2023. Included in the results of last year's first quarter was $0.38 per share related to The recording of retroactive rates from the proposed decision in the Water Generate case for the full year of 2022. In addition, during the first quarter of last year, we recorded a loss of $0.05 per share associated with the revenue subject to refund as a result of the lower cost of debt related to the pending cost of capital proceeding at the time. which were subsequently reversed in June 2023 upon receiving the final decision in the cost of capital proceedings that made all adjustments to rates prospective. Excluding these two items, adjusted consolidated earnings for the first quarter of 2023 were $0.60 per share as compared to recorded earnings of $0.62 per share this year, an increase of $0.02 per share. For our water utility, Golden State Water Company, reported earnings were 48 cents per share as compared to 74 cents per share for the first quarter of 2023. Both items just discussed impacted earnings at the water segment last year. So factoring the same effect from the two adjusted items for 2023, earnings for the first quarter of 2024 at Golden State Water were 48 cents per share which was an increase of $0.07 per share as compared to adjusted earnings of $0.41 per share for the first quarter of last year. Since 2024 is the third year of the GRC rate cycle, Golden State Water received third-year rate increases effective January 1, 2024. So the $0.07 per share increase in 2024 largely represents increases in water revenue and other income from gains generated from investment held for a retirement plan, partially offset by increases in operating and interest expense. Our electric segment earnings were $0.05 per share for the first quarter as compared to $0.06 per share for the same period in 2023, largely resulting from not having new rates in effect as we await the pending electric GRC that will set new rates for 2023 through 2026, while also experiencing continued increases in overall operating expenses and interest costs. When a decision is issued in the electric GRC, new rates are expected to retroactive to January of 2023 and cumulative adjustment will be recorded at that time. Earnings from ASUS decreased two cents per share for the quarter largely from timing differences of when construction work was performed when comparing to the first quarter of this year with the same period of 2023. Bob will discuss it in more detail later. Losses from our parent company were three cents per share for the quarter as compared to losses of two cents per share for the same period in 2023. largely due to an increase in interest expense. Moving on to slide eight. Consolidated revenue for the first quarter decreased by $26.1 million as compared to the same period in 2023. Revenue for the water segment decreased by $22.4 million, mainly due to $30.3 million recorded in the first quarter of 2023. which represented the impact of retroactive new rates for the full year of 2022 as a result of the proposed decision issued by the CTUC in April of last year on Golden State Water's general rate cases at the time, partially offset by increases in water revenue in 2024 due to the third-year rate increases. Electric revenue decreased slightly as we await a decision on the electric generator case, while there were a decrease in revenue from ASUS of $3 million, largely due to timing differences in performing construction work. Turning to slide 9 and looking at total operating expenses other than supply costs, Consolidated expenses decreased $2.2 million as compared to the first quarter of 2023. The decrease was largely attributable to a decrease in construction costs at ASUS resulting from lower construction activity due to timing differences of when construction work was performed in 2024 as compared to Q1 of 2023. partially offset by higher administrative and general expenses. Interest expense, net of interest income increased by $3.2 million due to higher interest rates during the quarter and increases in overall borrowing levels. Other income, net of other expenses increased by $700,000, largely because of higher gain recorded on investment held to funds. one of company's retirement plans in the first quarter. Slide 10 shows the ETS bridge comparing recorded and adjusted ETS for the first quarter of 2024 against adjusted ETS for 2023. Turning to liquidity, net cash provided by operating activity was $45.8 million as compared to $7 million for the first quarter of 2023. The increase in operating cash flow was largely as a result of Golden State Water having implemented new rates in 2023 and 2024, and the collection of surcharges to recover retroactive revenue from 2022 through July 30, 2023. In addition, cash used for construction-related activity at SUS decreased this year due to timing differences of when the construction work is being performed and when payments are made to our contractors. For investing activities, our regulated utility invested $47.6 million on company-funded capital projects during the first quarter. and we project company-funded capital expenditure at our regulated utility to be $160 to $200 million this year. In February, American States Water entered into an equity distribution agreement to sell common shares through an ad market offering program. This program allows the company at its sole discretion to sell up to $200 million dollars over a three-year period. During the first quarter, AWR raised proceeds of approximately $16 million net of insurance costs. American States Water currently maintains a credit rating of A-stable with Standard & Poor's Global Ratings, or S&P, while Golden State Water maintains an A-plus stable rating with S&P. and an A2 stable rating with Moody's Investor Service. These are some of the highest credit ratings in the U.S. investor-owned water utility industry. With that, I'll turn the call back to Bob.