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 2024 results. The call is being recorded. If you would like to listen to a replay of this call, it will begin this afternoon at 5 p.m. Eastern Time and run through Wednesday, August 14, 2024 on the company's website, www.aswater.com. The slides that the company will be referring to are also available on the website. All participants will be in a listen-only mode. Should you need assistance, please email 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 and then one. To withdraw your questions, you may press star and two. Today's call will be limited to one hour. Presenting today from American States Water Company are 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 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'd like to turn the floor over to Bob Sprouse, President and Chief Executive Officer of American States Water Company.

Thank you, Jamie. 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. The second quarter was notably productive for the company as our largest subsidiary, Golden State Water, reached a settlement in principle with the Public Advocates Office of the California Public Utilities Commission or Cal Advocates for short, in connection with Golden State Water's general rate case that will set new water rates for the years 2025 to 2027. As a result of these efforts, on July 12th, the company and Cal Advocates filed a joint motion to adopt the settlement agreement with the California Public Utilities Commission, or CPUC. Proposed settlement agreement if approved by the CPC, resolves most of the issues related to the 2025 annual revenue requirement, leaving only two unresolved issues, which will be discussed later. Among other items, the settlement authorizes Golden State Water to invest approximately $573.1 million in capital infrastructure over the three-year capital cycle. This allows the company to continue to provide safe and reliable water utility service to our customers. We're also very pleased that our contracted services segment commenced management of the water and wastewater systems on our two new military bases in April. as we successfully completed our transitions at Naval Air Station Patuxent River, also known as Pax River, and Joint Base Cape Cod. For the systems at Pax River, we have a 50-year firm fixed price contract with an initial estimated value at $349 million, which was increased to $378 million in July upon completion of a joint inventory adjustment. The contract to serve Joint Base Cape Cod is for 15 years with 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. This was a unique quarter where recorded earnings for the second quarter were lower compared to the recorded and adjusted earnings for the second quarter of last year. As the unfavorable effects of higher operating expenses, some of which is due to timing, higher interest costs, Favorable non-recurring water regulatory adjustments recorded in the second quarter of 2023 and a delay in receiving a decision in the pending electric general rate case were partially offset by an increase in third year 2024 water rates and higher earnings at ASUS. 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 $170 to $200 million on capital expenditures this year at our regulated utilities. I'm also pleased to report that last week our board approved another sizable dividend increase by increasing the company's third quarter cash dividend to $46.55 per share from $0.43 per share. The annualized dividend rate after this increase is $1.86 per share, which represents an 8.3% increase from the current annualized dividend rate of $1.72 per share. This significant dividend increase reflects our board's confidence in the company's ability to achieve long-term sustainable earnings growth. We believe a growing dividend allows the company to attract capital for investments in its that enable us to provide safe and reliable service to our customers and return value to our shareholders. American States Water has paid dividends every year since 1931, increasing the dividends received by shareholders each calendar year now for 70 consecutive years, which places it in an exclusive group of companies on the New York Stock Exchange that have achieved that result. With that, I will turn the call over to Eva to discuss earnings and liquidity.

Thank you, Bob. Hello, everyone. Let me start with our second quarter results. Consolidated earnings as recorded were 85 cents per share for the second quarter, as compared to $1.04 per share for the second quarter of 2023. Included in the results of last year's second quarter was 18 cents per share, related to the impact of the final cost of capital decision for the water segment that made all adjustments to rates post-practice. The cost of capital decision resulted in the reversal in June of 2023 of revenues subject to refund of $9.3 million or 18 cents per share recorded during 2022 and the first quarter of 2023. Including this item, adjusted consolidated earnings for the second quarter of 2023 were $0.86 per share as compared to recorded earnings of $0.85 per share for the second quarter, a decrease of $0.01 per share. For our water utility, Golden State Water reported earnings were $0.67 per share as compared to $0.91 per share for the second quarter of 2023. Factoring in the same effect from adjusted item for 2023, earnings for the second quarter of 2024 at Golden State Water were $0.67 per share, a decrease of $0.06 per share as compared to adjusted earnings of $0.73 per share for the second quarter of last year. The $0.06 per share decrease was largely due to favorable Non-recurring regulatory adjustments recorded during the second quarter of last year that did not recur this year. Higher operating and interest expenses and lower other income with less gains generated from investment held for a retirement plan, partially offset by an increase in third-year water rates in 2024. there was also a decrease in earnings of approximately $0.01 per share due to the dilutive effects from the issuance of equity under AWR and the market offering program. Our electric segment earnings were $0.01 per share for the quarter as compared to $0.03 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 be retroactive to January 2023, and cumulative adjustments will be recorded at that time. Earnings from S.U.S. increased 7 cents per share for the quarter, largely from higher management fee revenues, resulting from the resolution of various economic price adjustments, timing of when construction work was performed compared to the same period last year, and the commencement of operation at the two new bases, which Bob will discuss further. Consolidated revenue for the second quarter decreased by $2.1 million as compared to 2023. Revenues for the water segment decreased by $6.5 million, mainly due to the reversal of previously recorded estimated revenues subject to refunds as a result of final cost of capital decisions of $9.3 million recorded in the second quarter of 2023 and favorable non-recurring regulatory adjustment of approximately $2 million, also recorded during the second quarter of last year, partially offset by an increase in water revenues, largely due to third-year rate increases for this year. Electric revenues decreased slightly as we await a decision on the electric generate case, while there was an increase in revenues from SUS of $4.5 million largely due to higher management fee revenues resulting from the resolution of various economic price adjustments and the commencement of operations at the two new bases and timing differences in performing construction work. Turning to slide 10 and looking at total operating expenses other than supply costs, consolidated expenses increased $4.4 million as compared to the second quarter of 2023. The increase was largely adjustable to an increase in other operating expenses, largely related to the commencement of operations at a new basis, an increase to property and other taxes, due in large part to favorable property tax adjustments recorded in the second quarter of 2023, with no such adjustment this year, and higher administrative and general expenses due mostly to higher outside services costs related to the pending water generated proceedings and other regulatory findings. In addition, there was an increase in expenses that have corresponding and offsetting increases in surcharges revenues to recover previously incurred costs, resulting in no impact to earnings. Interest expense Net of interest income increased by $2.1 million due to increases in average interest rates and overall borrowing level during the quarter. Other income, net of other expenses decreased by $200,000 largely because of lower gains recorded on investment held to fund a retirement plan in this quarter. Slide 11 shows the ETS Bridge comparing recorded and adjusted EPS for the second quarter of 2024 against adjusted EPS for 2023. Consolidated year-to-date earnings as recorded were $1.47 per share as compared to $1.97 per share for the spend period of 2023. Included in the result of the first quarter of last year was $0.38 per share related to the impact of retroactive rates on the final decision in the Water GRC for the full year of 2022 and the reversal of $0.13 per share for revenue subject to refund recorded in 2022 as a result of the final cost of capital decision in June last year. Excluding these two items mentioned above, from the year-to-date 2023 earnings. Recorded and adjusted consolidated earnings for the six-month end of June 30, 2024 were $1.47 per share as compared to adjusted earnings of $1.46 per share for the same period in 2023, an increase of $0.01 per share. Turning to liquidity on slide 13, Net cash provided by operating activities was $70.5 million for the first half of 2024 as compared to $17.8 million for the same period 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, as well as the collection of surcharge to recover retroactive revenues from 2022 through July 30, 2023. The increase in cash flows from operating activity also resulted from differences in timing of billing and cash receipts for construction work at military bases at ASUS and the timing of its vendor payment. For investing activities, our regulated utility invested $105.1 million on company-funded capital projects during the first half of 2024, and we project company-funded capital expenditures at our regulated utilities to be $170 to $200 million this year. American State Water's ad market offering program to sell common shares remain ongoing as this program allows us, at its sole discretion, to sell up to $200 million over a three-year period. During the first half of 2024, AWR raised proceeds of approximately $32 million net of issuing costs. In June, Gozo-Sewada issued $65 million in unsecured private placement notes with a coupon rate of 5.5%, maturing in June of 2027. American State Water currently maintains a credit rating of A-stable with Standard & Poor's Global Ratings, or S&P, while Golden State Water maintains A-plus stable ratings with S&P and A-2 stable rating with Moody's Investors Service. Each of these ratings has been affirmed during 2024. 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.