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 third 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 5pm Eastern Time and run through Thursday, November 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 listen-only mode. Should you need assistance, 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. To withdraw your question, please press star, then two. This call will be limited to one hour. Presenting today from American States Water Company are Bob Sprouse, President and Chief Executive Officer, and Eva Teng, Senior Vice President of Finance and Chief Financial Officer. As a reminder, certain matters discussed during this conference call may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees or assurances of any outcomes, financial results, levels of activity, performance, or achievements, and listeners are cautioned not to place undue reliance upon them. Forward-looking statements are subject to estimates and assumptions and known and unknown risks, uncertainties, and other factors. Listeners should review the description of the company's risks and uncertainties that could affect the forward-looking statements in our most recent Form 10-K and Form 10-Q on file with the Securities and Exchange Commission. Statements made on this conference call speak only as of the date of this call and expect as required by law, the company does not undertake any obligation to publicly update or revise any forward-looking statement. 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 now turn the call over to Bob Sprouse, President and Chief Executive Officer of American States Water Company. Please go ahead.

Thank you, Dave. 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. I'm pleased to report that recorded earnings per share for the third quarter were 10 cents per share higher compared to the third quarter of last year. The increase was in large part due to third-year rate increases in our water segment and gains on our investments to fund a retirement plan, partially offset by higher operating expenses, some of which are due to timing higher interest costs, and a delay in receiving a decision in the pending electric general rate case. Eva will discuss the results in more detail. Our regulated utilities have invested $172.5 million in company funded infrastructure year to date and will be investing a record high $210 to $230 million on capital expenditures this year. As we discussed last quarter, Golden State Water and the Public Advocates Office of the California Public Utilities Commission, or Cal Advocates for short, reached a settlement agreement in connection with Golden State Water's general rate case that will set new water rates for the years 2025 through 2027. Parties filed a joint motion in July to adopt the settlement agreement with the California Public Utilities Commission, or CPUC. Among other items, the settlement authorizes Golden State Water to invest $573.1 million in capital infrastructure over the three-year capital cycle. Additionally, last week, Bear Valley Electric, Cal Advocates, and the other intervener in the proceeding filed a joint motion to adopt the settlement agreement between the parties resolving all issues in connection with the electric general rate case and will set new electric rates for 2023 through 2026 with new rates retroactive to January 1st, 2023. Among other things, the settlement authorizes Bear Valley Electric to invest $75.6 million in capital infrastructure over 2023 through 2026, including $23.1 million that will be filed for revenue recovery through advice letters upon project completion. The joint settlements, if approved, enable our water and electric utilities to continue investing in their assets to strengthen the systems and ensure safety and service reliability for our customers. I will discuss these settlements in more detail later in the call. For the year-to-date September, ASUS is six cents per share ahead of last year for the same period. You'll recall that ASUS contributed 50 cents per share to consolidated earnings for the full year 2023. We now project that ASUS will contribute $0.54 to $0.57 per share this year, higher than the $0.50 to $0.54 range we provided previously. ASUS continues to enter into US government awarded contract modifications for new construction projects. I'm very pleased to announce that ASUS has been awarded a record high $54 million in new capital upgrade construction projects during the nine months ended September 30th, 2024. These newly awarded projects are expected to be completed during 2024 through 2027. With that, I'll turn the call over to Eva to discuss earnings and liquidity.

Thank you, Bob. Hello, everyone. Let me start with our third quarter results. Consolidated earnings as recorded were $0.95 per share for the third quarter as compared to $0.85 per share for the third quarter of 2023. For our water utility, Golden State Water, reported earnings were $0.84 per share as compared to $0.72 per share last year. The 12 cents per share increase was largely due to an increase in the third year water rate. An overall increase in the authorized rate of return on rebates in 2024, gains generated from investment held for retirement plans and lower income taxes, partially offset by higher operating and interest expenses. There was a decrease of earnings of approximately one cent per share due to the diluted effects from the issuance of equity under AWR's ad market offering program. Our electric segments earnings were two cents per share for the quarter as compared to four cents per share for 2023, primarily resulting from not having new rates in effect as we await a decision on the electric ECRC that will set new rates for 2023 through 2026, while also experiencing continued increases in interest costs. When the decision is issued, new electric rates are expected to be retroactive to January 2023, and cumulative adjustments will be recorded at that time. Earnings from SUS were consistent for the quarter when compared to 2023, with a decrease of $0.01 per share, mainly due to the effect of rounding. Consolidated revenue for the third quarter increased by $10 million as compared to last year. Revenues for the water segment increased by $7.8 million, largely due to an increase in third-year water rate. and overall increases in authorized rate of return on rebates in 2024. Electric revenue remains consistent as we are waiting for a decision on the electric general rate case. While there was an increase in revenue from SUS of $2.2 million, primarily due to higher management fee revenue resulting from resolution of various economic price adjustments, and the commencement of operations of water and wastewater systems at Joint Base Cape Cod and the Naval Station for Texan River. Turning to slide 10 and looking at total operating expenses other than supply costs, consolidated expenses increased $5.3 million as compared to the third quarter of 2023. The increase was due to An increase in other operating expenses, mainly related to the commencement of operation at the two new bases. Higher administrative and general expenses due to higher outside service costs related to the pending water general vacate proceedings and other regulatory filings, and the insurance costs. And an increase in depreciation and property tax expenses, both of which are impacted by the increase capital expenditures for our regulated utilities. The increases were partially offset by lower maintenance expenses. Interest expense, net of interest income increased by $1.9 million due to increases in average interest rate and overall borrowing levels during the quarter. Lastly, other income, net of other expenses increased by $3.4 million largely because of gains recorded on investment held to fund one of the company's retirement plans in the third quarter compared to losses in the same period last year. Slide 11 shows the EPS bridge comparing reported EPS for third quarter of 2024 against the same period last year. Consolidated year-to-day earnings as recorded were $2.42 per share as compared to $2.82 per share for the same period of 2023. Included in the result of the first nine months of last year were $0.38 per share related to the impact of retroactive rates from the final decision in the Water General rate case for the full year of 2022. and the reversal of 13 cents per share for revenue subject to refund originally recorded in 2022 as a result of the final cost of capital decision in June of 2023, both items related to our water segment. Excluding the two items mentioned above from the year-to-date earnings, 2023 earnings, Recorded and adjusted consolidated earnings for the nine months ended September 30, 2024 were $2.42 per share as compared to adjusted earnings of $2.31 per share for the same period in 2023, an increase of $0.11 per share. Turning to liquidity, net cash provided by operating activities was $134.2 million for the nine months ended September 30, 2024, as compared to $56.5 million for the same period of 2023. The increasing operating cash flow was primarily as a result of Golden State Water having implemented new rates in 2023 and 2024. the collection of surcharges to recover retroactive revenues from 2022 through July of 2023, and higher water consumption in 2024. The increase in cash flow from operating activities also resulted from differences in the timing of billing and cash receipts for construction work at military bases at SUS, as well as the timing of its vendor payments. For investing activities, as Bob mentioned earlier, our regulated utility invested $172.5 million on company-funded capital projects during the nine months ended September 30, 2024, and we project this to reach $210 to $230 million for the full year of 2024. American State Water's at-the-market offering program to sell common shares remained ongoing as this program allowed the company at its sole discretion to sell up to $200 million over a three-year period. During the nine-month end of September 30, 2024, AWR raised proceeds of $59.3 million net of insurance costs and legal costs incurred. American State Water currently maintain a credit rating of A-stable with Standard Enforced Global Ratings, or S&P, while Golden State Water maintain an A-plus stable rating with S&P and A-2 stable rating with Moody's Investor 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.