California Water Service Group

Good morning and welcome to the California Water Service Group quarter two 2022 earnings release call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the star one again. For operator assistance throughout the call, please press star zero. And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome David Healy, Vice President and Corporate Controller, to begin the conference. Over to you.

Thank you, Paulie. Welcome, everyone, to the 2022 Second Quarter Earnings Call for California Water Service Group. With me today is Marty Kropelnicki, our President and CEO, and Tom Smagle, our Vice President, Chief Financial Officer. Replay dial-in information for this call can be found in our second quarter earnings release, which was issued earlier today. As a reminder, before we begin, the company has a slide deck to accompany the earnings call this quarter. The slide deck was furnished with an 8K this morning, and is also available at the company's website at www.calwatergroup.com. Before looking at this quarter's results, we'd like to take a few moments to cover forward-looking statements. During the course of the call, the company may make certain forward-looking statements. Because these statements deal with future events, they are subject to various risks and uncertainties and actual results could differ materially from the company's current expectations. Because of this, the company strongly advises all current shareholders as well as interested parties to carefully read and understand the company's disclosures on risk and uncertainty found in our Form 10-K, Form 10-Q, press releases, and other reports filed from time to time with the Securities and Exchange Commission. I'm going to pass it over to Tom to begin.

Thank you, Dave, and good morning, everyone. Welcome to the second quarter earnings release call. I want to start talking about the financial summary on slide five, and I'll get into some of the details in just a moment. But just to give everybody the top line, our net income attributable to the group is $19.5 million or $0.36 per share, and that's down considerably from $38.2 million and $0.75 per share in the second quarter of 2021. For the year-to-date period, that is a relatively similar result in that our net income is $20.6 million or $0.38 per share as compared to $35.2 million or $0.69 per share in the comparable year-to-date period in 2021. Flipping to slide seven, we'll get into some of the details of this. The primary focus of the change in earnings has to do with our unbilled revenue accruals. I've been with the company now 25 years and I've been in management talking about financials I think for about 12 years with you all. And we often talk about our unbilled revenue accrual. The thing to remember is that this is the calculation that we do of the value of water that has been used by our customers but is not yet billed and is therefore outside of our regulatory mechanisms. And this has some fluctuation within the year, and we talk about it in every quarter. If you've been with us for a little bit, in the second quarter of 2021, there was a substantial increase in our unbilled revenue accrual. However, that came down to a normal range at the end of the year. This year, kind of in reflection of the large increase last year, we have a large decrease in our unbilled revenue accrual. That was $15.2 million change in revenue associated with that and a big impact on the earnings per share as well for the quarter. But just as a reminder, the company's unbilled revenue accrual at the end of the year is very stable. and management believes that we are very likely to see a result for the unbilled revenue accrual at year end, which is within plus or minus $2 million of the year before. And so while it's a big swing here in the quarter and definitely a big swing from last year, I do want to emphasize that by year end we expect that all of that volatility will go away and we'll have a relatively normal unbilled revenue accrual. The other thing that's impacting the quarter that is outside of our control is that we had a change in the measured valuation of our non-qualified plan assets. That's just due to market conditions and the value of those assets decreased 6.2 million relative to the second quarter of 2021. Our general rate increases, this is the step rate increase in California. and changes in rates in other states. Added 6.9 million, so that's a very positive element for the year, and that is partially offset by changes in wages, depreciation, interest, and other operating and maintenance expenses that we would normally expect given the passage of time and inflation. Our CapEx for the quarter, and year-to-date are both to plan and a little bit higher than in the prior period. I will skip over the bar charts because they largely talk about what I just mentioned, the unbilled being the primary driver along with the mark-to-market. And then now I'm going to turn it over to Marty to talk about the California general rate case.