Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the American State.
Water Company conference call discussing the company's first quarter 2020 result, the coal is being recorded if you would like to listen to a replay of this call. It will begin to suspend or five PM eastern time and run through Tuesday May 12, 2020 on the companies.
Sorry, www eight assets water dot com.
Well I suppose the company will be referring to are also available on the website. This call will be limited to wear now presenting today. Some American states water company is Bob so.
And then Chief Executive Officer, and Eva Tang Senior Vice President Finance and Chief Financial Officer.
There are certain matters discussed during this conference call maybe forward looking statements intend this to qualify for the safe Harbor from blood Bill the established by the private Securities Litigation Reform Act of 1995.
You would description of the company's risk and uncertainty and their most recent form 10-K and form 10-Q on file and security and Exchange Commission.
In addition, this conference will call will include a discussion of certain measures that are not prepared.
In accordance with generally accepted accounting principles or gap in the United States.
Constitute non-GAAP financial measures on the S. E. C rule. 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 yeah.
The more they go puts you refer to the press release.
At this time I will turn the call well look to Bob Sprowls, President and Chief Executive Officer of American States water company.
Okay.
Thank you Kate.
Welcome everyone and thank you for joining us today.
I'll begin with an update on our Cobot 19 response, then discuss some highlights for the core.
People are you some financial detail.
And then I'll wrap it up with some updates on regulatory filings American States utility services area. She was.
Then dividends and then we'll take your questions.
So the United States has responded to the country's 19 pandemic and despite shelter in place requirement.
Customers, a golden state water and yes, U.S. continue to receive the same high quality uninterrupted water electric and wastewater services.
The health and safety of our customers and employees is ever our first priority during this unprecedented times.
And we have taken the necessary steps to protect book.
In terms of the effects on our business like many utilities, we're making special accommodations for our customers in this uncertain time.
Including suspending service Disconnections for non payment through April 2021.
And waiving fees and deposit requirements for affected customers.
Through our emergency response planning, we were well prepared to enable many of our employees to work remotely and have made other adjustments as needed.
Until restrictions begin to see.
In terms of the financial impact of Cobiz 19 on the company, the California Public Utilities Commission or CP, you see has authorized Golden state water company to activate a catastrophic event memorandum account to track incremental costs incurred as a result of our cold.
19 response for future recovery.
So at this point, we don't expect a significant earnings impact on Golden State water.
He will discuss the company's liquidity later in the call.
Similar to our regulated businesses or water and wastewater services performed on military bases by S.U.S. are deemed essential services and as such yes, U.S. has not experienced any significant disruptions to operation.
That's a result, we do not expect there to be a meaningful impact its earnings either.
Regarding our first quarter result, I'm pleased to report that the company had another solid quarter reverting.
Consolidated earnings were 38 cents per share a three cents per share increase over last year were 8.6%.
Despite an eight cents per share reduction in earnings from the company's investments held to fund a retirement plan due to the volatility in the financial markets. During this pandemic talk.
For utility subsidiary Golden State Water company, both the water and electric segment earnings increased three cents per share.
One of the many effects of the coated 19 pandemic has been increased volatility in the financial markets.
Which for the company. It resulted in a 2.4 million dollar pre tax loss incurred during the first quarter of 2020.
Oh investments held to fund one of the company's retirement benefit plan.
Compared to a pre tax gain of $1.5 million during the first quarter of 2019.
Decreasing earnings by eight cents per share as compared to the same period in 2019.
Excluding this item the water segment earnings would have increased 11 cents per share as compared to the first quarter 2019.
Due largely to new rates authorized by the CP you see.
In May 2019.
You see issued a final decision on Golden State waters.
Water general rate case, which determine new rates for the years 2019 through 2021.
The rates retroactive to January Onest 2019.
As a result Golden state water recorded the impact of the final decision in the second quarter of 2019.
Including earnings of eight cents per share that related to the first quarter 2019.
We continue to invest in the reliability of our water and electric systems.
During the first quarter, we spent $23.2 million in company funded capital expenditures.
The water utility segment continues with its construction program.
However, we have tried to avoid construction projects that would temporarily shut off water to customers.
The construction programs for Golden State waters electric segment have not been negatively impacted.
We estimate will spend $150 million to $130 million for the year.
Barring any delays, resulting from changes in Golden State water's capital improvement schedule due to their co bit 19 pandemic.
This would be about three and a half times are expected annual depreciation expense.
I'll now turn the call over to evolve to reviews, our financial results for the core.
Thank you Bob Hello, everyone.
New styles like I'll first quarter financially telecom flight.
Consolidated earnings for the quarter were 38 cents per share compared to 35 cents per share for some period in 2019.
As Bob mentioned, the first quarter results included a $2.4 million pretax loss, our investments held to fund a retirement plan, that's compared to $1.5 million in pre tax gain in Q1 of last year.
Looking at decreasing earnings or eight cents per share compared to the same period last year.
In addition, water and electric revenues for first quarter 2019 or base.
2018 in 2017 occupied rate respectively due to delays in receiving final decisions both at water and electric general rate case.
The final decision for the water rate case was received in May 2019, and as a result were recorded the impact on the final decision for the wireless acne into second quarter of 2019.
Included earnings of eight cents per share that related to the first quarter of 2019.
Similarly, the final decision for the electric rate case, what do we see the August last year and record the impact of this final decision for the electric segment in the so called out 2019, including earnings up two cents per share everyday that took effect Cordell 2019.
The decrease in earnings for the quarter at it you as well due to higher cost incurred seven capital projects as well as well at higher legal outside service costs, which tends to.
Fluctuate from period to period.
Consolidated revenue for the first quarter increased by $7.4 million, that's compared to the same period in 2019.
Why the revenues increased $6.7 million.
Part two new water rate approved by the CPC, which became effective January 20 to 20.
Go to say why they received before second year step increase for 20 try Pete.
So there are passing Pat.
Oh, So I mentioned earlier why the revenues for the first quarter of 2019 were based on 2018 adopted rate due to the delay in receiving a final decision on the water getting related.
Oh, so revenue increases related to CPC approved so attractive to recover previously incurred cost.
The electric revenue was $400000 higher due to new rates approved by the PC effective January 2020.
In addition revenues for the first quarter of 2019, what base out without 17 adopted electric rate.
Also due to cpcs delay issuing the final decision.
The 300000 dollar increase in contracted services revenue for the first quarter.
Well, it's a largely due to increases in construction work performed as compared to the same period in 2019.
Turning to slide 10.
Oh Wow, the electric supply costs were $21 million for the quarter.
Right increase of $200000 front, the same period that here.
Any change in supply cost as we mentioned before for both the water electric segment compared to the adopted supply costs are tracked balancing account.
Looking at total operating expenses, excluding supply cost and so attractive.
Consolidated expenses.
Increased $1.3 million, that's compared to the first quarter 2019.
Due to increased administrators in general expenses.
Because of higher labor outside service costs and meant to expense.
Planned admit this activity at the water segment.
Maintenance expenses back to level off during the remainder of this year.
These increases were partially offset by decreasing depreciation expense.
Which was due to lower composite rate at the water second minute approving that may 2019 cities decision on the water generated.
The lower new composite rate whatnot recorded during the fourth quarter 2019 pending receipt of the final decision.
Interest expense net of interest income and other increased by $3.7 million.
Due primarily to losses incurred on investments held.
Trust preferred my retirement benefit plan.
At the result of recent market condition as compared to gains generated during the first quarter last year.
We mentioned earlier.
Slide 11 shows the P.S. bridge, comparing the first quarter, that's here with the same quarter of 2019.
Turning to liquidity on this slide.
Net cash provided by operating activities what.
$15.7 million, that's compared to $29.4 million in 2019.
It was a decrease in cash flow from accounts receivable from utility customers.
Due to the suspension of services connection to customer for non payment doing this fisher time.
And your bad debt expense incurred access what.
In our while they love to revenue requirement that the result of the impact caused by the Cobot 19 response.
It's track it CPC approved.
Catastrophic event memorandum account for future recovery.
At the retail, though that catastrophic event memorandum account.
Costs incurred in response to the coping nitin pit dynamic in crude in bad debt expense are not expect to materially impact bothering electric thing.
There were also decreasing cash so resulting from the timing in building off in cash receipt for construction work at mixes basis, given the first quarter.
Golden State water invested.
23 point [laughter] $23.2 million in company funded capital project.
During the first three months up 20 to 20.
As Bob mentioned, we do anticipate Golden State Water's company funded capital expenditure to the other range of 115 $230 million.
Barring any delays caused by overnight team.
In March of Twentytwenty.
American States water amended its credit facility, increasing the borrowing capacity to $260 million through the end of Twentytwenty.
At which point borrowing capacity, we refer to $20 million.
We plan to issue long term debt at Golden State water later in Twentytwenty.
In addition, we have entered into a commitment letter with the bank to establish a revolving credit facility up to $50 million for our electric segment.
The effective June 20 to 24 periods of three years.
At this time, we do not expect American states water issue additional equity.
With that I'll turn the call basketball.
Thank you Eva.
I'd like to provide an update on our recent regulatory activity.
The state water has a financing application on file with the CP you see.
A proposed decision was received last week authorizing Golden State water's request issue and sell additional debt equity securities of up to $465 million.
To support our water operations.
We expect a final decision in the second quarter.
As even mentioned we intend to issue long term debt at Golden State water later in 2020 once it is approved.
In March of this year, the CPC approved requested for Golden State Water's cost capital application by one year.
Which was scheduled to be filed on May Onest 2020.
In January 2020, Golden State water, along with three other investor owned California water utilities requested an extension of the date by which each of them must file its 2020 cost of capital application.
Cpcs approval approval postponed this filing date by one year until May one 2021.
With a corresponding effective date of January Onest 2022.
CPC also approved the joint parties request to leave the current water cost of capital.
Mechanism in place.
But there will be no changes to the company's read a return on rate base during the one year extension, regardless, what the mechanism might otherwise indicated.
Golden State Water's current authorized rate of return on rate base is 7.91%.
Based on its weighted cost of capital.
Which will continue in effect through December 30, Onest 2021.
The 7.91% return on rate base includes a capital structure with 57% equity and 43% debt.
We are currently preparing our next water general rate case, which will be filed in July of this year for new rates beginning in 2022.
As you'll see from this slide the weighted average water rate base has authorized by the CPC has grown from $717 million in 2000 $17 million to $916 million in 2020.
A compound annual growth rate of 8.5%.
Great base amounts for 2020 do not include the $20.4 million of advice letter projects approved and Golden State Water's last general rate case.
Let's move on to issue EPS on slide 15.
Yes, you asked as earnings contribution for the quarter was eight cents per share.
Decrease of three cents per share versus last year.
The decrease is a result of retroactive revenues of approximately one cents per share in the results for the first quarter 2019.
No similar retroactive revenues during the first quarter of 2020.
Excluding this retroactive amount diluted earnings per share from the contracted services segment decreased by two cents per share.
Largely due to higher than expected construction costs incurred on several projects.
As well as higher outside service costs.
Which tend to fluctuate from period to period.
These decreases to earnings were partially offset by an increase in management fee revenues.
As we look ahead to the full year.
We reaffirm our previous guidance of 46 cents to 50 cents per share.
As you exit 2020 earnings contribution.
We are still involved in various stages of the proposal process at a number of military bases, considering privatization of their water and wastewater systems.
The U.S. government is expected to release additional basis for bidding over the next several years.
Due to our strong relationship with the U.S. government.
As well as our expertise and experience in managing basis.
We are well positioned to compete for these new contracts.
I'd like to turn our attention to dividends outlined on slide 16.
The board of Directors last week approved a second quarter dividend 30, and 510 cents per share on the common shares of the company.
Reflecting the 10.9% annual dividend increase in 2019.
American States water company has paid dividends to shareholders every year since 1931.
Increasing the dividends received by shareholders each calendar year for 65 consecutive years.
Which places it in an exclusive group of companies on the New York Stock exchange that have achieved that result.
Companies current dividend policy is to achieve a compound annual growth rate in the dividend.
More than 7% over the long term.
I'd like to conclude our prepared remarks.
By thanking you all for your interest in American States water.
We wish the investment community, our shareholders customers and employees the best during this historic time.
I'll now turn the call over to the operator for questions.
We will now begin the question and answer session to ask a question. Please press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up that handset before placing the key to withdraw your question Press Star then too.
This time, we will pause momentarily to assemble our roster.
Our first question is from the rest Gill from Evercore go ahead.
Thank you, Bobby and Nivo FLIR Whelan safe and thank you for the for the slides and prepared commentary this morning.
I just.
Yeah. Thanks, Great I just wanted to kind of maybe can you give us any color on April demand trends that you might have seen in your service territory. If you have that information I'm just wondering if most of the utility you your electric and gas fears of talked about.
In a substantial declines in their commercial and industrial classes and then offset in the residential class I was just hoping to get any color that you maybe a little too to provide enough front.
Sure Durgesh be happy to and no hope you and your family are safe.
Yeah, I'll be happy to talk about that as you know we have both the water revenue adjustment adjustment mechanism and the.
Base rate revenue adjustment mechanism on our electric business.
So.
Volumes don't impact our CNL.
And I think you also know that our company is.
You know largely nine more than 90% is residential commercial so so we really haven't seen a drop in demand either on our water side or electric side.
As a matter of fact outfield water consumption for the first quarter Twentytwenty increased by about 11%.
So the first quarter last year of course, as Bob mentioned that we do have event.
Accounts out so it doesn't impact revenue as much but consumption actually.
We're not being quoted at that.
Fairly dry first quarter, which created a.
In largely responsible for the increase in the water demand.
Got it got it suits, but specifically for April you're not seeing any material drop in load or for that matter any pickup in load.
You know being that most of your electric and gas peers, who are.
We're seeing a pickup in the residential load you're not seeing anything material I'm focused just on the month of April I get the first quarter.
Increase, but I mean really the impacts of the pandemic started late mid month mid March somewhere in that timeframe. So it sounds like people you guys and see a material impact either way.
I don't think so well look into more Uh huh.
All right, we havent noticed any any drop I would say.
Got it. Thank you and then just sort of high level.
Appreciate that you guys don't have of forward looking EPS projections, and and but we're not when I think about the.
Sort of the.
Bob just up you know that we'd be its growth rate of it and a half percent last few years is that would you say is that a good proxy going forward is there is the reason to think that the Rita.
Capital investment or read this growth would would slow down going forward and if anything.
I think so if there's a talked about just.
As commodity oil and gas prices have come down more room, and the customer bill and if anything the read base growth, maybe accelerate going forward over the over the long term is that is that fair where do you see.
Perhaps a capex rate based growth next years out.
Well you know we're in the process of putting together our rate case for 2022 through 2024.
Really difficult to say, whether the 8.5% is a good proxy for going for going forward.
You know, we I wouldn't say that we're going to see an appreciable increase there.
Because I think when you talk about electric and gas you might see.
Some commodity.
Ah price reduction there were I mean weren't.
We're not seeing that on the water side of course.
So and we are very mindful of what sort of rate base growth kind of dose to our customers. We you know we we know we've got to we've got to keep our systems reliable and we are pretty aggressive about putting.
Type in the ground, but we also recognize there's a sort of customer at the end of the and on the line here that has to pay for all this so we really try to reach a balance.
Got it perfect. Thank you thanks, Bob in the likes to integrate day you too.
Our next question is from Richard Verdi from Coker and Palmer go ahead.
Hi, Bob uneven. Thank you for taking my call here I just had a.
Quick question surrounding the military business structure, just due to good job and asked a couple of my questions for me.
With the shutdowns in place how does that impact new diesel were potential I mean are these people working from home or decisions could be made it awards announced as soon as shutdowns and.
Or is the pluses being entirely ignored until the shutdowns Rover and things pick up from where they left off in March before shutdowns went into effect.
Oh, Yeah, I'll, just give you my perspective on that.
We don't necessarily see any slowdown going forward because of covert 19.
In terms of folks working from home or telecommuting et cetera.
What sort of pushes the.
Pushes us along for the government is whether they have funds to award for Privatizations and that's that's what potentially a slowdown might be is if if if the government's taking those funds and using it for other things.
You know the sense, we get from.
The government at this point is that there's a there's a few awards that will be made in 2020.
And that's really sort of in the history. The last few years. So so I wouldn't characterize that as best as a slowdown so that so the latest is there's a couple awards I think that are being planned on being made this year.
Okay. That's great color. Thank you for that Bob and honor and either I'll Beach out too. So you do yourself that you need and set up something for offline. Thanks, a lot guys PC. Thank you yeah. Thanks, Richard a chair.
Our next question is from Michael Gaugler from Janey go ahead.
Good morning, everyone.
Hi, Michael.
Oh, just a quick question.
Bob maybe this is one for you.
The retirement plan impacts on the quarter.
What are your second be smoothed out we're hedged in a cost effective manner going forward given given the size of the impact that you saw.
Yeah, it's a valid question.
So it speaks to how do you have those dollars invested and.
You know, we're we're obviously seeing quite a bit of volatility in the market and that does affect the returns on that retirement plan.
We have that that plan is traditionally finance. So it's a you know we want to.
Sort of do well with our funds there, but given the volatility I understand its oh.
You know it makes our analysts then company management wringing their hands a bit huh.
I will be looking at the possibility there, but we're not ready to sort of committed at this point that we're going to be doing anything different than we currently are.
However, we do we do a understand how it does a cloud the numbers a little bit, particularly when you got an eight cents per share swing.
Okay.
Hi, Thanks, Thanks, Michael.
Again, if you want to ask a question. Please press Star then one.
Next question is from Jonathan We go from Wells Fargo go ahead.
Hey, Bob and either how are you all.
Hi, Jonathan how about you.
Not too bad hanging in pretty good.
No other jobs that's good.
[laughter] say good guys [laughter] got to be mindful of let's see here now that you should get.
Otherwise, we just stuck out on the golf course, all day or something [laughter].
Oh, that's simple, but either way I just have a couple of housekeeping.
Questions EBITDA I hear you correctly that you said.
The higher maintenance expenses.
Golden State water in Q1 that you expect that kind of be offset or balanced out through the course of the year. Yes, I think a you know first quarter. We saw after you out plan to mention it came out and.
Kinda put that Oh, hi, last year, but I, we don't expect that continues to out a year I think that what level off.
Okay, and then it and he is U.S. and seems like there are maybe.
Some headwinds there during Q1, including you know pickups on capital projects do you expect to offset those are the course here I didn't imply that results for any issues are trending towards the lower end of that 46 cents a decent range.
All right now than we do expect to offset the offset the results for the first quarter. We did have a couple of a construction projects that we had some foreseen conditions on some projects, but you know the team is working hard to sort of make make that up.
Okay, and then did that.
Is that related to some of the projects being delayed I think there's something in San some of the as you see us U.S. projects were delayed.
No. It was so no is more.
More work on a few of the construction projects than what we had anticipated so because of their site conditions.
Okay, but weren't where there were there some I guess you construction projects they got delayed in Q1 or.
I am I think so no really.
Okay.
So you're going to something else. So okay. That's all that's all I had thank you. Thank you Jonathan take care.
At this time. This concludes our question and answer session I would now like to turn the conference back over to Bob Sprowls for closing remarks.
Thank you Kate I, just wanted to close today by thanking everyone for their participation and letting you know we look forward to speaking with you the next quarter.
Well, thank you very much.
Oh by the conference has now concluded. Thank you for attending today's presentation you may now disconnect.