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Golden State Water (AWR)

Participants
Bob Sprowls President and Chief Executive Officer
Eva Tang Senior Vice President-Finance and Chief Financial Officer
Durgesh Chopra Evercore ISI
Richard Verdi Coker & Palmer
Jonathan Reeder Wells Fargo
Call transcript
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Operator

Ladies and gentlemen, thank you for standing by. Welcome to the American States Water Company Conference Call Discussing the Company’s First Quarter 2019 Results. The call is being recorded.

If you would like to listen to the replay of this call, it will begin this afternoon at approximately 5 PM Eastern Time and run through Tuesday, May 14, 2019 on the Company’s website, www.aswater.com. The slides that the Company will be referring to are also available on the website. will to call hour. This Instructions] be an limited [Operator of is States President Eva Presenting Financial President American Company Tang, and Bob Officer. Vice and today from Officer; Water Sprowls, Chief Executive and Senior Finance Chief

uncertainties review a Company’s Securities call be our conference Form of Litigation in for Safe Reform forward-looking during established risks liability Please qualify may Harbor to Act Exchange reminder, from with Form certain a intended Commission. by recent As the XX-K discussed on the XX-Q this and the description matters of statements and the Securities most XXXX. Private and file

In addition, presented prepared are the derived and These but constitute in certain prepared accordance measures of this with under information, are GAAP. non-GAAP not non-GAAP Generally financial financial financial in that United accordance discussion States measures our Principles conference SEC in will a Accepted rules. from that GAAP not are include measures financial statements are Accounting in with consolidated call or

For the would more Water Sprowls, of At States and call the Chief release. to to President over American press refer to turn I Executive like Company. time, Officer this please details, Bob

Bob Sprowls

XXXX you by highlights and and will earnings business. by to we’ll saw were business, and Contracted Services, for States military pleased today. activity quarter share everyone, large fees was several then in other Company’s questions. increases with wrap or us it share. ASUS well in some in Riley at earnings operations earnings. solid increased I’ll then XXXX year Fort higher increase your had to ASUS Consolidated bases. American dividends, $X.XX take driven its in and at the at thank of management performance and Welcome discuss some our ASUS begin than filings, updates that earnings $X.XX the The Services construction I’m of the per some year, for of another as commencement our XXth July as report last part Company marks regulatory on due Utility I’ll Eva which in quarter. details the joining then financial up with contribution per mostly

the Office. more share. years a aspects per subsidiary, continues reflecting which $X.XX Water by Advocates month, XXXX despite our the in of case, Company rates segment decision or higher Public pre-tax in million XXXX, for delay the discuss a $X income segment’s we decision a later the final would approximately in this set all rates the invest earnings per our For to agreement as approves the of of in Last XXXX. received have on XXXX, been X, Golden been general and which State the $X.XX Company, Golden I’ll electric increased detail CPUC’s rate XXXX proposed the of on January will water the water pending call. systems. decision Utility the reliability at water for placed water the share case, proposed Water quarter general decision, State proposed Company new first Had nearly and into the by settlement through entered rate receiving

our spent now expenditures quarter, first expense. turn the the $XX.X over in funded expected quarter. estimate year, call $XXX $XXX capital depreciation we for review the financial to million results We expenditures. about I’ll for million annual to million Eva During be Company our to the will times the approximately three

Eva Tang

everyone. hello Thank you, and Bob,

share compared period of quarter quarter to overview with start the financial X. Slide results me $X.XX same XXXX. per Let our an for per $X.XX were Consolidated the earnings in on share first for

water XXXX general receiving based XXXX first CPUC. rates, As as per three compared on billed despite in last Because on to of the the case. share a delays $X.XX segment increased were rate year, the the of months adopted Bob for at by earnings a mentioned, water pending decision final our delay, water revenues decision final

had margin water relatively of the changes new proposed for flat the first depreciation of water a the the of in the XXXX. increases the to This recorded in Again, As to from costs, there rate partially balancing effects remained The surcharges, of no case as higher due mature earnings. excluding first segment a investment XXXX XXXX, being which quarter after or the in and the account earnings water by from would for in fund per expense. both plan, by result, approximately on quarter the water share at per impact decision million offset gross compensation investments income pretax is in was on $X segment quarter. and been to pension share losses rates of compared had place employee as water $X.XX of treatment, first January benefit to have $X.XX was increase the gains retirement held

have for settlement income in agreement of per share and resolving year, Advocates rate increased have general by during CPUC electric still rate would Our case from CPUC quarter for by first customer will adopted segment the electric $X.XX we by would which an be CPUC January the agreement share January new this per all Office, the X, an XXXX. a rates, $X.XX by was first pretax being XXXX the XXXX’s months to pending or as of increase income rate. revenue on Had base the November, due share first final of to In largely per approximately Billed decrease $X.XX increase a rates earnings per the were three an XXXX, and with in application, place This to the in or XXXX. million settlement based pretax Public XXXX $XXX,XXX $X.XX operating of in case. in electric saw XXXX quarter increased $X into entered in retroactive the without segment’s share. approved in the issues decision this last expenses

these in record decision in received. the period CPUC’s final to is increases will the earnings which We

of Our increased well Contracted increase July management Services at saw to increase several at other as Riley $X million activities per in an our due Services by as of Slide operation Contracted commencement This Fort consolidated shows segment. earnings largely military $X.XX XXXX revenue in segment fees the in a share of bases. construction in due to

addition Fort economic several activity increased In were there in as other fees increases various resolutions at to military well of to bases. the activity construction adjustments at successful as Riley, due price management

were advice the adopted final rates, general for of revenue While the on pending during the quarter, revenue again case. increased the based Billed XXXX of a rate water three delay months XXXX in slightly the projects the because first by revenues the usage. approved during also to due the quarter CPUC customer decision rates XXXX. were by letter There Electric were customer CPUC. of higher in an in fourth due to increases increase

$XX.X an both X, electric Looking the the supply cost supply million were of our compared as the adopted changes electric balancing million quarter, for segments water attracting Any cost water and from $X.X costs increase year. supply and for to last at Slide in account. are

comparing depreciation result in due versus and to due of operating construction consolidated general due expense, XX first at compensation million in Looking gains retirement plan, expense expenses $X.X net quarter excluding during the Interest plant and administrative to increased $X.X fund expenses costs investments on at activity cost the to bridge as to amortization income held and benefit as and other decreased the last to losses increase EPS an costs of XXXX. million the first employee quarter same to shows Slide increase of by expense due XXXX a XXXX, compared with ASUS supply of the incurred quarter QX of and surcharges, construction additions. year. higher to higher total

the operating XXXX activities liquidity, as million to by provided net In cash for million was $XX.X Company’s terms $XX.X in XXXX. compared of

Bob Sprowls

the Is there? operator

Operator

Yes sir.

Bob Sprowls

don’t told we’ve if... been know I lost We’ve audio,

Operator

clear. coming No sir, you’re and through nice

Bob Sprowls

Okay.

Eva Tang

Okay.

will start I with Slide XX. So,

liquidity, provided cash expiration In decrease was million by operating to the Water’s operating decrease during $XX.X million regulatory activities in from in primarily net various terms water of activities cash to XXXX was to related $XX.X a as State for and due usage XXXX. The Company surcharges compared XXXX accounts. Golden in of

in Water invested our XXXX. In Water flow million March capacity and addition, from to Golden projects this support $XXX $XXX of Golden company funds amended growth. capital quarter credit funded been to higher. would facility $XXX customer In been to both levels, in we rates provide have we first States the State strong in new of place, increase in of operations and investment ASUS million Continuing million XXXX. to million State had to the cash operations American invest $XX.X during $XXX the year, borrowing to their from million expect

rating rating AX to this positive Water. which outlook & Water the State January and Global affirmed additional do with time also positive report both with With Water. note, credit notes Moody’s at Water American its repaid have pleased this March of We expect will senior I States last a In of I’m a consolidated back for Golden Poor’s affirmed At of Golden stable State Service outlook matured American A+ Investors to Water in $XX Standard month Golden call an XXXX. Bob. not that also States State on equity. issue turn year, to that Ratings million we

Bob Sprowls

an activity. Eva. recent on you, provide to I’d our regulatory update Thank like

adopt Public these Law State and the The proposed XXXX, parties support Golden filed At rate and cannot As entirety for the totaling both exception call, decision their Office the Law that the comments beneficial settlement Advocates as issues of Public in extensive advice we reasonable Water and letter between joint by Golden assigned with to is a to to agreed Office a regarding or general have its outcome case. parties Administrative case. and the advice to time the PD, approximately month, Public predict we settlement that Office. agreement Golden this the final the discussed compromise customers. August the result proposed, a approves dispute Advocates matter. rate this continue a a the settlement settlement on as in water Judge’s Last the State The and were Water separately general Judge of agreement PD issued the contested and the negotiations CPUC’s capital and outcome on Golden settlement. Advocates such, pending the million the $XX.X the PD to our capital And of was settlement previous all of resolve response rejection this in State projects. agreement represents in Advocates Water motion believe Office both issues, State filed letter Administrative Water Public and projects

filed for margin of to has would as and decrease requirement $X.X expense, in However, revenue depreciation the revised expense State been authorize over water $X.X compared The in water in to capital adopted This approximately in million based the $XXX.X is overall XXXX million approximately by due XXXX approximately resulting than the to would update depreciation Golden the gross invest a earnings. rate reduction by $X you inflation, a reflect approved the the due when in higher if decrease is adjustments XXXX rate expense, increase is, the million to reduced to study in expense PD gross in to lowers the cycle, PD values on infrastructure compared and net year it we Water The was composite margin. the a rates, adopted impact depreciation in million to margin with depreciation as water the since index August made settlement. corresponding to spoke XXXX no three water case. decrease last offset general depreciation gross a

PD the In for Act, the in excess tax water requirement a by million. revenue excess rate Due for increased to gross requirement, final refunds three revenues case, in which of tax in the in also refunds, depreciation for XXXX XXXX the XXXX the lower based have water Tax million net periodic includes delay on CPUC. adopted as approximately amount, XXXX of has general XXXX remain no first and impact on a a of the that to addition, billed Had XXXX decision months $X.X would $XX.X receiving the expense the and Jobs rates, decrease XXXX no water PD same, were earnings. water adopted as by approximately pending there final a margin to this tax decision corresponding the deferred and Cuts the decrease deferred a were income result revenue result expense

the million we approximately the had rates to $X would recorded be as the the been earlier, XXXX, share new PD accordingly. the adjustments be January XXXX, pretax retroactive will As quarter. new and by higher January in of X, place per mentioned rates have been in or first $X.XX income X, water in approved, for segment When retroactive will

of the tracked result approves $X PD reduction accounts, the operating memorandum which approved subject The $X.XX the addition, XXXX water previously In an approximately share, by CPUC the will of being test and PD to additional revenue index that allows of CPUC. respectively, were is potential authorized incurred in forecasted the inflationary increases PD earnings million recovery expenses of changes per million, and approximately a for also million XXXX and or results costs to to $XX $X.X in if the values. in

connection one the XXXX, Water a rate electric two approximate State settlement the in total our our other things, in Water application. as Among cycle. addition to requested through for joint Golden case, to rate construct all with case. Advocates authorizes are to million a issues in and cycle XXXX, parties, and which a in the year Office system five discussed improving motion $XX the reliability, adopt the the cycle As in rate November between Golden call, over settlement filed of all State year capital year I rate the the dedicated in year rate An end safety by extends resolving agreement general the increase and projects its to Public fifth

$XXX,XXX the As of three pretax share. been by $X.XX per XXXX’s on $X had by we X, segment’s the and million rates in XXXX income discussed electric the share first earlier, would per the settlement XXXX, have increased would for agreement increased $X.XX have or months January approximately income place new pretax in or

the was Let’s construction per $X.XX increased contribution quarter July this bases. in reaffirm management of the We revenues higher XX. per $X.XX of Riley and XXXX expected to ASUS’s result move was largely at increase given also was on ASUS’s activity There for we at quarter to Slide contract were to our ASUS military $X.XX last share, on contribution of fee year. in several for earnings share due various $X.XX of of the than XXXX. performance first commencement Fort other The the on the XXXX. per resolution adjustments. successful management fee revenues earnings The guidance to higher the share of previously have market price an

the shareholders an XX New that compound each achieve consecutive over companies years, of rate American And company’s that operator The Water to is the received by places we the increasing of number privatization. the conclude stages turn dividends release with of involved well in proposal government your the at for our of considering over is like XXXX, and to dividends States other thanking our relationship for U.S. these basis, policy of government exclusive year bases every we’ll next American still are Due bases call our dividend various X% achieved The process the to a managing additional well several growth on Slide calendar We approved positioned in group expertise dividend questions. us shares company. prepared on to common I’d a week in Directors The as more strong years. Water. Exchange since has in expected last which bidding remarks turn Company $X.XXX York compete of the Board result. I’d U.S. Stock year to of the experience interest than a to as our attention the on over paid you the outlined now to dividends and the contracts. are have new by per for to dividend States shareholders to XX. long-term. quarter current second for annual share like for

Operator

Thank you.

begin question [Operator Chopra with will Our session. Evercore question-and-answer ISI. Durgesh from Instructions] the We now go comes first Please ahead.

Durgesh Chopra

Hello, afternoon. team. Good

Eva Tang

are Hi, you? how

Bob Sprowls

Hi, Durgesh.

Durgesh Chopra

and of the for reasoning an I then and those? little Good. secondly, Thank the not Eva what you sort approving more up, one, of taking you questions. add $X.XX, the $X.XX, rate give my you $X.XX, that share exception wanted letters, just what that us assuming requested around Number you $X.XX, And a plus that, was of that a like but in this – was get maybe – all if XXXX? in of get you, sense you Two if questions. you booking if of maybe, plus $X.XX, final all advice to color to decision, bit are can for I all behind be for that going when get all like why

Bob Sprowls

Okay.

you’ll Eva, take one, first the if one, take it second I’ll and sounds the okay? So,

Eva Tang

Okay, sure.

Bob Sprowls

are So, letter what’s the advice singling issue Durgesh they has with why asked out. them projects, about

projects. is effect could as not it with letter not for clarity increases problem rate advice there’s believe the much We’re sure the when go what projects. advice letter perhaps the that We be entirely into

As project know, letter general then course, different submit process. you first projects for advice rate case the and recovery. the of that’s the do have we And to through then going

that. say them the approve been rate projects So perhaps it’s it that, general a practice common and include to letter in is commission but advice case decisions. We by

little it’s be to bit head-scratcher for a So, honest. us of a

So, question. of care Eva, the take let second you I’ll

Eva Tang

Durgesh. Yes,

So, you book when we’re second going retroactive mentioned question to effect. the

it water will final the We decision we the book receive rate when case. on

retroactive decisions $X.XX final the we’ll the quarter the to water if segment. book first for for So, the issued,

for of any about cost incurred being also objection that previously cost, have $X.XX this We recovering approved that. recovery to PD had help doesn’t

when So $X.XX, will decision is we that finalized. the also book

Durgesh Chopra

XXXX, would well? rate for as that go back also book the But but like electric – that good. was thanks, also you then – look and And Okay. the at you would and case

Eva Tang

XXXX Yes, of also we’ll for incremental the the Well, decision. the will. for book we on the the at of will case; time the XXXX. electric decision electric a impact water for talking the case, whatever we and when case receive I’m $X.XX Yes, book we

Durgesh Chopra

color. appreciate you Thank much. the I Perfect. so Okay.

Eva Tang

welcome. You’re very

Operator

comes & Verdi question Richard Please next with ahead. go Our from Palmer. Coker

Richard Verdi

quarter. Hi, and Eva, a Bob taking for thanks and call my nice

Just the and attributable a much Bob activity? other that in of quick growth couple ASUS, to year-over-year guess how to of ASUS. attributable much of how I questions Riley surrounding was that for was

Bob Sprowls

talking fourth about quarter? you Are

Richard Verdi

Q-over-Q, for Yes, yes.

Bob Sprowls

was Yes. the $X.XX I to $X.XX about books. of Riley the due would say having on

Richard Verdi

Okay.

Bob Sprowls

$X.XX, Actually, it was Richard. more sorry like

Richard Verdi

No, that’s okay.

they second That’s that week they Works call I decisions guess for peer was then for the Water helpful. that. That’s potentially And to had three Thank I needed on year. your top they’re privatization my last had in front here. their it know. this And American mentioned Okay. waiting all you about have military question,

was look not much might have ASUS? many into bit So of how pipeline does wondering color you give the dozen on giving maybe some a now contract just right too I but give with decisions us a it have one, new maybe RFPs could little going there for you sort mean that, us or I look you color sense what color pipeline, a that us that in or little could like is for a just forward? what dozen, like outstanding, to there moving half a of of

Bob Sprowls

Yes. competitive that you and as bases are a on information out, to we’ll of we on we tell is We’ve because we intelligence and as that many number very win trying focused it can. bidding to give a to hesitated bases and be continue

Richard Verdi

quarter. Thank I Thank the Okay, you, fair time again, enough. Listen, you. appreciate guys. good and

Eva Tang

Thank Richard. you,

Bob Sprowls

Thank you, Richard.

Operator

from with Wells comes Jonathan question Reeder go Fargo. Please ahead. next Our

Jonathan Reeder

Hey, Eva. Bob you doing today? How are all and

Eva Tang

Fine, Jonathan.

Jonathan Reeder

Thanks. Good.

electric $X.XX segment So, have $X.XX release higher, in been mentioned EPS water the the you higher. would

to operated was like this offset quarter. help higher if we I absence or expense you view have it maintenance rate all otherwise, lower relief in the $X.XX QX been the saw for Just of had would business or at instance managed if about that QX $X.XX should just curious as differently

Bob Sprowls

Yes.

rate know, upon than we we Jonathan Maintenance, based delay the manage in would around maintenance. of did normally business as the case. unplanned you the level bounces quarter-to-quarter not despite different from So, any

was And not which the sort of for a quarter so favorable reliability of was unplanned of it’s a maintenance the and the for that intentional, quarter, a in very us created good system. just is the the first a function low, but sign variance

Eva Tang

we following I to timing catch quarter. the the think up quarters to in after may following add first that, the it’s I quarter differences the – think there, Jonathan, maintenance likely

happened gain first first also investment included market first that’s So in you in the and your a And mentioned and also in terms report you great condition. that everybody quarter, kind on quarter annual forecast. of annualize of quarter the in has the there to quarter in your

I annual for little your probably to a you So, forecast that normalize think have bit there.

Jonathan Reeder

that. that can is just Right. to the But appreciate I read. fair kind Yes, affirming Right. of disclosure you

sounds like read it the report. So, did you

So, percentage much where to maybe question this water alter you settlements going throughout probably the next know pending bigger margin QX the of your recent that’s which consolidated might consistent Is that that’s anything you cadence or a the part at there as be. with becomes changed recently, what year, all – booked, is historicals? historical pretty gross of

Bob Sprowls

be very historical, of margin. with It would water terms in the consistent gross

Jonathan Reeder

authorized And settlements? rate then those remind Okay. what’s average for base per electric as for water us, then XXXX Eva, pending the as well

Eva Tang

I per $XXX $XXX water is advice million. million for settlement think all, letter at the without so

of kind is electric say think million. I a $XX is about, I would estimate different For, settlement,

total, I in bit $XXX case authorized say a million for would So, rate over XXXX. little

Jonathan Reeder

for Okay. And the average rate the that’s year? base

Eva Tang

That’s weighted Yes. average. the

Jonathan Reeder

– of opportunities filed, that, as as CapEx expect you rate growth then base And forward? a Mitigation Plan has that Wildfire and result we any okay Valley Okay. elevated Bear the look do

Bob Sprowls

sorted It’s We been being decision There’s that’s proposed still out. issued. do. a

through But working will we’re So, results if should in that, be decision spent there additional a that final. CapEx for be proposed that. the

Jonathan Reeder

a comparison mean just growth rate it the off really is growth, rate to water on million base driver I base or meaningful the side? – rate magnitude it that the growth of of base in $XX the Is PLs

Bob Sprowls

range the $X to of an significant, I’d It’s it’s $X million memory say CapEx. additional million serves, in fairly not insignificant. of it’s if maybe

Jonathan Reeder

Per year?

Eva Tang

project. this For

Bob Sprowls

for plan. first the Yes,

Jonathan Reeder

Okay.

Eva Tang

total, we it’s rate as over five year $XX settled then And million. the case cycle in

year by So, X, plus to that. even divide a million addition $X about $XX million if to this mitigation that’s in you plans

years. at spending Electric in the Bear big expect next we three Valley So segment

Jonathan Reeder

the K, the utility. value transfer you’re any I isolate water fair entity and separate a from and presumably segment? inverse the then liabilities designed risk, And of assets trying Is exclusively the Q combination where move electric noticed it’s just into wildfire legal the to to that Okay. the kind to in potential

Bob Sprowls

it’s regulations associated electric operations, – were there a business really managing with and Well designed the differences business. managing to risks and in water

is that of standalone that the move associated from it’s subsidiary, we operating etc., focus so with and water risks, sort into to that goal business. the a separately – on can issues the the So, business regulations

Jonathan Reeder

Okay.

You bet.

Bob Sprowls

the issues. the One risks obviously, of one – there is of wildfire

Jonathan Reeder

Okay.

So, that think I kind of leads into question. my last

read of I we you that business, capital into the separated where kind should out the relative road? is structure business that get that cost water should So of that down the that kind least I but for might have ROE, with of consistent impact different the to water guess know at like cap a

Bob Sprowls

separated going to of business of the Bear to It have that years. we that the near-term Valley to is five have down not it’s cost several Electric for could BVE but electric pending the – years, out that’s we be was be a sort separate detrimental application get customers. because road, costs one the the should forth The water the for the from case our on put of something settlement

Jonathan Reeder

XX%. electrics from capital cost ROE, last just compared stipulates Okay. that’s one of the as almost made the of me, as high And the filings, which north ROEs so a then state awfully requesting settlement the the low X.X% in XX% to

elevated think your X.XX% X.X%, And Waters went could that think file the impact year? capital next maybe when for to in what wildfire so rationale do proceeding the lower potentially down to curious of from risks currently kind in it ROE, light you electric how agreeing state. the again of pending I cost the was of just So, that

Bob Sprowls

to return rate that’s low And year of other the function water years a we is part say. understand the the ago that case getting it And the was rates I’m Well, just happened of of the electrics should a believe quarters just almost on do it’s Please it X.X%. – then. the approved. and we hardly by electric lot process it had objective large A effect what would two admittedly, the man’s I some is has filed. agreed since have filings but X.X% the lift a believe them. vested one and ROEs, of three the recently – ago, I to compared has year a should positive the interest. companies recent utilities who opinion for –

Jonathan Reeder

Okay.

when are to utility the you maybe forth you you do water their even to making electrics file should argument as a some assuming your to put we cost put capital another similar successful of in So somewhat guys expect way, are argument, and inverse risks? of of prone kind since to degree still condemnation

Bob Sprowls

That’s all correct. we X.X% – And we know, weren’t you happy the with as were not Jonathan.

to think that Company, I but So didn’t did. others our was fair

apparently did. regulators the So

pointed out, do inverse country So utilities water plus reflective you one as looking we try to we for are have the on well as water to the get that’s seeing across the as the condemnation at side least of risk what other electric. we’re

Jonathan Reeder

Great. Yes.

makes Now sense. it

So and taking I answers Eva, today, Bob the much thanks for my questions for so and it. appreciate

Eva Tang

Thank you.

Bob Sprowls

Jonathan. Thank you,

Operator

for our to any like concludes back closing to Sprowls question-and-answer This Instructions] I [Operator turn Bob over the conference remarks. session. would

Bob Sprowls

of speaking participation. your on you. And wanted folks you look next say just we today for you all with thank I phone to quarter. And to Thank you forward the to the

So very thank much. you

Operator

is conference now today’s attending Thank you The for concluded. presentation.

now You disconnect. may