SJW GROUP (SJW)·Q3 2024 Earnings Summary

Executive Summary

• Q3 delivered $1.17 GAAP EPS and $1.18 adjusted EPS on $225.1M revenue, up 7% YoY in net income and driven largely by rate increases in California and Connecticut; operating income was $58.4M with lower effective tax rate due to an accounting method change .
• 2024 EPS guidance reiterated on a non-GAAP basis at $2.68–$2.78 and set at $2.65–$2.75 on GAAP (vs. $2.66–$2.76 GAAP at Q2), while long-term EPS growth of 5–7% (anchored to 2022) was reaffirmed .
• Regulatory momentum: San Jose Water’s 2025–2027 CA GRC settlement filed (decision expected Q4; new rates anticipated 1/1/2025) outlining $450M capex and a $53.1M three‑year revenue increase (3.91%/2.55%/2.98% in 2025–27) .
• Balance sheet and funding: $252M YTD capex (76% of 2024 plan), $125M long-term debt issued in Q3 to pay down revolver (LOCF balance $93M at quarter end), and a new $200M ATM equity program established post-quarter for incremental flexibility .
• Potential stock catalysts: CPUC decision on the CA GRC settlement in Q4; ongoing PFAS/AMI execution; and transfer of listing to Nasdaq (effective 11/8/2024) .

What Went Well and What Went Wrong

What Went Well

• Rate relief and regulatory progress: Q3 operating revenue rose to $225.1M (from $204.8M) “largely driven by rate increases of $17.0M, primarily in California and Connecticut,” with CA GRC settlement filed and decision expected in Q4 .
• Capital execution and recognized awards: $252M YTD capex (76% of 2024 plan) toward the $332M full-year target; Newsweek named SJW one of America’s Greenest Companies 2025; CT operations again a Top Workplace .
• Management tone/confidence: “We also delivered strong financial results, including a 7% increase in net income… our performance reflects our continued execution of our successful growth strategy” — CEO Eric Thornburg .

What Went Wrong

• Cost inflation in production and opex: Water production expense +$13.1M YoY in Q3 (higher purchased water and groundwater charges); maintenance +$2.1M; A&G +$1.8M; D&A +$1.0M .
• Texas drought/usage headwind: Conservation and drought constraints are pressuring 2024 usage; stage reductions help but drought expected to persist into 2025 per CFO commentary .
• Higher financing costs and leverage use: Average LOC borrowing rate YTD was ~6.53% (6.16% prior year); $93M drawn on $350M lines; offset by $125M long-term debt issuance to term out borrowings .

Financial Results

Consolidated P&L Snapshot (USD Millions, except EPS) — 2024 YTD progression

Notes: Q1 did not report an adjusted EPS figure in the 8‑K . Q2 adjustment reflects a loss on real estate sale; Q3 adjustment reflects M&A expense .

Q3 Year-over-Year Comparison (USD Millions, except EPS)

Q3 Revenue Drivers (YoY)

KPIs and Balance Sheet/Capital

Segment revenue breakdown: Not disclosed; SJW reports consolidated regulated utility operations with state-level regulatory updates rather than reportable revenue segments .

Non-GAAP items: Q3 adjusted excludes ~$0.3M after-tax M&A expense; YTD adjusted excludes ~$0.7M after-tax real estate loss and ~$0.3M after-tax M&A expense .

Guidance Changes

Context: Guidance notes reduced usage risk (conservation), strategic reinvestments (e.g., ~$1.1M YTD customer-related software), and independence from real estate/M&A impacts; management highlighted a “flatter” CA rate trajectory under the settlement aiding earnings smoothness .

Earnings Call Themes & Trends

Management Commentary

• Strategy and execution: “We also delivered strong financial results, including a 7% increase in net income… our performance reflects our continued execution of our successful growth strategy… focused on investments… and constructive engagement” — Eric Thornburg, CEO .
• Regulatory cadence smoothing earnings: “The California rate increases… start in 2025 at 3.91%… compared to 13.35% the last time in 2022… it flattens out our overall… earnings and revenue growth over a 3‑year cycle” — CFO Andrew Walters .
• Affordability and efficiency: “Affordability is a key issue… we’re trying to… increase our efficiency… not all on the backs of the customers” — CFO; “We’re viewing affordability as a strategic issue” — CEO .
• Sustainability and resilience: GRIP program to add battery storage; SJW recognized among America’s Greenest Companies 2025 .

Q&A Highlights

• Texas usage and 2025 setup: Drought and conservation weighed on 2024 usage; Stage 3 vs 4 is positive; not changing 2024 EPS guidance; expect drought conditions to persist into 2025, with tailwinds from CA settlement and full-year CT rate case supporting long-term 5–7% EPS growth .
• Maine tariff consolidation: Strategic move to a single rate cycle to socialize costs and reduce regulatory burden; not immediate rate equalization across districts .
• Aquarion process: Company remains interested; expects buyer announcement by YE 2024 per seller’s stated timeline; will be disciplined .
• CA cost of capital: Recent energy ROE adjustment not expected to alter water WCCM; any change would require Commission order; mechanism is two-way and could face downward pressure if rates fall .
• Capex outlook and regulations: Expect continued increases in capital needs (lead & copper, PFAS, inflation, growth); updated 5‑year plan and 2025 guidance coming next quarter .
• Data centers demand: Minimal direct volumetric uplift expected; possible secondary infrastructure needs from broader economic development .

Estimates Context

• Wall Street consensus (S&P Global) for Q3 2024 revenue/EPS and prior quarters was not retrievable via our estimates tool due to a Capital IQ mapping limitation; as a result we cannot quantify beat/miss vs consensus this quarter. We will update when S&P Global mapping is available.

Key Takeaways for Investors

• Regulatory visibility improving: The CA GRC settlement (decision expected Q4; rates 1/1/25) provides clearer multi-year revenue/capex recovery and a flatter earnings trajectory, reducing first-year step volatility seen in prior cycles .
• Execution in capital program: $252M YTD capex supports system reliability, PFAS compliance, and AMI roll-out; 5‑year plan >$1.6B underscores durable growth in rate base and earnings power .
• Cost pressures manageable: Higher purchased water/groundwater and maintenance costs are offset by rate mechanisms; lower effective tax rate aided Q3; continued focus on operating efficiency and affordability .
• Funding flexibility: Balance sheet actions (Q3 $125M long-term debt, $93M LOC balance) plus a new $200M ATM provide capacity to fund capex and potential M&A while managing leverage/cost of capital .
• Near-term catalysts: CPUC decision on CA settlement (Q4), 2025 guidance and updated 5‑year capex next quarter, progress on Texas supply (KT Water Resources) and SIC filing, and Nasdaq listing transition .
• Risk watchlist: Texas drought/usage; production cost inflation; regulatory timing/outcomes; cost of capital directionality under WCCM .

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Appendix: Additional Relevant Updates in Q3 Period

• ATM Equity Facility: On 10/29/24, SJW entered an equity distribution agreement with four agents enabling “at-the-market” offerings up to $200M; proceeds earmarked for acquisitions and general corporate purposes including capex and debt repayment .
• Dividend: $0.40 per share declared for payment on 12/2/24; 80+ years of consecutive dividends; 56 consecutive years of calendar-year dividend increases .
• Listing transfer: Planned move from NYSE to Nasdaq on 11/8/24 .

All citations: [1:x] refers to the Q3 2024 8‑K and attached exhibit; [2:x] refers to the Q3 2024 earnings call transcript; [3:x] refers to the 10/30/24 8‑K for the ATM; [6:x] refers to Q2 2024 8‑K; [9:x] refers to Q1 2024 8‑K.