H2O America (SJW) Q4 2023 earnings summary

Executive summary

• FY2023 revenue rose 8% to $670.4M, net income increased 15% to $85.0M, and diluted EPS grew 10% to $2.68, above initial EPS guidance of $2.40–$2.50 and within revised guidance of $2.65–$2.70.

• Earnings growth reflected regulatory mechanisms, customer growth, lower maintenance costs and a partial release of an uncertain tax position reserve that added $0.14 to EPS; higher production costs and borrowing expense partly offset gains.

• Q4 diluted EPS was $0.59 versus $1.09 a year earlier, reflecting retroactive WCMA/WCEMA reimplementation and lower usage in Maine and Texas.

• Infrastructure investment reached $272M, exceeding the $255M annual goal; the Texas customer base grew 12% through organic growth and acquisitions.

Financial highlights

• Q4 revenue was $171.3M versus $171.4M; net income fell 43% to $18.9M and diluted EPS declined 46% to $0.59.

• FY2023 operating revenue was $670.4M, up 8%; operating expenses rose 6% to $520.9M, and operating income was $149.4M versus $131.0M in 2022.

• FY revenue gains included $46.5M from revenue increases, $5.7M from regulatory mechanisms and $3.8M from customer growth, offset by $6.6M from lower usage.

• Water production expenses rose 10% to $256.2M for FY and 22% to $64.7M in Q4, primarily on higher water supply costs; maintenance expenses decreased $5.0M.

• Other operating expenses increased 3% to $264.7M for FY and 3% to $70.2M in Q4; lower maintenance costs partly offset higher depreciation and customer credit loss allowances.

Outlook and guidance

• 2024 diluted EPS guidance is $2.68–$2.78; the long-term nonlinear EPS growth target remains 5%–7%, anchored to 2022 diluted EPS of $2.43.

• 2024 regulated infrastructure investment and budgeted CapEx total $332M: California $169M, Connecticut $94M, Texas $49M and Maine $20M; ~65% is expected to qualify for timely regulatory recovery.

• Planned 2024–2028 infrastructure investment exceeds $1.6B, including approximately $230M for PFAS treatment, subject to regulatory approvals and funding availability.

• 2024 equity issuance guidance is $55M–$65M, excluding acquisition growth; guidance factors include higher California ROE, the Biddeford-Saco rate case, regulatory decisions and planned reinvestment.