- Operating Revenues Increased
2.5 Percent
- Net Income Increased $1.0 Million, or $0.09 per
Share
Connecticut Water Service, Inc. (Nasdaq: CTWS) (“Connecticut
Water”) announced net income of $5.8 million or $0.48 earnings per
basic common share (“EPS”) for the second quarter of 2019 on total
revenues of $32.3 million. Total revenues include revenues
generated by Connecticut Water’s three business segments: Water
Operations, Service and Rentals, and Real Estate. In the second
quarter of 2018, Connecticut Water had net income of $4.7 million
or EPS of $0.39 on total revenues of $31.5 million.
Non-GAAP Adjusted Net Income*, which excludes merger and
acquisition costs, for the second quarter of 2019 increased from
the same period in the prior year by $0.9 million.
The improvements in results in 2019 were primarily driven by
increased base rate revenues in Connecticut, as well as increases
in Water Infrastructure and Conservation Adjustment (“WICA”) and
Water Infrastructure Charge (“WISC”) surcharges. These improved
revenues were partially offset by increased tax, depreciation and
interest expenses.
Year-to-Date ResultsThe Company reported net
income of $8.0 million, or EPS of $0.67, on total revenues of $60.2
million in the first six months of 2019. In the same period of
2018, the Company had net income of $3.5 million, or $0.29 EPS, on
total revenues of $58.0 million. The improvements in
year-to-date results are the same as those identified for the
second quarter.
* A description of Non-GAAP Adjusted Net Income is provided
below under the heading “Use and Definition of Non-GAAP Financial
Measures” and a reconciliation to GAAP financial measures is
provided in the table at the end of this release.
“In the second quarter of 2019, we made significant progress
toward our combination with SJW Group,” stated David C. Benoit,
president and CEO of CTWS. Mr. Benoit added, “The settlement
agreement we entered into with the Connecticut Office of Consumer
Counsel and the Department of Energy and Environmental Protection,
when combined with the binding commitments in the merger
application filed with the Connecticut Public Utilities Regulatory
Authority, provides compelling benefits to customers, employees,
communities and the environment. We are working with the parties in
the Maine regulatory process to deliver similar benefits in Maine.
We are eager to begin delivering the full benefits offered through
the combination with SJW Group.”
Combination with SJW GroupAs previously
announced on April 3, 2019, Connecticut Water and SJW Group
jointly filed a new application with the Connecticut Public
Utilities Regulatory Authority (“PURA”) for approval of the
proposed merger of Connecticut Water and SJW Group. On July 3,
Connecticut Water, SJW Group, the Connecticut Office of Consumer
Counsel (“OCC”) and the Connecticut Department of Energy and
Environmental Protection (“DEEP”) filed a settlement agreement
negotiated by the parties with the PURA. The settlement agreement
modified some of the underlying commitments and provides for eight
additional binding commitments that offer benefits to customers,
communities and the environment. PURA is scheduled to issue a final
decision on the application for approval of the proposed merger on
September 4. The PURA docket number for the proceeding is
19-04-02.
As previously announced on May 3, 2019, Maine Water Company
(“Maine Water”), an operating subsidiary of Connecticut Water,
filed a new application with the Maine Public Utilities Commission
(“MPUC”) for approval of the proposed merger. On June 24, 2019,
MPUC extended the review period to October 29, 2019. MPUC assigned
docket number 2019-00096 to the application and has not yet
established a final decision date.
Infrastructure ReplacementAs of June 30, there
was a WICA credit of 0.4 percent for Connecticut Water Company and
a WICA charge of 9.29 percent for Avon Water. Heritage Village
Water has not filed for a WICA surcharge.
Maine Water files for WISC increases with MPUC on a
system-by-system basis. The current average of approved WISC
surcharges of all divisions of Maine Water is 5.7 percent. The
maximum WISC surcharge allowed in Maine ranges from 10 to 20
percent, depending on the size of the water system.
WICA and WISC allow for recovery of eligible infrastructure
replacements on a semiannual basis. Since the adoption of WICA in
2007, Connecticut Water Company has replaced more than 130 miles of
aging water main with an average age of 75 years. WISC became
available in Maine in 2013 and has been used by Maine
Water to replace 12 miles of aging water mains and pump stations,
construct storage tanks, and fund treatment improvements.
About CTWSCTWS is one of the 10 largest
U.S.-based publicly traded water utilities, and is listed on the
Nasdaq Global Select Market under the ticker symbol CTWS. Through
its regulated utility subsidiaries, CTWS serves more than 136,000
water customers, or more than 425,000 people in 80 communities
across Connecticut and Maine, and more than 3,000 wastewater
customers in Southbury, Connecticut.
Additional information regarding results, performance or
achievements noted in this news release is available in CTWS's Form
10-Q that was filed with the U.S. Securities and Exchange
Commission ("SEC") earlier today. A link to the Form 10-Q filing
can be found at http://ir.ctwater.com.
Use and Definition of Non-GAAP Financial
MeasuresWe consider Adjusted Net Income as a key business
metric, which is a Non-GAAP financial measure.
We define Adjusted Net Income as Net Income excluding certain
material items outside of normal business operations. For this
Non-GAAP financial measure, we consider these items to be expenses
related to mergers and acquisitions, including any short-term
borrowing costs. This includes costs incurred in 2019 and 2018 for
the proposed merger with SJW.
Adjusted Net Income is a supplemental financial measure used by
us and by external users of our financial statements and is
considered to be an indicator of the operational strength and
performance of our business. Adjusted Net Income allows us to
assess our performance without regard to the impact of matters that
we do not consider indicative of the operating performance of our
business.
We use Adjusted Net Income to facilitate a comparison of our
operating performance on a consistent basis from period to period
that, when viewed in combination with our results prepared in
accordance with GAAP, provides a more complete understanding of
factors and trends affecting our business. We believe
Adjusted Net Income assists our Board of Directors, management and
investors in comparing our operating performance on a consistent
basis from period to period because they remove the impact of
certain material items outside of normal business operations (such
as the costs incurred for the proposed merger with SJW Group) from
our operating results.
Despite the importance of this Non-GAAP financial measure in
analyzing our business, measuring and determining incentive
compensation and otherwise evaluating our operating performance,
Adjusted Net Income is not a measurement of financial performance
under GAAP, may have limitations as an analytical tool and should
not be considered in isolation from, or as an alternative to, Net
Income or any other measure of our performance derived in
accordance with GAAP. Adjusted Net Income is not a measure of
profitability under GAAP.
We also urge you to review the reconciliation of this Non-GAAP
financial measure included in the Results of Operations section of
the Quarterly Report on Form 10-Q for six months ended June 30,
2019. To properly and prudently evaluate our business, we encourage
you to review the Condensed Consolidated Financial Statements and
related notes included elsewhere in our Form 10-Q and to not rely
on any single financial measure to evaluate our business. In
addition, because the Adjusted Net Income measure is susceptible to
varying calculations, such Non-GAAP financial measures may differ
from, and may therefore not be comparable to, similarly titled
measures used by other companies.
The following tables provide a reconciliation of Net Income to
Non-GAAP Adjusted Net Income for the three months ended June 30,
2019 and 2018, and six months ended June 30, 2019 and 2018:
For the three
months ended June 30, 2019 and 2018: |
|
|
|
2019 |
|
|
2018 |
Net Income |
$ |
5,786 |
|
$ |
4,729 |
Merger and Acquisition Costs |
|
2,171 |
|
|
2,391 |
Financing Costs |
|
105 |
|
|
28 |
Adjusted Net Income |
$ |
8,062 |
|
$ |
7,148 |
|
|
|
|
|
|
|
|
For the six months
ended June 30, 2019 and 2018: |
|
|
|
|
2019 |
|
|
2018 |
Net Income |
$ |
8,024 |
|
$ |
3,502 |
Merger and Acquisition Costs |
|
3,096 |
|
|
5,652 |
Financing Costs |
|
204 |
|
|
34 |
Adjusted Net Income |
$ |
11,324 |
|
$ |
9,188 |
Connecticut Water Service, Inc. &
Subsidiaries
Condensed Consolidated Selected Financial Data
(unaudited)
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
(In thousands except
per share amounts) |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
Operating Revenues |
$ |
30,664 |
|
$ |
29,904 |
|
$ |
56,910 |
|
$ |
54,757 |
Other Water Operations Revenues |
|
382 |
|
|
363 |
|
|
718 |
|
|
736 |
Real Estate Revenues |
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
Service and Rentals Revenues |
|
1,260 |
|
|
1,277 |
|
|
2,535 |
|
|
2,482 |
Total Revenues |
$ |
32,306 |
|
$ |
31,544 |
|
$ |
60,163 |
|
$ |
57,975 |
Total Operating Expenses |
$ |
20,848 |
|
$ |
20,325 |
|
$ |
41,891 |
|
$ |
40,900 |
Other Utility Income, Net of Taxes |
$ |
283 |
|
$ |
248 |
|
$ |
482 |
|
$ |
515 |
Total Utility Operating Income |
$ |
10,099 |
|
$ |
9,827 |
|
$ |
15,501 |
|
$ |
14,372 |
Gain on Property Transactions, Net of Taxes |
$ |
11 |
|
$ |
-- |
|
$ |
23 |
|
$ |
-- |
Non-Water Sales Earnings (Services and Rentals), Net of
Taxes |
$ |
404 |
|
$ |
432 |
|
$ |
890 |
|
$ |
828 |
Net Income |
$ |
5,786 |
|
$ |
4,729 |
|
$ |
8,024 |
|
$ |
3,502 |
Net Income Applicable to Common Shareholders |
$ |
5,786 |
|
$ |
4,728 |
|
$ |
8,024 |
|
$ |
3,492 |
Basic Earnings Per Average Common Share |
$ |
0.48 |
|
$ |
0.39 |
|
$ |
0.67 |
|
$ |
0.29 |
Diluted Earnings Per Average Common Share |
$ |
0.48 |
|
$ |
0.39 |
|
$ |
0.67 |
|
$ |
0.29 |
Basic Weighted Average Common Shares Outstanding |
|
11,970 |
|
|
11,884 |
|
|
11,966 |
|
|
11,873 |
Diluted Weighted Average Common Shares Outstanding |
|
12,065 |
|
|
12,083 |
|
|
12,062 |
|
|
12,082 |
Book Value Per Share |
$ |
24.49 |
|
$ |
23.87 |
|
$ |
24.49 |
|
$ |
23.87 |
Condensed Consolidated Balance Sheets
(unaudited)
(In thousands) |
June 30, 2019 |
December 31, 2018 |
|
ASSETS |
|
|
Net Utility Plant |
$ |
756,380 |
$ |
739,793 |
Current Assets |
|
40,395 |
|
38,658 |
Other Assets |
|
184,652 |
|
174,892 |
|
Total Assets |
$ |
981,427 |
$ |
953,343 |
|
CAPITALIZATION AND LIABILITIES |
|
|
Shareholders’ Equity |
$ |
295,575 |
$ |
294,136 |
Long-Term Debt |
|
256,916 |
|
257,511 |
Current Liabilities |
|
95,915 |
|
79,053 |
Other Liabilities and Deferred Credits |
|
196,585 |
|
187,562 |
Contributions in Aid
of Construction |
|
136,436 |
|
135,081 |
Total Capitalization
and Liabilities |
$ |
981,427 |
$ |
953,343 |
Forward-Looking StatementsThis press release
contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, as amended. Some
of these forward-looking statements can be identified by the use of
forward-looking words such as “believes,” “expects,” “may,” “will,”
“should,” “seeks,” “approximately,” “intends,” “plans,”
“estimates,” “projects,” “strategy,” or “anticipates,” or the
negative of those words or other comparable terminology.
The accuracy of such statements is subject to a number of risks,
uncertainties and assumptions including, but not limited to, the
following factors: (1) the risk that the conditions to the closing
of the SJW Group transaction are not satisfied; (2) the risk that
the regulatory approvals required for the proposed transaction are
not obtained at all, or if obtained, on the terms expected or on
the anticipated schedule; (3) the risk that the California Public
Utilities Commission’s (CPUC) investigation may cause delays in or
otherwise adversely affect the proposed transaction and that SJW
Group may be required to consummate the proposed transaction prior
to the CPUC’s issuance of an order with respect to its
investigation; (4) the effect of water, utility, environmental and
other governmental policies and regulations; (5) litigation
relating to the proposed transaction; (6) the ability of each party
to meet expectations regarding timing, completion and accounting
and tax treatments of the proposed transaction; (7) the occurrence
of any event, change or other circumstance that could give rise to
the termination of the merger agreement between the parties to the
proposed transaction; (8) changes in demand for water and other
products and services; (9) unanticipated weather conditions; (10)
catastrophic events such as fires, earthquakes, explosions, floods,
ice storms, tornadoes, terrorist acts, physical attacks,
cyber-attacks, or other similar occurrences that could adversely
affect the facilities, operations, financial condition, results of
operations and reputation of Connecticut Water; (11) risks that the
proposed transaction disrupts the current plans and operations of
Connecticut Water; (12) potential difficulties in employee
retention as a result of the proposed transaction; (13) unexpected
costs, charges or expenses resulting from the proposed transaction;
(14) the effect of the announcement or pendency of the proposed
transaction on business relationships, operating results, and
business generally, including, without limitation, competitive
responses to the proposed transaction; (15) risks related to
diverting management’s attention from ongoing business operations
of Connecticut Water; and (16) legislative and economic
developments.
In addition, actual results are subject to other risks and
uncertainties that relate more broadly to Connecticut Water’s
overall business and financial condition, including those more
fully described in its filings with the SEC, including,
without limitation, its Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 2019. Forward-looking statements
are not guarantees of performance, and speak only as of the date
made, and neither Connecticut Water nor its management undertakes
any obligation to update or revise any forward-looking statements
except as required by law.
Daniel J. Meaney, APR
Director of Public Affairs and Corporate Communications
Connecticut Water Service, Inc.
93 West Main Street, Clinton, CT 06413-1600
(860) 664-6016
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