November 23, 2020

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SJW Group Announces 2020 First Quarter Financial Results and Updates 2020 Guidance

SAN JOSE, Calif.--(BUSINESS WIRE)--SJW Group (NYSE: SJW) today reported financial results for the first quarter ended March 31, 2020. SJW Group net income was $2.4 million for the quarter ended March 31, 2020, compared to $5.9 million for the same period in 2019. Diluted earnings per share were $0.08 and $0.21 for the quarters ended March 31, 2020 and 2019, respectively. Diluted earnings per share in 2020 includes $0.15 per share from ongoing operations offset by non-recurring expenses related to the Connecticut Water Service, Inc. ("CTWS") merger and integration fees of $1.3 million (net of tax) or $0.05 per share and COVID-19 related reserves and expenses of $470,000 (net of tax) or $0.02 per share. Diluted earnings per share in 2019 includes $0.23 per share from ongoing operations and $0.05 per share of interest income earned on temporarily invested proceeds from our equity offering in December 2018, offset by $0.07 per share of non-recurring expenses related to the CTWS merger. The Company’s previously issued earnings guidance for 2020 anticipated the use of 3.5 billion gallons of surface water from its Northern California watershed. Through the first three months of the year, when the majority of rainfall in the watershed occurs, the company experienced the second lowest rainfall level in the last 10 years. Absent additional rainfall, we anticipate total available water from the watershed will be between 1.0 billion gallons and 1.2 billion gallons. Replacing our sourced water with water purchased from our local water agency or pumped from the aquifer will cost an incremental $4.2 million per billion gallons. As a result, the company anticipates that annual water production costs will increase between $9.7 million and $10.5 million or between $0.29 and $0.31 per diluted share. The Company is updating its guidance range from between $2.25 and $2.35 per diluted share to between $1.95 and $2.05 per diluted share to reflect this change. Operating revenue was $115.8 million for the quarter ended March 31, 2020, compared to $77.7 million in 2019. The $38.1 million increase in revenue was primarily attributable to $27.4 million in new revenue as a result of the merger with CTWS, $6.0 million due to increased customer usage, $3.5 million in cumulative water rate increases, and a $1.1 million increase in the net recognition of certain balancing and memorandum accounts. Operating expenses for the quarter ended March 31, 2020, were $100.3 million, compared to $65.3 million in 2019, an increase of $35.0 million. Operating expenses include water production expenses for the first quarter of 2020 of $43.8 million compared to $26.8 million for the same period in 2019, an increase of $17.0 million. The increase in water production expenses was primarily attributable to $6.3 million in new CTWS expenses, $5.4 million due to a decrease in the use of available surface water supplies, $5.3 million in higher customer water usage, and $1.5 million in higher per unit costs for purchased water, groundwater extraction and energy charges, partially offset by a $1.5 million decrease in cost recovery balancing and memorandum accounts. Operating expenses, excluding water production costs, increased $18.0 million to $56.5 million from $38.5 million. The increase was primarily due to an increase of $9.2 million in higher general and administrative expenses, including $6.4 million in new CTWS general and administrative expenses. Other first quarter expense changes included $6.2 million in higher depreciation expenses, $3.3 million in higher property taxes and other non-income taxes, and $1.8 million in higher maintenance expenses. The increases were primarily a result of inclusion of CTWS post-merger activities. In addition, we experienced $2.2 million in lower merger related expenses. Other expense and income in the first quarter of 2020 included $858,000 in new interest expense on San Jose Water Company’s $80.0 million Senior Notes issued in March 2019 and $4.1 million in new interest on SJW Group’s $510.0 million Senior Notes issued in October 2019. Other expense and income in the first quarter of 2019 included $1.8 million of interest income earned on temporarily invested proceeds from our equity offering in December 2018. The proceeds were used to partially finance the CTWS merger and no similar income was earned in the first quarter of 2020. The effective consolidated income tax rates for the quarters ended March 31, 2020 and 2019, were approximately 15% and 26%, respectively. The effective tax rate decreased primarily due to the flow-through impact of certain CTWS deductions and lower pre-tax income. About SJW Group SJW Group is the second largest investor-owned pure play water and wastewater utility based on rate base in the United States, providing life-saving and high-quality water service to nearly 1.5 million people. SJW Group’s locally led and operated water utilities - San Jose Water Company in California; Connecticut Water Company, Avon Water Company and Heritage Village Water Company in Connecticut; Maine Water Company in Maine; and SJWTX, Inc. (dba Canyon Lake Water Service Company) in Texas - possess the financial strength, operational expertise and technological innovation to safeguard the environment, deliver outstanding service to customers and provide opportunities to employees. SJW Group remains focused on investing in its operations, remaining actively engaged in its local communities and delivering continued sustainable value to its shareholders. For more information about SJW Group, please visit www.sjwgroup.com. Forward-Looking Statements This 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. These forward looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. 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 effect of water, utility, environmental and other governmental policies and regulations, including actions concerning rates, authorized return on equity, authorized debt-to-equity ratios, capital expenditures and other decisions; (2) changes in demand for water and other services; (3) the impact of COVID-19 pandemic on our business operation and financial results; (4) unanticipated weather conditions and changes in seasonality; (5) climate change and the effects thereof; (6) the risk that the benefits expected from the merger of SJW Group and Connecticut Water Service, Inc. will not be realized; (7) the risk that the integration of Connecticut Water Service, Inc. will be more difficult, time-consuming or expensive than anticipated; (8) our ability to successfully evaluate investments in new business and growth initiatives; (9) the risk of work stoppages, strikes and other labor-related actions; (10) catastrophic events such as fires, earthquakes, explosions, floods, ice storms, tornadoes, hurricanes, terrorist acts, physical attacks, cyber-attacks, or other similar occurrences; (11) changes in general economic, political, business and financial market conditions; (12) the ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings, changes in interest rates, compliance with regulatory requirements, compliance with the terms and conditions of our outstanding indebtedness, and general stock market conditions; and (13) legislative and general market and economic developments. Results for a quarter are not indicative of results for a full year due to seasonality and other factors. In addition, actual results are subject to other risks and uncertainties that relate more broadly to our overall business, including those more fully described in our filings with the SEC, including our most recent reports on Form 10-K, Form 10-Q and Form 8-K. Forward-looking statements are not guarantees of performance, and speak only as of the date made, and we undertake no obligation to update or revise any forward-looking statements except as required by law. SJW Group Condensed Consolidated Statements of Comprehensive Income (Unaudited) (in thousands, except per share data) Three months ended March 31, 2020 2019 REVENUE $ 115,754 77,682 OPERATING EXPENSE: Production Expenses: Purchased water 15,934 13,662 Power 2,725 1,160 Groundwater extraction charges 15,028 6,863 Other production expenses 10,093 5,099 Total production expenses 43,780 26,784 Administrative and general 21,262 12,291 Maintenance 6,086 4,325 Property taxes and other non-income taxes 7,463 4,128 Depreciation and amortization 21,382 15,145 Merger related expenses 354 2,601 Total operating expense 100,327 65,274 OPERATING INCOME 15,427 12,408 OTHER (EXPENSE) INCOME: Interest expense (13,284 ) (5,791 ) Interest income on Money Market Fund — 1,832 Pension non-service cost (45 ) (921 ) Other, net 757 390 Income before income taxes 2,855 7,918 Provision for income taxes 438 2,045 SJW GROUP NET INCOME 2,417 5,873 Unrealized loss on investment, net of taxes of $50 (135 ) — SJW GROUP COMPREHENSIVE INCOME $ 2,282 5,873 EARNINGS PER SHARE: Basic $ 0.08 0.21 Diluted $ 0.08 0.21 DIVIDENDS PER SHARE $ 0.32 0.30 WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 28,489 28,423 Diluted 28,674 28,508 SJW Group Condensed Consolidated Balance Sheets (Unaudited) (in thousands) March 31, 2020 December 31, 2019 ASSETS Utility plant: Land $ 34,697 34,395 Depreciable plant and equipment 3,014,589 2,988,454 Construction in progress 126,365 112,232 Intangible assets 32,775 33,424 Total utility plant 3,208,426 3,168,505 Less accumulated depreciation and amortization 983,481 962,019 Net utility plant 2,224,945 2,206,486 Real estate investments 57,954 57,699 Less accumulated depreciation and amortization 13,899 13,597 Net real estate investments 44,055 44,102 CURRENT ASSETS: Cash and cash equivalents: Cash 28,273 12,944 Restricted cash — 5,000 Accounts receivable and accrued unbilled utility revenue 80,839 88,077 Current regulatory assets, net 6,129 6,472 Other current assets 13,577 9,553 Total current assets 128,818 122,046 OTHER ASSETS: Regulatory assets, net 126,149 113,945 Investments 13,400 12,928 Goodwill 628,287 628,287 Other 8,644 4,676 776,480 759,836 $ 3,174,298 3,132,470 SJW Group Condensed Consolidated Balance Sheets (Unaudited) (in thousands) March 31, 2020 December 31, 2019 CAPITALIZATION AND LIABILITIES CAPITALIZATION: Common stock $ 28 28 Additional paid-in capital 507,075 506,639 Retained earnings 376,447 383,191 Accumulated other comprehensive (loss) income (9 ) 126 Total stockholders’ equity 883,541 889,984 Long-term debt, less current portion 1,316,996 1,283,597 Total capitalization 2,200,537 2,173,581 CURRENT LIABILITIES: Lines of credit 131,402 117,209 Current portion of long-term debt 22,311 22,272 Accrued groundwater extraction charges, purchased water and power 12,919 17,211 Accounts payable 25,214 34,886 Accrued interest 18,516 13,140 Accrued payroll 9,105 11,570 Other current liabilities 18,937 18,279 Total current liabilities 238,404 234,567 DEFERRED INCOME TAXES 194,823 195,598 ADVANCES FOR CONSTRUCTION AND CONTRIBUTIONS IN AID OF CONSTRUCTION 405,398 398,374 POSTRETIREMENT BENEFIT PLANS 111,272 108,044 OTHER NONCURRENT LIABILITIES 23,864 22,306 $ 3,174,298 3,132,470 Contacts SJW Group James P. Lynch, 408-279-7966 Chief Financial Officer and Treasurer

SAN JOSE, Calif.–(BUSINESS WIRE)–SJW Group (NYSE: SJW) today reported financial results for the first quarter ended March 31, 2020. SJW Group net income was $2.4 million for the quarter ended March 31, 2020, compared to $5.9 million for the same period in 2019. Diluted earnings per share were $0.08 and $0.21 for the quarters ended March 31, 2020 and 2019, respectively. Diluted earnings per share in 2020 includes $0.15 per share from ongoing operations offset by non-recurring expenses related to the Connecticut Water Service, Inc. ("CTWS") merger and integration fees of $1.3 million (net of tax) or $0.05 per share and COVID-19 related reserves and expenses of $470,000 (net of tax) or $0.02 per share. Diluted earnings per share in 2019 includes $0.23 per share from ongoing operations and $0.05 per share of interest income earned on temporarily invested proceeds from our equity offering in December 2018, offset by $0.07 per share of non-recurring expenses related to the CTWS merger.

The Company’s previously issued earnings guidance for 2020 anticipated the use of 3.5 billion gallons of surface water from its Northern California watershed. Through the first three months of the year, when the majority of rainfall in the watershed occurs, the company experienced the second lowest rainfall level in the last 10 years. Absent additional rainfall, we anticipate total available water from the watershed will be between 1.0 billion gallons and 1.2 billion gallons. Replacing our sourced water with water purchased from our local water agency or pumped from the aquifer will cost an incremental $4.2 million per billion gallons. As a result, the company anticipates that annual water production costs will increase between $9.7 million and $10.5 million or between $0.29 and $0.31 per diluted share. The Company is updating its guidance range from between $2.25 and $2.35 per diluted share to between $1.95 and $2.05 per diluted share to reflect this change.

Operating revenue was $115.8 million for the quarter ended March 31, 2020, compared to $77.7 million in 2019. The $38.1 million increase in revenue was primarily attributable to $27.4 million in new revenue as a result of the merger with CTWS, $6.0 million due to increased customer usage, $3.5 million in cumulative water rate increases, and a $1.1 million increase in the net recognition of certain balancing and memorandum accounts.

Operating expenses for the quarter ended March 31, 2020, were $100.3 million, compared to $65.3 million in 2019, an increase of $35.0 million. Operating expenses include water production expenses for the first quarter of 2020 of $43.8 million compared to $26.8 million for the same period in 2019, an increase of $17.0 million. The increase in water production expenses was primarily attributable to $6.3 million in new CTWS expenses, $5.4 million due to a decrease in the use of available surface water supplies, $5.3 million in higher customer water usage, and $1.5 million in higher per unit costs for purchased water, groundwater extraction and energy charges, partially offset by a $1.5 million decrease in cost recovery balancing and memorandum accounts. Operating expenses, excluding water production costs, increased $18.0 million to $56.5 million from $38.5 million. The increase was primarily due to an increase of $9.2 million in higher general and administrative expenses, including $6.4 million in new CTWS general and administrative expenses. Other first quarter expense changes included $6.2 million in higher depreciation expenses, $3.3 million in higher property taxes and other non-income taxes, and $1.8 million in higher maintenance expenses. The increases were primarily a result of inclusion of CTWS post-merger activities. In addition, we experienced $2.2 million in lower merger related expenses.

Other expense and income in the first quarter of 2020 included $858,000 in new interest expense on San Jose Water Company’s $80.0 million Senior Notes issued in March 2019 and $4.1 million in new interest on SJW Group’s $510.0 million Senior Notes issued in October 2019. Other expense and income in the first quarter of 2019 included $1.8 million of interest income earned on temporarily invested proceeds from our equity offering in December 2018. The proceeds were used to partially finance the CTWS merger and no similar income was earned in the first quarter of 2020.

The effective consolidated income tax rates for the quarters ended March 31, 2020 and 2019, were approximately 15% and 26%, respectively. The effective tax rate decreased primarily due to the flow-through impact of certain CTWS deductions and lower pre-tax income.

About SJW Group

SJW Group is the second largest investor-owned pure play water and wastewater utility based on rate base in the United States, providing life-saving and high-quality water service to nearly 1.5 million people. SJW Group’s locally led and operated water utilities – San Jose Water Company in California; Connecticut Water Company, Avon Water Company and Heritage Village Water Company in Connecticut; Maine Water Company in Maine; and SJWTX, Inc. (dba Canyon Lake Water Service Company) in Texas – possess the financial strength, operational expertise and technological innovation to safeguard the environment, deliver outstanding service to customers and provide opportunities to employees. SJW Group remains focused on investing in its operations, remaining actively engaged in its local communities and delivering continued sustainable value to its shareholders. For more information about SJW Group, please visit www.sjwgroup.com.

Forward-Looking Statements

This 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. These forward looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict.

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 effect of water, utility, environmental and other governmental policies and regulations, including actions concerning rates, authorized return on equity, authorized debt-to-equity ratios, capital expenditures and other decisions; (2) changes in demand for water and other services; (3) the impact of COVID-19 pandemic on our business operation and financial results; (4) unanticipated weather conditions and changes in seasonality; (5) climate change and the effects thereof; (6) the risk that the benefits expected from the merger of SJW Group and Connecticut Water Service, Inc. will not be realized; (7) the risk that the integration of Connecticut Water Service, Inc. will be more difficult, time-consuming or expensive than anticipated; (8) our ability to successfully evaluate investments in new business and growth initiatives; (9) the risk of work stoppages, strikes and other labor-related actions; (10) catastrophic events such as fires, earthquakes, explosions, floods, ice storms, tornadoes, hurricanes, terrorist acts, physical attacks, cyber-attacks, or other similar occurrences; (11) changes in general economic, political, business and financial market conditions; (12) the ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings, changes in interest rates, compliance with regulatory requirements, compliance with the terms and conditions of our outstanding indebtedness, and general stock market conditions; and (13) legislative and general market and economic developments.

Results for a quarter are not indicative of results for a full year due to seasonality and other factors. In addition, actual results are subject to other risks and uncertainties that relate more broadly to our overall business, including those more fully described in our filings with the SEC, including our most recent reports on Form 10-K, Form 10-Q and Form 8-K. Forward-looking statements are not guarantees of performance, and speak only as of the date made, and we undertake no obligation to update or revise any forward-looking statements except as required by law.

SJW Group

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(in thousands, except per share data)

Three months ended March 31,

2020

2019

REVENUE

$

115,754

77,682

OPERATING EXPENSE:

Production Expenses:

Purchased water

15,934

13,662

Power

2,725

1,160

Groundwater extraction charges

15,028

6,863

Other production expenses

10,093

5,099

Total production expenses

43,780

26,784

Administrative and general

21,262

12,291

Maintenance

6,086

4,325

Property taxes and other non-income taxes

7,463

4,128

Depreciation and amortization

21,382

15,145

Merger related expenses

354

2,601

Total operating expense

100,327

65,274

OPERATING INCOME

15,427

12,408

OTHER (EXPENSE) INCOME:

Interest expense

(13,284

)

(5,791

)

Interest income on Money Market Fund

1,832

Pension non-service cost

(45

)

(921

)

Other, net

757

390

Income before income taxes

2,855

7,918

Provision for income taxes

438

2,045

SJW GROUP NET INCOME

2,417

5,873

Unrealized loss on investment, net of taxes of $50

(135

)

SJW GROUP COMPREHENSIVE INCOME

$

2,282

5,873

EARNINGS PER SHARE:

Basic

$

0.08

0.21

Diluted

$

0.08

0.21

DIVIDENDS PER SHARE

$

0.32

0.30

WEIGHTED AVERAGE SHARES OUTSTANDING:

Basic

28,489

28,423

Diluted

28,674

28,508

SJW Group

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands)

March 31,

2020

December 31,

2019

ASSETS

Utility plant:

Land

$

34,697

34,395

Depreciable plant and equipment

3,014,589

2,988,454

Construction in progress

126,365

112,232

Intangible assets

32,775

33,424

Total utility plant

3,208,426

3,168,505

Less accumulated depreciation and amortization

983,481

962,019

Net utility plant

2,224,945

2,206,486

Real estate investments

57,954

57,699

Less accumulated depreciation and amortization

13,899

13,597

Net real estate investments

44,055

44,102

CURRENT ASSETS:

Cash and cash equivalents:

Cash

28,273

12,944

Restricted cash

5,000

Accounts receivable and accrued unbilled utility revenue

80,839

88,077

Current regulatory assets, net

6,129

6,472

Other current assets

13,577

9,553

Total current assets

128,818

122,046

OTHER ASSETS:

Regulatory assets, net

126,149

113,945

Investments

13,400

12,928

Goodwill

628,287

628,287

Other

8,644

4,676

776,480

759,836

$

3,174,298

3,132,470

SJW Group

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands)

March 31,

2020

December 31,

2019

CAPITALIZATION AND LIABILITIES

CAPITALIZATION:

Common stock

$

28

28

Additional paid-in capital

507,075

506,639

Retained earnings

376,447

383,191

Accumulated other comprehensive (loss) income

(9

)

126

Total stockholders’ equity

883,541

889,984

Long-term debt, less current portion

1,316,996

1,283,597

Total capitalization

2,200,537

2,173,581

CURRENT LIABILITIES:

Lines of credit

131,402

117,209

Current portion of long-term debt

22,311

22,272

Accrued groundwater extraction charges, purchased water and power

12,919

17,211

Accounts payable

25,214

34,886

Accrued interest

18,516

13,140

Accrued payroll

9,105

11,570

Other current liabilities

18,937

18,279

Total current liabilities

238,404

234,567

DEFERRED INCOME TAXES

194,823

195,598

ADVANCES FOR CONSTRUCTION AND CONTRIBUTIONS IN AID OF

CONSTRUCTION

405,398

398,374

POSTRETIREMENT BENEFIT PLANS

111,272

108,044

OTHER NONCURRENT LIABILITIES

23,864

22,306

$

3,174,298

3,132,470

Contacts

SJW Group

James P. Lynch, 408-279-7966

Chief Financial Officer and Treasurer

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