Company Overview and History
SJW Group (SJW) is a leading pure-play water and wastewater utility serving over 1.6 million people across four states - California, Connecticut, Maine, and Texas. The company has a long and storied history dating back to its founding in 1866 as the San Jose Water Company, evolving over the decades to become the diversified utility it is today.
SJW Group's strong foundation is built on a sustained focus on operational excellence, strategic capital investments, and constructive regulatory relationships. The company has consistently delivered reliable water service to its customers while also generating steady financial performance for shareholders. In 2024, SJW reported revenue of $748.4 million, a 12% increase over the prior year, and GAAP net income of $94 million, an 11% year-over-year improvement. Adjusted diluted earnings per share came in at $2.95, up 15% from 2023 and exceeding the company's guidance.
Historical Background
SJW Group is a holding company with five wholly owned subsidiaries that provide water utility and utility-related services. The company's origins trace back to 1866 when the San Jose Water Company (SJWC) was founded. SJWC has a long history of serving the San Jose, California area, having weathered many challenges over the decades. In the early 1900s, SJWC faced issues with water supply and quality due to drought and groundwater contamination. The company worked to develop new water sources and improve its treatment processes to address these problems. During World War II, SJWC had to contend with rationing and restrictions on water usage. The company adapted by implementing conservation measures and public education campaigns.
Over the years, SJWC expanded its service area through acquisitions and mergers. In 2019, SJWC's parent company SJW Group completed the acquisition of Connecticut Water Service, Inc., expanding the company's footprint into the Northeast. This acquisition allowed SJW Group to leverage economies of scale and operational expertise across a broader geographic region. In addition to its regulated water utility operations, SJW Group also has a real estate investment segment through its subsidiaries SJW Land Company and Chester Realty, Inc. This diversified business model has helped provide additional revenue streams to support the company's strategic initiatives.
Throughout its history, SJW Group and its subsidiaries have faced various regulatory, operational and environmental challenges. However, the company has demonstrated resilience and a commitment to serving its customers and communities. SJW Group continues to invest in infrastructure upgrades, water supply development and technological innovations to ensure the reliability and quality of its water services.
Strategic Investments and Capital Allocation
SJW's success is underpinned by its disciplined approach to capital allocation. In 2024, the company invested $353 million across its water and wastewater infrastructure, a testament to its long-term focus on system reliability and resilience. This investment included projects such as pipeline replacements, advanced metering infrastructure, and water treatment enhancements to address evolving regulatory requirements, including PFAS compliance.
Recognizing the growing need for substantial infrastructure investments, SJW has recently increased its five-year capital plan by 25% to approximately $2 billion. This elevated spending will be crucial in addressing aging assets, enhancing water supply and storage, and fortifying the company's systems against the impacts of climate change. Notably, around two-thirds of this capital plan is expected to be recovered through forward-looking rate mechanisms and infrastructure surcharges, providing increased visibility on future earnings.
Regulatory Relationships
SJW's operational and financial achievements have been underpinned by its strong relationships with state regulatory commissions. In 2024, the company secured constructive outcomes across its service territories, including a settlement agreement for San Jose Water's 2025-2027 general rate case that provides for $450 million in system investments and greater fixed cost recovery. Similarly, in Connecticut, SJW's subsidiary recorded its largest annual spend on water infrastructure and conservation projects, with the majority of those investments expected to be recovered through the state's robust WICA mechanism.
Challenges and Industry Leadership
While SJW has navigated various challenges over the years, including droughts in Texas and evolving water quality regulations, the company's consistent execution and strategic focus have enabled it to emerge as a leader in the water utility industry. Looking ahead, SJW is well-positioned to continue delivering reliable service and steady growth through its planned infrastructure investments, constructive regulatory relationships, and steadfast commitment to operational excellence and financial discipline.
Financials
In 2024, SJW reported revenue of $748.4 million, representing a 12% increase over the prior year. The company's GAAP net income reached $94 million, an 11% year-over-year improvement. Adjusted diluted earnings per share came in at $2.95, up 15% from 2023 and exceeding the company's guidance. Operating cash flow for the year was $154.1 million, while free cash flow was negative $78.6 million.
For the most recent quarter, SJW reported revenue of $197.82 million, with a net income of $22.92 million. Operating cash flow for the quarter was $41.46 million, while free cash flow was negative $65.86 million. The increase in revenue was driven by rate increases, primarily in California and Connecticut, as well as higher customer usage. The decrease in free cash flow was due to increased capital expenditures.
SJW Group operates in two primary business segments: Water Utility Services and Real Estate Services. The Water Utility Services segment is the primary driver of the company's business, providing water utility and utility-related services to customers through its subsidiaries. For the three months ended September 30, 2024, this segment generated operating revenue of $225.04 million, an increase of $21.63 million, or approximately 11%, compared to the same period in 2023. Operating income for the Water Utility Services segment was $59.01 million for the three-month period, up from $55.44 million in the prior year.
The Real Estate Services segment consists of property management and investment activities conducted by SJW Land Company and Chester Realty, Inc. For the three months ended September 30, 2024, this segment generated operating revenue of $22,000, a decrease of $1.41 million compared to the same period in 2023. This decrease was primarily due to the sale of SJW Land Company's Tennessee properties in the second quarter of 2024. Operating income for the Real Estate Services segment was $183,000 for the three-month period, down from $739,000 in the prior year.
Liquidity
SJW Group maintains a strong liquidity position, supported by its consistent cash flow generation from operations and access to capital markets. The company's increased five-year capital plan of approximately $2 billion demonstrates its confidence in its financial stability and ability to fund significant infrastructure investments.
As of the most recent reporting period, SJW Group had a debt-to-equity ratio of 0.002668668167792511. The company's cash position stood at $3.97 million, with an available credit line of $256.76 million. The current ratio was 0.7302209646479536, which is also equal to the quick ratio, indicating the company's ability to meet its short-term obligations.
Corporate Responsibility and Future Outlook
In 2024, SJW was recognized by Newsweek as one of America's Most Responsible Companies, underscoring the company's dedication to sustainability, safety, and sound governance - all of which contribute to long-term value creation. The company's newly established Force for Good Foundation further demonstrates its commitment to supporting the communities it serves.
As SJW Group transitions to new leadership, with longtime CEO Eric Thornburg set to retire in June 2025, the company remains well-positioned to build upon its strong foundation and capitalize on the significant opportunities ahead. Under the leadership of incoming CEO Andrew Walters and the seasoned executive team, SJW is poised to continue its track record of reliable service and steady growth for the benefit of its customers, employees, and shareholders.
Looking forward, SJW Group has provided guidance for 2025 with a range of $2.90 to $3.00 per share. The company has also extended its long-term earnings growth rate guidance of 5% to 7% through 2029, with an expectation to be in the top half of that range. For 2025, SJW expects an equity issuance of $120 million to $140 million through its ATM program, and capital expenditures of $473 million.
In September 2024, SJW Group's subsidiary, San Jose Water Company, entered into a 12-year agreement with the City of Cupertino to operate the city's municipal water system. The agreement can be extended for an additional 8 years, further solidifying the company's presence in the California market.
As the water utility industry faces challenges such as aging infrastructure, evolving regulatory requirements, and the impacts of climate change, SJW Group's disciplined, long-term investment strategy positions it well to address these issues. The company's focus on replacing aging pipelines, enhancing water supply and storage, and building advanced treatment facilities demonstrates its commitment to maintaining high-quality water services and sustainable growth in the years to come.