General

9 Months Ended

Sep. 30, 2024

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of the results for the interim periods.

The unaudited interim financial information has been prepared in accordance with accounting principles generally accepted in the United States of America and in accordance with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission. The Notes to Consolidated Financial Statements in SJW Group’s 2023 Annual Report on Form 10-K should be read in conjunction with the accompanying unaudited condensed consolidated financial statements.

SJW Group is a holding company with five wholly owned subsidiaries: San Jose Water Company (“SJWC”), SJWTX Holdings, Inc., SJW Land Company, SJWNE LLC, and National Water Utility Service, LLC (“National Water Utility”). SJWTX Holdings, Inc., is a holding company for its wholly owned subsidiaries, SJWTX, Inc., doing business as The Texas Water Company (“TWC”), Texas Water Operation Services, LLC, (“TWOS”) and Texas Water Resources, LLC (“TWR”). SJWNE LLC is the holding company for Connecticut Water Service, Inc. (“CTWS”) whose wholly owned subsidiaries are The Connecticut Water Company (“CWC”), The Maine Water Company (“MWC”), New England Water Utility Services, Inc. (“NEWUS”), and Chester Realty, Inc. National Water Utility is the contracting entity for shared services among the SJW Group affiliates formed in October 2024. SJWC, CWC, TWC, TWOS, TWR, MWC, NEWUS and National Water Utility are referred to as “Water Utility Services.” SJW Land Company and Chester Realty, Inc. are collectively referred to as “Real Estate Services.”

Revenue

Water sales are seasonal in nature and influenced by weather conditions. The timing of precipitation and climatic conditions can cause seasonal water consumption by customers to vary significantly. Due to the seasonal nature of the water business, the operating results for interim periods are not indicative of the operating results for a 12-month period. Revenue is generally higher in the warm, dry summer months when water usage and sales are greater, and lower in the winter months when cooler temperatures and increased precipitation curtail water usage resulting in lower sales.

SJW Group’s revenue components are as follows:


	Three months ended September 30,			Nine months ended September 30,
	2024		2023	2024		2023
Revenue from contracts with customers	$	216,677	211,716	$	539,790	507,276
Alternative revenue programs, net	7,369		957	6,847		(2,638)
Other balancing and memorandum accounts and regulatory mechanisms, net	(1,432)		(9,260)	(1,019)		(9,906)
Rental income	2,449		1,430	5,001		4,293
	$	225,063	204,843	$	550,619	499,025

Nonutility Properties and Real Estate Investments

The major components of nonutility properties and real estate investments as of September 30, 2024 and December 31, 2023, are as follows:


	September 30, 2024		December 31, 2023
Land	$	915	4,137
Wholesale water supply assets	—		8,465
Buildings and improvements	437		748

Subtotal	1,352		13,350
Less: accumulated depreciation and amortization	97		194
Total	$	1,255	13,156

In March 2023, SJW Land Company entered into a broker agreement to sell its warehouse, office building, and land property located in Knoxville, Tennessee. The company reclassified the Tennessee properties from held-and-used to held-for-sale at March 31, 2023. The company recorded the Tennessee properties at the lower of their carrying value or estimated fair value less cost to sell, and also stopped recording depreciation on assets held for sale. SJW Group's broker provided the estimated fair value of the Tennessee properties.

In April 2024, SJW Land Company completed the sale of a warehouse building of the Tennessee properties for $27,000. The pre-tax gain on the sale was $6,918. In June 2024, SJW Land Company completed the sale of an office building, land, and parking lot of the Tennessee properties for $17,000. The pre-tax loss on the sale was $7,887. The net pre-tax loss associated with these transactions for the nine months ended September 30, 2024 was $969 and is included in the “Other, net” line on the condensed consolidated statements of comprehensive income. A portion of the proceeds from these sales totaling $2,801 is being held in escrow pending completion of certain post-closing obligations. As a result of these two transactions, the sale of the Tennessee properties is complete and the company does not have any other assets held for sale.

The sale of the Tennessee properties does not represent a strategic shift that has or will have a major effect on SJW Group; therefore, the sale does not qualify for treatment as a discontinued operation.

The Tennessee properties are included in SJW Group’s “Real Estate Services” reportable segment in Note 9, “Segment and Non-Tariffed Business Reporting”. The following represents the major components of the Tennessee properties that were recorded in assets held-for-sale on the condensed consolidated balance sheets as of December 31, 2023:


	December 31, 2023
Land	$	13,170
Buildings and improvements	44,950

Subtotal	58,120
Less: accumulated depreciation and amortization	17,270
Total	$	40,850

In August 2023, a non-regulated subsidiary, TWR, acquired eight wells and the associated water rights of KT Water Resources, LLC, as discussed in Note 10, “Acquisitions”. In connection with a transaction in the third quarter of 2024, TWC purchased these assets from TWR for use in utility operations. Accordingly, SJW Group reclassified $28,386 related to indefinite life water rights from other intangible assets to utility plant intangible assets and $11,684 from nonutility property to utility plant.

Fair Value Measurement

The following instruments are not measured at fair value on SJW Group’s condensed consolidated balance sheets as of September 30, 2024, but require disclosure of their fair values: cash and cash equivalents, accounts receivable and accounts payable. The estimated fair value of such instruments as of September 30, 2024 approximates their carrying value as reported on the condensed consolidated balance sheets. There have been no changes in valuation techniques during the three and nine months ended September 30, 2024. The fair value of these instruments would be categorized as Level 2 in the fair value hierarchy, with the exception of cash and cash equivalents, which would be categorized as Level 1.

The fair value of SJW Group’s long-term debt was $1,534,801 and $1,394,412 as of September 30, 2024 and December 31, 2023, respectively, and was determined using a discounted cash flow analysis, based on the current rates for similar financial instruments of the same duration and creditworthiness of the company. Of the total fair value of long-term debt at September 30, 2024 and December 31, 2023, $1,518,400 and $1,378,683, respectively, would be categorized as Level 2 in the fair value hierarchy and $16,401 and $15,729, respectively, would be categorized as Level 3 in the fair value hierarchy.

CTWS’s additional retirement benefits under the supplemental executive retirement plans and retirement contracts are funded by investment assets held by a Rabbi Trust. The fair value of the money market funds, mutual funds and fixed income

investments in the Rabbi Trust was $2,952 and $2,833 as of September 30, 2024 and December 31, 2023, respectively, and are categorized as Level 1 in the fair value hierarchy.

Earnings per Share

Basic earnings per share is calculated using income available to common stockholders, divided by the weighted average number of shares outstanding during the period. Diluted earnings per share is calculated using income available to common stockholders divided by the weighted average number of shares of common stock including both shares outstanding and shares potentially issuable in connection with restricted common stock awards under SJW Group’s long-term incentive plans, shares potentially issuable under the performance stock plans assumed through the business combination with CTWS, and shares potentially issuable under SJW Group’s employee stock purchase plans. For the three months ended September 30, 2024 and 2023, 485 and 1,826 anti-dilutive restricted common stock units were excluded from the diluted earnings per share calculation, respectively. For the nine months ended September 30, 2024 and 2023, 5,289 and 12,524 anti-dilutive restricted common stock units were excluded from the diluted earnings per share calculation, respectively.

Accounts Receivable

During the second quarter of 2024, SJW Group recorded a reduction to its allowance for credit losses of $7,822, of which $3,960 resulted in a reduction to regulatory assets and $3,862 was recorded through administrative and general expense ($2,782 net of tax or $0.09 per diluted share for the nine months ended September 30, 2024).

New Accounting Standards

The recently issued accounting standards that have not yet been adopted by the company as of September 30, 2024 are as follows:

Standard

Description

Date of Adoption

Application

Effect on the Condensed Consolidated Financial Statements

Accounting Standards Update (“ASU”) 2023-07 “Improvements to Reportable Segment Disclosures”

The ASU requires disclosure of significant segment expenses, extends certain annual disclosures to interim periods, and requires additional qualitative disclosures regarding the chief operating decision maker.

The ASU is effective for SJW Group beginning with its annual financial statements for the year ending December 31, 2024. Early adoption is permitted.

Retrospective

SJW Group is currently evaluating the requirements of ASU 2023-07.

ASU 2023-09 “Improvements to Income Tax Disclosures”

The ASU amends certain income tax disclosure requirements, including adding requirements to present the reconciliation of income tax expense computed at the statutory rate to actual income tax expense using both percentages and amounts and providing a disaggregation of income taxes paid. Further, certain disclosures are eliminated, including the current requirement to disclose information on changes in unrecognized tax benefits in the next 12 months.

The ASU is effective for SJW Group beginning with its annual financial statements for the year ending December 31, 2025. Early adoption is permitted.

Prospective, with retrospective application also permitted.

SJW Group is currently evaluating the requirements of ASU 2023-09.