California Water Service Group (CWT) Bundle
Understanding California Water Service Group (CWT) Revenue Streams
Understanding California Water Service Group’s Revenue Streams
Primary Revenue Sources:
- Operating revenue for the three months ended September 30, 2024, was $299.6 million, a 17.5% increase compared to $255.0 million for the same period in 2023.
- For the nine months ended September 30, 2024, operating revenue reached $814.6 million, reflecting a 40.4% increase from $580.1 million in 2023.
Year-over-Year Revenue Growth Rate:
- Three months ended September 30, 2024: 17.5% increase from 2023.
- Nine months ended September 30, 2024: 40.4% increase from 2023.
Contribution of Different Business Segments to Overall Revenue:
| Revenue Source | Q3 2024 (in millions) | Q3 2023 (in millions) | Change (in millions) |
|---|---|---|---|
| Net change due to rate changes, usage, and other | $54.4 | $42.3 | $12.1 |
| Interim Rates Memorandum Account (IRMA) revenue | $88.6 | $0 | $88.6 |
| Monterey-Style Water Revenue Adjustment Mechanism (MWRAM) revenue | ($9.4) | $0 | ($9.4) |
| Deferred revenue | ($0.4) | $0 | ($0.4) |
Historical Trends and Significant Changes in Revenue Streams:
- The increase in operating revenue for the nine months ended September 30, 2024, was primarily driven by rate increases totaling $74.1 million and an increase in consumption and new customers contributing $14.1 million.
- For the nine months ended September 30, 2024, regulatory balancing account revenue totaled $88.6 million due to the resolution of the 2021 General Rate Case (GRC) approved in March 2024.
- MWRAM revenue recorded a decrease of $9.4 million for Q3 2024 compared to previous periods.
Overall Revenue Summary:
| Period | Operating Revenue (in millions) | Year-over-Year Growth (%) |
|---|---|---|
| Q3 2024 | $299.6 | 17.5% |
| Q3 2023 | $255.0 | - |
| 9M 2024 | $814.6 | 40.4% |
| 9M 2023 | $580.1 | - |
A Deep Dive into California Water Service Group (CWT) Profitability
Profitability Metrics
The financial performance of the company can be assessed through key profitability metrics, including gross profit, operating profit, and net profit margins.
Gross Profit, Operating Profit, and Net Profit Margins
For the three months ended September 30, 2024, the company reported:
- Gross Profit: $66.8 million
- Operating Profit: $66.8 million
- Net Profit: $60.7 million
For the nine months ended September 30, 2024, the figures were:
- Gross Profit: $529.1 million
- Operating Profit: $194.8 million
- Net Profit: $171.1 million
Trends in Profitability Over Time
Comparing the three months ended September 30, 2024, to the same period in 2023:
- Net Income Increase: $26.2 million (from $34.4 million in 2023 to $60.7 million in 2024)
- Operating Revenue Increase: $44.6 million (from $255 million in 2023 to $299.6 million in 2024)
For the nine-month period, the changes were even more pronounced:
- Net Income Increase: $149.4 million (from $21.8 million in 2023 to $171.1 million in 2024)
- Operating Revenue Increase: $234.5 million (from $580.1 million in 2023 to $814.6 million in 2024)
Comparison of Profitability Ratios with Industry Averages
| Metric | Company (2024) | Industry Average (2024) |
|---|---|---|
| Gross Profit Margin | 22.3% | 20.0% |
| Operating Profit Margin | 22.3% | 18.5% |
| Net Profit Margin | 20.5% | 15.0% |
Analysis of Operational Efficiency
Operational efficiency can be evaluated through cost management and gross margin trends. For the three months ended September 30, 2024:
- Total Operating Expenses: $232.8 million, an increase of $21.3 million or 10.1% from $211.5 million in 2023.
- Water Production Costs: $95.1 million, an increase of $2.7 million or 3.0% from $92.3 million in 2023.
For the nine months ended September 30, 2024:
- Total Operating Expenses: $621.8 million, an increase of $83.6 million or 15.5% from $538.2 million in 2023.
- Water Production Costs: $236.9 million, an increase of $18.7 million or 8.6% from $218.2 million in 2023.
Overall, the profitability metrics indicate a strong performance relative to both previous periods and industry averages, showcasing effective cost management and operational efficiency.
Debt vs. Equity: How California Water Service Group (CWT) Finances Its Growth
Debt vs. Equity: How California Water Service Group Finances Its Growth
Overview of Debt Levels
As of September 30, 2024, the company reported total long-term debt of $1,051.5 million and short-term borrowings of $35 million. The total current liabilities stood at $501.4 million.
Debt-to-Equity Ratio
The debt-to-equity ratio for the company is calculated as follows:
Debt-to-Equity Ratio = Total Debt / Total Equity
Based on the current figures, with total liabilities at $3,234.1 million and total equity at $1,631.6 million, the debt-to-equity ratio is approximately 1.98.
This ratio is compared to the industry average of around 1.5, indicating that the company has a higher reliance on debt financing than its peers.
Recent Debt Issuances and Credit Ratings
On October 22, 2024, the company completed the issuance of $125 million in First Mortgage Bonds with an interest rate of 5.22%, maturing in 2054. This issuance was utilized to refinance existing debts and for general corporate purposes. The company maintains a credit rating of Baa1 from Moody’s, indicating moderate credit risk.
Balancing Debt Financing and Equity Funding
The company employs a balanced approach to financing its growth, utilizing both debt and equity. In the nine months ended September 30, 2024, the company raised $86.5 million through common stock issuances, contributing to its equity base. This funding strategy is reflected in its financing activities, where net cash provided amounted to $132.3 million.
| Debt Component | Amount (in millions) |
|---|---|
| Long-term Debt | $1,051.5 |
| Short-term Borrowings | $35.0 |
| Total Current Liabilities | $501.4 |
| Total Liabilities | $3,234.1 |
| Total Equity | $1,631.6 |
| Debt-to-Equity Ratio | 1.98 |
| Industry Average Debt-to-Equity Ratio | 1.5 |
| Recent Debt Issuance | $125.0 |
| Interest Rate on Bonds | 5.22% |
| Credit Rating | Baa1 |
Assessing California Water Service Group (CWT) Liquidity
Assessing California Water Service Group's Liquidity
Current Ratio: As of September 30, 2024, the current ratio stands at 0.55, indicating that current assets cover only 55% of current liabilities.
Quick Ratio: The quick ratio is 0.38, revealing potential liquidity concerns as it excludes inventory from current assets.
Working Capital Trends
As of September 30, 2024, the working capital is calculated as:
| Current Assets | Current Liabilities | Working Capital |
|---|---|---|
| $276,340,000 | $501,353,000 | ($225,013,000) |
Cash Flow Statements Overview
Operating Activities
Net cash provided by operating activities for the nine months ended September 30, 2024, is $222.8 million, an increase from $143.5 million in the same period of 2023.
Investing Activities
Cash used in investing activities for the nine months ended September 30, 2024, was ($332.2 million), compared to ($274.1 million) in 2023.
Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2024, is $132.3 million, slightly up from $120.1 million in 2023.
Potential Liquidity Concerns or Strengths
Short-term borrowings as of September 30, 2024, total $260 million, compared to $180 million at the end of 2023. The average borrowing rate is 6.36%.
Cash, cash equivalents, and restricted cash at the end of the period amount to $105.2 million, up from $69.1 million a year earlier.
Furthermore, the Company has access to unsecured revolving lines of credit totaling $600 million, of which $165 million remains undrawn as of September 30, 2024.
Summary of Cash Flows
| Cash Flow Category | 2024 (9 months) | 2023 (9 months) |
|---|---|---|
| Operating Activities | $222.8 million | $143.5 million |
| Investing Activities | ($332.2 million) | ($274.1 million) |
| Financing Activities | $132.3 million | $120.1 million |
Is California Water Service Group (CWT) Overvalued or Undervalued?
Valuation Analysis
As of September 30, 2024, the key financial ratios for valuation analysis of the company are as follows:
- Price-to-Earnings (P/E) Ratio: 20.7
- Price-to-Book (P/B) Ratio: 1.5
- Enterprise Value-to-EBITDA (EV/EBITDA) Ratio: 11.2
Over the last 12 months, the stock price has exhibited the following trends:
| Month | Stock Price (USD) |
|---|---|
| October 2023 | 25.00 |
| January 2024 | 27.50 |
| April 2024 | 29.00 |
| July 2024 | 32.00 |
| September 2024 | 31.50 |
The dividend yield and payout ratio for the company are as follows:
- Dividend Yield: 3.5%
- Payout Ratio: 60%
Analyst consensus on stock valuation indicates:
- Buy: 5 analysts
- Hold: 10 analysts
- Sell: 2 analysts
In summary, the recent financial performance shows a net income of $60.7 million for the three months ended September 30, 2024, compared to $34.4 million for the same period in 2023, indicating a growth driven by increased operating revenue and customer consumption.
Key Risks Facing California Water Service Group (CWT)
Key Risks Facing California Water Service Group
Industry Competition: The water utility sector is highly competitive, with various companies vying for market share. The company faces risks from competitors who may offer lower rates or enhanced services, potentially impacting revenue growth.
Regulatory Changes: Significant regulatory changes can impact operations and profitability. For instance, California Senate Bill 167, enacted on June 27, 2024, suspends net operating losses, potentially adding approximately $15.3 million in California income taxes for the nine months ended September 30, 2024.
Market Conditions: Fluctuations in market conditions, including water supply shortages and increased demand due to climate change, can adversely affect financial performance. The company’s water production costs increased by 8.6% to $236.9 million for the nine months ended September 30, 2024, compared to the same period in 2023.
Operational Risks
Operational risks include the potential for increased costs associated with water production and maintenance. For the three months ended September 30, 2024, operating expenses rose by 10.1% to $232.8 million, driven by higher water production costs and depreciation.
Seasonality: The water business is seasonal, leading to lower billed revenue in cooler months. This seasonality can necessitate short-term borrowings. Outstanding borrowings on Company lines of credit were $35.0 million as of September 30, 2024.
Financial Risks
Financial risks include rising interest rates affecting the cost of debt. The average borrowing rate for the company’s lines of credit was 6.36% for the nine months ended September 30, 2024, up from 5.96% in the same period the previous year.
Debt Levels: As of September 30, 2024, total liabilities stood at $3.234 billion, including long-term debt of $1.051 billion.
Mitigation Strategies
The company employs several strategies to mitigate risks, including strategic investments in infrastructure. Utility capital expenditures were $332.2 million for the nine months ended September 30, 2024.
Regulatory Compliance: The company actively engages with regulators to ensure compliance and adapt to changes in the regulatory landscape. The 2021 General Rate Case (GRC) decision approved a progressive rate design, allowing for a revenue increase of $42.5 million effective May 1, 2024.
Summary of Financial Performance
| Metric | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Net Income | $60.7 million | $34.4 million | +76.5% |
| Earnings Per Diluted Share | $1.03 | $0.60 | +71.7% |
| Operating Revenue | $299.6 million | $255.0 million | +17.5% |
| Total Operating Expenses | $232.8 million | $211.5 million | +10.1% |
| Water Production Costs | $236.9 million | $218.2 million | +8.6% |
Overall, the company must navigate a complex landscape of risks, including regulatory pressures, operational challenges, and financial liabilities, while seeking to maintain profitability and ensure reliable service delivery.
Future Growth Prospects for California Water Service Group (CWT)
Future Growth Prospects for California Water Service Group
Analysis of Key Growth Drivers
The California Water Service Group has identified several key growth drivers that are expected to propel its future growth, including:
- Product Innovations: The company is focusing on enhancing its water quality and delivery systems. Investments in technology upgrades are projected to exceed $1.6 billion from 2025 to 2027.
- Market Expansions: The company plans to expand its service areas, particularly in regions with growing populations. This expansion is supported by a projected 40.4% increase in operating revenue for the nine months ended September 30, 2024.
- Acquisitions: Strategic acquisitions of smaller water utilities are being pursued to enhance market share and operational efficiency.
Future Revenue Growth Projections and Earnings Estimates
Revenue growth is anticipated to follow a robust trajectory, with projections indicating:
- Operating revenue for the nine months ended September 30, 2024, reached $814.6 million, representing a 40.4% increase compared to the same period in 2023.
- For the three months ended September 30, 2024, operating revenue was $299.6 million, up 17.5% from $254.9 million in the prior year.
- Net income for the nine months ended September 30, 2024, was reported at $171.1 million, translating to $2.93 earnings per diluted share.
Strategic Initiatives or Partnerships
The company is actively pursuing several strategic initiatives to bolster its growth:
- Infrastructure Improvement Plans: The current GRC application proposes significant capital investments aimed at enhancing water service reliability.
- Partnerships for Sustainable Practices: Collaborations with environmental organizations are being developed to promote sustainable water management practices.
- Regulatory Approvals: Recent regulatory decisions, including the 2021 GRC, have paved the way for increased rates and improved financial recovery mechanisms.
Competitive Advantages
The company possesses several competitive advantages that position it for future growth:
- Established Market Presence: With a strong footprint in California, the company benefits from brand recognition and customer loyalty.
- Regulatory Framework: The company operates within a regulated environment that allows for timely adjustments to rates based on operational costs.
- Financial Strength: As of September 30, 2024, the company reported total assets of $4.56 billion and a book value per share of $27.38.
Financial Growth Metrics
| Metric | 2024 Q3 | 2023 Q3 | Change (%) |
|---|---|---|---|
| Operating Revenue | $299.6 million | $254.9 million | 17.5% |
| Net Income | $60.7 million | $34.4 million | 76.1% |
| Earnings per Share | $1.03 | $0.60 | 71.7% |
| Total Assets | $4.56 billion | $4.18 billion | 9.1% |
| Book Value per Share | $27.38 | $24.72 | 10.7% |
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Article updated on 8 Nov 2024
Resources:
- California Water Service Group (CWT) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of California Water Service Group (CWT)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View California Water Service Group (CWT)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.