Image source: The Motley Fool.
American States Water (NYSE:AWR) Q4 2018 Earnings Conference CallFeb. 26, 2019 2:00 p.m. ET
Contents: Prepared Remarks Questions and Answers Call Participants Prepared Remarks:Operator
Ladies and gentlemen, thank you for standing by. Welcome to the American States Water Company conference call discussing the company's fourth-quarter and full-year 2018 results. The call is being recorded. If you would like to listen to the replay of this call, it will begin this afternoon at approximately 5:00 p.m.
Eastern time and run through Tuesday, March 5, 2019 on the company's website, www.aswater.com. The slides that the company will be referring to are also available on the website. [Operator instructions] This call will be limited to 1 hour. Presenting today from American States Water Company is Bob Sprowls, president and chief executive officer; and Eva Tang, senior vice president of finance and chief financial officer.
As a reminder, certain matters discussed during this conference call may be forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Please review a description of the company's risks and uncertainties in our most recent Form 10-K and Form 10-Q on file with the Securities and Exchange Commission. In addition, this conference call will include a discussion of certain measures that are not prepared in accordance with generally accepted accounting principles, or GAAP, in the United States and constitute non-GAAP financial measures under SEC rules. These non-GAAP financial measures are derived from consolidated financial information but are not presented in our financial statements that are prepared in accordance with GAAP.
For more details, please refer to the press release. At this time, I would like to turn the call over to Bob Sprowls, president and chief executive officer of American States Water Company. Please go ahead.
Bob Sprowls -- President and Chief Executive Officer
Thank you, Nicole. Welcome everyone, and thank you for joining us today. I'll begin with some highlights for the year; Eva will then discuss some financial details; and then I'll wrap it up with some updates on regulatory filings, ASUS and dividends, and then we'll take your questions. For American States Water and its two subsidiaries, 2018 represented a continued unwavering commitment to safe and reliable service for our water, wastewater and electric customers, both in California, as well as in eight other states where we serve the country's military personnel and their families.
We concluded 2018 with two settled rate cases for our water and electric utilities, a record level of capital investments in our regulated utility, earned a record high earnings per share contribution at our contracted services subsidiary, commenced operations of water and our wastewater systems at our 11th military base and continued our 64-consecutive-year history of dividend increases. At Golden State Water Company, we reached settlements with the California Public Utilities Commission's Public Advocates Office on all issues for our pending water and electric rate cases. The water rate case sets new rates for the years 2019 through 2021 while the electric rate case, under the settlement, will set new rates for 2018 through 2022. We continue to invest in the reliability of our systems, spending a historical high of $121 million in needed infrastructure during the year.
At American States Utility Services, or ASUS, we achieved the highest annual earnings per share contribution. In 2018, we further grew our military base footprint by commencing operations at our newest base, Fort Riley, increased our services at existing bases and continue to work with the U.S. government on price adjustments and asset transfers. ASUS now provides services for water and our wastewater systems and treatment plants to 11 military bases, including some of the largest military installations in the United States: Fort Bragg, Fort Bliss, Eglin Air Force Base and Fort Riley, as well as one of the most high-profile bases, Joint Base Andrews.
During 2018, ASUS was awarded $24 million in new construction projects, the majority of which are expected to be completed in 2019. AWR stock achieved a total shareholder return of 17.9% for 2018, which was substantially higher than the S&P 500 performance, which had a loss of 4.4% for 2018. American States Water also achieved a consolidated return on equity of 11.7%. In addition, we increased our quarterly dividend by 7.8%, continuing our record of 64 consecutive years of annual dividend increases.
We remain committed to our communities. Golden State Water continued to increase its spending with diverse business enterprises, with 2018 results well above the California Public Utilities Commission's requirement. In addition, ASUS continue to exceed the U.S. government's requirements to hire small business contractors to perform work on the bases it serves.
And we are proud to say that in 2018, our employees donated over 6,000 hours of community outreach and engagement in areas they live and work. For 2018, we earned $1.72 per fully diluted share. As you can see from this slide, if we excluded the onetime gain of $0.13 per share for the sale of the Ojai water system, a $0.02 per share recovery for previously incurred drought costs, gains and losses received or incurred on investments held to fund a retirement benefit plan, as well as retroactive revenues at ASUS of $0.02 per share recorded in 2017, earnings-per-share for 2018 was a $0.06 per share increase compared to 2017. These results were accomplished despite a lower rate of return based on the water utilities cost of capital decision, as well as a delayed electric general rate case decision.
Had the new rates in the electric joint settlement agreement been approved by the CPUC in 2018, the Electric segment would have contributed an additional $0.04 per share. Eva will discuss the 2018 performance in more detail later. As we look ahead, the company's strategy remains the same: deliver outstanding customer service, make prudent capital additions and continue to grow our military base presence around the country. I will now turn the call over to Eva to review the financial results for the quarter.
Eva Tang -- Senior Vice President of Finance and Chief Financial Officer
Thank you, Bob, and hello, everyone. Let me start with an overview of our fourth-quarter financial results on Slide 9. Consolidated earnings for the quarter were $0.37 per share, compared to $0.35 per share for the same period in 2017. As Bob mentioned, results were affected by losses of $1.4 million or $0.03 per share incurred during the fourth quarter of 2018 on investments held to fund a retirement benefit plan due to market conditions, as compared to investment gains of $600,000 or $0.01 per share recorded in the fourth quarter of 2017.
This resulted in a $0.04 per share earnings decrease on a comparative basis. Excluding this noncore business item, consolidated earnings for the quarter increased by $0.06 per share compared to the fourth quarter of 2017. Consolidated revenues increased by $6.8 million due to the commencement of operations at Fort Riley, continued revenue increases at Eglin Air Force Base since we took over its operations in June of 2017, as well as higher construction activity at Fort Bragg. Water revenues decreased slightly in 2018 due to downward adjustment to revenues resulting from the tax reform, a lower authorized rate of return based on the CPUC's decision on the March 2018 water cost of capital application and decreases related to the expiration of various surcharges that were in place to recover previously incurred costs.
These decreases were largely offset by CPUC-approved 30-year rate increases for 2018. Electric revenues were higher due to a downward adjustment to revenue requirement recorded in the fourth quarter of 2017 to reflect a decrease in the general office allocation. As Bob mentioned, we reached a joint settlement in our electric GRC for new rates retroactive to January 2018. If approved, the Electric segment's gross margin would have been higher than recorded by approximately $575,000 or $0.01 per share for the three months ended December 31, 2018 and approximately $2 million or $0.04 per share for the entire 2018 year.
Looking at Slide 11. Our water and electric supply cost were $21.6 million for the quarter, an increase of $1 million from last year. Any changes in supply cost for both the water and electric segment as compared to the adopted supply costs are tracked in balancing accounts. Looking at total operating expenses, excluding supply cost and surcharges, consolidated expenses increased $5.7 million versus the fourth quarter of 2017 due to an increase in construction costs at ASUS as the result of higher construction activity, a reduction in legal costs of $1.8 million recorded in 2017 in connection with the settlement agreement and higher depreciation and amortization expenses in 2018 due to planned additions.
Including gains and losses from -- excluding gains and losses from investments, interest and other income net of interest expense increased by $909,000 or nearly $0.02 per share due primarily to interest income related to a federal tax refund recorded during the fourth quarter of 2018. Slide 12 shows the EPS bridge comparing the fourth quarter of 2018 with the same quarter of 2017. Turning to Slide 13 for the full-year results, included in 2017's Water segment results were the recognition of a pre-tax gain of $8.3 million or $0.13 per share on the sale of our Ojai water system in 2017; the recovery in 2017 of previously incurred drought-related costs, which resulted in a $1.5 million increase in pre-tax earnings or $0.02 per share for 2017; and about $1.7 million or $0.04 per share of gains on company's investment in 2017 as compared to $560,000 losses in 2018 due to market conditions. Excluding the impact of these items, earnings from the Water segment for 2018 increased by $0.04 per share as compared to 2017.
The $0.04 increase was due to a higher water gross margin from the 30-year rate increases, partially offset by the effect of the cessation of the Ojai operations in 2017 and the impact from the lower authorized return in the 2018 cost of capital proceedings. There were also an increase in interest and other income due to interest income related to a federal tax refund recorded in the fourth quarter of 2018. Lastly, a lower effective income tax rate positively affected earnings for 2018. It was due, in large part, to the unfavorable remeasurement adjustment of deferred tax balances in connection with the tax reform, which negatively impacted the Water segment's earning in 2017 by approximately $0.03 per share.
These increases were partially offset by an increase in operating expenses due to higher legal, depreciation and property tax expenses. Moving on to the electric segment, earnings were flat in 2018 at $0.11 per share due to the delay in the electric GRC. Billed revenue in 2018 were based on 2017 adopted rates, pending a CPUC decision. Again, if the settlement was approved in 2018, the segment's gross margin would have been higher in 2018 by $2 million or $0.04 per share.
Included in ASUS's results for 2017 were retroactive revenue of $1 million or $0.02 per share, resulting from the approval of the third price redetermination at Fort Bragg related to periods prior to 2017. Excluding this retroactive amount, diluted earnings per share from the contracted services segment increased $0.07 per share as compared to 2017, largely due to operations at Eglin Air Force Base and Fort Riley. There was also an increase in management fee revenues at the other military bases, resulting from successful resolutions of various price adjustments. AWR parents earnings decreased $0.05 per share compared to 2017.
2017's results included a benefit of $0.03 per share from the remeasurement of the AWR parent deferred tax balances as a result of the tax reform. There were also higher state unitary taxes recorded in the parent level during 2018 as compared to the same period in 2017. I'll briefly discuss our liquidity for the year on this slide. Net cash provided by operating activity for 2018 was $136.8 million as compared to $144.6 million in 2017.
The decrease in cash from operating activities during 2018 was due primarily to significant differences in timing of income tax payments made, and refund received between the two periods and a decrease resulting from the timing of billings of and cash receipts for construction work at military bases during 2018. Golden State Water invested $121 million in company-funded capital projects in 2018, continuing our strong investment level. We expect to invest $115 million to $125 million in 2019. Golden State Water has a $40 million note, which will come due in March.
We intended to utilize our intercompany borrowing arrangements to repay this note next month and possibly issue additional long-term debt later this year. In May of 2018, we successfully renewed AWR's credit facility of $150 million for another five years, with an option to increase it by $50 million. This is to provide funds to both Golden State Water and ASUS in supporting their operations and growth. We received more favorable pricing terms than the prior arrangements.
At this time, we do not expect American States Water to issue additional equity. With that, I'll turn the call back to Bob.
Bob Sprowls -- President and Chief Executive Officer
Thank you, Eva. I'd like to provide an update on our recent regulatory activity. The settlement in the water general rate case application resolved all issues and authorizes Golden State Water to invest $334.5 million in capital infrastructure over the three-year rate cycle. This includes $20.4 million of capital projects to be filed for revenue recovery through advice letters when those projects are completed.
Excluding the advice letter project revenues, the water gross margin for 2019 in the settlement filing is expected to increase by approximately $6 million as compared to the 2018 adopted gross margin. However, the 2019 water revenue requirement and gross margin as settled have been reduced for a decrease of approximately $7 million in depreciation expense compared to the adopted 2018 depreciation expense due to a reduction in the overall composite depreciation rates based on a revised study filed in the general rate case. The decrease in depreciation expense as settled lowers the Water gross margin and is offset by a corresponding decrease in depreciation expense, resulting in no impact to net earnings. In addition, the 2019 water revenue requirement as settled includes a decrease of approximately $2.2 million for excess deferred tax refunds as a result of tax reform, which has its corresponding decrease in income tax expense and also results in no impact to earnings.
Had depreciation expense had settled remained the same as 2018 adopted amount and there were no excess deferred tax refunds that lowered the 2019 revenue requirement, the settled water gross margin for 2019 would have increased by approximately $15.2 million. The settlement as filed also allows for potential additional water revenue increases in 2020, in 2021, of approximately $10 million and $12 million, respectively, subject to the result of an earnings test and changes to the forecasted inflationary index values. We expect the CPUC to issue a proposed decision for this general rate case during the first quarter of 2019. When approved, the new water rates will be retroactive to January 1, 2019.
Our electric rate case was filed in May 2017 to set rates for years 2018 through 2021. In November 2018, Golden State Water and the Public Advocates Office filed a joint motion to adopt the settlement agreement between the two parties resolving all issues in connection with the general rate case. Among other things, the settlement extends the rate cycle by one year through 2022 and authorizes Golden State Water to construct all the capital projects requested in its application and increase for the addition of a fifth year in the rate cycle, which are dedicated to improving system safety and reliability and total approximately $44 million over the five-year rate cycle. As we discussed earlier, had the new rates in the settlement agreement been approved by the CPUC prior to December 31, 2018, the Electric segment's gross margin would have increased by approximately $2 million or $0.04 per share for 2018.
We will record the 2018 increase to earnings in the period in which a CPUC decision is received. It is possible but unlikely that the CPUC will issue decisions inconsistent with the filed joint settlements in the water and electric rate cases. Let's move on to ASUS on Slide 16. 2018 marks the highest annual earnings per share contribution from ASUS ever.
We were awarded our first military contract in 2004 and today, we have eight contracts. Earnings per share in 2018 for ASUS were $0.07 per share higher than 2017, excluding the retroactive revenues received in 2017 related to prior years. Major contributors to the higher earnings were the commencement of operations at Fort Riley in July and a full year of operations at Eglin Air Force Base. There was also an increase in management fee revenue at the other military bases, resulting from successful resolution of various price adjustments during 2017 and 2018.
We continue to work with the U.S. government for contract modifications related to potential capital upgrade work for improvement of water and wastewater infrastructure at the military bases we serve. During 2018, the U.S. government awarded ASUS $24 million in new construction projects, compared to $20.2 million in 2017, the majority of which are expected to be completed through 2019.
Completion of filings for economic price adjustments, Request for Equitable Adjustment, asset transfers and contract modifications awarded for new projects provide ASUS with additional revenues in dollar margin. We are still involved in various stages of the proposal process at a number of other bases considering privatization. The U.S. government is expected to release additional bases for bidding over the next several years.
Due to our strong relationship with the U.S. government, as well as our expertise and experience in managing bases, we are well-positioned to compete for these new contracts. Taking into account the $24 million in new construction projects awarded in 2018, initial upgrade work at Eglin Air Force Base and operating Fort Riley for a full year, we reaffirm our previous guidance of $0.43 to $0.47 per share for ASUS's 2019 earnings contribution. I'd like to turn our attention to dividends outlined on Slide 17.
The board of directors recently approved a first quarter dividend of $0.275 per share on the common shares of the company. American States Water Company has paid dividends to shareholders every year since 1931, increasing the dividends received by shareholders each calendar year for 64 consecutive years, which places it in an exclusive group of companies on the New York Stock Exchange that have achieved that result. The company's current dividend policy is to achieve a compound annual growth rate and a dividend of more than 6% over the long term. I'd like to conclude our prepared remarks this morning by thanking you for your interest in American States Water, and we'll now turn the call over to the operator for questions.
Questions and Answers:Operator
[Operator instructions] Our first question comes from Durgesh Chopra of Evercore ISI.
Durgesh Chopra -- Evercore ISI -- Analyst
Just quickly in terms like when we're looking '19 and '20, Eva, could you help us with how should we be modeling the effective tax rates? And then are you a cash tax payer currently, yes or no? And what does that look like into maybe 2021?
Eva Tang -- Senior Vice President of Finance and Chief Financial Officer
Yes. I think the effective tax rate, I think if you use the -- we have a note in our 10-K talk about 2018. If you look at note 11, it will tell you roughly what the ETR is for '18 and what's for '17. So it kind of gives you a good estimate going forward there.
What was your second question, I'm sorry?
Bob Sprowls -- President and Chief Executive Officer
Are we a cash tax payer? We are.
Eva Tang -- Senior Vice President of Finance and Chief Financial Officer
Yes, we are. We are.
Durgesh Chopra -- Evercore ISI -- Analyst
And does that tie up pretty closely to your effective tax rate? Or I mean, I'm just trying to get a sense of whether it is material or not.
Eva Tang -- Senior Vice President of Finance and Chief Financial Officer
A little different because there's always timing differences between book and taxes, so it's deferred, so it's not exactly tied to the provision. But you always have to consider the timing differences, that's where you have the different tax liabilities and assets there on our book.
Durgesh Chopra -- Evercore ISI -- Analyst
OK. Perfect. And then just a big-picture question, Bob. Like, I mean, say 2018 to 2017, looks like it's sort of, on an adjusted basis, nice growth year for you, gained predominantly just on the sort of the contracted services side.
Are you -- like, is there -- as we think long term, are you targeting a specific regulated versus non-regulated business mix? How do you think about that?
Bob Sprowls -- President and Chief Executive Officer
Well, to be honest, we're trying to grow both businesses. I do believe the Contracted Services business, probably in the next five-plus years, will grow a bit more quickly than the water utility business, so we might see ASUS represent a little bit higher proportion of the total consolidated earnings than they have historically. But I don't see us ever sort of getting to the point where it would be 40% to 50% of total company earnings because we are going to be growing a lot of the utility business over time as well.
Operator
Our next question comes from Richard Verdi of Coker & Palmer.
Richard Verdi -- Coker and Palmer Inc. -- Analyst
I'm quite clear on everything, good -- and by the way, it was a good quarter. I just have a couple of quick questions here. For the ASUS unit, thinking back to last year, there was some discussion due to tax reform that this military base division might have to pass through some of that tax benefit to the military bases and that was kind of offset by some thinking that, well, it's a contractual obligation where the military gets to keep a benefit to them and American States would get to keep a benefit. And so that's also then kind of offset by the thinking of, well, if you want to keep a good relationship with the military bases, you also might want to pass through some of these tax reform benefits that the company is seeing.
So with all of that long-winded commentary in mind, how should we think about taxes for ASUS going forward? Are you guys going to pass through some of this? Do you get to keep it all? I mean, how do we think about this moving forward?
Bob Sprowls -- President and Chief Executive Officer
Yes. So Richard, for our company, the benefit of tax reform has sort of been negotiated contract by contract with the U.S. government, and the changes have not really, at this point, been material, which means a good portion of the benefit is sort of going back to the customer. We do have one contract remaining where we haven't negotiated the benefit at this point.
Richard Verdi -- Coker and Palmer Inc. -- Analyst
OK, OK So would it be fair, Bob, from a -- and thank you for that -- from a modeling perspective, to kind of think, OK, well, everything for the most part has been passed through expect for that last little wrinkle?
Bob Sprowls -- President and Chief Executive Officer
At this point, except for the one contract, but it is a -- it's not a little contract, I'll let you know that.
Richard Verdi -- Coker and Palmer Inc. -- Analyst
OK, OK. Fair enough, fair enough.
Bob Sprowls -- President and Chief Executive Officer
We're still negotiating that and perhaps, we'll have a little more clarity when we talk in a couple of months.
Richard Verdi -- Coker and Palmer Inc. -- Analyst
OK, OK, perfect. All right. And then just one other question, too and it's on the acquisition front. Legislation across the country is becoming more and more supportive of privatization.
And in your prepared remarks that had stated, Bob, that the company wants to remain right on course where it is currently. And I don't blame you. I mean, the stock was up 16% last year, it's doing very well. But with legislation becoming so supportive and you think the two of your larger peers, they're doing quite well from the acquisition front, and they expect to continue to do well.
And then in addition to that, I mean, you guys know that I'm also active with the NAWC and Rob Powelson has taken over there, and he's kind of refocused that group to more of a local level instead of a federal level, getting it out of the DC level and into that local level. And so that should be more supportive of favorable legislation, that would be supportive of acquisitions and what have you. And so I'm kind of wondering, do you guys -- is there any thought to maybe possibly going out there and acquiring some municipalities possibly in other states? And then the offset to that is, of course, the company captures a higher multiple because you are based in California, right? And so I was just wondering if you could give me some sort of thought process about how American States thinks about the acquisition front and balances that against the California backdrop, and if you guys will participate in the acquisitions.
Bob Sprowls -- President and Chief Executive Officer
Well, we are always looking for acquisitions. We have not sort of been as, I would say, as aggressive as the Aquas of the world in terms of making bids for municipalities that are not for sale, to try to entice them to come to the table. I would say, for us to acquire a municipality outside of California, it would need to be substantial enough in terms of number of customers for us to be able to influence the regulatory policy in the state. So we would need to -- and as you know, regulatory policy is a state-by-state approach.
Some states are much stronger on the regulatory front than others, so it would need to be at a state that's got, we would say, a progressive or at least payor regulation. But we're not opposed to going out and doing acquisitions out of California, but it would have to be in a state where we can sort of get a large enough presence to be able to influence the regulatory policy.
Operator
[Operator instructions] Our next question comes from Jonathan Reeder of Wells Fargo.
Jonathan Reeder -- Wells Fargo Securities -- Analyst
What was GSWC's earned regulatory ROE in 2018 versus the 8.9% allowed?
Bob Sprowls -- President and Chief Executive Officer
Yes. So the ROE that we earned from all of Golden State was 9.8% for 2018.
Jonathan Reeder -- Wells Fargo Securities -- Analyst
OK. And then can your mind us, are there like opportunities where you earn in excess of the allowed ROE on a like, consistent basis? I believe what shows up on your other income line for GSWC does not go into the earned ROE calculation. But are there other utility activities that flow through some of the other lines that also do not go into that earned ROE calculation?
Eva Tang -- Senior Vice President of Finance and Chief Financial Officer
I think for the recorded, Jonathan, we do include it in the earned ROE because even though it's not regulated. So that's part of our 9.8% that Bob just gave to you. So we do have some water lease under the nonregulated activity at the Golden State Water.
Jonathan Reeder -- Wells Fargo Securities -- Analyst
OK. So you're saying the 9.8% is on just the reported net income, basically?
Eva Tang -- Senior Vice President of Finance and Chief Financial Officer
Yes.
Bob Sprowls -- President and Chief Executive Officer
That's right.
Jonathan Reeder -- Wells Fargo Securities -- Analyst
OK. And then have proposed decisions been issued in either of those GRC cases, Bob?
Bob Sprowls -- President and Chief Executive Officer
They have not.
Jonathan Reeder -- Wells Fargo Securities -- Analyst
OK. But did you say you thought you would get a final decision on the Water one in Q1, meaning like a proposed decision should be imminent?
Bob Sprowls -- President and Chief Executive Officer
Well, I think what I said, we expect the proposed decision in the first quarter. But then when you time it out, there has to be 30 days between the proposed and the final. And then the commission doesn't have that many meetings between now and the end of March, so...
Jonathan Reeder -- Wells Fargo Securities -- Analyst
OK. And then the PD and electric case, I mean, do you think it will get done at least in Q2? Or who knows?
Bob Sprowls -- President and Chief Executive Officer
No. I would expect that in Q2, I would say it's a bit behind the Water GRC. It's just sort of -- that business is pretty small and it doesn't get pushed along quickly at the PUC because of its size, given the other issues that the PUC is dealing with these days.
Jonathan Reeder -- Wells Fargo Securities -- Analyst
Sure. There's a few big ones, right?
Bob Sprowls -- President and Chief Executive Officer
Yes.
Eva Tang -- Senior Vice President of Finance and Chief Financial Officer
And Jonathan, just a reminder for the [ B to E ], if we receive the final decision, we, of course, will reflect the '19 with the new rates. But we also will book the $0.04 that belongs to '18 that's retroactive to January 1, 2018. So if we receive that decision in '19, that will be booked in '19.
Jonathan Reeder -- Wells Fargo Securities -- Analyst
Right, OK. And then Eva, on the cash flow from operations, the past few years or two years at least benefited from the annual regulatory liability recovery that's been like $40 million to $50 million. Is that the WRAM MCBA balance recovery?
Eva Tang -- Senior Vice President of Finance and Chief Financial Officer
Mostly from the WRAM MCBA.
Jonathan Reeder -- Wells Fargo Securities -- Analyst
So then at the end of drought and the new rate case, hopefully should keep that deficit from growing significantly. How much longer should we be assuming like, additional cash recovery at that level? Can you remind us where the WRAM balance currently stands and everything?
Eva Tang -- Senior Vice President of Finance and Chief Financial Officer
I think for 2019, we incurred, I want to say, about...
Bob Sprowls -- President and Chief Executive Officer
2018.
Eva Tang -- Senior Vice President of Finance and Chief Financial Officer
2018, about $9 million on the collection of the WRAM MCBA. So if you give me a moment now, let me tell you what the balance is in note three of our 10-K, page, sorry. So we still -cumulative balance for WRAM and MCBA right now is at about $18 million, which including a portion of the prior year and of course, what's incurred in '18. And we will file a surcharge recovery next month, early next month to recover the 2018 balance.
Jonathan Reeder -- Wells Fargo Securities -- Analyst
OK. So the $18 million kind of assumed recovery over maybe like a two-year period, which implies I guess, cash flow from operations in '19 probably has a step-down from what we saw in '18. Is that accurate?
Eva Tang -- Senior Vice President of Finance and Chief Financial Officer
Yes, maybe a little bit. We usually recover between 12 to 18 months because the balance has decreased as compared to the prior years. So recover between 12 to 18 months is a reasonable period, Jonathan.
Operator
[Operator instructions] As we have no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Bob Sprowls for any closing remarks.
Bob Sprowls -- President and Chief Executive Officer
Thank you, Nicole. And thank you all for your participation today, and we look forward to speaking with you next quarter.
Operator
[Operator signoff]
Duration: 47 minutes
Call Participants:Bob Sprowls -- President and Chief Executive Officer
Eva Tang -- Senior Vice President of Finance and Chief Financial Officer
Durgesh Chopra -- Evercore ISI -- Analyst
Richard Verdi -- Coker and Palmer Inc. -- Analyst
Jonathan Reeder -- Wells Fargo Securities -- Analyst
More AWR analysis
This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.
10 stocks we like better than American States WaterWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*
David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and American States Water wasn't one of them! That's right -- they think these 10 stocks are even better buys.
See the 10 stocks
*Stock Advisor returns as of February 1, 2019
Many still see marijuana in terms of its recreational use, but they're missing an entire emerging, lucrative market centered on its wellness and healing applications.
Shares of Insteel Industries Inc (NASDAQ:IIIN) have been assigned a consensus broker rating score of 1.00 (Strong Buy) from the one brokers that cover the company, Zacks Investment Research reports. One analyst has rated the stock with a strong buy rating. Insteel Industries’ rating score has improved by 66.7% from three months ago as a result of a number of analysts’ upgrades and downgrades. 
FibroGen (NASDAQ:FGEN) was downgraded by equities researchers at ValuEngine from a “strong-buy” rating to a “buy” rating in a research report issued to clients and investors on Thursday.