H2O America Q1 Earnings Call Highlights

Key Points

• H2O America reported Q1 EPS of $0.49 GAAP and $0.50 adjusted, results management says are in line with expectations and support its standalone 2026 EPS guidance of $3.08–$3.18, although diluted EPS was unchanged year-over-year due to a higher share count from 2025 ATM activity and a March 2026 equity issuance.
• The company upsized an equity offering to $700 million (more than five times oversubscribed at a 2.6% discount) to fund the pending Quadvest deal and near-term capex, expects to avoid additional equity issuance through at least year-end 2027, has about $370 million of bank capacity available, and retains an S&P credit rating of A‑ with projected FFO-to-debt of 11%–12% through 2027.
• Closing of the Quadvest acquisition (purchase price $483.6 million) is now expected in the second half of 2026; the deal and backlog conversions should boost Texas customers (from 8% today) toward 26% by 2029, while the company plans $2.7 billion of capex for 2026–2030 and is pursuing multiple regulatory filings (including a $176 million PFAS remediation request in California and rate cases in Connecticut, Maine, and Texas).

H2O America NASDAQ: HTO reported first-quarter 2026 results that management said were in line with internal expectations and supported the company’s full-year earnings outlook, while also detailing progress on financing, pending Texas acquisitions, and multiple regulatory filings across its footprint.

First-quarter EPS steady amid higher share count

Chair and CEO Andrew Walters said the company earned $0.49 per share on a GAAP diluted basis and $0.50 per share on an adjusted diluted basis in the first quarter. Walters said the results were “consistent with our internal expectations” and in support of the company’s standalone 2026 EPS guidance of $3.08 to $3.18.

CFO and Treasurer Ann P. Kelly said underlying net income grew by roughly 15% year over year, but diluted earnings per share were unchanged versus the first quarter of 2025 because of a higher share count. Kelly attributed the increased share count to the company’s use of its at-the-market program in 2025 and an equity issuance completed in early March 2026.

Kelly walked through the year-over-year drivers of quarterly EPS, including a $0.41 per share increase due to higher revenue, partially offset by higher expenses and dilution from share issuance. She said about half of the revenue benefit, or $0.20, came from rate relief tied to general rate cases and infrastructure surcharges, primarily in California, Connecticut, and Texas. She also cited $0.11 of higher revenue tied to pass-through water supply costs (offset in water production expense, with no net income impact) and $0.05 from higher usage, “largely due to a hot, dry March across our California service territory.”

On the cost side, Kelly said water production expenses increased $0.20, driven by higher per-unit purchased water and groundwater extraction costs, balancing and memorandum accounts (including California’s full cost balancing account), and higher customer usage, partially offset by lower costs tied to increased surface water availability. She also said other operating expenses increased $0.18, including $0.11 higher depreciation and amortization from new utility plant placed in service, along with increased maintenance, employee-related costs, and higher administrative and general expenses. The company’s effective income tax rate was approximately 15% versus 17% a year earlier, which Kelly said was primarily due to higher flow-through tax benefits.

Equity raise expanded to $700 million

Walters highlighted what he called a “very successful equity raise” executed in early March. He said the company initially targeted a $550 million equity offering to fund the pending Quadvest acquisition and $100 million to $125 million of equity needed for its 2026 standalone capital budget. Walters said the offering was “more than 5 times oversubscribed” and priced at a “tight 2.6% discount.”

Given demand, H2O America increased the issuance to $700 million, including the greenshoe. Walters said the upsizing was intended both to add long-term investors to the shareholder base and to address forecasted equity needs through 2027.

Kelly said the company expects to stay out of the equity markets, including through its ATM program, “through at least year-end 2027,” citing the ability to draw down on a $400 million board agreement component of the March issuance over that period to fund capital needs.

Capital plan and credit metrics

Kelly said H2O America invested $85 million in infrastructure improvements during the first quarter, representing 18% of its $483 million full-year 2026 capital expenditures budget (excluding Quadvest impacts). She attributed the slower start to seasonality, particularly winter constraints in Connecticut and Maine, and said the company remains on track to deliver the full-year budget and its plan to invest $2.7 billion over 2026–2030.

Kelly said roughly 80% of the $2.7 billion capital plan qualifies for timely regulatory recovery, either through California’s general rate case framework or through infrastructure recovery mechanisms in Connecticut, Maine, and Texas. She said the five-year capital plan, combined with the pending Quadvest acquisition, is expected to translate into a 13% rate base CAGR from an estimated year-end 2025 rate base of $2.8 billion, while noting those amounts reflect estimated year-end rate base and may differ from amounts ultimately recognized in rates by regulators.

On credit and liquidity, Kelly said H2O America still expects to raise $100 million to $200 million of debt at the parent and Texas Water Company levels to fund Quadvest, though the expanded equity issuance provides more timing flexibility. She said cash from the equity issuance was used to pay down bank credit lines, leaving $370 million available, with remaining proceeds invested in cash equivalents.

Kelly said S&P affirmed the company’s A-minus credit rating and that H2O America expects its FFO-to-debt ratio to be 11%–12% through 2027, above S&P’s 11% downgrade threshold. In response to an analyst question, Kelly said management aims to delever over the five-year plan, targeting an A-flat credit rating. She said the upgrade threshold referenced was around 15% FFO-to-debt and that reaching A-flat would provide flexibility for potential future transactions while staying in the A category.

Regulatory filings: PFAS, rate cases, and Texas mechanisms

President and COO Bruce A. Hauk said regulatory teams “have been busy to start the year,” outlining filings and approvals across several states.

• California: Hauk said the company filed a request with the CPUC outside the general rate case process for approval and recovery of the planned Williams Station PFAS remediation project, estimated at $176 million for an ion exchange system. If approved, he said San Jose Water would adjust rates via annual rate-based filing offsets, similar to the recovery approach used for the current AMI project expected to complete around year-end.
• Connecticut: Hauk said the company filed and received approval to implement annual revenue increases totaling about $3.3 million under the WICA and WGTA mechanisms effective April 1, 2026. He also said a water revenue adjustment mechanism surcharge was implemented April 1 to reconcile revenues under the most recent rate case, including recovery of certain compensation expenses tied to prescribed performance metrics. He added that Connecticut Water filed a letter of intent on March 13 to file a general rate case application within 60 days, with the filing expected in the “weeks ahead,” seeking an approximate $26 million increase in annual revenues effective early 2027 and recovery for about $129 million of infrastructure investment made between the last rate case and the end of 2026.
• Maine: Hauk said Maine Water filed its first consolidated WISC application in late February, requesting a $0.9 million increase, and filed its first consolidated general rate case earlier in April requesting a $9.5 million increase in annual revenues. He said the filing seeks to recover about $36 million of infrastructure investments made or expected by the end of 2026 that are not currently in rates, with new rates expected to take effect by the second quarter of 2027.
• Texas: Hauk said the company continues to work through a $5.1 million System Improvement Charge mechanism application filed in October, with a decision expected in the second half of 2026. He also said the company filed an STM application for the Cibolo Valley Wastewater Plant and related collection system, keeping the company on track for a fourth-quarter 2026 close. After closing Quadvest and Cibolo Valley and completing investments to add 6,000 acre-feet of annual water supply into the existing system, Hauk said Texas Water expects to file a combined company general rate case in early 2027 with new rates expected in early 2028.

Quadvest timeline pushed to second half of 2026; connection growth highlighted

Hauk said the STM application for the regulated portion of the Quadvest transaction was filed in January and was deemed administratively complete earlier in the month. The application requests approval of Texas Water Company’s acquisition of Quadvest, L.P. assets and certification of the rate-making value under the Texas Fair Market Value Statute at the $483.6 million purchase price. Hauk said that once required public notices are issued and proof is filed, the PUCT’s 120-day approval process will begin, though the timeframe could be extended if a hearing or timeline extension is requested.

Management updated its expected closing timeline, with Hauk stating the company is shifting from a mid-2026 expected closing to “sometime during the second half of 2026.” In the Q&A, Hauk cited the volume of documentation involved and noted that timelines can also be affected by intervenor activity and the commission’s docket.

Hauk also pointed to Quadvest operating metrics, saying the Houston-area system had more than 57,200 active connections as of March 31, 2026, representing a 5% increase in the first three months of 2026 following a 16% increase during 2025. He said that during the first quarter, despite converting 2,800 connections from the pipeline to active, the pipeline increased by 5,000 connections, while cautioning that future connection growth can vary and is not guaranteed. Hauk said the addition of Quadvest customers and conversion of contracted backlog is expected to drive Texas from 8% of the consolidated customer base today to 26% by 2029.

On affordability, Walters and Hauk emphasized the company’s focus on balancing infrastructure investment with customer bills. Hauk said the company’s average bills remain below 1% of median household income in each of its four states, and referenced an EPA study suggesting water and wastewater bills are affordable when combined bills are below 4.5% of median household income. Walters said H2O America offers affordability tariffs in California, Connecticut, and Maine and hopes to introduce a similar benefit in Texas as part of a future rate proceeding. Asked about potential Quadvest rate impacts, Hauk said the company has not disclosed specific impacts but has said they would be “significant,” adding that management is engaging with stakeholders and expects the issue to become more public when the company files in 2027.

In closing remarks, Walters said H2O America serves 1.6 million people across four states and reiterated the company’s “unwavering commitment to the dividend,” noting it has been paid for more than 80 consecutive years and increased in each of the past 58.

About H2O America NASDAQ: HTO

SJW Group, through its subsidiaries, provides water utility and other related services in the United States. It operates in Water Utility Services and Real Estate Services segments. The company engages in the production, purchase, storage, purification, distribution, wholesale, and retail sale of water and wastewater services; and supplies groundwater from wells, surface water from watershed run-off and diversion, reclaimed water, and imported water purchased from the Santa Clara Valley Water District.

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