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    HTO
    Earnings call· Jun 2026(Q2 FY26)

    H2O AMERICA Q2 FY26 earnings call HTO

    Jul 28, 2026 Source

    Executive summary

    H2O America Q2 FY26 — Strong Performance, Strategic Acquisitions, and Regulatory Progress

    H2O America delivered Q2 FY26 results consistent with expectations, reaffirming its full-year EPS guidance and long-term growth targets despite higher share count dilution. The company is advancing strategic acquisitions in Texas, with Quadvest nearing close, and making significant infrastructure investments across its service territories. Management is actively addressing regulatory challenges and exploring innovative water supply solutions in California to manage rising costs and ensure long-term affordability for customers.

    Highlights

    5

    • Achieved Q2 FY26 adjusted diluted EPS of $0.72, consistent with internal expectations and full-year guidance.

    • Reiterated 2026 adjusted diluted EPS guidance of $3.08 to $3.18 and long-term EPS CAGR target of 6% to 8%.

    • Invested $207 million in infrastructure improvements in H1 FY26, on track for the $483 million full-year CapEx budget.

    • Made significant progress on Quadvest acquisition, with PUCT staff recommending approval, expecting close by end of Q3 or early Q4 2026.

    • Quadvest active connections grew 10% in H1 FY26 to over 59,800, with connections under contract increasing 14% to 99,000.

    Concerns

    5

    • H1 FY26 adjusted diluted EPS of $1.23 was lower than $1.25 in H1 2025, primarily due to a 19% higher share count.

    • The March 2026 equity raise resulted in a net $0.06 reduction in H1 FY26 EPS.

    • Texas SIC mechanism proposal for decision outlined a $285,000 revenue decrease compared to a requested $5.1 million increase, citing documentation issues.

    • California's Valley Water has increased purchased water rates by 150% and groundwater extraction fees by 175% over 10 years, impacting customer affordability.

    • Valley Water's rates are projected to more than double within the next 10 years, posing an unsustainable affordability challenge for customers.

    Guidance & targets

    5
    CategoryTargetConfidence
    Adjusted diluted EPS
    $3.08 to $3.18
    high materiality
    High
    Long-term EPS CAGR
    6% to 8%
    high materiality
    High
    Rate-based CAGR
    13%
    medium materiality
    High
    Equity market issuance
    Stay out of equity markets
    medium materiality
    High
    Debt issuance
    $100 million and $200 million
    medium materiality
    Medium

    Operational metrics

    29
    Adjusted diluted EPS
    $0.72down from $0.75 in Q2 2025
    Q2 FY26

    Reported for the second quarter of 2026.

    Adjusted diluted EPS
    $1.23down from $1.25 in YTD 2025
    YTD FY26

    Reported for the first half of 2026.

    Standalone Adjusted diluted EPS
    $1.29
    H1 FY26

    Calculated by adding back the $0.06 impact of the March equity raise to the reported $1.23 adjusted diluted EPS.

    Dilution from higher share count
    $0.14
    Q2 FY26

    Due to ATM share issuances in 2025 and March 2026 equity raise.

    Dilution from higher share count
    $0.21
    H1 FY26

    Due to ATM share issuances in 2025 and March 2026 equity raise.

    Impact of March 2026 equity raise (net)
    -$0.06
    H1 FY26

    Reduced EPS by a net $0.06, partially offset by interest income and savings.

    Underlying adjusted net income growth
    17%YoY
    H1 FY26

    Growth during the first half of 2026, offset by higher share count.

    Weighted average diluted shares outstanding increase
    19%YoY
    H1 FY26

    Higher during the first half of 2026 versus 2025, due to ATM program and March equity issuance.

    Infrastructure investment
    $207 million
    H1 FY26

    Invested through the first half of 2026.

    Full year CapEx budget achievement
    43%
    H1 FY26

    Percentage of $483 million full year 2026 CapEx budget achieved, reflecting seasonality.

    Revenue increase
    $0.70YoY
    H1 FY26

    Total revenue increase per share, with breakdown by drivers.

    Budgeted year-over-year revenue increase approved by regulators
    90%
    YTD FY26

    Provides good visibility into the back half of the year.

    Water production expenses increase
    $0.29YoY
    H1 FY26

    Total increase per share, with breakdown by drivers and offsets.

    Other operating expenses increase
    $0.32YoY
    H1 FY26

    Total increase per share, with breakdown by drivers.

    Effective income tax rate
    13%vs 16% in Q2 2025
    Q2 FY26

    Effective income tax rate for Q2 2026.

    Effective income tax rate
    14%vs 16% in H1 2025
    H1 FY26

    Lower primarily due to higher flow-through tax benefits.

    Available bank lines of credit
    $369 million
    Current

    All but $1 million available under the $370 million bank lines of credit.

    WICA and WQTA mechanism revenue increases
    $3.3 million
    Annual

    Combined annual revenue increases went into effect.

    WISC application revenue increase
    $0.9 million
    Annual

    MWC's first consolidated WISC application was approved as filed.

    SIC mechanism revenue decrease (PFD)
    $285,000vs $5.1 million requested increase
    Annual

    Outlined in an administrative law judge's Proposal for Decision.

    Valley Water purchased water rate CAGR
    10%
    Last 10 years

    Compounded annual growth rate for purchased water rates.

    Valley Water groundwater extraction fee CAGR
    11%
    Last 10 years

    Compounded annual growth rate for groundwater extraction fees.

    SJWC customer bill portion for Valley Water costs
    42 cents
    Current

    Of every dollar SJWC customers pay, 42 cents goes towards water costs set by Valley Water.

    Quadvest active connections growth
    10%
    H1 FY26

    Increase over the first half of the year.

    Quadvest active connections growth
    16%
    FY25

    Growth realized during 2025.

    Texas customer base contribution
    8%
    Current

    Percentage of consolidated customer base today.

    Texas customer base contribution
    26%
    By 2029

    Expected contribution to consolidated customer base by 2029.

    People served
    1.6 million
    Current

    Across four states.

    Annual equity issuance (normal needs)
    $100 million to $150 million
    Annual

    Amount typically issued through ATM program to fund base capital expenditures, covered by the March 2026 equity issuance for this year and next.

    Industry KPIs

    5
    MetricValueDetails
    Adjusted operating EPS$0.72USD
    Dividend per share growthIncreased
    Regulatory rate base growth13%%
    Equity hybrid financing atm issuance$700 millionUSD
    CAPEX multi year capital investment plan$2.7 billionUSD

    Orderbook & backlog

    2
    Quadvest active connections59,800End of June 2026

    10% increase over H1 FY26

    Follows 16% growth in 2025.

    Quadvest connections under contract and pending development99,000End of June 2026

    14% higher than 87,000 at year-end 2025

    Despite converting roughly 5,400 connections into active customers, pipeline has been more than replenished, extending longevity of growth profile.

    Deals & partnerships

    2
    Quadvest LPAcquisition of water and wastewater system in Houston area.$530 million

    PUCT staff recommended approval without public hearing on July 9th. No other parties requested a hearing by July 16th deadline. HSR waiting period ends shortly before August 26th statutory deadline.

    Cibolo ValleyAcquisition of wastewater plant and related collection system.

    On track for anticipated close during the fourth quarter of 2026. The STM application's procedural schedule indicates September 29th as the 120-day deadline.

    Capital programs

    7
    5-year capital investment budgetunderway$2.7 billion
    Start: 2026

    Benefit: Drives 13% rate-based CAGR

    Backbone of the plan, combined with pending acquisitions. Does not include any M&A opportunities beyond the two pending Texas acquisitions.

    Williams Station PFAS remediation projectannounced$176 million

    Benefit: PFAS remediation

    Estimated capital cost of the ion exchange project. Request filed with CPUC for approval and recovery outside of the GRC process. CPUC decision expected before year-end.

    AMI projectnearing completion
    Period spend: $53 million

    Benefit: $8.4 million rate-based filing offset increase

    Incremental investments approved for recovery, project on track for completion around year-end.

    Connecticut GRC infrastructure investmentsunderway$145 million
    Start: After last rate case

    Benefit: Recovery sought in GRC application

    Infrastructure investments made between its last rate case and the end of 2026, not yet reflected in current rates.

    Maine GRC infrastructure investmentsunderway$36 million

    Benefit: Recovery sought in GRC application

    Infrastructure investments that have been or are expected to be made in the state by the end of 2026, not currently in rates.

    Texas Hill Country water supply investmentsunderway$300 million

    Benefit: Additional 6,000 acre-feet of water annually

    Significant investments over the last couple of years to bring additional water into the existing system.

    Pilot direct potable reuse systemunderway$3 million
    Start: Early 2026

    Benefit: Operational knowledge and technical capabilities in purified water

    Design and construction began earlier this year, ahead of schedule. Intended to build SJWC's operational knowledge and demonstrate expertise.

    Risks & headwinds

    4
    Higher share count dilutionQ2 FY26, H1 FY26

    $0.14 per share in Q2 FY26; $0.21 per share in H1 FY26

    Mitigation: Partially offset by interest income and savings from using equity proceeds to pay off bank lines of credit.

    Texas SIC mechanism revenue decreaseNear-term

    $285,000 revenue decrease outlined in PFD vs. $5.1 million requested increase

    Mitigation: Company filed exceptions, identified financial offsets to address potential gap for 2026 EPS guidance, and plans to request recovery of used and useful investments in early 2027 GRC.

    Unsustainable increase in wholesale water charges from Valley WaterLong-term (next 10 years)

    Purchased water rates increased 150% (10% CAGR) and groundwater extraction fees increased 175% (11% CAGR) over 10 years. Projected to more than double in next 10 years. 42 cents of every customer dollar goes to these costs.

    Mitigation: Exploring direct potable reuse (pilot project underway) and regional desalination (feasibility study starting) to provide cost-effective, reliable water supply and reduce reliance on Valley Water.

    Customer affordability concernsOngoing

    EPA study suggests below 2.25% of median household income is affordable for water bills.

    Mitigation: Working with regulators for fair and timely outcomes, operating efficiently, exploring customer assistance programs, and seeking cost-effective water supply solutions.

    What to watch in Q3 FY26

    5

    Quadvest Acquisition Closing

    End of Q3 or early Q4 2026
    CurrentPUCT staff recommended approval; HSR waiting period ending
    TargetClosed

    Why it matters

    This is a transformational acquisition expected to drive significant growth in Texas and contribute to EPS accretion starting in 2028.

    I am also excited to report that we are making good progress towards receiving PUCT approval of the Quadvest LP Sale, Transfer, Merger application, and we anticipate closing the acquisition of Quadvest around the end of the third quarter or early fourth quarter.

    Q&A highlights

    6

    How will the rapid growth in Quadvest connections impact the timing of future Texas rate cases, and how will depreciation for Quadvest be accounted for between closing and new rates in 2028?

    Bruce Hauk stated they intend to file a combined GRC for Quadvest and Hill Country operations in 2027 for 2028 rates, with subsequent filings not sooner than a 3-year timeframe. Ann Kelly confirmed depreciation will be stepped up based on the higher fair market value, contributing to the 10-20% dilution from the standalone plan.

    “Yes, it will be stepped up based on the higher fair market value. That is one of the reasons that we've highlighted for the 10% to 20% of dilution from our stand-alone plan.”

    asked by Andrew Cadeveon · answered by Ann Kelly

    2 min read6 chapters

    Detailed Narrative

    01

    Regulatory Strategy and Filings

    H2O America is actively pursuing regulatory recovery for infrastructure investments, leveraging mechanisms in Connecticut, Maine, and Texas. The company filed General Rate Cases (GRCs) in Connecticut and Maine during Q2 FY26, seeking to recover $145 million and $36 million in infrastructure investments, respectively. In California, a request for approval and recovery of a $176 million PFAS remediation project was filed, and an $8.4 million rate-based filing offset for the AMI project was approved.

    02

    Texas Growth and Acquisitions

    The company is making significant progress on its Texas acquisitions, with the Quadvest LP Sale, Transfer, Merger application nearing PUCT approval, expected to close by end of Q3 or early Q4 2026. The Cibolo Valley acquisition is also on track for a Q4 2026 close. These acquisitions, combined with existing operations, are expected to drive Texas's contribution to the consolidated customer base from 8% today to 26% by 2029, with Quadvest showing impressive active connection growth of 10% in H1 FY26.

    03

    Capital Investment Program

    H2O America invested $207 million in infrastructure improvements during H1 FY26, representing 43% of its $483 million full-year CapEx budget. The company remains committed to its 5-year capital investment budget of $2.7 billion, which is the backbone of its plan to achieve a 13% rate-based CAGR through 2030. These investments are crucial for providing high-quality, reliable service and ensuring system resiliency.

    04

    California Water Supply Challenges

    The San Jose Water Company (SJWC) subsidiary faces significant challenges from rapidly increasing wholesale water charges by Valley Water, which are projected to more than double in the next 10 years. Currently, 42 cents of every customer dollar goes to these supply costs, which SJWC cannot directly control or earn a return on. This situation is deemed unsustainable for customer affordability, prompting the exploration of alternative supply solutions.

    05

    Exploring Alternative Water Supply Solutions

    To address the California water supply challenges, SJWC is exploring two main options: direct potable reuse (purified water) and regional desalination. A $3 million pilot purified water system is underway, targeting completion by September 2027, while a feasibility study for desalination in Monterey Bay is also commencing. These initiatives aim to provide reliable, drought-proof, and cost-effective water supplies, reducing reliance on Valley Water and bending the long-term affordability curve for customers.

    06

    Financing Strategy

    The company executed an upsized $700 million equity raise in March 2026, including a $400 million forward agreement, to de-risk the Quadvest acquisition and fund capital needs. This strategy allows H2O America to stay out of equity markets through at least year-end 2027. The company plans to raise $100 million to $200 million in debt for the Quadvest transaction, maintaining strong liquidity with $369 million available on its bank lines of credit and an A- credit rating.

    AI-generated summary of the company’s earnings call. Not investment advice.