H2O America (HTO) Q2 FY26 earnings call: guidance and Q&A

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

How does the proposed revenue decrease in the current Texas SIC proceeding impact expectations for the upcoming 2027 rate case, and does it signal a deteriorating regulatory environment in Texas?

Andrew Walters and Bruce Hauk clarified that the SIC issue was primarily due to the company's documentation, not a deteriorating regulatory compact. Bruce confirmed that any unapproved SIC-eligible plant (approx. $40 million of assets) would be added to the GRC filing. He also confirmed compliance with filing deadlines and a new depreciation study.

“I would also reiterate that we do not see a deterioration in the Texas regulatory commission or compact. Actually, we're encouraged by what we've seen take place specifically through the rulemaking process and working with the Commission.”

asked by Angie Storozynski · answered by Bruce Hauk

Can management elaborate on key items, asks, or risk management for the large Texas rate case planned for early next year, and are there any material impacts from labor or raw material inflation?

Bruce Hauk reiterated the timing for the Texas GRC filing in Q1 2027 for 2028 rates, contingent on closing Quadvest and Cibolo. Ann Kelly noted significant investment ($300 million plus FMV of Quadvest) would drive the ask. On inflation, Ann stated raw material inflation has normalized, and while wage inflation is slightly higher, it's manageable.

“Yes, just to supplement that, the rate making rate base that was determined through the FMV process plus the $300 million that Ann just mentioned, that gives you a little color.”

asked by Davis Sunderland · answered by Bruce Hauk

Are there any remaining key dates for the Quadvest acquisition to close after the August statutory deadline, and is the company open to settling the Connecticut GRC given changes at the commission?

Andrew Walters explained that after the August 26th statutory deadline, there's a normal financial close process, aiming for month-end. Ann Kelly added that HSR waiting period ends shortly before August 26th. Bruce Hauk stated they are "certainly open to it and cautiously optimistic" about settling the Connecticut GRC, with meaningful conversations expected after rebuttal testimony.

“Certainly open to it and cautiously optimistic that we can have some meaningful conversations regarding settlement once rebuttal testimony is submitted.”

asked by Nicholas Campanella · answered by Bruce Hauk

Is there broad understanding among interested parties regarding the factors driving the upcoming Texas rate case (investments, FMV), and what milestones should investors watch for in California's water supply exploration?

Bruce Hauk confirmed extensive discussions about the upcoming Texas GRC, including affordability considerations and plans for customer assistance programs. Andrew Walters emphasized the substantial investments for resilient water supply. For California, Andrew stated it would take 1-2 years to dimension projects and ensure viability, with the pilot purified water system targeting completion by September 2027 as a key milestone.

“Yes, look, I think it's going to take us a year to two to kind of go through the process in order to dimension the different things that we're talking about and make sure that we have viable projects that produce the outcomes that we expect.”

asked by Alex Kania · answered by Andrew Walters

How will the $530 million Quadvest acquisition be financed, specifically regarding the $400 million forward equity agreement, and what are the implications for the weighted average share count for 2026?

Ann Kelly clarified that the $700 million equity raise (including the forward) covers the acquisition. The $300 million already issued was used to reduce credit lines and for cash equivalents. They will use this cash and draw on the $400 million forward, plus $100-200 million in debt. The timing of debt issuance is flexible. The $700 million equity raise also covered normal annual equity needs ($100-150 million) for this year and next.

“Well, I mean, I think about it this way. We raised $700 million, including the forward. So the 300 that was already issued has been used to reduce our operating lines of credit and actually invested in short-term cash equivalents.”

asked by Angie Storozynski · answered by Ann Kelly