H2O America Common Stock Q2 2026 Earnings Call

Good day everyone. Thank you for standing by. Welcome to H2O America 2026 second quarter financial results call. At this time, all participants are in a listen-only mode. After the presentation, there will be a question and answer session. To participate, you will need to press star one one on your telephone. You will hear a message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. It's my pleasure to hand the conference over to Jonathan Reeder.

Thank you, operator. Welcome to the second quarter of 2026 financial results conference call for H2O America. My name is Jonathan Reeder. I am the Senior Director of Treasury and Investor Relations for H2O America. Presenting today will be Andrew Walters, Chair of the Board and Chief Executive Officer, Ann Kelly, Chief Financial Officer and Treasurer, and Bruce Hauk, President and Chief Operating Officer. For those who would like to follow along, slides accompanying our remarks are available on our website at h2o-america.com. Before we begin today, I would like to remind you that this presentation and related materials posted on our website may contain forward-looking statements. These statements are based on estimates and assumptions made by the company in light of its experience, historical trends, current conditions, and expected future results, as well as other factors that the company believes are appropriate under the circumstances.

Many factors could cause the company's actual results and performance to differ materially from those expressed or implied by the forward-looking statements. For a description of some of the factors that could cause actual results to be different from statements in this presentation, we refer you to the financial results press release and to our most recent Forms 10-K, 10-Q, and 8-K filed with the Securities and Exchange Commission, copies of which may be obtained on our website. All forward-looking statements are made as of today. H2O America disclaims any duty to update or revise such statements. You will have an opportunity to ask questions at the end of the presentation. This webcast is being recorded and as an archive of the webcast will be available until October 27th, 2026. You can access the press release and the webcast at H2O America's website.

In addition, some of the information discussed today includes the non-GAAP financial measures of adjusted net income and adjusted diluted earnings per share that have not been calculated in accordance with generally accepted accounting principles in the United States or GAAP. These non-GAAP financial measures should be considered as a supplement to the financial information prepared on a GAAP basis rather than an alternative to the respective GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the table in the appendix of our presentation. I will turn the call over to Andrew.

Welcome everyone, thank you for joining us today. We are pleased to provide you with an update on our strong second quarter 2026 results during which we earned $0.62 per share on a GAAP diluted basis and $0.72 per share on an adjusted diluted basis. This brings our year-to-date 2026 earnings per share to $1.12 on a GAAP diluted basis and $1.23 per share on an adjusted diluted basis. Our results during the first half of 2026 were consistent with our internal expectations and supportive of both our standalone 2026 adjusted diluted EPS guidance of $3.08-$3.18, as well as our long-term EPS CAGR target of 6%-8%. We also remain steadfast in our commitment to deliver on our 2026 to 2030 plan.

Before I ask Anne to discuss our financial results in more detail, I want to provide everyone with a brief update on a few of the higher profile elements of our strategy to grow the business and create shareholder value. We plan to do this by making the much needed water infrastructure investments across our national footprint of systems while constructively engaging our key local stakeholders in a consensus-building process to provide timely regulatory recovery while maintaining customer affordability. Our teams are executing on the regulatory front as well as have been busy working to secure rate recognition of the infrastructure investments that are needed to provide our customers with the high quality, reliable service they deserve. This includes leveraging infrastructure investment mechanism recoveries in Connecticut, Maine, and Texas, as well as filing for recovery of our PFAS remediation project in California.

In addition, a great deal of thought and effort went into preparing the General Rate Case filings or GRCs that we made in Connecticut and Maine during the second quarter. It is relatively early in the process, but we anticipate being able to achieve constructive outcomes in both GRCs. 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. Our teams are gearing up for the close and integration of Quadvest into The Texas Water Company later this year and delivering on the anticipated accretion beginning in 2028.

Bruce will provide more detailed updates on the pending Quadvest and Cibolo Valley transactions, as well as some of our other key regulatory developments later in the call, for now I will turn it over to Anne to provide details on our second quarter 2026 financial results and key elements of our five-year financial plan. Anne. Thank you, Andrew. Yesterday, after the market closed, we released our second quarter and year-to-date 2026 operating results.

As Andrew mentioned, we reported second quarter 2026 diluted EPS of $0.62 a share and year-to-date diluted EPS of $1.12 On an adjusted basis for the second quarter 2026, we earned adjusted diluted EPS of $0.72, which compares to $0.75 during the second quarter of 2025.

On a year-to-date basis, our adjusted 2026 diluted EPS was $1.23, compared to $1.25 during the same period in 2025. The results were consistent with our internal expectations and supportive of our standalone 2026 adjusted diluted EPS guidance of $3.08-$3.18. While we grew our underlying adjusted net income by 17% during the first half of 2026, this was more than offset by the higher share count as weighted average diluted shares outstanding were 19% higher during the first half of 2026 versus 2025 as a result of leveraging our ATM program throughout 2025 and our equity issuance in early March of this year.

As discussed on our call last quarter, we took advantage of what we viewed as a receptive equity market following our year-end update and decided to take the Quadvest acquisition-related equity risk off the table by coming to the market in early March with an equity raise that we ultimately upsized to $700 million. The year-to-date impact of raising that equity and doing so earlier in the year, partially offset by interest income and savings, as we used the proceeds to pay off our bank lines of credit and invest the cash balance in cash equivalents, reduced our EPS by a net $0.06. For those of you keeping track of our progress against our standalone 2026 adjusted diluted EPS guidance, adding that $0.06 to the aforementioned $1.23 of adjusted diluted EPS puts us at $1.29 of standalone adjusted diluted EPS for the first half of 2026.

Our teams have also been very productive in terms of deploying capital across our service territories. Through the first half of 2026, we've invested $207 million into infrastructure improvements. That puts us at 43% of our full year 2026 CapEx budget of $483 million, which does not include the impacts of Quadvest. While that might sound like we are a bit behind, that is not the case at all. It simply reflects the seasonality of our CapEx cycle, particularly during the winter months for our Connecticut and Maine operations. Moving to slide eight, I'd like to briefly discuss the key second quarter drivers resulting in the slightly lower year-over-year EPS. Since the drivers are similar, I will keep the quarterly discussion higher level, but then provide more details when discussing the first half results.

During Q2, we realized a $0.30 per share increase in higher revenues, with the bulk of this driven by rate relief, as well as higher revenues for pass-through water supply costs. The revenue increase was partially offset by higher water production expense of $0.11, primarily reflecting higher water supply costs, as well as an increase in operating expenses of $0.15, with the biggest component being $0.09 of higher depreciation in amortization expense associated with utility plant additions placed in service. The remaining drivers relate to $0.14 of dilution due to the increase in the number of shares outstanding, partially offset by $0.07 of net other benefits. As for taxes during the quarter, our effective income tax rate for Q2 2026 was approximately 13% versus 16% in Q2 of 2025. On slide nine, we illustrate the key first half drivers resulting in year-over-year EPS variance.

We realized a $0.70 per share increase in higher revenue. More than half of this, or $0.41, was driven by rate relief primarily received from the prior general rate case in California and infrastructure surcharges in Connecticut, Maine, and Texas. To date, more than 90% of our budgeted year-over-year revenue increase has been approved by regulators, which gives us good visibility into the back half of the year. There is also $0.25 of higher revenues for pass-through water supply costs that are largely offset in our water production expenses, such that they do not impact our net income. Lastly, higher usage across all four of our states added $0.06. The revenue increase was partially offset by higher water production expenses of $0.29.

The increase was attributable to $0.20 of higher water supply costs due to increases in the average per unit cost for purchased water and groundwater extraction fees. $0.10 from increases in water production balancing and memorandum accounts, primarily related to the full cost balancing account in California, and $0.05 from higher customer usage. These increases were partially offset by a $0.06 decrease in water production expenses as a result of the increased availability of surface water. In addition, other operating expenses increased $0.32. The biggest driver here was a $0.20 increase in depreciation amortization attributable to new utility plant placed in service. While higher administrative and general expenses were an $0.08 headwind. The remaining drivers relate to $0.21 of dilution, which I mentioned earlier stems from the ATM share issuances in 2025 and our March 2026 equity raise.

This was partially offset by $0.10 in net other benefits, with the biggest driver being $0.07 of higher AFUDC. As for taxes, our effective income tax rate for the first half of 2026 was approximately 14% versus 16% during the same period of 2025. The lower effective tax rate was primarily due to higher flow-through tax benefits. Shifting from the first half results to our full year 2026 and beyond expectations, the details and figures on slide 12 should look familiar to everyone, as we are reiterating all aspects of our financial guidance, including our expectations to deliver a nonlinear EPS CAGR over the 2026 to 2030 period at or above the top end of our 6%-8% long-term organic EPS growth target. The backbone of the plan is our five-year capital investment budget of $2.7 billion, combined with our pending acquisitions of Quadvest.

We expect the two drivers to translate into a 13% rate base CAGR off our year-end 2025 estimated rate base of $2.8 billion. Our team is focused on not just delivering the rate base growth but converting it into attractive earnings growth. We believe that we can execute on this plan by continuing to work constructively with our regulators and other key constituents to achieve fair and timely outcomes that minimize regulatory lag, while finding ways to operate more efficiently to not only provide our customers with best-in-class service but at affordable rates. As a reminder, our plan does not include any M&A opportunities beyond our two pending Texas acquisitions. We remain very excited about our five-year plan and long-term prospects. Turning to the financing and credit side of things on slide 11. No change here either. We expect to stay out of the equity markets, including issuances through our ATM program, which we typically utilize to fund base capital expenditures through at least year-end 2027, barring any new M&A transactions, as we have the ability to draw down on our $400 million forward agreement component of the March issuance over this period to fund our capital needs.

We still expect to raise between $100 million and $200 million of debt across the parent and Texas operating companies levels to fund the Quadvest transaction, although, as we previously indicated, we have more flexibility now regarding the timing, given the upsized March equity issuance. Our liquidity remains strong to fund our daily operations. We have all but $1 million available under our $370 million bank lines of credit, while our A-minus credit rating offers us the access to the capital needed to fund our longer-term investments.

With that, I will turn the call over to Bruce to provide some regulatory updates, including our pending acquisition of Quadvest.

Thank you, Ann. Before jumping into the regulatory updates, with customer affordability continuing to be at the forefront of many of your minds, I wanted to reiterate that affordability remains a top priority of our company. We will continue to work with our partners in our states to keep rates as affordable as possible for our customers. We do have to balance affordability with the extensive infrastructure needs throughout our service territories, all while providing safe, reliable, and high-quality service. Our team works very hard to communicate with our regulators and other key constituents the importance of not only investing in our water infrastructure, but the importance of doing so on a proactive basis to minimize system failures and water loss, while ensuring the reliability and resiliency of our operations and water supply for the long term.

We aim to keep our average water bills in each of our service territories below the EPA's most recent study that suggested below 2.25% of median household income is affordable. With that, I'm pleased to update everyone on the continued progress our team has made on the regulatory front throughout the second quarter. Starting in California, we filed a request in April with the CPUC for approval and recovery of our planned Williams Station PFAS remediation project outside of the GRC process. The estimated capital cost of the Ion Exchange project is $176 million, and we expect a CPUC decision before the end of the year. If approved, SJWC would adjust rates as the capital is invested via annual rate base filing offsets.

This is similar to the recovery approach we took for our current AMI project, which at the end of last month was approved as requested for an $8.4 million rate base filing offset increase effective July 1st for the recovery of an incremental $53 million of AMI project investments. The overall AMI project remains on track to be completed around the end of this year. The California team continues to prepare for the 2028 to 2030 GRC filing that will be made in January 2027. In Connecticut, the $3.3 million of combined annual WICA and WQTA mechanism revenue increases went into effect on April 1st, as did our 2025 Water Revenue Adjustment mechanism surcharge.

The WRA reconciles revenues as authorized in CWC's most recent rate case, while also providing recovery of certain amounts of compensation expenses as a result of CWC achieving the PURA prescribed performance metrics in our last GRC. On May 11th, Connecticut Water filed a GRC application that requests a $28.8 million increase in annual revenues for new rates to become effective early 2027, as CWC seeks recovery for the approximately $145 million of infrastructure investments made between its last rate case and the end of 2026, as that investment is not yet reflected in current rates. It remains early in the process, but thus far the case is progressing as expected. We have not observed any unanticipated key stakeholder reaction, and we remain optimistic that a constructive outcome will be achieved.

Based on the procedural schedule that was issued, intervener testimony is due at the end of this month, evidentiary hearings are scheduled to begin September 21st, and a final decision is slated for late January. Moving on to Maine on slide 14. NWC's first consolidated WISC application was approved as filed, and the $0.9 million revenue increase went into effect on May 1st. Similar to Connecticut, Maine is still fairly early in its general rate case proceeding. While intervener testimony was filed earlier this month, our rebuttal testimony is not due until mid-September, and evidentiary hearings are scheduled to begin in early January.

As a reminder, Maine Water filed in mid-April requesting a $9.5 million increase in annual revenues to recover the approximately $36 million of infrastructure investments that have been or are expected to be made in the state by the end of 2026 and are not currently in rates. We expect new rates to be effective by May 27, consistent with Maine's 12-month statutory timeframe. More details on the pending Maine and Connecticut GRCs, including the key procedural schedule dates, are outlined on a new slide we added into the appendix of our presentation. Shifting to Texas regulatory activity. We continue to work through the third SIC mechanism application we filed last October. Expect a decision from the PUCT within the next few months. An administrative law judge issued a proposal for decision, or PFD, outlining a $285,000 revenue decrease as compared to our requested $5.1 million increase.

At issue are two primary adjustments related to the documentation of the included projects and adjustments made to the accounting for retirements and replacements. We acknowledge that as part of our ongoing commitment to process improvements, we can and will make improvements in future filings now that we have a better understanding regarding documentation expectations of certain interveners. That said, we are disappointed by the PFD and filed exceptions earlier this month requesting that the evidence that we provided in our rebuttal testimony be given the appropriate weight. We are hopeful the PUCT recognizes the merits of the investments Texas Water has made to continue to provide high-quality, reliable service to our customers and ultimately improves upon the PFD with its final order consistent with our filings in the docket outlining the prudence of these investments.

Should the PUCT's final approved amount be lower than we requested, we have identified financial offsets that we could make to address the potential gap during the remainder of the year and still deliver on our 2026 standalone adjusted diluted EPS guidance. If the recovery of these customer investments is ultimately not permitted in our SIC filing, Texas Water will request recovery of these used and useful investments as part of our general rate case that we plan to file early next year. Shifting to the sale, transfer, merger, or STM processes that are underway for our two pending acquisitions in Texas. I'd now like to discuss the considerable progress our team has made in recent months towards obtaining PUCT approval and getting the deals closed.

For Quadvest, I'm pleased to report that the PUCT staff recommended on July 9th that the proposed transaction will serve the public interest and should be allowed to proceed without a public hearing. Since no other parties requested a hearing by the July 16th deadline, we expect the remainder of the docket to proceed in accordance with the procedural schedule's 120-day statutory deadline of August 26th. This would allow the Quadvest acquisition to close around the end of the third quarter or early fourth quarter of this year. As for the Cibolo Valley wastewater treatment plant and related collection system, we remain on track for an anticipated close during the fourth quarter of 2026. The STM application's procedural schedule indicates September 29th as the 120 deadline for PUCT to approve the sale if a hearing is not required.

As I alluded to earlier, Texas Water plans to file a combined company general rate case in early 2027 after the close of the Quadvest and Cibolo Valley acquisitions, as well as the completion of our significant investments to bring an additional 6,000 acre feet of water annually into our existing system in the Hill Country. The rate case is necessary that all the investments made into improving the water supply and reliability of our operations can be recognized into Texas Water's rate base and customer rates. We would expect new rates to be effective in early 2028. Although I already provided an update of where we are in the Quadvest STM approval process, I did want to take a few minutes to highlight the robust connection growth that Quadvest water and wastewater system continues to realize in the Houston area.

As shown in figure on slide 15, Quadvest was serving more than 59,800 active connections at the end of June. This represents a 10% increase over the first half of the year and puts Quadvest on track for another year of impressive growth following the 16% growth realized during 2025. What is equally impressive is that even as Quadvest Pipeline converts into active connections, the number of connections under contract and pending development has been more than replenished, which extends the longevity of the growth profile. Specifically, Quadvest's 99,000 connections under contract and pending development at the end of June 2026 is nearly 14% higher than the 87,000 at year-end 2025, despite converting roughly 5,400 connections into active customers. Of course, future connection growth will vary based on a number of conditions, this is no guarantee of the future pace of growth.

However, these results are in line with our range of expectations, we believe solid growth will continue in the greater Houston area. As a reminder, the addition of Quadvest active customers, plus the continued conversion of the connections under contract and pending development, is the primary contributor that is expected to drive Texas from 8% of our consolidated customer base today to 26% by 2029. Between Quadvest and Cibolo Valley, plus our existing Hill Country operations, we are very excited about our long-term growth potential in Texas. That concludes my regulatory updates, I will now turn the call back over to Andrew.

Thank you, Bruce. As has been mentioned multiple times in this call as well as on our previous calls, maintaining affordable rates for our customers while providing high-quality, reliable service is of paramount importance to our company and is part of our core values. As part of those efforts, we continuously strive to run the business as efficiently as possible. Every $1 of avoided operating expense enables recovery of $7 of the much-needed capital investments with a neutral impact on customer bills. This is true whether it is a pass-through cost to our customers as part of our regulatory compact in a state or an expense that directly impacts our bottom line. With that in mind, I want to take a few minutes to discuss the water supply situation at our California subsidiary, San Jose Water Company.

The Santa Clara Valley Water District, or Valley Water, is the regional government agency that manages the groundwater basin in our region of California, operates dams and reservoirs, and sets wholesale charges that SJWC and other utilities must pay to provide local groundwater. In a normal rainfall year, more than 90% of SJWC's water supply is either purchased from Valley Water or we pump groundwater from the basin for which we have to pay an extraction fee to Valley Water. Unlike our operations and rates that we charge to deliver to our customers, which are regulated by the California Public Utilities Commission, Valley Water sets its own rates. It is governed by an elected board and is not regulated by the CPUC. Over the last 10 years, Valley Water has increased its rates for purchased water at a 10% compounded annual growth rate, or roughly 150% on an absolute basis.

The groundwater extraction fees have increased even faster, at an 11% CAGR or roughly 175% on an absolute basis. Although SJWC is able to pass through these charges to our customers without any markup, as part of our regulatory compact, they have a substantial impact on bills of our customers and reduce thus overall affordability. Currently, $0.42 of every dollar that SJWC customers pay goes towards the water cost set by Valley Water. Said differently, nearly half of our customers' bill are to cover supply costs that we cannot directly control and that we do not earn a regulated return on. As we look forward, we are concerned as Valley Water's current rates are projected to more than double within the next 10 years. This is simply unsustainable for our customers from an affordability perspective.

For more than a decade, our engagement through normal channels to try to get Valley Water to better control cost and fully utilize their assets have been largely unsuccessful. While we plan to continue those efforts, we are seriously exploring more cost-effective water supply solutions for our SJWC customers. The first is direct potable reuse or purified water, where our efforts are focused on two parallel paths, a pilot system and a full-scale regional plant. The pilot is intended to build SJWC's operational knowledge and technical capabilities in the purified water space while also demonstrating to regulators, customers, and potential partners that SJWC has the expertise to develop and operate advanced purified water systems. Design and construction of the roughly $3 million mobile water purification unit began earlier this year, and the project is currently ahead of schedule.

SJWC is targeting completion and full operation of the pilot in time for its first major public demonstration by September of 2027. As for the potential full-scale regional purified water plant, we are in the process of developing a defined full-scale project concept and exploring suitable sites pending positive pilot results. The second potential option is leading the efforts on a regional desalination plant alongside other participants. SJWC is starting a feasibility study to determine whether desalination, including deep water desalination as well as other approaches in emerging technologies, is feasible in Monterey Bay and how best to convey the water to SJWC's service territory. We believe either solution could provide a reliable, drought-proof, cost-effective water supply while reducing SJWC's long-term reliance on Valley Water and customers' exposure to Valley Water's continuously rising cost. This would be a win for customers, providing a resilient long-term water supply.

Any meaningful capital expenditures associated with these endeavors likely falls outside of our current five-year plan. Our 2026 to 2030 capital budget of $2.7 billion does not reflect these water supply opportunities. In closing, I believe our first half 2026 accomplishments puts our company in a great position, both operationally and financially. My fellow partners here at H2O America continue to execute on our strategy, including making the needed infrastructure investments to better serve our customers, and we are nearing the finish line in terms of receiving PUCT approval for Quadvest, which is a huge milestone for our company given the transformational nature of the acquisition. We have a busy regulatory agenda over the next 18 months, but I believe our team is up to the challenge, and our company is poised to deliver great things in 2024 and beyond.

Looking ahead, I know our dedicated team will remain focused on driving customer and shareholder value through disciplined infrastructure investment and executing on our financial goals, advancing the transformational Quadvest acquisition as well as Cibolo Valley, deepening strong partnerships with local stakeholders and our unrelenting pursuit of operational excellence and identifying creative and sustainable solutions to serve generations to come while maintaining a focus on affordability, including exploring cost-effective solutions to address long-term water supply concerns for our California customers. With that, I will turn the call back over to the operator for questions.

Much. As a reminder, to ask a question, simply press star one one to get in the queue and wait for your name to be announced. To withdraw the question, press star one one again. One moment for our first question. Comes from Shar Pourreza with Wells Fargo. Please proceed. Hi. Actually, it's Andrew Kadavion for Shar.

Thank you for taking my question.

Of course. Good morning, Shar.

With the rapid growth in Quadvest connections, how should we think about the cadence of rate cases in Texas moving forward to recover the investment required for those connections?

That's an excellent question, Shar. I'm going to have Bruce take you through our general plan in Texas. Obviously that growth will actually have a huge impact on the timing of when we go in for rates too.

Thank you, Andrew. As mentioned in my prepared remarks, we are intending to file our general rate case combining Quadvest and our Hill Country operations in 2027 for 2028 rate. We have not communicated when we would file again. I would just high level say it would not be any sooner than a three-year timeframe or sometime beyond that, if that makes sense.

Yes, thanks. Just a follow-up. For the depreciation expense from Quadvest, how do you anticipate the accounting toward for that between the close of the transaction and new rates becoming effective in 2028? Will it be stepped up to reflect the higher fair market value, or it will be the, I guess, existing depreciation rate?

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%-20% of dilution from our standalone plan.

Thank you. I'll leave it there.

All right. Thanks, Shar. Our next question comes from Angie Storozynski with Seaport.

Please proceed. Thank you. I wanted to go back to this pending SIC request in Texas and how it impacts, if at all, your expectations for the rate case you're going to file in Texas next year.

One of the points that the staff is making or the Commission is making is that you should be filing a larger rate case, which you're about to. I'm wondering if what is being proposed in this system infrastructure charge filing is in anticipation of a larger rate case coming, or is there any signs that the regulatory setup for what utilities is deteriorating in the state?

Angie, that's an excellent question and certainly something that we'll highlight. I'll have Bruce talk through some of the details, as we highlighted in the remarks, there were some things that we could have done differently, and that's on us. It's not really an issue from my perspective with the compact. It's us understanding the requirements that we need to hit, and they changed a little bit from the past. Maybe Bruce, you could elaborate, but that's what I would say was the biggest issue.

Thank you, Andrew. Angie, thank you for your question. 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, adding to our tools in the repertoire of being able to file in the future a future test year hybrid or historical test year, the improvement around SIC processing. Again, as Andrew mentioned, we can make some improvements there. To answer your question specifically about the impact to the revenue requirement based on any SIC-eligible plant that wasn't approved in a SIC filing that was investment that is used and useful and in service is approximately $40 million of revenue that would be added to the GRC filing roughly in- $40 million of assets.

Assets. Not revenue. Well, $40 million of assets or investment in the 2027 filing.

Right. One of the points that is being made in this filing, in the current SIC proceeding is an outdated depreciation study, right? That's one of the issues, right? The fact that you have to file your rate case basically by, if I remember correctly, by the end of March of 2028, just because it's a four-year tenure of that previous SIC mechanism, et cetera. You will be able to comply with that? You will have filed by basically before the end of March of next year, and by then you will have conducted a new depreciation study?

Correct. Absolutely. Okay. This is, in a sense, the Commission acting in anticipation of the upcoming proceeding.

Okay. That's all I have. Thank you. Thank you, Angie.

Thank you, Angie. Excellent questions.

Thank you. Our next question comes from Davis Sunderland with Baird. Please proceed. Hey, good morning, everyone.

Good morning, Dave. Thank you very much for the comments and for taking our questions.

Maybe I could start, two questions from me, and actually, I'm going to start maybe on the Texas rate case, just where you left off with your prepared remarks, Bruce. I know, fully recognizing that it's early, but just wondering if you could elaborate a bit more on key items to consider, any tidbits you can share about the asks, or just how we think about managing risks or potential shifts in the timeline, just knowing that it's going to be a very big Texas rate case early next year.

Thank you, Davis. From a timing standpoint, as been mentioned in my prepared remarks, two things are critically important for the timing. One, closing both Quadvest and Cibolo, and we are on track for closing both of those per their procedural schedules in the latter part of 2026, as I had mentioned in my prepared remarks. Having that completion take place, that would put us in a position to file in the first quarter of 2027 for effective rates in 2028 for our Texas Water Company subsidiary.

Yeah, we haven't provided guidance in terms of the exact amount of the increase of the ask. We have said that it will be significant, but there's been a significant amount of investment that has been made over the past couple of years, both in our Texas Hill Country, so over $300 million over the last couple of years, as well as the new Quadvest acquisition.

Yeah, just to supplement that.

Perfect. Thank you. 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.

That is super helpful. Thank you both for the details. Maybe just my second one, maybe for you, Ann, or I guess for the team more broadly. Andrew, appreciate your comment about the $1 of OpEx savings and what that translates to in CapEx. I guess just with that as context, just wondering if you guys are seeing anything material as it relates to labor inflation, raw material inflation, anything just as a product of, I guess, everything going on globally right now with cost inflation and just anything specific to call out there on the cost front. Ben, thank you. Yeah, I'd say nothing specific really on the material side.

We had seen some increase in inflation over the last couple of years. That has come back down to a more normal level. Wage inflation is still slightly higher than historically we've seen. We've been able to manage that through our financial processes.

Great. I'll pass it on. Thanks, team. Thank you so much.

Thank you. Now our next question is from Nick Camporeale with Barclays. Please proceed. Hey, good morning.

Thanks for the disclosures and updates. Appreciate it. Maybe just to tie off one last thing on Quadvest. Just the statutory deadline would be in August. Is there any other key dates to be focused on to actually get to close at this point?

Look, Nick, first of all, thank you so much for the question and support. I would say that for us, there's obviously some normal timeframe that it takes to do the financial close. It's not going to happen right on the order of the commission. Based on when the actual order comes through, that's when we'll schedule the financial close, and we generally try to do that on a month in so that it just makes it easier from an accounting perspective to pull the books over to our system, et cetera. That's at a high level, and I'll ask Ann if there's anything else that she would add.

Yeah. The only thing I'd add is we did just file HSR. The waiting period would end shortly before, I think it's like a day or two before the August 26th deadline. Assuming that it's not either the early termination is not approved or if they recommend an extension.

Great. Thank you so much for that.

You bet. That's not typically- Yeah It's knock on wood.

It's not typically a thing that drives in our sector given our regulated nature.

Absolutely. Okay. I guess just moving to Connecticut with the case there. I know in the past, I don't think you have settled some of these cases, but things have changed at this commission, now that you've filed and you've started to interact with the constituents, just how are you viewing the potential to settle that case specifically, and if you're open to that? Thank you. Certainly open to it, cautiously optimistic that we can have some meaningful conversations regarding settlement once rebuttal testimony is submitted.

Very much on our radar, hope to have, like I said, meaningful conversations that allow for a settlement.

Yeah. Great Nick, it's a new commission for us, so we'll be there to work with them in any way that they see as productive.

There's obviously no guarantees around settlement because that's not something that has historically been kind of a common process. As the commission gets sophisticated, it allows for these types of activities.

Yeah, we also have Our filing is pretty straightforward, our last rate case was fully litigated, those also point to potential settlement.

All right. Well, thanks so much for the time. Appreciate it. You're so welcome.

Take care. Thank you so much.

Our next question is from Alex Kania with BTIG. Please proceed. Hi there. Good morning.

Just again, to kind of follow up maybe more on the Texas rate case filing early next year. I guess, as we have been moving forward with the Quadvest approval process, hopefully kind of get a timely resolution to that. Just thinking about the context of all that, if just based on your discussions with interested parties, that there's a broad understanding about the factors that are really going to be going into this upcoming rate case. Just thinking about obviously the investments you've made to date, the FMV determination at Quadvest and whatnot, just to make sure that there are ways that it's not going to come as a surprise to anybody necessarily. Then, if you've been thinking about any potential structures just to keep in mind, and that affordability is kind of an important consideration you've been talking about. That'd be helpful. Sure. I'll ask Bruce to comment on this, Anne or I will maybe add to it.

Go ahead. Certainly there's been much discussion around the anticipation of us filing a GRC in 2027 for 2028 rates.

We've communicated that directly outside of the process of filing properly that that's coming forth. Affordability is first and foremost of our mind. One of the things that we've disclosed previously is we've got what we call customer assistance programs with tariff assistance in three of our four subsidiaries, California, Connecticut, and Maine. When we file in 2027, we would anticipate filing something similar for consideration with the PUCT from an affordability standpoint. We've also continued to message as part of the process that we would be filing a combined case, as you had just mentioned, the $300 million plus the FMV.

We have been talking about ways to bring that in over a process, we've communicated in the past on calls similar to how we did the Maine Saco drinking water facility and phase, didn't discuss that. We'll talk through that in the future as well as we continue to think about how to bring things in.

I think the key is that we understand affordability for the customers. The process that we will go about is coming up with the best way possible to allow for our customers to absorb those rates. The key that Bruce highlights is for those that are the most vulnerable, that we will be really focusing on those customers and being able to provide an outcome that works for everybody. The key that we also have to keep in mind is there is substantial investment that has gone into our Texas water subsidiary. I mean substantial. That is in order to provide a resilient water supply, which is challenging in today's environment, where you have weather swings that cause a greater change in the precipitation that falls in particular areas. That's created a need for us to invest in the future.

It's created a need for us to have more transmission to move water around the system and interconnect things that were never interconnected before. Those costs are real. They're important for the customer's reliability. Nobody wants to go to a tap and not have the water supply that they want to have. Nobody wants to have drought restrictions all the time. Those are the things that we are continuing to work on to create that better service. If you compare the cost of water today relative to bottled water and other things like that, we are a mere fraction of the cost of those types of things.

Absolutely. That makes sense. Thanks. I apologize. That's it. I'm done.

Thank you. Perfect. Great. Thank you for the input on the discussion about water supply in California.

Are there going to be any milestones or whatnot that we should keep in mind as you make a determination about what's the most cost-effective path forward for customers in terms of water supply over the next year or so, or longer?

Yeah, look, I think it's going to take us one year to two to 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. Let me be clear, I see huge potential for this, and I mean huge potential in order to help our customers. I think that's going to be something that as we look at the affordability for customers long term, we look at the rate increases that are expected there. Our goal is to actually bend the curve as our president, Tanya Moniz-Witten, she talks a lot about bending the curve for the affordability for customers. That's what we want to do, is bend that curve so that it maintains affordability.

These projects that we're talking about, believe it or not, pencil out well relative to bending that affordability. It allows us to gain much needed control over those types of water supply projects and provides valuable oversight that's not there today with the CPUC. I think that's the part that really sets us apart relative to the other models out there is we are regulated private water, regulated is an important aspect. Where other people, they can just put through the rates, whatever it is at any given year.

Makes sense. Well, great. Well, thank you so much.

Thank you. Thank you. As a reminder, to ask a question, simply press star 11 to get in the queue.

We have a follow-up from Angie Storozynski with Seaport.

Thank you. Just wanted to understand how you will actually finance the acquisition, the closing of the Quadvest acquisition. It's $530 million, right? Then you have a $400 million forward. Should I assume that you fully flex the forward to pay for, whatever, $400 out of the $530 million?

Well, I think about it this way. We raised $700 million, including the forward. The $300 that was already issued has been used to reduce our operating lines of credit and actually invested in short-term cash equivalents. We'll be using that money that we originally issued that hasn't been used for capital expenditures as well as the forward. Then we do have, I said the $100 million-$200 million of debt. The timing of that is flexible. We may do some prior to the closing and some after because we do have the option of the forward.

Okay. I'm basically trying to roughly estimate the weighted average share count for 2026. Okay. Would it be somewhere near the share count that you currently have or you're showing me like somewhere around 43 million? Is that fair for the year? Like a weighted average? No.

The current weighted average, like I said, only reflects the 300, and it's weighted average for the year. You have the first couple of months where we had the lower share count. I would assume that, if you think about the year, we have the $540 for the transaction. I said $100-$200 of debt, we also have another, say, $100-$150, which we typically issue through our ATM that we financed this year under that equity issuance. If you take essentially the $540 less $100-$200, like I said, we have some flexibility there, you add the $150 for our normal equity needs, that's what we would've issued this year.

I think the key, Angie, and this is hard for you because we don't really have the answer yet, depends where the debt markets are at the time.

Yeah. It can be beneficial from an EPS perspective to actually just draw down on the forward because it's going to be better than locking in rates where they are today.

That's the part that we just have to keep in mind is we're not trying to talk around it. We don't really know the answer until we actually get to the day, and it depends where the market is at the time.

That's correct. Just one clarification, that annual equity issuance of around $100 million to $150 million, that was not embedded in that $700 million equity deal that you did? I would have thought that at least for 2026, I'm set, no?

Oh, it was. That's why I was trying to- Okay do that as in terms of how much we draw down for this year.

Okay. I understand. Thank you.

You got this year and next year, right? Because it was two years' worth of equity- Yes that we did all in one shot.

Okay. Exactly. Okay. Thank you.

All right. Thanks. Thank you so much.

This will conclude our Q&A session, and I will pass it back to Andrew Walters for closing comments.

Well, thank you again for joining us today. I do really appreciate all the questions, thank you all for following. H2O America proudly leverages our national platform to support our distinct local operations, all united by a shared mission, delivering reliable service with high-quality water to 1.6 million people across four states. Together, we protect what's precious. At the same time, we continue executing our growth strategy and delivering shareholder value, including our unwavering commitment to the dividend, which we've paid for more than 80 consecutive years and increased it in each of the past 58. Our success is built on a culture of service and partnership. We value our customers, the communities, the environment, and capital partners. I couldn't be prouder of our team, whose dedication makes it all possible.

I am always available for follow-up, along with my partners, Ann and Bruce. We appreciate your interest in H2O America. Thank you. This concludes our conference.

Thank you for participating, and you may now disconnect.