HTO

H2O America Q2 2026 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2026, for H2O America, a holding company operating regulated water utilities in California, Connecticut, Maine, and Texas. The company serves approximately 409,000 connections and over 1.6 million people. The reporting period includes the impact of a significant equity offering in March 2026 and ongoing regulatory proceedings related to the proposed acquisition of Quadvest assets.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Operating revenue increased 6% in Q2 and 8% YTD, driven primarily by rate increases (pass-through water costs and general rate cases) and higher customer counts, partially offset by regulatory mechanism adjustments.
• Earnings Dilution: While Net Income increased 8% in Q2 and 11% YTD, Diluted EPS decreased 13% in Q2 and 7% YTD due to a significant increase in weighted average shares outstanding following the March 2026 equity offering.
• Expense Increases: Operating expenses rose 9% in Q2 and 10% YTD. Water production expenses increased due to higher per-unit costs for purchased water and groundwater extraction. Administrative expenses rose due to merger and acquisition (M&A) costs.
• Capital Structure: The company raised approximately $290.2 million in net proceeds from an underwritten common stock offering in March 2026. Cash and cash equivalents increased from $20.7M at year-end 2025 to $104.1M in Q2 2026.

Guidance, Outlook, and Risks

• Acquisition Activity: H2O America is pursuing the acquisition of Quadvest L.P. (regulated business) and Quadvest Wholesale LLC for a combined base price of approximately $540 million. The transaction is subject to regulatory approval by the Public Utility Commission of Texas (PUCT), which recommended approval in July 2026.
• Capital Expenditures: Budgeted utility capital expenditures for 2026 are approximately $458 million. As of June 30, 2026, 42% ($194.3M) has been invested. Long-term plans include ~$2.6 billion over five years, including $400 million for PFAS treatment facilities.
• Regulatory Outlook: Several rate cases are pending or recently approved, including a $28.8 million increase request for CWC (Connecticut) and a $9.5 million increase for MWC (Maine). SJWC (California) has multiple approved rate increases effective in 2026.
• Risk Factors: Key risks include the successful closing and integration of the Quadvest transaction, regulatory approval timelines, water supply variability due to climate change, and ongoing litigation regarding PFAS contamination (though the company is a plaintiff in settlements totaling $36.1M received to date).
• Credit Ratings: Standard & Poor's revised the outlook for H2O America, CTWS, and CWC from stable to negative in July 2025 following the Quadvest acquisition announcement.

Investor Verification Checklist

• Quadvest Closing: Verify the final closing date and any adjustments to the $540M purchase price for the Quadvest acquisition.
• Share Count Impact: Monitor the settlement of the 7.5 million shares under the forward purchase agreements (FPA) entered in March 2026, which will further impact EPS.
• Regulatory Approvals: Track the status of pending rate cases for CWC and MWC to confirm revenue recovery timelines.
• PFAS Litigation: Review future cash flow impacts from the remaining $5.7M in estimated proceeds from the 3M settlement and potential new contamination costs.
• Debt Covenants: Confirm continued compliance with debt covenants, particularly the funded debt to capitalization ratio, as the company integrates new assets.