HTO

H2O America Q1 2026 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2026. H2O America (formerly SJW Group, renamed in May 2025) is a holding company providing regulated water and wastewater services through subsidiaries in California, Connecticut, Maine, and Texas. The company serves approximately 409,000 connections and over 1.6 million people. The business is highly seasonal, with Q1 typically representing lower revenue due to cooler weather and precipitation.

Key Financial Metrics

Adjusted Non-GAAP Metrics: Adjusted Net Income was $19.4 million and Adjusted Diluted EPS was $0.50 for Q1 2026.

Material Changes vs. Prior Period

• Revenue Growth: Operating revenue increased 9% year-over-year, driven by rate increases (including pass-through water costs and general rate cases), higher customer usage, and growth in "Other Services."
• Expense Increases: Operating expenses rose 11% to $145.9 million. Water production expenses increased $7.5 million due to higher unit costs for purchased water and groundwater extraction, partially offset by increased surface water availability.
• Capital Structure: The company significantly strengthened its liquidity position. Cash and cash equivalents surged from $20.7 million to $153.0 million, primarily due to a $290.2 million underwritten common stock offering in March 2026.
• Debt Management: Long-term debt remained relatively stable, with the company repaying $15.0 million of Senior D Notes that matured in January 2026.

Outlook, Risks, and Management Commentary

• Acquisition Strategy: 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. Proceeds from the March 2026 equity offering are earmarked for this transaction and capital expenditures. Regulatory approval from the Texas Public Utility Commission (PUCT) is pending.
• Capital Expenditures: The 2026 budget for utility capital expenditures is approximately $458 million. Over the next five years, the company expects to spend roughly $2.6 billion, including $400 million for PFAS treatment facilities.
• Regulatory Environment: Multiple rate cases and regulatory filings are active across jurisdictions (California, Connecticut, Maine, Texas). Recent approvals include rate increases for SJWC effective January 2026 and CWC effective April 2026.
• Water Supply Conditions: California faces long-term supply challenges with the Sierra snowpack at 6% of normal as of Q1 2026. However, the company expects sufficient supply for 2026. Texas service areas are experiencing drought conditions.
• Legal and Contingencies: The company is a plaintiff in Multi-District Litigation (MDL) against PFAS manufacturers. As of March 31, 2026, it has received $25.1 million in settlement proceeds, recorded as a regulatory liability. A subsequent event in April 2026 noted an additional $5.3 million in settlement proceeds.
• 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, though the rating remains A-.

Investor Verification Checklist

• Verify the status of the PUCT approval for the Quadvest acquisition and the timeline for closing.
• Monitor the impact of the "Negative" credit outlook on future borrowing costs and debt covenants.
• Track the utilization of the $290.2 million equity proceeds against the $540 million acquisition cost and $458 million CapEx budget.
• Review the progress of the PFAS litigation settlements and the regulatory approval process for applying settlement proceeds to rate reductions or cost recovery.
• Assess the long-term water supply risks in California given the record-low snowpack and the status of the Anderson Reservoir seismic retrofit.