California Water Service Group (NYSE:CWT) Q4 2025 Earnings Call Transcript

California Water Service Group (NYSE:CWT) Q4 2025 Earnings Call Transcript February 26, 2026

Operator: Ladies and gentlemen, thank you for standing by. My name is Desiree, I will be your conference operator today. At this time, I would like to welcome everyone to the California Water Service Group Q4 2025 and full-year earnings call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. If you would like to ask a question during this time, please press star followed by the number one on your telephone keypad. I would now like to turn the conference over to James Lynch, Chief Financial Officer. You may begin. Thank you, Desiree.

James Lynch: Welcome everyone to the fourth quarter and full-year 2025 results call for California Water Service Group. With me today is Martin Kropelnicki, our Chairman and CEO; Shilen Patel, our Chief Business Development Officer; and Greg Milleman, our Vice President of Rates and Regulatory Affairs. Replay dial-in information for this call can be found in our quarterly results earnings release, which was issued yesterday. The call replay will be available until April 27, 2026. The Company has a slide deck to accompany today’s earnings call on the Company’s website at www.calwatergroup.com. The slide deck was furnished with an 8-K and is also available. As a reminder, before we begin, before looking at our fourth quarter 2025 results, I would like to cover forward-looking statements.

During our call, we may make certain forward-looking statements, and because these statements deal with future events, they are subject to various risks and uncertainties, and actual results could differ materially from the Company’s current expectations. As a result, we strongly advise all current shareholders and interested parties to carefully read the Company’s disclosures on risks and uncertainties found in our Form 10, Form 10-Q, press releases, and other reports filed with the Securities and Exchange Commission. I will now turn the call over to Martin.

Martin Kropelnicki: Thanks, Jim. Good morning, everyone. I cannot think of a more appropriate way to kick off our 100th year of operations as an essential utility than by quickly talking about two deals we announced. First and foremost, yesterday, we executed an agreement to purchase the Nevada and Oregon operations from Nexus Water. We have been busy working with them over the last few months to put that deal together, and we will be talking about the deal later on today. Secondly, in December, we announced we have reached an agreement to purchase the outstanding minority interest in the Texas joint venture that we help start, BVRT Holdings, and become the sole owner of seven Texas water and wastewater utilities. In addition, while we do not have a general rate case decision for the 2024 rate case for California yet, we know it is actively being worked on, and we expect to get a rate decision soon.

Based on what we are seeing and where the commissioner is in the process, questions they are asking, etc., we know it is actively being worked on and we know it is a priority within the commission to get that done soon. In addition, during the quarter, we filed and we are expecting a decision for our consolidated rate case in Texas, and we have also filed a rate case in the state of Washington. So if I can get everyone to go to page five, please. We will do a quick recap on what we did for the year. First and foremost, we went into the fourth quarter really ahead of budget and performing well. But I think as many of you saw, we had a major storm on the West Coast in December, and the financial results in December were clearly affected by wet, cold weather.

Q&A Session

This is really the second time we have had an atmospheric river that really hit the whole West Coast. Normally, if you think about California, it is a long state, and while we might get wet weather in Northern California, the demand for water services stays high in Southern California because it tends to be warmer. This is one of those storms that was from all the way from the Canadian border all the way down to the Baja Coast on the California side, to the Gulf of Mexico, and so we had a pretty big weather impact that Jim will be talking about later. As a highlight for 2025, we invested a record $517,000,000 into our infrastructure systems, and that includes an additional $52,300,000 invested in the fourth quarter alone. In 2025, we increased our annual dividend by a record 10.7%, and that was followed by our 59th annual dividend increase earlier this year in 2026 by an additional 8%.

We received, during the fourth quarter, our extension for our cost of capital in the state of California, which allows us to retain a 10.27% ROE until January 2028. I believe this is one of the highest ROEs of a water utility in North America. And we have received approval to increase interim rates by the commission. When the decision did not come out in December, the commission gave us the green light to implement an interim rate increase of 3% that we implemented in January in California. So overall, a busy year from that perspective on the rate side. In addition to that, we also maintained our A+ stable credit rating from S&P, which I believe is one of the highest rated utilities in North America. There is a lot to get into in the details, so I am going to turn it back to Jim to go through some of the details on the financial results.

Jim?

James Lynch: Great. Thanks, Martin. In Q4 2025, revenue was $220,000,000 and that compares to $222,000,000 in 2024. Net income for the quarter was $11,500,000, or $0.19 per diluted share, compared to the prior year period of $19,700,000, or $0.33 per diluted share. As Martin mentioned, our results in the fourth quarter were negatively impacted by the strong statewide weather pattern over much of California during the month of December that created exceptionally wet and cold weather. Moving to slide six, you can see the impact of this and other activities during the fourth quarter on our earnings results as compared to 2024. While tariff rate changes and other regulatory activities generated an increase of $0.48 per share, the weather-induced consumption decline led to a $0.59 earnings per share decrease.

In fact, of the $12,700,000 in consumption decrease experienced in 2025, $14,600,000 of it occurred in the fourth quarter. In addition, the three-year conservation program approved in the 2021 rate case ended in Q4, with final expenses and the expense true-up reducing earnings by $0.10 per share. Slide eight shows our 2025 year-end financial results. As many of you know, the Company’s delayed 2021 rate case decision resulted in 2023 interim rate relief, which was recorded in 2024. So in reporting our results, we have presented both the GAAP and non-GAAP measures for 2024, essentially removing the impact of the 2023 interim rate relief from our 2024 results. Operating revenue for 2025 was $1,000,000,000. This compared to $1,370,000,000 in 2024.

When compared to non-GAAP 2024 revenue of $949,300,000, our revenue for the year actually increased by $50,800,000, or approximately 5.4%. Net income attributed to Group was $128,200,000 compared to net income of $190,800,000 in 2024. Again, when compared to 2024 non-GAAP income of $126,800,000, our net income increased $1,400,000, or 1%. In 2025, diluted earnings per share was $2.15 compared to $3.25 in 2024. And, again, removing the 2023 rate relief from our 2024 numbers, the non-GAAP 2024 earnings per share was $2.16, which was essentially flat when you compare it to 2025. Turning to slide nine. The primary drivers of our 2025 diluted earnings per share were tariff rate changes and other regulatory activities, consumption decreases of $0.19 per share, and depreciation expense increases of $0.18 per share.

Combined, these added $1.05 per diluted share. Turning to slide 10, the increases were primarily offset by wholesale water rates that, net of the volume decreases, reduced diluted earnings per share by $0.27, and by income taxes, which were lower year-over-year due to lower taxable income and the related effects on our income tax rate. We continue to make significant investments in our water infrastructure during 2025 to ensure the delivery of safe, reliable water service. Our capital investments for the quarter and year-to-date were $152,300,000 and $517,000,000, respectively. This record level of annual investment represents a 19.8% increase over construction levels in 2024. As a reminder, our capital investment estimates for 2026 and 2027 presented on this slide do not include $235,000,000 of anticipated remaining PFAS project expenditures, which we expect will be incurred over the next few years.

In addition, the estimates do not include any capital investments required in Nevada or Oregon. The positive impact of our capital investment program and what it is having on our rate base is presented on slide 11. If approved as requested, the 2024 California GRC, coupled with planned capital investments in our utilities in other states and our recently announced system acquisitions in Nevada and Oregon, would result in a compounded annual rate base growth of almost 12% through 2027. Moving to slide 12. We continue to maintain a strong liquidity profile to execute our capital plan, to fund BVRT greenfield utility growth, and to integrate Nevada and Oregon systems. At year-end, we had $51,800,000 in unrestricted cash and $45,600,000 in restricted cash, along with approximately $470,000,000 available on our bank lines of credit.

We maintain credit facilities totaling $600,000,000 that are expandable to $800,000,000, with maturities extending to March 2028. On October 1, 2025, we issued $370,000,000 in long-term financing, which consisted of a combination of Group notes and Cal Water first mortgage bonds. We also renewed our ATM program in May 2025 with a $350,000,000 shelf registration, and completed $1,500,000 of program sales in the 2025 fourth quarter. Importantly, underscoring the strength of our balance sheet, both Group and Cal Water maintained strong credit ratings of A+ stable from S&P Global. And finally, in January 2026, we declared our 324th consecutive quarterly dividend of $0.33 per share. We also announced our intended 2026 annual dividend of $1.34 per share.

The $0.10 per share increase represents an 8.1% increase over 2025. This would be our 59th consecutive announced increase. So we had a lot going on in 2025, and we are really looking forward to 2026. With that, I will turn it back over to Martin.

Martin Kropelnicki: Alright. Thanks, Jim. And just to remind everyone, 2025 was the third year of the rate case. When you look at the press releases, people might say, well, you are essentially flat year-over-year. You are off a penny year-over-year, but remember coming out of COVID, there was a pretty big spike in inflation. We have absorbed those costs within that period, and we are waiting for rate relief on that. Historically, the third year of the rate case in California, being approximately 92% of our total operations, we really feel that inflationary lag in that third year. So all in, I am happy with how we ended up the year. We would have ended up stronger if we did not have that atmospheric river really wipe out the West Coast consumption here in December.

But, overall, I think we finished the year in a good position as we wait for the rate case in California. I am on slide 13, and I want to talk a little bit more about the deal with our friends at Nexus Water. When you look at slide 13, this acquisition is meaningful because it strengthens our position as a leader in the Western US by adding two additional states and diversifying our geographic footprint. In addition to that, it also increases our regulatory diversification by X. If you exclude BVRT, this adds about 40% to our operations outside the state of California. So the geographical diversification and the regulatory diversification, we think, are really, really important. At year-end 2025, the acquired systems represent about $109,000,000 of rate base and a purchase price of approximately two times rate base, consistent with our allocation of capital and our disciplined approach to looking at acquisitions.

In addition, at the proposed purchase price, we believe this deal will be accretive within the first year, backing out some of the one-time integration costs that we will have entering these two new markets, closing the deal, and welcoming the Nexus employees to California Water Service Group once the deal is approved by the regulatory commissions in the appropriate jurisdictions. So overall, we are really happy with this deal. We expect it to be accretive the first year, and we look forward to integrating the systems onto our platform. Moving on to slide 14, it just gives you an illustration of what the footprint looks like as we operate and expand into a total of eight states. So again, diversifying out of California, extending our footprint in these other states, and I was doing some work in preparation with our board and looking back in 1926 when we were founded, and we started with four little water systems in Northern California and how they have grown.

At some point, we bought the system called Bear Gulch in the 1920s and early 1930s, and I am sure some people thought, why would they want to buy a system down in Silicon Valley? All it is is farmland down there. So, you know, as we acquire these new systems, you know, we like to think of them as seeds in robust markets that will grow over time, and that is consistent with our capital strategy. Look for systems in growing markets that we can continue to invest capital in and grow out their infrastructure to continue to improve service and spread our baseline cost over a larger base. Both states, Oregon and Nevada, operate under a hybrid ratemaking framework, which really provides some visibility into the future rate relief for capital investments that are needed.

In addition, Nevada allows for a DSIC, which we think is a regulatory best practice, and the framework is consistent with our existing long-term infrastructure investment strategy. On slide 14, this deal will add about 36,000 equivalent residential units, so it is water and wastewater. With a larger footprint, we see opportunities to optimize our corporate costs and leverage our base to allow us to lower the overall marginal cost for customers while making sure we meet and exceed water quality standards and build resiliency into the system. We will also benefit from strong regulatory relationships within the states. We were very impressed with the employees and the states of Oregon and Nevada. As we know, we are big believers in strong regulatory relationships, and we believe that is the underpinning of the long-term stability of the system and our success on the regulatory side.

In addition, these systems come with embedded growth pipelines, including both tuck-in acquisitions and other opportunities to add around the existing systems to grow out. So we are excited about that. And then finally, we were very impressed with the staff and the asset quality of the systems. When you look at deals, I think most of you know Shilen as our Chief Business Development Officer, but a lot of times you go look at someone and they look different than you or they operate different than you. You know, we were very impressed with the operation in Nexus Water. Looking at slide 16, I am going to hand that over to Shilen. It is not surprising for those of you that know Rob McClain and the management team at Nexus. They do a very good job, not only with their people, but with the quality of their systems that they operate in.

So we look forward to a smooth approval process with the commissions in Oregon and Nevada, integrating the systems onto our platform, especially in the state of Nevada, which we deem as a high-growth state. Shilen has also been our General Manager in Texas, managing our Texas operations. Shilen, you want to talk about the transaction we executed and what is going on in Texas?

Shilen Patel: Yes. Thank you, Martin. We have entered into an agreement to acquire the remaining outstanding membership interest in BVRT in Texas. As you recall, it was a joint venture, and we are acquiring a minority. Upon closing, we will become the sole owner of seven regulated water and wastewater utilities located in the high-growth corridor between Austin and San Antonio. As you can see on this slide, at 2025 year-end we have more than 19,000 committed customers, about 5,000 are connected currently, with an additional 20,000 likely in the next foreseeable future, and then about 100,000 in the long-term potential customers as our systems grow and mature. The transaction will require our Texas subsidiary to file a change-of-control application, and it is contingent on regulatory approval and other customary closing conditions, including the PUCT and also California Water Service Group board approval once we receive PUCT approval.

Strategically, consolidating full ownership enhances governance, simplifies the structure, and allows us to fully capture the long-term growth and infrastructure investment opportunities within this market. We continue to expand through ongoing system buildouts, with sustained customer growth and infrastructure enhancements, really positioning the platform to support that growth. I am really looking forward to continuing to build on the successes that the team locally have put in place for the last six to seven years. Martin, I will turn it to you.

Martin Kropelnicki: Sure. Thanks, Shilen.

Greg Milleman: Turning to the 2024 California general rate case, we are expecting a proposed decision very soon. As we previously reported, in the case we proposed to invest $1,600,000,000 in water infrastructure in order to continue providing safe and reliable water service to our customers. We also requested revenue adjustments of just a little under $3,000,000 over the three-year period. Given where we are in the process, and given the fact that the commission can vote as early as 30 days after the proposed decision is issued and oral arguments are made, we believe that if the commission were to issue a proposed decision by March 5, there would be adequate time for the commission to consider and adopt the final decision at the next voting meeting on April 9.

Obviously, we will provide an update when we receive the proposed decision. Turning to slide 18. I will provide a brief update on regulatory activity across our other jurisdictions, and I will start with Hawaii. In November 2025, we filed a rate case in Hawaii for our Kapalua district requesting $2,200,000 in annual revenues to recover higher operating costs and system improvements. Additionally, in October 2025, the Hawaii PUC approved a $4,700,000 annual revenue increase for Hawaii Water’s five Waikoloa systems, with a two-year phase-in that began in October 2025. Moving to Texas, during 2025 interim rates were adopted and implemented in July 2025. These rates are not subject to refund, and we are waiting on a final PUCT approval that is currently pending.

Moving to Washington. In September 2025, Washington Water filed a rate case with the Washington Utilities and Transportation Commission requesting a $4,900,000 annual revenue increase to recover costs of system investments and rising operating costs. We expect the case to be completed and new rates implemented in 2026. Overall, these filings demonstrate our continued investment in infrastructure, proactive regulatory engagement, and disciplined efforts to align rates with the cost of providing safe, reliable service. Martin, back to you.

Martin Kropelnicki: Thanks, Greg. And I am now on that last page. So what are we focused on in 2026, our centennial year? First and foremost, we are committed to a timely completion with Nexus Water for Nevada and for Oregon and working with Nexus Water to completely transition there, and in a way that is good for customers and good for the employees. We expect to successfully close those transactions on time. We will continue to pursue growth opportunities in these high-growth areas, as well as change-of-control applications that we are working on. And then, of course, once we get the 2024 rate case done, it is a three-year cycle in California, and then we have the rate case that Greg just mentioned in Hawaii and in Mexico—well, it just keeps moving forward.

As Greg mentioned, we have a lot of regulatory activities going on, whether it is the acquisitions we announced or planning the 2027 general rate case. Again, just to remind everyone, the primary growth engine at California Water Service Group is really the reinvestment of existing capital into our rate base. And as Jim said, we were just about 10% year-over-year in CapEx. That is the primary growth genetics, any of the PFAS stuff. And then, secondarily, we plan on strategic acquisitions like what we have done here with Nexus that add to the existing platform. But having criteria that we use to evaluate acquisitions is really important because we want to maintain that 10% cadence on the CapEx line, while balancing public health and sustainability and reliability.

Affordability continues to be an issue. We know and understand that. We have been able to keep our rates affordable and maintain our rate base growth and ensure our systems are resilient, and we are building resiliency into our systems as we deal with things like climate change. And then, of course, lastly, we continue our disciplined strategy on the regulatory side, working with our regulators, staying focused on the rate cases, getting those to put us to the needs of our customer, and continuing with our capital replacement program. So we will continue looking at that and making sure we are being disciplined. With that, Desiree, we will open it up for questions, please.

Operator: We will now open for questions. If you would like to ask a question, press star then the number one on your telephone keypad.

Martin Kropelnicki: I would say that the California Water Association over the past three or four years has been really focused on educating the commissioners about the impacts of the delays on customers, and we have seen actions moving to get the cases out on a more timely basis. Second, one of the lead advocates for that is the commissioner that is assigned to our case, Commissioner Matt Baker, and he is very focused on getting decisions out on time. And then the third thing with where we are feeling where our proposed decision should be coming out pretty soon is the water division staff at the commission has been asking us for information to help them process and get to publish the PD. Very similar to what they did in the 2018 GRCs right before the PDs came out. And that long term, the cases will come out on a more timely basis. So that is where I feel. And then short term for our case, we see it coming out in the very near future.

James Lynch: We were not getting questions. As Greg said, we got a lot of questions at the very, very end, and then the stuff was submitted, and then we waited and waited and waited and waited. There was not a lot of communication.

Martin Kropelnicki: I was being politically correct in my opening comments, Davis. But you know, in the last rate case, it was just kind of like a black hole. The PD came out all of a sudden. It has been really different in this case. The judge, when it was delayed, gave us the 3% interim rate increase right away, which we thought was good. They have been asking questions throughout the process, which is good. And so we have seen a lot of activity, which leads us to believe they are very focused on it. They have not given us any assurances of a date, but it has been very clear that they have made it a priority at the commission. I think the other big thing that has changed now from where it was in the 2021 rate case is affordability is a big issue.

And when you deal with things in California like the skyrocketing electric rates that people had to deal with and gas rates that are up, you know, the commissions are getting more scrutiny about rate increases. And so you cannot get a rate case out and have the idea of making our rate increase look worse than what it really is. I do not think the commission likes being in that position. And while you have an assigned ALJ, it can vary commissioner by commissioner. The real hearing officer really is the commissioner because they deal with those complaints from customers when rates go up. And so the commissioner kind of sets the tone in these cases. So I think we are fortunate we have Baker assigned to our case, who used to run the Office of Ratepayer Advocates.

He has been setting the tone: we need to get the rate cases out on time and be reasonable and diligent in our approach. So I think for now, I frankly expect to get a decision here relatively soon. Obviously, when it comes out, it is material. So we 18 it right away when it comes out.

Davis: That is super helpful, and thank you both for all the details there.

Davis: Maybe my second question, Martin, I appreciate you bringing up the DSIC in Nevada. I was just going to ask about maybe the friendliness of operating environments, or specifically any key regulatory mechanisms in either Oregon or Nevada that are worth calling out, either that are in place now or that you might be pursuing. That would be helpful. And I think, Jim, you also mentioned in your comments, CapEx, of course, does not include potential investments in these, and maybe it is too early to say, but any thoughts on what those might look like would be helpful too.

Greg Milleman: Yeah. Sure. Let us start with Nevada. Nevada has a very reasonable commission environment, which is positive. They also have decoupling in Nevada. They allow construction work in progress in rate base. They have a mechanism for interim rate memorandum accounts if your case is late. They allow adjustments for changes in your water production costs from your wholesalers, and their cases take about six months to complete. In Oregon, they have a hybrid system of a rate case with a historic test year that allows about a half year of capital improvements in your first year being included in the case. In addition, Nevada allows for a DSIC. They are allowing consolidated or statewide rates to be phased in over six years for the water systems.

In Oregon, about half of the systems are nonregulated wastewater systems. Nexus has treated them as they treat their regulated entities, and they file a rate case for those entities. Those are the kind of frameworks in the two states.

James Lynch: Yeah. And I think as far as the CapEx goes, Davis, as a result of that, there is kind of a capital plan in their last rate case. So as we move forward and get more familiarity with the systems, that number could change. But I would expect in the first couple of years, somewhere between $20,000,000 to $30,000,000 in CapEx between the two systems. First of all, they are historic. We can clearly work through them, but Nevada did file a pre-approval of what the levels are going to be at least in Nevada. We feel there is also a lot of opportunity there for tuck-in acquisitions around the systems, especially in Nevada. I think there is some great opportunity there that we are going to be able to take advantage of, not only because it provides us the diversification that Martin talked about, but because there is an opportunity for us to continue investment growth.

Davis: Super helpful again and thank you. Maybe if I could be greedy and sneak in one more quick one. I saw yesterday the EPA appears to have officially moved forward now with the PFAS push-out that has been talked about for a few quarters. I know we have talked about this before, and Martin, you have said your plans here probably will not change. Continue to make the upgrades as they come. But maybe just give any update on funds that are flowing as a result of the class action suit, and then if that first piece is indeed correct. And thank you very much.

James Lynch: Yeah. No. Good question, Davis. I think I have used the example: it is really hard to look at a mother with their child and say, yes, there is something in the water that is not safe, but do not worry about it for three years. That just does not work. And I think consumers have gotten fairly well educated on water, because, you know, as a utility, our product is consumable, and it is ingested. There is no room for error on water quality. It is absolutely critical. That is why it is in our bonus plan. That is why it is published right up front. We show what the ramifications are. Our goal is to meet all primary and secondary water quality standards every moment that we operate in. Obviously, as this becomes a new MCL, we have to be compliant with it.

So we are moving forward with our plans. What we have seen when you have had this fight between the states and feds on when does it go, where does it go—if the feds have said, hey, we might delay this three years—we have seen states say, okay, but we are going to make it effective sooner. Because, again, I do not think anyone wants to not protect their citizens. I think that is really important. So we are moving ahead as planned. In 2025, I believe we spent about $20,000,000 on our PFAS programs, and that is really getting all the program logistics up, the planning for all the construction, putting the contracts out to bid, procuring all the materials, and scheduling out. We are running it as a corporate, group-sponsored program. There is a PMO—project management office—with a very good engineer leading that program.

The senior management team gets updates on it all the time, and everything is being scheduled out. We are going to continue going full steam ahead. I expect in 2026 we are going to spend between $50,000,000 and $70,000,000 on PFAS. Again, that is incremental to the capital numbers that Jim has shared. In terms of recoveries, what is the net amount that we have recovered so far? Is it forty-some-odd million?

James Lynch: The net amount is slightly below $40,000,000 after the attorneys have taken out their share of the proceeds. But we continue to work on other opportunities to fund those investments. We have a pretty strong grant program underway that is really going to help us, I think, in some of our more challenged districts and states. So we are looking at potential grant dollars in addition to the recovery dollars. The other thing I would just add is that $235,000,000 that we are anticipating in terms of spend for PFAS, you have to think of it in two tranches. One is the treatment, and the other is where new wells need to be drilled in order to either replace old wells or to put new wells in where we do not believe there is as big of a contamination problem.

The treatment is going to be in place much quicker than the wells. It usually takes us three, four, five years depending upon the permitting process to get those wells going. A majority of the treatment, we anticipate right now, will be put in place by the 2020 step—well, it is phased, but yes.

Davis: Outstanding. Thank you very much. Appreciate all the detail.

Martin Kropelnicki: Alright, Davis. Have a good day. Please feel free to call with follow-up. Take care.

Operator: And, again, if you would like to ask a question, press star then the number one on your telephone keypad. There are no further questions at this time. I would like to turn the call back over to Martin Kropelnicki for closing remarks.

Martin Kropelnicki: Alright, Desiree. Thank you everyone for joining us here today. Obviously, 2026 is starting off with a bang. We have plenty to do on our agenda at California Water Service Group, and we will look forward to integrating the acquisitions that we talked about, the Nexus acquisitions as well as the BVRT acquisitions that we announced, getting the rate cases—staying focused on the rate cases, getting those to put us as quickly as possible—and then continuing with the PFAS treatment in our capital program. There will be plenty to talk about at the end of Q1, and we will look forward to giving you an update then. So until then, thanks for joining us today. Be safe, and we will talk to everyone soon. Thank you.

Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining in. You may now disconnect.