H2O America (NASDAQ:HTO) Q4 2025 Earnings Call Transcript

H2O America (NASDAQ:HTO) Q4 2025 Earnings Call Transcript February 26, 2026

Operator: Good day, and thank you for standing by. Welcome to the H2O America’s Fourth Quarter Financial Results Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I’d now like to hand the conference over to your speaker today, Jonathan Reeder, Senior Director of Treasury and Investor Relations. Please go ahead.

Jonathan Reeder: Thank you, Liz. Welcome to the 2025 Financial Results and 5-year Plan Update Conference Call for H2O America. My name is Jonathan Reeder, and I’m 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; Anne 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 the presentation, we refer to 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, and H2 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 an archive of the webcast will be available until May 26, 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 may not have 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 as an alternative to the respective GAAP financial measures. Reconciliations 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 now turn the call over to Andrew.

Andrew Walters: Welcome, everyone, and thank you for joining us. I want to take a few minutes to briefly discuss some of our team’s successes over the last year and where we are today as an organization before we get into what I believe is an exciting updated 5-year outlook. 2025 was another strong year, both strategically and financially and builds upon prior year successes. I am pleased to share that we delivered full year 2025 diluted EPS of $2.92 per share and adjusted or non-GAAP diluted EPS of $2.99 per share, which was near the top end of our upwardly narrowed $2.95 to $3 per share guidance range. Our performance in 2025 reflects continued execution of our proven growth strategy, which focuses on making 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.

We will touch on these more later in the call, but some highlights during the year include: in early July, we announced the transformative deal to acquire Houston, Texas-based Quadvest for $540 million. Upon closing, Quadvest is expected to add $483.6 million of rate-making rate base plus a small complementary wholesale business. In the base business, we had a number of constructive regulatory and legislative developments in each of our states, including in California. We were able to secure another 1-year deferral in our filing of a new cost of capital application, which provides certainty as the current return parameters and construct remain in place through the end of 2027. In Connecticut, legislation was passed and signed into law, creating the Water Quality and treatment adjustment.

The WQTA is the nation’s first mechanism established to recover the capital investments needed to treat PFAS and other emerging contaminants. In Texas, legislation was passed and signed into law authorizing water utilities to adopt a future or hybrid test year in general rate cases. And in Maine, regulators approved our stipulation reached with the Office of Public Advocate to consolidate our 10 districts into 1 as well as established our first affordability rate for low-income customers in the state. On the CapEx front, we invested $501 million in 2025, which exceeded our upwardly revised budget of $486 million. 2025’s actual spend represented a 41% increase over 2024. This record execution in 2025 bodes well as we see elevated CapEx needs for the foreseeable future across our 4 states as evidenced by the 31% increase in our 5-year 2026 to 2030 CapEx budget to $2.7 billion.

And then last month, our Board increased the quarterly dividend by 4.8%. The 2026 annualized dividend is expected to be $1.76 per share compared with $1.68 per share in 2025. The $0.08 annual increase is consistent with our recent annual increase cadence and marks the 58th consecutive year of increasing the annual dividend. I would be remiss if I did not take this opportunity to again thank our former Chairman and CEO, Eric Thornburg, who I’m sure is listening to this call as we speak, who retired at the end of June 2025 from the company and then from the Board at the end of last month for all of his contributions over the years. Eric has been a mentor to me and helped instill the foundational strategy and culture that I believe our current team is poised to take to the next level as we enhance our executional capabilities, both operationally and financially and progress towards the further growing and diversifying our business with the transformational Quadvest transaction.

We have been active in recent years enhancing the company’s capabilities by attracting highly accomplished industry leaders to our H2O America team, both at the corporate and state levels. Many have come to us from much larger, well-respected utilities, bringing with them the knowledge of these organizations’ best practices. Most recent addition is Nickolas Whitley, our new Vice President of Business Development. Nick joined us at the end of 2025 from Northwest Natural Holdings, where he was the Managing Director of Business Development. Nick brings deep transaction expertise, strategic discipline and a proven ability to scale infrastructure platforms. His leadership and experience across complex multi-jurisdictional acquisitions will be instrumental as we continue to grow responsibly and serve more communities across the country.

Nick shares our commitment to culture, service and pursuing disciplined strategic growth opportunities, and we look forward to introducing him to many of you in the future. I will now turn the call over to Ann to provide details on our full year 2025 results as well as key components of our updated 5-year plan and long-term EPS growth rate target. Then Bruce will provide updates on the Quadvest deal, approval process and connection growth as well as discuss other regulatory and legislative developments. Ann?

Ann Kelly: Thank you, Andrew. Yesterday, after the market closed, we released our full year 2025 and fourth quarter operating results. We were pleased to report full year 2025 diluted EPS of $2.92 and adjusted diluted EPS of $2.99. This compares to full year 2024 diluted EPS of $2.87 and adjusted diluted EPS of $2.95. And as Andrew mentioned, we’re near the top end of our upwardly narrowed guidance range. For 2026, we are offering stand-alone guidance of $3.08 to $3.18, which reflects $483 million of capital investments as well as the issuance of $100 million to $125 million of equity to fund the stand-alone CapEx budget. This stand-alone guidance excludes the potential impacts of the pending Quadvest and Cibolo acquisitions given uncertainty regarding the timing of the deal closures and planned external capital raises.

Shifting to our 5-year outlook. I’m excited to share the results of our updated and rolled forward plan, and we list a few of the key highlights here. As Andrew mentioned, we plan to invest $2.7 billion or an increase of 31% over our ’25 to ’29 budget to renew and replace aging infrastructure across our systems, improve reliability and service quality and comply with environmental regulations. Those capital investments, along with our pending Texas acquisitions, are expected to drive a 13% rate base CAGR over the period. And as a result of our 2025 achievements and the groundwork that we have been putting in place over the last few years as well as our expectations to be able to continue to build upon this momentum into the future, we are increasing our nonlinear long-term EPS growth rate target to 6% to 8%.

The 6% to 8% CAGR reflects what we believe is a long-term sustainable growth rate that extends beyond our 5-year plan and is predicated on a solid yet fairly straightforward organic growth plan plus the addition of the Quadvest business in the high-growth Houston market. This plan is well supported by our regulatory and financial execution track record and elevated capital investment needs for decades to come. In the near term, we expect to deliver a nonlinear EPS growth rate at or above the top end of the 6% to 8% range over the 2026 to 2030 period using our actual 2025 adjusted diluted EPS of $2.99 as the new base. I will discuss the details of our 5-year plan and guidance in more depth in a few minutes. But first, let me walk you through the key year-over-year drivers that impacted the $0.04 increase in 2025 adjusted EPS.

As shown on Slide 9, revenue increased $1.42 per share. This includes $1.20 of rate increases driven by general rate cases and infrastructure surcharge recovery mechanisms and $0.63 of higher revenues for pass-through water supply costs that are offset in our water production expenses and do not impact our net income. These positive factors were partially offset by lower consumption and the impact of our regulatory mechanisms. The revenue increase was partially offset by higher water production expense of $0.51, which reflects $0.66 of higher water supply costs and an increase from less surface water availability in California. These increases were partially mitigated by the lower usage and our regulatory mechanisms. Other operating expenses increased $0.73, driven by primarily by 2 items.

First was higher A&G expenses. This primarily reflects our decision to opportunistically reinvest back into our business in order to advance various strategic priorities during the second half of 2025 as well as higher insurance costs. The second item was increased customer credit losses. This was due to the fact that during the second quarter of 2024, we received funds under the California Water and Wastewater arrearages payment program that did not repeat in 2025. Beyond those 2 primary items were the more typical drivers of higher operating expenses such as depreciation of property taxes and increased maintenance. The remaining drivers relate to share increases due to issuances under our ATM program, a positive benefit in the prior year due to a tax method change and other, which includes higher AFUDC equity as a result of our record CapEx deployment during 2025.

These drivers were generally consistent with the quarterly variances that we highlighted throughout 2025. Expanding on taxes, our effective income tax rate in 2025 was 11% versus 9% in 2024. Our ETR increase in ’25 was primarily due to a lower uncertain tax position reserve release and lower reversals of excess deferred income taxes, along with the impact of the accounting method change that I just mentioned, partially offset by higher flow-through tax benefits. Shifting from 2025 results to 2026 and beyond. As Andrew mentioned, the team did an outstanding job deploying over $500 million in capital for infrastructure improvements across our service territories in 2025. This was a record amount of capital investment for our company and includes ongoing work on some of our higher profile projects, such as rolling out AMI meters in California and developing the KT water wells in Texas to shore up much needed supply in the Hill Country region.

Our 2025 CapEx represented a 41% increase over 2024, and we see these elevated infrastructure needs persisting well into the future. As mentioned earlier and as shown on Slide 10, we refresh and roll forward our 5-year CapEx budget to the 2026 to 2030 period. We plan to invest $2.7 billion or an increase of 31% over our ’25 to ’29 budget. The increase in our 5-year CapEx budget is driven primarily by 3 factors: first, increased pipeline replacement work as we progress towards our goal of replacing 1% of our distribution pipe annually. We believe a 1% annual replacement cycle best reflects the expected useful life of the assets in our distribution system. We are not yet to this target, which means this component of our CapEx budget is expected to increase annually until we get there in addition to expected inflation.

To give you a sense of the magnitude of this effort, replacing 1% of our existing distribution pipeline across our 4 states would amount to nearly $175 million of annual capital expenditures. Second, an updated estimate of roughly $400 million to install treatment for PFAS as compared to $300 million in our prior 5-year plan. The increase reflects a refinement in our initial estimates to the actual bids that we have received to complete the required remediation work. And third, including our elevated level of planned investments in Texas following the anticipated closing of our pending acquisition. Also on this slide, and I know a lot of investors have been asking for this, we show what our expected rate base growth looks like over the 5-year period.

These amounts represent our estimated rate base at year-end and not necessarily what was or will be recognized in rates by our state regulators in those particular years. At year-end 2025, our estimated consolidated rate base was nearly $2.8 billion. Between the addition of Quadvest and our $2.7 billion of planned capital investments, we expect rate base to grow to $5.1 billion by year-end 2030. This represents a 13% CAGR. You will note that this exceeds our EPS growth guidance due to the anticipated equity needed to fund our capital plan and delever our balance sheet as well as some regulatory lag. We are laser-focused on not only delivering the roughly 13% rate base CAGR but translating it into attractive earnings growth by minimizing regulatory lag and continually seeking ways to operate more efficiently in order to keep rates affordable while providing our customers with best-in-class service.

On Slide 11, we provide a breakdown of our 2026 to 2030 capital budget, both by state and by category. As you can see, nearly half of the total spend is for distribution system improvement and another 15% is PFAS related. And with California’s 3-year forward test year rate construct as well as infrastructure surcharge mechanisms in Connecticut, Maine and Texas, plus the recently passed WQTA in Connecticut for PFAS spend, we expect timely rate recognition of roughly 80% of this 5-year budget. On Slide 12, we present a bridge from our 2025 actual adjusted diluted EPS of $2.99 to the $3.13 midpoint of our stand-alone 2026 guidance. I’ll highlight a few of the key drivers. Starting with revenue, we expect an increase driven primarily by rate relief, including the second year step increase as part of San Jose Water’s ’25 to ’27 general rate case, incremental infrastructure surcharge revenues in Connecticut, Maine and Texas and the pass-through of higher purchase water costs.

The higher revenues are partially offset by increased water costs. Next, operating expenses are expected to be lower in 2026, which reflects the absence of the strategic investments that I mentioned earlier that we made during the second half of 2025 as well as our ongoing expense efficiency efforts, partially offset by inflationary pressures. And then in terms of headwinds, most of the items are what you would expect to see from a utility with meaningfully — meaningful organic rate base growth and include higher depreciation expense as well as the associated cost of the debt and equity needed to finance capital investments. Moving to Slide 13. And as I mentioned earlier, we are increasing our nonlinear long-term EPS growth rate target to 6% to 8% and updating the anchor year to 2025 adjusted diluted EPS of $2.99.

This compares to our prior target of 5% to 7% through 2029 with expectations to be in the top half, anchored off of 2022 diluted EPS of $2.43. Our new 6% to 8% EPS growth rate target reflects long-term sustainable organic growth rate that extends beyond 2030 and is supported by elevated CapEx investment needs. I also want to be clear that we do not factor in any potential M&A opportunities beyond Quadvest and Cibolo Valley into our growth rate target. In the near term, over the 2026 to 2030 period, we expect to deliver a nonlinear EPS growth rate at or above the top end of the 6% to 8% range, given the line of sight that we have with respect to: one, our increased 5-year capital expenditure plan; two, the previously communicated accretion that we expect to realize from the pending Quadvest acquisitions beginning in ’28; and three, our expectation to continue to work constructively with key stakeholders in each of our states to achieve fair and timely regulatory outcomes.

As a reminder, the Quadvest acquisition is expected to be initially dilutive to our EPS prior to our ability to implement new rates, reflecting the rate-making rate base of the acquired assets. This will come from a consolidated Texas general rate case that we expect to file in early 2027. During this time period, we will have the financing costs, including share dilution, along with recognizing depreciation expense based on the higher asset values determined through the FMV process, weighing on our operating results without the associated revenues. Because of this, we expect our 2026 and 2027 consolidated EPS, including Quadvest, to fall below the ranges implied by our new 6% to 8% growth rate. The actual magnitude will depend on the timing of the closing and the financing structure, but dilution relative to our stand-alone plan could be in the 10% to 20% range before becoming accretive in 2028 and beyond.

We are excited about our updated 5-year plan and long-term prospects and believe our team is fully capable of delivering on it. Turning now to the financing and credit side of things on Slide 14. Our $370 million bank lines of credit provide ample liquidity to fund our daily operations. And our A- credit rating affords us access to the capital needed to fund our longer-term investments. In 2025, we also raised $123 million of gross equity proceeds through our ATM program. As previously disclosed, we expect to raise $100 million to $200 million of debt across the parent and operating company levels and $350 million to $450 million of equity or equity-like products in 2026 to fund the Quadvest transaction and protect our A- credit rating. We would likely include $100 million to $125 million of equity needed to support our regular CapEx budget and the pending Cibolo Valley deal with any offering and would, therefore, not plan to use our ATM through 2026.

Assuming a receptive equity market, we will likely look to satisfy our 2026 equity needs during our upcoming open window prior to the Q1 2026 blackout period and follow up with the debt component of the deal financing closer to the actual closing date. In terms of our credit metrics, our FFO to debt ratio in 2025 was 11.2%. This remains above the S&P downgrade threshold of 11% and is consistent with our expectations. We expect to be in the 11% to 12% range through 2027, above 12% in 2028, and we will continue to delever throughout the rest of the plan through increased cash flows and the anticipated paydown of our 2029 holdco maturity. And with that, I will turn the call over to Bruce to provide updates on the Quadvest and Cibolo Valley acquisitions as well as key state regulatory and legislative developments.

Bruce Hauk: Thank you, Ann. As Andrew and Ann have discussed, 2025 was a great year for H2O America. I am very proud of the progress the team has made on both the operational and regulatory sides of the business. While 2025 was great, I’m even more excited for what’s in store for our company, including the positive benefits of the transformative Quadvest deal. We continue to progress through the regulatory process for our pending $540 million acquisition of Houston-based water and wastewater utility, Quadvest. In late December 2025, Texas Water received the appraised fair market values from the 3 Public Utility Commission of Texas appointed appraisers for the regulated assets of Quadvest. In accordance with the Texas FMV statute, the purchase price of $483.6 million will serve as the rate-making rate base.

We appreciate the hard work of all parties involved during the appraisal process and believe the FMV determination supports the transaction benefits that we laid out when announcing the deal last July. The PUCT approval process for Quadvest has started with the filing of the cell transfer merger application in January 2026. As a reminder, the STM request approval of Texas Water’s acquisition of the Quadvest regulated assets and certification of the value of the rate base. Meanwhile, we continue to see robust connection growth in Quadvest system, which now has more than 54,400 active connections as of December 31, 2025. This represents a 16% increase during 2025. And as Quadvest converts its under contract and pending development pipeline into active connections, it is worth noting that the pool of future connections continues to be replenished, extending the longevity of the growth profile.

Of course, future connection growth will vary based on a number of conditions, so this is no guarantee of future growth rates. However, these results are in line with our range of expectations, and we believe solid growth will continue in the Greater Houston area, which is the second fastest-growing metropolitan area in the United States. We continue to anticipate a mid-2026 close for the transformative transaction and expect Quadvest to drive Texas from 8% of our consolidated customer base today to 26% by 2029. Slide 17 provides a brief update on our other pending Texas deal. In late August, we announced the acquisition of Cibolo Valley wastewater treatment plant and associated collection system. The acquisition will bring approximately 1,500 active connections and the opportunity for more than 250 additional ones that are under contract and pending construction.

Like Quadvest, we are progressing through the Texas regulatory process. We are using FMV, and we expect to file the STM application with the PUCT around April 2026. We anticipate Cibolo Valley to close in the fourth quarter of 2026. Between Quadvest and Cibolo Valley, we are very excited about our long-term growth potential in Texas. I’m pleased to share that our constructive engagement with regulators and other key stakeholders continues to create value for our customers and the company. Starting with California, some of the noteworthy 2025 achievements include securing a third 1-year deferral of cost of capital. This means absent an adjustment from the water cost of capital mechanism, SJWC’s authorized 10.01% ROE and 54.55% equity ratio will remain in place through 2027.

I’d also like to highlight the approval of 2 advice letters. First was our requested $6.8 million revenue increase mid-2025 to recover investments for our ongoing AMI project. As of year-end 2025, roughly 53% of SJWC’s total meters have been retrofitted or replaced with AMI-enabled meters that provide near real-time usage information and greater clarity into discrepancies between system flows and build consumption, which allows for an earlier identification of potential leaks within the distribution system. We expect to complete the AMI rollout by year-end and are encouraged by customer benefits we already are seeing. For instance, during the latter half of 2025, SJWC issued more than 46,000 leak alert notifications, which enabled customers to identify issues earlier, more effectively manage water usage and reduce customer side water loss.

The second advice letter relates to the second year step rate increase as part of our SJWC’s 2025 through ’27 general rate case. We were approved to increase revenue $17.2 million at the start of 2026. SJWC’s next general rate case filing is expected to be made in early January 2027 and will cover the 2028 to 2030 period. In Connecticut, as was mentioned earlier, legislation was passed and signed into law creating the Water Quality and Treatment Adjustment. The WQTA is the nation’s first mechanism established to recover the capital investment needed to treat PFAS and other emerging contaminants. The WQTA provides for an annual filing to recover the total capital invested during the period and the maximum surcharge is 7.5% per year and 15% between general rate cases.

We made our initial WQTA filing in late January, requesting $0.6 million of incremental revenues, reflecting a relatively small amount of investment given we are in the early stages of constructing our PFAS remediation facilities. As for our more traditional infrastructure recovery mechanism, the WICA, PURA approved our second half 2025 application as filed for a $3.1 million increase in late September. CWC submitted a new WICA filing in late January, requesting a $2.7 million increase in annualized revenues for $25.7 million invested in completed projects. If approved, the cumulative WICA surcharge as of April 1, 2026, will be 9.9%, collecting $12.1 million on an annual basis. The combination of the WICA and the WQTA mechanisms will allow for the timely recovery of a meaningful amount of our planned Connecticut investments in between general rate cases.

And consistent with our roughly 3-year rate case cycle in Connecticut, we expect to file a general rate case during the first half of 2026. Shifting to Texas. Two key pieces of water legislation were passed by the state legislature and signed by Governor Abbott in 2025 that provide an opportunity to reduce regulatory lag. The first authorizes water utilities to adopt a future or hybrid test year in general rate cases. Traditionally, Texas has been a historical test year jurisdiction for water utilities. The second reduces the time line for processing our infrastructure surcharge mechanism or SIC, applications from 120 days to 60 days. Texas Water supported these pieces of legislation, and we believe they are in the best interest of customers and the company.

Speaking of SIC, Texas Water filed for its third SIC increase in early October requesting $5.1 million increase for completed water and wastewater projects, and we expect a decision from the PUCT in mid-2026. Texas Water expects to file a combined company general rate case in early 2027 with new rates effective in early 2028. The timing of the case will follow the close of our pending Quadvest acquisition as well as the completion of our significant investments to bring an additional 6,000 acre feet of water annually into our existing system so that these and other additions to Texas Water’s rate base can be recognized in rates. Finally, I want to briefly discuss Maine and the approval last month of a stipulation that Maine Water reached with the Office of Public Advocate and the rate unification proceeding.

The stipulation enables the consolidation of Maine Water’s 10 rate divisions into a single division on a revenue-neutral basis. The consolidation will set comparable rates for service across all communities that Maine Water serves and provide a more efficient regulatory structure for Maine Water to make important infrastructure investments while creating administrative efficiencies in the regulatory process, which benefits customers. To limit effects on customer bills, a transition rate took effect on February 1 and will adjust over time through the future rate filings until the uniform rate target is achieved. The stipulation also approves a need-based financial assistance rate program compliant with recent water affordability legislation in Maine.

With successful completion of the unification proceeding, Maine Water filed a notice of intent at the end of January that it plans to file a consolidated general rate case around the end of March. I believe the aforementioned regulatory and legislative accomplishments, combined with the pending acquisitions in Texas, positions our company to deliver on the 5-year plan that Ann previously laid out. With that, I will turn it back over to Andrew.

Andrew Walters: Thank you, Bruce. I wanted to briefly touch on bill affordability for our ratepayers. We know what affordability is of — is of paramount importance to our customers and regulators. We also know that it is a key investor concern across the utility industry given the rising levels of planned capital expenditures and the fact that 2026 is an election year in many states. Already, we have seen electric bill affordability play a prominent role in some politicians campaigns. Affordability is a top priority of ours, and we will continue to work with our partners in our states to keep rates affordable for customers. But we do have to balance affordability with the extensive infrastructure needs throughout our service territories, all while providing safe, reliable and high-quality service.

A recent Environmental Protection Agency study said that water and wastewater bills are affordable if combined, they are less than 4.5% of median household income. This is up from 3% previously. As shown on Slide 22, average H2O bills are 1% or less across the 4 states as of year-end 2025. It should be noted that that includes water and wastewater individually, so you have to divide the EPA rates by half. We believe that these statistics are beneficial for our customers, but also provide reasonable bill headroom for recovery of our planned infrastructure investments. In addition, we continue to work with — or work to offer customer assistance programs to help with affordability for those that need it. As Bruce mentioned, with the approval of Maine’s rate unification stipulation, we are excited to be able to introduce for the first time a needs-based financial assistance rate program for eligible Maine customers.

We are pleased to be able to offer this affordability tariff for our main customers who need it as we already offer similar tariffs to our customers in California and Connecticut. Further, we hope to be able to introduce this benefit to our Texas customer base as part of a future rate proceeding. And as always, we will continue to strive to run the business as efficiently as possible as we recognize that for every dollar of avoided operating expenses enables the recovery of $7 of capital investments with a neutral impact on customer bills. As we look to balance affordability with extensive investment required to replace aging infrastructure and treat emerging contaminants, all while providing high-quality water and reliable service, we will continue to work constructively with our state regulatory partners.

There’s been a few commissioner changes that I would like to highlight, starting with Governor Newsom’s recent announcement in California. We congratulate John Reynolds on his appointment to be the new CPUC President and thank Alice Reynolds for her service. We also welcome Commissioner Christine Harada to the CPUC. Then in Texas, we welcome Commissioner Morgan Johnson to the PUCT, who Governor Abbott appointed in October to fill 1 of the 2 commissioner vacancies. In closing, 2025 was another strong year for H2O America by pretty much all accounts, financial, regulatory, legislative, strategic, you name it. And I believe our company is poised to deliver great things in 2026 and beyond. Our dedicated team remains focused on driving shareholder and customer value through disciplined infrastructure investment and executing on our financial goals, advancing the transformational Quadvest acquisition as well as Cibolo Valley, deepening our strong partnerships with local stakeholders and our unrelenting pursuit of operational excellence in identifying creative and sustainable solutions to serve generations to come while maintaining a focus on affordability.

And now I’ll turn the call back over to the operator for questions.

Operator: [Operator Instructions] Our first question comes from Nicholas Campanella with Barclays.

Nicholas Campanella: Thanks for all the updates today. Maybe just a little bit more on Slide 13. You have the 6% to 8% EPS CAGR now. You mentioned that it’s not linear like you said. I appreciate the disclosures that we have to get through this financing and some ROE lag in ’26 and ’27. Just maybe just at what point do you think you’re going to be really in that 8% plus level like you said on the press release? Would that come as soon as 2028? Or how would you kind of frame that?

Q&A Session

Ann Kelly: Yes, I’ll take that one, Nick. We want to be respectful of the PUCT process. And you know that the outcome of the planned consolidated Texas rate case will be a key driver of our earnings in ’28 and beyond, not just the magnitude of the rate increase, but also the effective date. So we do forecast accretion in 2028 versus our stand-alone plan under a number of different scenarios that we’ve worked. And as indicated in our prepared remarks, we do plan to be at or above the top end of our 6% to 8% for the total period, but I don’t want to get ahead of the regulatory process to say exactly when that could happen.

Nicholas Campanella: Okay. I understand. And then maybe just, Andrew, maybe you kind of also mentioned in the slides here and then in the prepared that this outlook doesn’t contemplate future M&A. Maybe just if you — what is the time line to announce something further here? Do you want to wait until you get on the other side of the Texas rate case? Are you guys going to be out there remaining active across the jurisdictions? And then maybe where do you kind of see some of the best opportunities in your states or maybe even outside of your states today?

Andrew Walters: Nick, I appreciate the question. And there’s a couple of things that I would just highlight. So first of all, the velocity typically in the water space is not that regular for acquisitions. Our typical acquisitions that we do are small tuck-in acquisitions. We will continue to remain active nonstop on those tuck-in acquisitions, but I wouldn’t expect that to be as groundbreaking as the Quadvest acquisition is for us. I would say that for us, as it stands today, we’re very much focused on completing the Quadvest acquisition. That’s going to be our focus for the near and medium terms. And we’ll see what happens in the future. There’s nothing that — we don’t comment on specific transactions, but I can assure you, we’re very focused on Quadvest right now.

Operator: [Operator Instructions] Our next question comes from Angie Storozynski with Seaport.

Agnieszka Storozynski: I have to admit that I’m still in — all of the 13% rate base growth and then the $2.7 billion CapEx, I mean, I was bullish in my estimates, but that was far more than I had expected. I’m just wondering — and again, you obviously show me the CapEx per subsidiary, but how did that change? So is it fair to say that the vast majority of the pickup in that longer-term CapEx came from the acquisition from Quadvest?

Ann Kelly: No, I think it’s a combination of things. You do have some additional CapEx related to the Quadvest acquisition. But as we look forward and get more granular in our project forecasting going forward, we are seeing additional projects. You’re seeing increased cost as some of the bids come in. We saw the increase in the PFAS by about $100 million. So that’s really what’s driving that. I mean, Bruce, anything else you want to add?

Bruce Hauk: We just mentioned in our prepared remarks, a little bit of opportunity on the 1% main replacement, quite a bit of investment on water supply, Angie, as well. So I think it’s a fairly balanced approach, but it’s not just the acquisition step-up. It’s quite a bit of capital beyond that as well.

Agnieszka Storozynski: Okay. And then on the earnings trajectory, and I guess, I understand how CAGR works from the starting and ending point, I understand that. But I’m just — so I’m just wondering, like — so the accretion of the acquisition starts in ’28, then it accelerates in ’29. But I’m asking about the step change between ’29 and ’30. Is it fair to assume that there is an even bigger earnings step-up between ’29 and ’30. And I’m not just asking about Texas, I’m asking vis-a-vis all of the rate case timings in other jurisdictions.

Ann Kelly: Maybe I’ll start, Andrew.

Andrew Walters: Please.

Ann Kelly: So Angie, when you think about our rate case cadence right now, as we mentioned in the prepared remarks, Maine has already filed an intent. Of course, Maine is our smallest jurisdiction. And Connecticut’s 3-year cycle has them filing again this year. So we would expect those to be implemented sometime next year. And then we have the Texas rate case that is effective in ’28 as well as increased California. Now California, of course, has step increases each year, but they do have a new rate case. So I won’t — wouldn’t expect any new rate cases that would have new rates effective in ’29, just any incremental step-ups from the current one. And of course, our infrastructure mechanisms such as the WIC, the WICA, the SIC and the WQTA, of course, for PFAS.

Agnieszka Storozynski: Understood. But — okay. But I was more asking about ’29 to ’30, that step-up, if there is basically sort of this accelerating growth from — coming mostly from Quadvest, but also other jurisdictions. I’m frankly fishing a little bit for another sort of like an equity injection that given the size of this plan, I mean, if I should just assume that there is some slowdown to the growth versus, for example, ’29 simply because I need to dilute myself a bit to fund the growth.

Ann Kelly: Yes. I mean the one thing to note is that in Connecticut and Maine, if they do a 3-year cycle, which Connecticut has been, they would have actually new rates coming in in 2030. So that is one. I think the rest is just the capital plan. And then we did mention in ’29 that we would have — we have the maturity coming due of the parent company debt that we would expect to pay down.

Operator: Our next question comes from Alex Kania with BTIG.

Alexis Kania: Maybe just thinking — coming off the last question. First, just on equity issuance. It’s helpful that you broke out the Quadvest-related equity versus the, I guess, ongoing equity needed to support the overall program. Is that $125 million or whatnot type of number kind of a reasonable sort of expectation on a kind of an ongoing basis as you think about funding the updated CapEx plan?

Ann Kelly: Yes. I would say on average, that’s probably about right. You may have some variances year-to-year just depending on timing of capital payments. But I would expect that just on an average basis. And of course, as our CapEx plan increases, you would expect that to increase somewhat a little bit as well.

Alexis Kania: Okay. Great. And then again, going back to the EPS long-term growth. So just as I was looking at the slide, right, I think the way that we should be reading this is that once we get to, let’s say, 2030, that from whatever that number is, you’ve been presumably growing at the kind of at or above the 6% to 8% range through 2030. From 2030, whatever that level is, you still see line of sight where 6% to 8% can actually continue off of that 2030 as kind of a “base year?”

Ann Kelly: Yes, that’s correct.

Alexis Kania: Okay. Maybe one last question is just on maybe Texas and the upcoming rate case as — post Quadvest. Just how do you — and I appreciate, Andrew, the discussion on affordability, just thinking about the rate trajectory for that jurisdiction in particular, given obviously you want a refresh of rates overall in the rate case, but also there is certainly a much higher customer growth there as well. But just how do you see looking through the regulatory process, the impact to kind of so-called average customer bills or whatnot?

Andrew Walters: I’m going to ask Bruce if you wouldn’t mind answering that.

Bruce Hauk: Yes. Thanks for the question. And again, as we had mentioned earlier, we don’t want to get ahead of the PUCT process and portray any outcomes without actually getting closer to that and getting through the process. But we have a duty and obligation to make prudent investments and recover those. And we did mention earlier that it’s been 13 years since we’ve been in. So we’ve made quite a bit of investment in some water supply. So we think that the increase is substantial, but we don’t want to get ahead of what that is. But affordability continues to be important to us and to our customers. And so in that process, as we’ve done in Connecticut, Maine and California, we’ll be seeking ways to help our customers with affordability and propose a low-income tariff to help support that in other ways that will be creative in the process.

Operator: That concludes today’s question-and-answer session. I’d like to turn the call back to Andrew Walters for closing remarks.

Andrew Walters: Thank you again for joining us today. H2O America proudly leverages our national platform to support our distinct local operations, all united by a shared mission, delivering reliable service and high-quality water to 1.6 million people across 4 states. At the same time, we continue executing our growth strategy and delivering shareholder value, including our unwavering commitment to the dividend, which we 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 providers, and 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.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.