American States Water Company - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered modest growth: diluted EPS $0.87 vs $0.85 YoY and net income $33.7m, driven by new CPUC-authorized rates at water and electric; contracted services (ASUS) lagged on construction timing and mix shift, but full-year ASUS contribution was reiterated at $0.59–$0.63 EPS.
• Revenues rose to $163.1m from $155.3m YoY, with water up $9.3m from new rates; electric benefited from the BVES GRC decision, while ASUS revenues fell on lower construction activity.
• The quarter transitioned to M‑WRAM and an incremental supply cost mechanism at GSWC, creating potential earnings volatility tied to consumption and supply mix; Q2 benefited from a lower-cost pumped water mix versus adopted assumptions.
• Dividend increased 8.3% to $0.5040 (annualized $2.016), marking 71 consecutive years of annual increases; S&P affirmed A (AWR) and A+ (GSWC) with stable outlooks, supporting funding for $170–$210m 2025 capex.
• Versus S&P Global consensus, AWR modestly missed: EPS $0.87 vs $0.9125* and revenue $163.1m vs $170.6m*; investor focus: decoupling legislation (SB 473), ASUS execution cadence 2H25, and wildfire mitigation cost recovery at BVES.

What Went Well and What Went Wrong

• What Went Well

  • New rates drove segment EPS gains: Water +$0.06 to $0.73; Electric +$0.02 to $0.03; consolidated EPS $0.87 vs $0.85 YoY.
  • Favorable water supply mix (more pumped vs purchased) and higher “other income” from retirement plan investments supported water earnings; management highlighted potential volatility under new mechanisms.
  • Credit strength and capital plan intact: S&P affirmed A/A+ ratings; capex target $170–$210m reiterated; dividend raised 8.3% reflecting confidence in sustainable earnings growth.
  • Quote: “We had an overall positive and productive second quarter… EPS were $0.02 higher… ASUS plans to catch up on construction during the second half… still expecting to contribute $0.59 to $0.63 per share for the year.” — CEO Robert Sprowls.

• What Went Wrong

  • ASUS EPS fell $0.06 YoY (to $0.13) and revenues declined $5.8m on lower construction activity timing and higher operating expenses ex-construction.
  • Transition from full decoupling to M‑WRAM and incremental supply cost balancing introduces exposure to consumption/supply mix; management explicitly flagged earnings volatility risk.
  • Dilution from ATM equity issuance reduced EPS by ~$0.02 in Q2; 1.48m shares sold since program inception through 6/30/25.

Transcript

Speaker 2

Ladies and gentlemen, thank you for standing by. Welcome to the American States Water Company conference call discussing the company's second quarter 2025 results. The call is being recorded. If you would like to listen to the replay of this call, it will begin this afternoon at 5:00 P.M. Eastern Time and run through August 14th on the company's website, www.aswater.com. The slides that the company will be referring to are also available on the website. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. This call will be limited to an hour.

Presenting today from American States Water Company are Bob Sprowls, President and Chief Executive Officer, and Eva Tang, Senior Vice President of Finance and Chief Financial Officer. As a reminder, certain matters discussed during this conference call may be forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees or assurances of any outcomes, financial results, levels of activity, performance, or achievements, and listeners are cautioned not to place undue reliance upon them. Forward-looking statements are subject to estimates and assumptions, and known and unknown risks, uncertainties, and other factors. Listeners should review the description of the company's risks and uncertainties that could affect the forward-looking statements in our most recent Form 10-K and Form 10-Q on file with the Securities and Exchange Commission.

Statements made on this conference call speak only as of the day of this call, and except as required by law, the company does not undertake any obligation to publicly update or revise any forward-looking statements. In addition, this conference call will include a discussion of certain measures that are not prepared in accordance with generally accepted accounting principles or GAAP in the United States and constitute non-GAAP financial measures under SEC rule. These non-GAAP financial measures are derived from consolidated financial information but are not presented in our financial statements that are prepared in accordance with GAAP. For more details, please refer to the press release. At this time, I will turn the call over to Bob Sprowls, President and Chief Executive Officer of American States Water Company.

Speaker 1

Thank you, Betsy. Welcome, everyone, and thank you for joining us today. I'll begin with a brief discussion on the quarter. Eva will then discuss some financial details, and then I'll wrap it up with updates on regulatory activity, ASUS, dividends, and then we'll take your questions. We had an overall positive and productive second quarter. Earnings per share were $0.02 higher compared to the same quarter in 2024. Favorable variance is attributable to the receipt of final decisions from the California Public Utilities Commission, or CPUC, in January of this year for the water and electric general rate cases, which authorized new water rates for 2025 to 2027 and authorized new electric rates for 2023 to 2026. Favorable variances were partially offset by lower earnings for ASUS of $0.06 per share, due mostly to timing differences of construction activities.

ASUS plans to catch up on construction during the second half of the year and is still expecting to contribute $0.59 to $0.63 per share for the year. There was also a $0.03 per share favorable variance from gains generated on our investments to fund one of the company's retirement plans. The dilutive effects from the issuance of equity under American States Water Company's at the market offering program decreased consolidated earnings by $0.03 per share. For the year to date June 30th, earnings were $1.57 per share, $0.10 per share higher than last year. I'm also pleased to report that last week our board approved a sizable dividend increase of 8.3%. The annualized dividend rate after this increase is $2.016 per share. This increase reflects our board's confidence in the company's ability to achieve long-term sustainable earnings growth.

We believe a growing dividend allows the company to attract capital for investments in its infrastructure that enable us to provide safe and reliable services to our customers and return value to our shareholders. American States Water Company has paid dividends every year since 1931, increasing the dividends received by shareholders each calendar year now for 71 consecutive years, which places it in an exclusive group of companies on the New York Stock Exchange that have achieved that result. We continue to invest in our water and electric systems for the long-term benefit of our customers. Our regulated utilities are on pace to invest a combined $170 million to $210 million in infrastructure investments this year.

Golden State Water Company has completed a transaction with a developer to own and operate the water and wastewater system assets serving a new planned community to be built out over time and is expected to have approximately 1,300 customer connections generating two revenue streams for delivering water and wastewater services to this community for many years to come. With that, I'll turn the call over to Eva to discuss earnings and liquidity.

Speaker 0

Thank you, Bob. Hello, everyone. Let me start with our second quarter results. Recorded consolidated earnings were $0.87 per share for the quarter compared to $0.85 per share for the second quarter of last year. For our water utility, Golden State Water Company, reported earnings were $0.73 per share as compared to $0.67 per share last year. The $0.06 per share increase in 2025 was largely due to new 2025 water rates as a result of receiving the final decision on Golden State Water Company's general rate case and higher gains generated on investment held to fund a retirement plan as compared to the same period in 2024, partially offset by higher operating expenses. There was a decrease in earnings of $0.02 per share due to dilutive effects from the issuance of equity under American States Water Company's at the market offering program.

Our electric segment earnings were $0.03 per share for the quarter as compared to $0.01 per share for the same quarter last year, a $0.02 per share increase, primarily due to receiving the final CPUC decision on the electric general rate case with new 2025 electric rates as compared to 2022 rates used to record revenue during the second quarter of 2024. Earnings from American States Utility Services were $0.13 per share for the quarter compared to $0.19 per share for the same quarter last year, largely due to the timing of construction activity, which Bob will discuss further later in the call.

Losses from our parent company were $0.01 per share for the quarter when compared to losses of $0.02 in the same quarter of 2024, due largely to a decrease in interest expense resulting from lower average interest rates partially offset by higher borrowing levels at American States Water Company's credit facility. Consolidated revenues for the second quarter increased by $7.7 million when compared to the same period of 2024. Revenues for the water segment increased by $9.3 million, largely due to new 2025 water rates as a result of receiving a final decision in Golden State Water Company's general rate case with new rates effective January 1, 2025.

Revenues for the electric segment increased by $4.2 million, mainly due to new 2025 electric rates as compared to 2022 rates used to record revenue during the second quarter of last year. Revenues for American States Utility Services decreased $5.8 million, primarily due to lower construction activities during the quarter as a result of the timing when the work was performed. Turning to slide nine, supply costs increased by $4.7 million, mostly due to higher per unit water supply costs. Looking at total operating expenses other than supply costs, consolidated expenses increased by $3.9 million compared to 2024. This increase includes the impact of the electric generator decision issued in January, which authorized higher operating expenses, primarily for vegetation management and other wildfire mitigation efforts.

These costs were previously excluded from customer rates and not expensed in the second quarter of last year as they were being tracked in memorandum accounts. They are now included in the adopted electric revenues. In addition, the increase was due to higher overall operating expenses, partially offset by lower ASUS construction expenses. Lastly, there was an increase in other income, net of other expenses of $2.1 million, due largely to higher gains generated on investments held to fund a retirement plan during the quarter due to financial market conditions. Slide 10 shows the EPS bridge comparing reported EPS for the second quarter of 2025 against the same period for 2024. Consolidated earnings for the six months ended June 2025 were $1.57 per share compared to $1.47 per share for the same period last year, an increase of $0.10 per share.

The increase is largely generated from higher earnings at our regulated utilities. Turning to liquidity on slide 12, net cash provided by operating activities was $109.6 million for the first six months of the year compared to $70.5 million last year, with the increase largely related to the implementation of new rates at our regulated utilities from approved general rate cases, as well as the implementation of various approved surcharges or additional base rates from advice letter findings. In addition, the increase also resulted from differences in timing of billing and cash receipts for construction work at ASUS's military bases and the timing of its vendor payments. For investing activities, our regulated utility invested $97.9 million on company-funded capital projects in the first half of the year and will project to be on target to reach $170 to $210 million for the year.

For financing activities, American States Water Company under its at-the-market offering program raised proceeds of $25.6 million during the first half of the year, net of issuing costs and legal costs. In May of this year, Golden State Water issued $100 million in unsecured private placement notes that mature in 2032 and 2037. In addition, earlier during the quarter, both American States Water Company and Golden State Water executed amendments to their credit agreements to extend their credit facility terms from June 2028 to June 2029. As part of this amendment, American States Water Company also expanded its credit facility borrowing capacity from $165 million to $195 million. In early July, S&P Global Ratings affirmed a credit rating of A stable for American States Water Company and an A+ stable rating for Golden State Water. These are some of the highest credit ratings in the U.S. investor-owned water utility industry.

With that, I'll turn the call back to Bob.

Speaker 1

Thank you, Eva. On the regulatory front, as a reminder, in January of this year, the CPUC issued a final decision in connection with a recent water general rate case that covers rates for 2025 through 2027 and a final decision on the electric general rate case that sets rates for 2023 through 2026. We've discussed the details of these two rate cases in our prior earnings releases and calls. We are gearing up to file our next electric rate case in early 2026, and we will begin preparation for our next water rate case expected to be filed in July of 2026.

As you know, the final decision in the water rate case ordered Golden State Water Company to transition from a full revenue decoupling mechanism and a full supply cost balancing account, which were requested again in the general rate case application, to a modified rate adjustment mechanism, a Monterey style water revenue adjustment mechanism, or MRAM, and an incremental cost balancing account for supply costs effective January 1, 2025.

Without the continuation of a full revenue decoupling mechanism and a full cost balancing account for water supplies, the company may be subject to future volatility in revenues and earnings as a result of fluctuations in water consumption by its customers and changes in water supply source mix. The final decision adopted the company's MRAM rate design proposal, which authorizes Golden State Water Company to increase the revenue requirement in its fixed service charges to between 45% and 48% of the revenue requirement, depending upon the rate-making area, representing approximately 65% of the water utility's fixed cost in aggregate. It also adopted Golden State Water Company's recommended sales forecast and approved the company's request for the continuation of a sales reconciliation mechanism, which allows the company to adjust its sales forecast throughout the general rate case cycle to address significant fluctuations in consumption.

In March, Golden State Water Company filed an application for rehearing of the CPUC's decision in the 2025 through 2027 water general rate case, asserting that the final decision's denial of the company's revenue decoupling proposal was not supported by the record. In May, the CPUC issued a decision denying the company's application for rehearing. Golden State Water, along with four other investor-owned water utilities in California, are supporting Senate Bill 473, or SB 473, which has been authored by one of the California state senators and is being sponsored by the California Water Association. SB 473 seeks to align the regulated water utilities with the regulated electric utilities by making revenue decoupling mandatory and not at the discretion of the CPUC. The bill has been passed by the Senate and has been approved by the Assembly Committee on Utilities and Energy.

It has been referred to the Committee on Appropriations, but no hearing date has been set. If approved by the Committee on Appropriations, it will go to the Assembly floor for a vote. The deadline to pass out of the Assembly is September 12, and the deadline for Governor Newsom to sign all proposed bills is October 12. Since Senate Bill 473 is still progressing through the legislative process, at this time, management cannot predict the final outcome of this matter. In August of 2023, Golden State Water entered into an agreement, which was subject to CPUC approval, to purchase from a developer the water and wastewater system assets in a development located in California's Central Coast region.

This is a newly planned community, which will serve up to approximately 1,300 customers at full build-out, which is anticipated to occur by 2034 under the current construction schedule, barring any future delays. On December 5, 2024, the CPUC approved a final decision granting Golden State Water's certificates of public convenience and necessity that establish rates for water and sewer services, including the company's recovery of the purchase price through future customer rates. After receiving CPUC approval and finalizing other closing procedures, in May of this year, the parties completed the closing of the transaction, which included the initial installation and conveyance of water and wastewater system assets of $10.7 million by the developer, a non-cash transaction to Golden State Water recorded during this year's second quarter that resulted in an increase in the company's utility plant, with corresponding increases in advances for and contributions in aid of construction.

In the future, Golden State Water will take ownership of the incremental water and wastewater system assets in phases as they are completed and ready to accommodate new connections. Turning our attention to slide 16, we present the growth in Golden State Water's adopted average water rate base from 2018 through 2024, which increased from $752.2 million in 2018 to $1,357.5 million in 2024. That is the compound annual growth rate of 10.3% for the six-year period, using 2018 as the base year for the calculation.

Golden State Water anticipates a robust and sustained growth in its rate base over the next few years as a result of receiving its recent general rate case decision that not only authorizes it to invest $573.1 million in capital infrastructure, but in addition to that, capital investments of certain projects through advice letter filings upon completion that will contribute to a further growth in the rate base in the second and third year of the rate cycle. Lastly, a few weeks ago, on July 18, Bear Valley Electric and the Public Advocates Office of the CPUC filed a joint motion with the CPUC to adopt a settlement agreement resolving all issues in Bear Valley Electric's application with the commission to construct solar energy generation and battery storage facilities.

These facilities will help enable Bear Valley Electric to better control its energy and energy-related costs through self-supply from a local generation resource and also provide energy shifting capabilities and additional capacity during emergencies and peak load conditions. Among other things, the settlement agreement authorizes the construction of the facilities for a total combined cost of $28 million, plus allowance for funds used during construction. The settlement agreement is pending approval by the CPUC with a proposed decision expected later this year. If approved, the costs associated with the projects would be recoverable in customer rates at the time the projects are completed and in service. Let's continue to American States Utility Services, which contributed earnings of $0.13 per share in the second quarter of this year as compared to $0.19 per share for 2024.

The decrease was a result of a decline in construction activity due to the timing of when the work was performed and higher overall operating expenses partially offset by an increase in management fee revenues from the resolution of various economic price adjustments and lower interest expense from lower borrowing levels. Despite the lower construction activity during the quarter, we continue to project ASUS to contribute $0.59 to $0.63 per share this year, representing an increase of 7.3% at the low end of the range to 14.5% at the high end of the range. In addition, we remain confident that we can effectively compete for new military-based contract awards. I would like to turn our attention to dividends, which I touched on earlier. Last week, we announced an 8.3% increase in the third quarter dividend.

This increase is consistent with our policy to achieve a compound annual growth rate in the dividend of more than 7% over the long term. Our strong dividend history is something that the company is proud of and is a continued asset to our shareholders. This strong track record has allowed us to achieve an 8.5% compound annual growth rate in our quarterly dividend rate to shareholders over the last five years since the third quarter of 2020. I'd like to conclude our prepared remarks by thanking you for your interest in American States Water Company, and we'll now turn the call over to the operator for questions.

Speaker 2

We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Ian Rapp with Bank of America. Please go ahead.

Hey, guys. Thanks for taking my question. Just a quick one in terms of sculpting our estimates for the remainder of the year. I know we can see that you reiterated the ASUS guidance for the year. Just curious if you are seeing more construction activity pacing towards the third quarter, or is that a later in the year pickup in 4Q, just so we can kind of right-size our quarterly estimates there?

Speaker 1

You know, we'll see it in both the third and the fourth quarter. My guess is we'll probably see more in the fourth than the third, but it's really sort of a guess at this point. We're depending on other folks' permitting, et cetera, and it's how quickly we can get through those processes. We're pretty confident on the $0.59 to $0.63.

Okay, great. On the decoupling legislation, it seems like it's moving through the legislature pretty nicely so far. Obviously, we got some robust debate in the committee at this point. Can you just talk us through kind of your confidence level of getting something done on that front? Apologies if you already mentioned it, but just the process or timeline as the bill's currently written to effectuate that into your rate construct?

Yeah. Ian, it's a pretty difficult thing to handicap here in California. We think we have, there's a lot of great arguments on our side as to why we should get full revenue decoupling. Probably the biggest one is the electric utilities have it. Why is it good for the electrics and not for water? Not to mention what it does for the ability to put tiered rates in and make rates more affordable to low-income customers. I mean, we're cautiously optimistic, I would say. We've done very well to get it this far. Again, I don't want to handicap whether it's going to go through or not because I'm no political scientist, to be honest. We'll just have to watch it carefully. What are you hearing from the other companies, Ian?

Yeah, I think that's a fair assessment of the landscape. Cautiously optimistic is a good term. That's helpful from my end. I appreciate you guys' commentary. I'll jump back in the queue.

Yep. Thanks, Ian.

Speaker 2

As a reminder, if you would like to ask a question, please press star then one to join the question queue. Press star then one to ask a question. If there are no further questions at this time, I'd like to turn the conference back over to Bob Sprowls for any closing remarks.

Speaker 1

Thank you, Betsy. I just wanted to pass on my thanks to everyone for their participation today. We look forward to, as we always do, speaking with all of you next quarter. Enjoy the rest of the summer. Thank you.

Speaker 2

Conference is now concluded. Thank you for attending today's presentation. You may now disconnect.