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CALIFORNIA WATER SERVICE GROUP (CWT)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered a clear beat vs consensus: EPS $0.71 vs $0.56 and revenue $265.0M vs $243.5M, driven by tariff rate increases and 5% higher customer usage; GAAP EPS rose modestly year over year despite regulatory mechanism headwinds . Estimates from S&P Global.
  • Management emphasized on-schedule progress in the 2024 California GRC with opening and reply briefs filed in July and a final law-and-motion hearing set for Aug. 5, a key catalyst toward a year-end decision .
  • Capital deployment remained strong ($119.4M in Q2; $229.5M YTD), and Cal Water’s A+/Stable credit rating was affirmed, supporting liquidity for rate base growth and PFAS-related investments; first net PFAS settlement proceeds of $10.6M were received in May .
  • Strategic expansion advanced with the Silverwood wastewater agreement (phase-one spend $60–$70M expected) and a 20-year solar PPA to lower energy costs (~$1.7M over term), reinforcing sustainability and cost management narratives .
  • Near-term stock reaction drivers: revenue/EPS beat, visible regulatory timeline, and decoupling legislation momentum (SB 473 advancing through the California Assembly) that could improve earnings stability for water utilities .

What Went Well and What Went Wrong

What Went Well

  • “Non‑GAAP EPS up 15% year over year” in 1H25, reflecting tariff rate changes and higher usage; Q2 revenue rose 8.5% to $265.0M, with usage up 5% year over year .
  • Executed growth and sustainability initiatives: signed Silverwood wastewater agreement (15,000+ future connections), and a 20‑year solar PPA to reduce grid energy costs (~$1.7M over contract) .
  • Credit strength and liquidity: A+/Stable rating affirmed for Cal Water; $240M available credit; capital investments $119.4M in Q2 and $229.5M YTD, supporting rate base growth trajectory .

What Went Wrong

  • Operating expenses increased 8.7% (water production, other operations, and D&A), partly due to higher wholesale rates, usage, and lapping one‑time arrearage credits in Q2 2024; regulatory mechanism revenue decreased vs prior year .
  • YTD GAAP revenue and EPS declined versus prior year due to 2024’s inclusion of 2023 interim rate relief; while non‑GAAP comparisons show improvement, GAAP optics remain noisy .
  • Regulatory accounts and PFAS compliance timing create planning complexity; management noted potential timing shifts between treatment installation and well replacement to optimize long-term compliance costs .

Financial Results

MetricQ2 2024Q4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$244.3 $222.2 $204.0 $265.0
Diluted EPS ($)$0.70 $0.33 $0.22 $0.71
Net Income ($USD Millions)$40.6 $19.7 $13.3 $42.2
Total Operating Expenses ($USD Millions)$196.1 $189.9 $181.6 $213.1
EBIT ($USD Millions)$61.2*$32.2*$28.2*$63.3*
EBITDA ($USD Millions)$94.7*$65.8*$64.7*$99.9*
EBITDA Margin (%)38.8%*29.6%*31.7%*37.7%*
Net Income Margin (%)16.6%*8.8%*6.5%*15.9%*

Values with asterisk retrieved from S&P Global.

Versus estimates:

Metric vs EstimatesQ4 2024Q1 2025Q2 2025
EPS Actual vs Consensus ($)$0.33 vs $0.20 (beat)$0.22 vs $0.16 (beat)$0.71 vs $0.56 (beat)
Revenue Actual vs Consensus ($USD Millions)$222.2 vs $216.4 (beat)$204.0 vs $215.4 (miss)$265.0 vs $243.5 (beat)

Estimates from S&P Global.

KPIs and balance sheet/liquidity:

KPIQ4 2024Q1 2025Q2 2025
Capital Investments ($USD Millions)$471.0 FY 2024 $110.1 (quarter) $119.4 (quarter); $229.5 YTD
Cash & Restricted Cash ($USD Millions)$95.7 cash; $45.6 restricted $90.1 cash; $45.7 restricted $96.1 cash; $45.6 restricted
Available Credit ($USD Millions)$395 $315 $240
Short-term Borrowings ($USD Millions)$205.0 $285.0 $360.0
Credit RatingA+/Stable affirmed (Cal Water) —A+/Stable affirmed (July 10)

Segment breakdown: Not applicable; Company reports consolidated regulated utility results .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Triennial CA GRC Proposed Revenue Increase2026—+$140.6M (+17.1%) proposed Proposal submitted (maintained)
Triennial CA GRC Proposed Revenue Increase2027—+$74.2M (+7.7%) proposed Proposal submitted (maintained)
Triennial CA GRC Proposed Revenue Increase2028—+$83.6M (+8.1%) proposed Proposal submitted (maintained)
Infrastructure Investment (CA, proposed)2025–2027—~$1.6B proposed Proposal submitted (maintained)
DividendQ3 2025$0.30/qtr $0.30/qtr (322nd consecutive) payable Aug 22, 2025 Maintained
Special Dividend2025—$0.04 special (Jan 2025) One-time
ATM Equity Program2025–2028—Up to $350M shelf (no usage in Q2) New authorization (no draw)

Note: CWT does not provide formal EPS/Revenue guidance; regulatory proposals are forward-looking rate case items .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024 and Q1 2025)Current Period (Q2 2025)Trend
2024 CA GRC timelineScoping memo issued; public hearings completed; CalPA report received; process on time Opening briefs (Jul 7) and reply briefs (Jul 28) filed; final law-and-motion hearing Aug 5; management expects on-schedule progression toward year-end decision Continued progress; timeline clarity improving
PFAS regulation & investmentsEmphasis on ability to comply with PFAS regs; planning underway EPA proposes extending compliance timeline to 2031 for PFOA/PFOS; first $10.6M net settlement from 3M received; remaining ~$220M PFAS program with mix of treatment and well replacements; potential settlement coverage ~$40–$60M (management estimate) Execution and funding visibility improving; timing shifts to optimize capex
Capital investment & rate base growthRecord $471M 2024 capex; authorized capital structure maintained Q2 capex $119.4M; YTD $229.5M; strong liquidity; targeted rate base growth path to >$3.3B by 2027 if approved Sustained capex pace supporting rate base growth
Decoupling policyCPUC policies impacted 2021 GRC (limits on full WRAMs) SB 473 advancing: passed Senate 37–0; Assembly Utilities & Energy 15–0; awaiting Appropriations; would require CPUC to implement full decoupling for water utilities Momentum building; potential structural earnings stability
Strategic expansion (Silverwood, Texas BVRT)—Silverwood wastewater agreement (new district; phase-1 $60–$70M); BVRT all‑party settlement reached (PUCT approval pending); growing customer base Growth initiatives advancing

Management Commentary

  • “Non‑GAAP earnings per share were up 15% year over year… considering it’s the third year of the rate case in California, which is our largest operating entity.” — CEO Marty Kropelnicki .
  • “The primary drivers were tariff rate changes and increased customer usage, which combined added $0.52 per diluted share… offset mainly by revenue regulatory account decreases of $0.21 per share.” — CFO James Lynch .
  • “Our Board… approved our 322nd quarterly dividend in the amount of $0.30 a share… a 10.71% increase (including the special dividend), with a five-year 7.7% dividend CAGR.” — CEO Marty Kropelnicki .
  • “EPA proposed extending the compliance deadline… we remain committed to doing what we need to do to make sure that we exceed the water quality standards every day.” — CEO Marty Kropelnicki .
  • “Senate Bill 473 would require the Public Utilities Commission to implement full decoupling for water utilities… passed the Senate 37–0, Assembly Utilities & Energy 15–0; awaiting Appropriations.” — CEO Marty Kropelnicki .

Q&A Highlights

  • GRC timing: Management is “guardedly optimistic” given commissioner priority and procedural discipline; final hearing Aug. 5, then decision drafting by ALJ, supporting potential year-end resolution .
  • PFAS capex timing: ~$160M treatment expected over next two years with remainder pushed to well replacements where optimal; customer health prioritized despite potential EPA timing shifts .
  • Capex mix and Silverwood: Capex timing shifts are largely scheduling; the Board approved $60–$70M over two years for Silverwood phase-1; BVRT all‑party settlement reached, filing pending PUCT .
  • Decoupling legislation: SB 473 advancing strongly; one opposition (Cal Advocates) citing ~$1M CPUC cost; management leading a broad coalition and views decoupling as critical to affordability and sustainability .
  • PFAS settlements coverage: Management preliminarily estimates ~$40–$60M of the ~$226M PFAS program could be covered by settlements, subject to application allocations; more clarity expected by year-end .

Estimates Context

  • Q2 2025: EPS $0.71 vs $0.56 consensus; revenue $265.0M vs $243.5M consensus — both beat. Drivers: tariff rate changes (+$23.9M) and 5% higher usage (+$7.0M), partially offset by prior-year regulatory mechanism revenue . Estimates from S&P Global.
  • Q1 2025: EPS beat ($0.22 vs $0.16) but revenue miss ($204.0M vs $215.4M), reflecting lapping of 2023 interim rate relief recorded in Q1 2024 . Estimates from S&P Global.
  • Expect estimate revisions to factor higher run-rate revenue from rate changes and usage, balanced against elevated water production costs and regulatory account dynamics . Estimates from S&P Global.

Key Takeaways for Investors

  • Beat on both EPS and revenue in Q2 underscores underlying operational momentum despite regulatory mechanism noise; rate changes and usage are supportive into 2H25 .
  • The 2024 CA GRC remains on schedule with key filings complete; a year-end decision is a material catalyst for earnings visibility and rate base growth .
  • Liquidity and A+/Stable rating position CWT to fund robust capex ($119.4M in Q2; $229.5M YTD) and pursue PFAS compliance and strategic expansion (Silverwood, BVRT) with manageable balance sheet risk .
  • Decoupling legislation (SB 473) could structurally stabilize earnings and improve affordability; legislative progress is a medium-term positive if enacted .
  • PFAS program execution and settlement proceeds (~$10.6M received; potential ~$40–$60M coverage) reduce regulatory and capital cost uncertainty; watch timing shifts between treatment and well replacement .
  • Sustainability initiatives (solar PPA) support cost management and emissions goals, adding incremental savings (~$1.7M) and reinforcing ESG credentials .
  • Near-term trading: Positive skew from Q2 beat and regulatory timeline clarity; medium-term thesis centers on rate case outcomes, decoupling adoption, and disciplined capex driving rate base growth .

Notes: All document-based figures and statements are cited to company filings and press releases. Where consensus/estimate values are shown, they are from S&P Global. Values with asterisk in tables are retrieved from S&P Global.