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CALIFORNIA WATER SERVICE GROUP (CWT)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered stable earnings with diluted EPS of $1.03, a beat vs Wall Street consensus $0.94, while revenue of $311.2M missed consensus $321.3M; YoY revenue grew 3.9% and EPS was flat vs Q3 2024 . EPS/revenue consensus from S&P Global*.
  • Regulatory catalysts: CPUC ALJ authorized inflation‑based interim rate increases effective Jan 1, 2026, plus a memorandum account to track and recover revenue lost due to any GRC decision delay; Hawaii PUC approved $4.7M annual revenue increase; Washington filed for a $4.9M revenue increase .
  • Capital intensity remains high: $135.2M capex in Q3 (up 14.8% YoY) and $364.7M YTD; company raised $370M in long‑term notes/bonds (oversubscribed) to refinance short‑term borrowings and support investment needs .
  • PFAS offsets and compliance: received $24.2M net PFAS settlement proceeds in Q3 (YTD $34.8M), which management plans to use to directly offset PFAS‑related capex; EPA timeline shifts may push some well replacements, but program progress continues .
  • Dividend continuity: declared the 323rd consecutive quarterly dividend of $0.30 per share; dividend growth track record (58 years of increases) continues to underpin total return .

What Went Well and What Went Wrong

What Went Well

  • EPS beat and resilient profitability despite rate‑case year: Q3 diluted EPS of $1.03 vs consensus $0.94; CFO cited tariff rate increases and lower tax rate as key positive drivers partially offsetting usage declines and higher water production costs . EPS consensus from S&P Global*.
  • Strong financing and liquidity: $370M long‑term financing closed Oct 1 (Group notes at 4.87% and 5.22% rated A; Cal Water bonds at 5.64% rated AA-), $255M available credit, unrestricted cash $76.0M; CEO emphasized the deal was “the most oversubscribed bond deal” in his 30‑year career .
  • Regulatory momentum and interim relief: ALJ authorized inflation‑based interim rate increases effective Jan 1, 2026 and approved a mechanism to recover revenues that would have been collected had the GRC decision taken effect on time; management praised improved transparency and commissioner engagement vs prior cycle .

What Went Wrong

  • Top‑line miss and consumption pressure: Q3 operating revenue of $311.2M missed consensus ($321.3M); declining customer usage reduced revenue by $8.1M, partly offset by $2.0M higher unbilled sales . Revenue consensus from S&P Global*.
  • Cost headwinds: water production costs rose $7.6M YoY on wholesale rate increases; depreciation/amortization up $3.1M from new assets; interest expense rose to $18.1M in Q3 (vs $14.4M) given the rate environment .
  • Regulatory timing uncertainty: while interim relief mitigates delays, the ALJ requested more time to draft the proposed decision due to case complexity; management remains “guardedly optimistic” but acknowledged timing risk .

Financial Results

Quarterly P&L vs prior quarters

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Millions)$204.0 $265.0 $311.2
Net Income ($USD Millions)$13.3 $42.2 $61.2
Diluted EPS ($)$0.22 $0.71 $1.03

Q3 YoY comparison

MetricQ3 2024Q3 2025
Revenue ($USD Millions)$299.6 $311.2
Net Income ($USD Millions)$60.7 $61.2
Diluted EPS ($)$1.03 $1.03

Margins

MetricQ1 2025Q2 2025Q3 2025
EBITDA Margin (%)31.71%*37.70%*39.35%*
EBIT Margin (%)13.82%*23.90%*27.57%*

Values retrieved from S&P Global.*

KPIs and Operating Drivers

KPIQ1 2025Q2 2025Q3 2025
Capex ($USD Millions)$110.1 $119.4 $135.2
Cash from Operations ($USD Millions)$38.4* $48.9*$167.3*
Water Production Costs ($USD Millions)$63.0 $85.5 $102.7

Values retrieved from S&P Global.*
Note: Q3 capex rose 14.8% YoY; YTD capex $364.7M (+9.8% YoY) supporting rate base growth .

Estimate vs Actuals (S&P Global)

MetricQ1 2025Q2 2025Q3 2025
EPS Consensus Mean ($)$0.16*$0.56*$0.94*
EPS Actual ($)$0.22 $0.71 $1.03
EPS Beat/MissBeat*Beat*Beat*
Revenue Consensus ($USD)$215.4M*$243.5M*$321.3M*
Revenue Actual ($USD)$204.0M $265.0M $311.2M
Revenue Beat/MissMiss*Beat*Miss*

Values retrieved from S&P Global.*

Segment breakdown: The company reports consolidated regulated water/wastewater operations across states; no segment P&L breakdown was provided in Q3 materials .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
CA GRC proposed total revenue increase2026$140.6M (17.1%) $140.6M (17.1%) Maintained
CA GRC proposed total revenue increase2027$74.2M (7.7%) $83.6M (8.1%) Mixed disclosures; see note
CA GRC proposed total revenue increase2028$83.6M (8.1%) $72.4M (7.7%) Mixed disclosures; see note
CA interim rate authorizationJan 1, 2026 (until decision)N/AInflation‑based interim rate increase; memorandum account to recover delayed decision revenues New authorization
Hawaii Waikoloa ratesEffective Oct 9, 2025N/A+$4.7M annual revenue Raised
Washington Water ratesProposed Dec 15, 2025N/AFiled rate case seeking +$4.9M annual revenue Pending
DividendQ3 2025$0.30/share$0.30/share (323rd consecutive) Maintained

Note: CA GRC requested increases show discrepancies between Q2 press release and Q3 presentation exhibits; management indicated case complexity and evolving filings—final CPUC decision pending .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3 2025)Trend
CA GRC timing/reliefOn schedule; briefs filed; optimism about timely decision ALJ authorized interim rates and memo account; ALJ requested more time; Commissioner engaged; improved transparency Constructive but acknowledging timing risk
PFAS compliance & settlementsFirst 3M installment $10.6M; total PFAS program ~$217M; possible EPA deadline extension; well replacement vs treatment mix Additional $24.2M proceeds in Q3 (YTD $34.8M); proceeds to offset PFAS capex; continued program cadence Progress with incremental offsets
Texas BVRT growthGRC filed; all‑party settlement reached; growing connected/committed customers Expect final decision in Q4 2025; pursuing alternative water resources for data center projects Scaling footprint; regulatory milestones nearing
Interest rates/cost of capitalMaintained A+/Stable; ATM shelf; sensitivity to rates acknowledged Refinanced short‑term into long‑term at favorable rates; CA cost‑of‑capital adjustment mechanism mitigates rate swings Balance sheet strengthened; mechanisms in place
Decoupling (WRAM) policySenate Bill 473 advancing; management advocacy Continued advocacy; recognizes affordability and planning benefits Policy momentum (pending)

Management Commentary

  • “I am pleased with the continued strong execution… particularly in light of the fact that Cal Water is in the third year of a three‑year rate case cycle, which is typically the leanest, most financially challenging year as we wait for regulatory relief.” — CEO Martin Kropelnicki .
  • “This transaction was significantly oversubscribed… the most oversubscribed bond deal I’ve ever had… helps minimize credit spreads, which lowers costs for our customers.” — CEO Martin Kropelnicki on the $370M financing .
  • “Q3 2025 revenue increased $11.6 million, or 3.9%… primary drivers were tariff rate increases and income tax rate changes… offset by consumption decreases, unbilled revenue changes, and water production rate increases.” — CFO James Lynch .
  • “He [ALJ] authorized… an interim rate increase effective January 1, 2026, tied to CPI… approved an interim rate memorandum account to capture lost revenues.” — VP Greg Milleman .

Q&A Highlights

  • Rate base growth realism vs filings: Analysts questioned whether rate base growth guidance was overstated; management clarified filings show asks vs advocates’ positions and historically have achieved 80–90% of asks over prior cycles; advised comparing final decisions and advice letter additions, not just initial positions .
  • Texas competitive landscape post AWK/ES merger: Company remains focused on organic West‑coast infrastructure replacement and opportunistic M&A; sees strong BVRT opportunity and developer partnerships; pursuing public‑private water supply solutions .
  • Interest rate environment: Refinanced ~$355M from lines of credit into long‑term; favorable rates achieved; CA cost‑of‑capital mechanism provides two‑way adjustment; no need to alter plans on higher‑for‑longer commentary .
  • CA decoupling bill (SB473): Would require CPUC to implement fully decoupled rates; bill has passed Senate 37‑0 and advanced through Assembly committees; opposition focused on ~$1M CPUC cost; management leading advocacy .
  • PFAS settlement coverage: Preliminary view suggests $40–$60M potential of ~$226M total PFAS program could be covered by settlements; final allocations depend on applications and settlements progress .

Estimates Context

  • Q3 2025: EPS $1.03 vs consensus $0.94 (beat); revenue $311.2M vs consensus $321.3M (miss). Q2: EPS beat and revenue beat; Q1: EPS beat and revenue miss. Annual consensus: FY25 EPS ~$2.32 and revenue ~$1.01B; FY26 EPS ~$2.54 and revenue ~$1.09B (context for trajectory) from S&P Global*.

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Near‑term: Expect EPS resilience aided by interim rates authorization if the CA GRC decision slips; trading reaction may hinge on regulatory timing and any perceived clarity from interim mechanisms .
  • Watch revenue normalization: Consumption variability and wholesale water price inflation can drive quarter‑to‑quarter revenue/COGS noise; Q3 showed usage pressure and higher production costs despite YoY revenue growth .
  • Balance sheet/financing: The oversubscribed $370M deal and available credit provide capacity to sustain elevated capex and PFAS compliance programs without stressing liquidity .
  • PFAS offsets: Settlement proceeds (YTD $34.8M) should partially defray PFAS capex over time; monitor timing/amount of additional installments and how they net against capital deployments .
  • Texas optionality: BVRT is scaling with committed customers and pending GRC approval; potential water resources partnerships could add growth vectors in a priority region .
  • Policy tailwinds: SB473 decoupling could structurally improve revenue stability and affordability planning; track legislative progress and CPUC implementation details .
  • CA GRC outcomes: Final adopted revenue increases and authorized rate base will drive 2026–2028 earnings cadence; interim CPI increases and memo account reduce downside from timing risk .

Non‑GAAP context: 2024 reported results included $87.5M revenue and $64.0M net income of 2023 interim rate relief booked in Q1/Q2 2024; management presents 2024 non‑GAAP to normalize comparisons. YTD 2025 revenue up 7.3% vs 2024 non‑GAAP; YTD net income up 9.9% vs 2024 non‑GAAP .