Executive Summary

Q2 2025 delivered a clean beat: adjusted EPS $0.75 vs S&P Global consensus $0.70* and revenue $198.3M vs $187.3M*, driven by rate increases in CA/CT and higher usage; GAAP EPS was $0.71 and net income rose 19% YoY to $24.7M . Results were partially offset by higher purchased water/groundwater extraction costs and elevated credit losses .
Guidance reaffirmed: FY25 adjusted EPS $2.90–$3.00 and long-term EPS CAGR 5–7% through 2029, with management expecting performance in the top half of the range .
Strategic/regulatory momentum: AMI recovery approved in CA effective July 1; CT enacted the Water Quality & Treatment Adjustment (PFAS recovery); TX enabled future/hybrid test year and accelerated SIC processing—reducing lag across jurisdictions .
M&A optionality/catalyst: Agreement to acquire Quadvest (Greater Houston); FMV appraisal process underway with PUCT—deal expected to be accretive in 2028 and “meaningfully accretive” to LT growth; active connections grew to 50.5k with >140k total active/contracted .
Capital deployment intact: $207.2M YTD infrastructure investment; on track for $473M 2025 capex; dividend raised to $0.42 per quarter (annualized $1.68) .

What Went Well and What Went Wrong

What Went Well
- Strong topline and EPS beat: revenue +13% YoY to $198.3M; adjusted EPS +14% YoY to $0.75, with rate actions (+$17.6M) and higher usage (+$4.9M) the key drivers .
- Regulatory wins reduced lag: CA AMI recovery approved; CT passed WQTA for PFAS; TX authorized future/hybrid test year and shortened SIC timelines—“we expect they are in the best interest of customers and the company” .
- Strategic M&A: Quadvest acquisition to expand Texas scale; management: “expected to be accretive in 2028 and meaningfully accretive to our long-term growth rate” .
What Went Wrong
- Cost pressure: Water production expenses +$10.4M YoY (purchased water/groundwater) and A&G +$8.3M (credit losses, acquisition, insurance, contracted work) limited flow-through .
- Texas demand headwinds: Ongoing conservation lowered TX usage; management does not expect a guidance change but acknowledged continued restrictions through peak season .
- Share dilution: Increased share count had a ~$0.05 EPS headwind in the quarter .

Financial Results

Metric	Q2 2024	Q1 2025	Q2 2025
Revenue ($USD)	$176.2M	$167.6M	$198.3M
GAAP Diluted EPS ($)	$0.64	$0.49	$0.71
Adjusted Diluted EPS ($)	$0.66	$0.50	$0.75
Net Income ($USD)	$20.7M	$16.6M	$24.7M

Margins	Q2 2024	Q1 2025	Q2 2025
EBIT Margin %	24.26%*	22.37%*	22.94%*
EBITDA Margin %	39.05%*	40.05%*	38.06%*

Note: Asterisks indicate values from S&P Global with no document citation. Values retrieved from S&P Global.

Q2 2025 Actual vs S&P Global Consensus	Estimate	Actual	Beat/(Miss)
Revenue ($USD)	$187.3M*	$198.3M	+$11.0M
Primary EPS ($)	$0.70*	$0.75	+$0.05

Note: Asterisks indicate values from S&P Global with no document citation. Values retrieved from S&P Global.

Select drivers and costs (Q2 2025 YoY):

Rate increases: +$17.6M; higher usage: +$4.9M; regulatory mechanism adjustments: partial offset .
Purchased water: $37.4M; groundwater extraction: $26.4M; power: $3.9M; A&G: $28.8M .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Adjusted Diluted EPS	FY 2025	$2.90–$3.00 (set/affirmed previously)	$2.90–$3.00	Maintained
LT Diluted EPS Growth	Through 2029	5%–7%, top half expected	5%–7%, top half expected	Maintained
Capex	FY 2025	$473M	On track for $473M	Maintained
Dividend	Quarterly	$0.40 in 2024 (context)	$0.42 declared (annualized $1.68)	Raised vs 2024

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4’24 and Q1’25)	Current Period (Q2’25)	Trend
Regulatory lag reduction	CA GRC approved; deferral of CA CoC to 2026; WICA momentum in CT; ME district unification; TX SIC pending	CA AMI recovery approved; CT WQTA enacted (PFAS recovery forward-looking); TX future/hybrid test year law; SIC timeline reduced	Improving structural recovery across states
Texas supply/resiliency	KT Water project targeted end-2026; heavy 2025 TX capex; drought impact noted	Conservation still in effect but no guidance change; Quadvest adds scale; KT interconnection by 2026	Execution ongoing; demand risk managed
PFAS investment recovery	CT PFAS estimate raised; pursuing WQTA; litigation offsets	WQTA signed into law; first filing expected early 2026	Clearer path to timely recovery
AMI/technology	CA AMI project ($100M) ramp in 2025–26	CA AMI recovery effective July 1; customer portal launched	Implementation/benefits advancing
M&A strategy	Opportunistic, focus TX; disciplined accretion/leverage	Quadvest agreement; FMV appraisal underway; accretive in 2028; connections up	Strategic scale-up in TX
Capital plan/credit	5-yr capex lifted to $2B; ATM usage; A-category focus	~$84M raised YTD via ATM; LOC drawn $161M at ~5.45% avg rate	Funding plan on track

Management Commentary

CEO: “We invested $207 million in water and wastewater utility infrastructure across all four states through June 30, and we are on track to meet our $473 million capital plan for 2025.”
CFO: “Increased revenue from rates and usage drove a revenue increase of $0.57 [per share]; partially offset by higher water production expenses of $0.27, other operating expenses of $0.19, and ~$0.05 due to an increase in the number of shares outstanding.”
COO: “CT’s WQTA increases the percent of capital in our five-year plan recovered on a timely basis to 75% from 66%… recovery is for the total amount spent during the period, not just completed projects.”
CEO on Quadvest accretion: “100 bps would absolutely be a meaningful increase as an example,” while deferring specifics until further along .

Q&A Highlights

Quadvest FMV process: PUCT to appoint three appraisers within 30 days; 120-day appraisal window; FMV averaged; sale/transfer filing thereafter .
Connection growth cadence: Management noted “law of large numbers” effect—guides investors to look at absolute increases; >140k total active/contracted, +4% in six months; +2k regulated active connections (+6%) .
PFAS recovery (CT WQTA): Forward-looking recovery on dollars spent; first filing expected early 2026; 2–3 month approval process analogous to WICA .
TX future/hybrid test year: Applicant selects filing type; rulemaking begins September; could still be an area of contention in cases .
Strategic interest in CT assets (Aquarion): Would be strategic, but focus near-term is TX acquisition .

Estimates Context

Q2 2025 results vs S&P Global consensus: Revenue beat by ~$11.0M; EPS beat by ~$0.05—supported by rate actions in CA/CT and usage in CA; partially offset by higher purchased water/groundwater and A&G including credit losses .
Estimate revision risk: Reaffirmed FY25 adj EPS and LT growth; regulatory wins and Quadvest pipeline may support upward bias to outer-year growth assumptions post close; near-term Opex pressures and TX conservation temper near-term upside .
Note: Asterisks in tables indicate values from S&P Global with no document citation. Values retrieved from S&P Global.

KPIs and Operating Metrics

KPI	Q2 2024	Q1 2025	Q2 2025
Infrastructure investment YTD ($)	—	$178.0M (implied from commentary)	$207.2M
2025 Capex Plan ($)	—	$473.0M	On track for $473.0M
Lines of Credit Drawn ($)	—	$153M	$161M
LOC Available ($)	—	$197M	$199M
Avg Borrowing Rate (LOC)	—	~5.47%	~5.45%
Effective Tax Rate	15%	~16% (1H commentary prior year)	~16%
Dividend per share	$0.40	$0.42 (YTD $0.84)	$0.42 declared
Purchased Water ($)	$38.1M	—	$37.4M
Groundwater Extraction ($)	$17.6M	—	$26.4M
A&G Expense ($)	$20.5M	—	$28.8M
Quadvest Active Connections	47,000 (12/31/24)	—	50,500 (6/30/25)

Guidance Changes: Details and Rationale

FY25 adjusted EPS $2.90–$3.00 reaffirmed; drivers include full-year CA/CT rate cases, infrastructure riders, and usage; offsets include higher wholesaler pass-through costs, Opex/credit losses, and share count .
Long-term 5–7% EPS growth through 2029 reaffirmed with management bias to top half, underpinned by increased five-year capex plan and improved recovery mechanisms .
2025 capex on track at $473M; ~44% deployed by 6/30 including cloud-capitalizable items .

Why the Quarter Beat (and Risks)

Revenue outperformance tied to rate increases (CA/CT, infrastructure mechanisms) and higher usage in CA; TX usage a headwind due to conservation .
Cost inflation in purchased water and groundwater extraction largely offset in revenue; elevated A&G driven by credit loss normalization (prior-year arrearage collections), acquisition, insurance, and contracted work .
Share issuance via ATM funded capex while modestly diluting EPS; liquidity remains ample with $199M LOC availability at lower average rates vs prior year .

Key Takeaways for Investors

Quality beat with reaffirmed outlook: Solid execution on rates/usage and disciplined cost/financing underpin the FY25 guide and LT growth trajectory .
Structural regulatory upgrades across CA/CT/TX should compress lag and smooth PFAS/AMI recovery, supporting earnings visibility into 2026–2029 .
Quadvest is the medium-term catalyst: FMV appraisal and regulatory timeline are the watch items; accretion expected in 2028 with meaningful LT growth uplift .
Near-term risks: Purchased water/groundwater extraction cost inflation, continuing TX conservation, and elevated A&G (credit losses/contracted work) .
Capital plan fully funded path: Continued ATM usage, manageable LOC, and fixed-rate debt adds flexibility; dividend growth continues (+$0.02 QoQ vs 2024) .
Trading setup: Positive narrative (beat + reaffirm + reg wins + Quadvest pipeline) vs watch for TX usage normalization and Opex cadence; catalysts include TX FMV milestones, CT WQTA filing in early 2026, and CA AMI ramp .

Sources

Q2 2025 earnings press release and 8-K (Item 2.02): financials, drivers, guidance, dividend, regulatory updates .
Q2 2025 earnings call transcript: management commentary, Q&A, financing, state updates, M&A – and duplicate –.
Prior quarters for trend analysis: Q1 2025 and Q4 2024 earnings call transcripts – –.
S&P Global consensus (via GetEstimates) for Q2 2025 revenue and EPS; asterisks denote values with no document citation. Values retrieved from S&P Global.

H2O AMERICA (HTO)·Q2 2025 Earnings Summary