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H2O AMERICA (HTO)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered diluted EPS of $1.27 and adjusted diluted EPS of $1.27, up 9% and 8% YoY respectively, on operating revenue of $240.6M (+7% YoY). EPS and revenue were above Wall Street consensus, a clear beat: EPS +$0.10 (+8.9%) and revenue +$2.1M (+0.9%). Guidance was narrowed to the upper half: adjusted EPS $2.95–$3.00. Bold beat: EPS and revenue beat consensus . Estimates values retrieved from S&P Global.*
  • Revenue growth was driven by rate increases (+$21.2M; CA and CT) and modest usage (+$0.7M), partially offset by regulatory adjustments (-$3.9M). Operating expenses rose 6% on A&G (+$5.6M) and higher per-unit water costs; operating income rose 11% to $64.6M .
  • CapEx momentum: $357.8M YTD (74% of revised $486.0M plan) with acceleration in AMI deployment; dividend maintained at $0.42 per share (2025 annualized $1.68) .
  • Catalysts: formal FMV appraisal for Quadvest expected December with company disclosure early 2026; Texas SIC filing (+$5.1M) decision expected 1H 2026; continued regulatory wins (CT WICA $3.1M) support earnings trajectory .

What Went Well and What Went Wrong

What Went Well

  • Rate and usage tailwinds: “Our revenues increased 7%... rate increases... contributed $21.2 million... higher customer usage added another $0.7 million,” driving an EPS uplift of $0.42 from rates/usage in Q3 .
  • Regulatory execution: CT WICA $3.1M annualized increase approved; Texas SIC application for $5.1M filed post-quarter; strong engagement across jurisdictions (CT, ME, TX) .
  • Strategic progress and ESG: CEO emphasized advancing Quadvest and Cibolo Valley acquisitions and key approvals; “These milestones... reinforce our confidence in meeting our full-year guidance” . Sustainability recognition and emission reductions (43% vs 2019) underline disciplined, cost-lowering solar deployment .

What Went Wrong

  • Cost inflation and mix: Water production expenses rose on higher per-unit purchased water and extraction costs (+$5.1M) and unfavorable mix (less lower-cost surface water), partially offset by lower volume (-$2.7M) .
  • A&G pressure: Administrative and general expenses +$5.6M on pensions, wages, and inflation; depreciation also higher on new plant in service (+$1.3M) .
  • Seasonality and normalization: Management guided to lower Q4 EPS versus Q3 due to timing of gross margin/regulatory mechanisms and higher depreciation/interest/taxes and dilution, limiting near-term EPS momentum despite YTD strength .

Financial Results

MetricQ3 2024Q2 2025Q3 2025
Revenue ($USD Millions)$225.1 $198.3 $240.6
Diluted EPS ($USD)$1.17 $0.71 $1.27
MarginQ3 2024Q2 2025Q3 2025
EBIT Margin % (Operating income / revenue)25.9% 22.1% 26.9%
Net Income Margin % (Net income / revenue)17.2% 12.5% 18.8%

Performance vs Wall Street Consensus (Q3 2025):

MetricConsensusActualSurprise
Revenue ($USD Millions)$238.5*$240.6 +$2.1 (+0.9%)*
Primary EPS ($USD)$1.165*$1.27 +$0.105 (+8.9%)*
# of Estimates (EPS / Revenue)4 / 3*——

Estimates values retrieved from S&P Global.*

Non-GAAP reconciliation (Q3 2025):

  • Adjusted net income: $45.5M vs GAAP $45.1M; adjustments net of tax: +$0.5M M&A and -$0.3M real estate gain; adjusted diluted EPS $1.27 (same as GAAP) .

Segment breakdown: Not disclosed; H2O America operates regulated water/wastewater utilities across CA, CT, ME, TX without segment revenue detail in the release .

KPIs and Operating Metrics:

KPIQ3 2025 / YTD
CapEx YTD ($USD Millions)$357.8 (74% of revised $486.0 plan)
CT WICA approval (annualized)$3.1M; cumulative WICA 7.47% as of Oct 1
TX SIC filing$5.1M application filed Oct 6; decision expected 1H 2026
Dividend per share (quarterly)$0.42; 2025 annualized $1.68 vs $1.60 in 2024
Active connections (Quadvest, as of 9/30/25)52,400 (+11.5% YoY); backlog under contract 90,400
Operating income ($USD Millions)$64.6
Lines of credit drawn / available$126M drawn; $244M available; avg borrowing rate 5.42% YTD

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted Diluted EPSFY 2025$2.90–$3.00 $2.95–$3.00 Raised midpoint; narrowed to upper half
Long-term Diluted EPS GrowthThrough 20295%–7%; top half expected 5%–7%; top half reaffirmed; excludes Quadvest impact Maintained
2025 CapEx PlanFY 2025$473.0M $486.0M (accelerated AMI) Raised
Dividend2025$0.42/qtr (annualized $1.68) $0.42/qtr; annualized $1.68 Maintained quarter; annual higher vs 2024
Texas SICNext decision$4.1M SIC approved May 2025 $5.1M SIC application (decision 1H 2026) New filing; pending

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2025, Q2 2025)Current Period (Q3 2025)Trend
Advanced Metering Infrastructure (AMI)Q1: AMI recovery via CPUC offset filings; separate $100M plan . Q2: $6.8M AMI revenue increase approved; portal launched .Accelerating AMI deployment prompted CapEx plan increase .Accelerating execution, revenue recovery mechanisms working
Texas drought & supply resilienceQ1: Persistent drought; KT Water interconnection targeted end-2026 . Q2: Conservation measures persisted; revenue plan unchanged .Mix shift increased per-unit costs; continued AFUDC benefits from long-cycle TX projects .Investments mitigating but cost mix still a headwind
Regulatory recovery mechanismsQ1: CT WRA reconciliation; WQTA bill progressing . Q2: CT WQTA enacted; TX future/hybrid test year law; SIC timeline shortened .CT WICA $3.1M approved; TX $5.1M SIC filed; ME rate design proposal submitted .Broadening toolkit reduces regulatory lag
M&A (Quadvest; Cibolo Valley)Q2: Quadvest deal announced; FMV process initiated; accretive in 2028 .FMV appraisers appointed; disclosure planned early 2026; Cibolo Valley wastewater acquisition announced Aug 26 .On track; Texas footprint expanding
Financing (ATM & debt)Q1: $27M ATM; LOC rate ~5.47% . Q2: $84M ATM; LOC drawn $161M; LOC rate ~5.45% .$108M ATM YTD; LOC $126M; CT & TX issued 30-year debt at ~6.1–6.7% .Steady access; mixing equity/debt prudently
ESG and customer outcomes—Newsweek “America’s Greenest Companies”; 43% Scope 1&2 reduction; solar +73%; CSAT 85.2% .Strengthened ESG narrative

Management Commentary

  • CEO: “We made meaningful progress on our strategic priorities, including advancing the acquisition of Quadvest... and continued to work closely with the Public Utility Commission of Texas... These milestones, combined with strong financial results and disciplined infrastructure investment, reinforce our confidence in meeting our full-year guidance” .
  • CFO: “Increased revenue from rates and usage drove a $0.42 [EPS] increase... other income added $0.13... partially offset by higher water production expense of $0.07 and other operating expense of $0.18” .
  • COO: “We have increased our planned 2025 capital spend to $486,000,000... momentum of our successful AMI deployment in California... we expect to receive the fair market valuation determination... in December... and... close the [Quadvest] deal by mid-2026” .
  • CEO on competition and discipline: “We will not stretch beyond... accretion goals... nor at the expense of our balance sheet” .

Q&A Highlights

  • Quadvest FMV timeline and disclosure: Appraisers complete in December; STM filing follows; company plans FMV disclosure early next year to aid investor modeling; equity raise timing aligned with transaction close visibility .
  • Competitive landscape (American + Essential merger): Management sees ample opportunity in Texas; emphasizes disciplined acquisition criteria and balance sheet protection; growth forecast does not rely on M&A .
  • Q4 EPS seasonality: EPS expected lower than Q3 due to timing of gross margin/regulatory adjustments, higher depreciation/interest/taxes, and share dilution; CT rate case benefit lapped .
  • Other income drivers: AFUDC and pension non-service credits are key contributors given longer TX construction cycles .
  • Financing mix for future deals/Aquarion scenario: If pursued, straight equity capacity is limited; alternatives include hybrid debt and partner equity while preserving accretion and leverage targets .

Estimates Context

  • Q3 2025 beats: EPS $1.27 vs $1.165 consensus; revenue $240.6M vs $238.5M consensus; modest revenue beat, more notable EPS beat on rate/usage and other income, despite cost inflation. Estimates values retrieved from S&P Global.*
  • Guidance implies a softer Q4; Street may raise FY EPS toward top of $2.95–$3.00 range but calibrate Q4 seasonality and cost mix (higher D&A/interest/tax) and dilution realities highlighted by management .

Key Takeaways for Investors

  • Earnings quality improving: Rate case and infrastructure mechanisms across CA/CT/ME/TX are driving durable revenue growth; EPS and revenue beats reinforce execution momentum . Estimates values retrieved from S&P Global.*
  • Expect Q4 EPS seasonal step-down per management; trade around any near-term weakness with confidence in narrowed FY guide and long-term 5%–7% CAGR (top half) .
  • Regulatory cadence remains constructive (CT WICA; TX SIC filing; ME rate design), supporting continued recovery and reduced lag through 2026; monitor Texas rulemaking on future/hybrid test year .
  • Texas growth optionality: Quadvest FMV and STM milestones in coming quarters; accretion in 2028 with scale shifting TX to ~26% of customer base by 2029; early 2026 FMV disclosure a catalyst .
  • CapEx execution accelerating (AMI), with AFUDC benefits offsetting timing; watch D&A and A&G inflation pressures and purchased water/extraction cost mix .
  • Balance sheet discipline intact: Active ATM and long-dated debt issuance support funding without stretching leverage; management reiterated accretion/leverage guardrails .
  • Dividend visibility: $0.42 quarterly ($1.68 annualized) with 57 consecutive years of increases; supportive for income-focused holders .

Notes: All company figures reflect reported values; non-GAAP adjustments reconciled in 8-K. Estimates values retrieved from S&P Global.* Citations: .