SJW (SJW) - 2025 Q2 - Quarterly Results

Executive Summary & Highlights H2O America reported strong Q2 2025 financial results, marked by significant EPS growth, substantial infrastructure investments, and a strategic Texas acquisition Key Financial Highlights H2O America reported strong Q2 2025 financial results, with significant year-over-year increases in both reported and adjusted diluted EPS and substantial infrastructure investments Key Financial Highlights | Metric | Q2 2025 ($) | YoY Change (%) | YTD 2025 ($) | YoY Change (%) | | :-------------------------------- | :------ | :--------- | :------- | :--------- | | Reported Diluted EPS | $0.71 | +11% | $1.20 | +20% | | Adjusted Diluted EPS (non-GAAP) | $0.75 | +14% | $1.25 | +23% | | YTD Infrastructure Investment | | | $207.2M | | | Full-Year CapEx Target | | | $473.0M | | - Declared a quarterly cash dividend of $0.42 per share of common stock[4] - Entered into an agreement to acquire all of Quadvest's assets in the high-growth Houston region, with active connections and connections under contract increasing by 4% (5,400 connections) between December 31, 2024, and June 30, 2025[4] CEO Commentary CEO Andrew F. Walters highlighted strong Q2 results driven by local water operations, strategic execution, constructive regulatory outcomes, and significant infrastructure investments, including the Quadvest acquisition - Achieved a constructive outcome in the Camden Rockland general rate case in Maine and received authorization for new affordability programs[3] - Secured new or enhanced regulatory mechanisms in Connecticut and Texas to reduce lag, and received approval in California to recover investment in advanced metering infrastructure[3] - Invested $207.2 million in water supply and infrastructure across the national footprint, on track for 2025 and five-year capital expenditure goals[3] - Announced a strategic agreement for the Texas Water subsidiary to acquire Quadvest's assets in the greater Houston area, representing a significant growth opportunity with Quadvest's active connections increasing by 7% and connections under contract growing by 2% from December 31, 2024, to June 30, 2025[3] Financial Performance This section details H2O America's second quarter and year-to-date 2025 operating results, highlighting revenue and earnings growth drivers Second Quarter 2025 Operating Results H2O America reported a 19% increase in GAAP net income and an 11% increase in diluted EPS for Q2 2025. Adjusted figures also showed strong growth, with adjusted net income up 23% and adjusted diluted EPS up 14%. Operating revenue increased by 13%, primarily due to rate increases and higher customer usage Q2 2025 Financial Performance (YoY) | Metric | Q2 2025 ($M) | Q2 2024 ($M) | Change (%) | | :-------------------------------- | :-------- | :-------- | :--------- | | GAAP Net Income | $24.7 | $20.7 | +19% | | Diluted EPS (GAAP) | $0.71 | $0.64 | +11% | | Adjusted Net Income (non-GAAP) | $26.2 | $21.3 | +23% | | Adjusted Diluted EPS (non-GAAP) | $0.75 | $0.66 | +14% | | Operating Revenue | $198.3 | $176.2 | +13% | | Operating Expenses | $154.4 | $135.6 | +14% | - The increase in operating revenue was driven by $17.6 million from rate increases (primarily California and Connecticut) and $4.9 million from higher customer usage due to weather conditions[7] - The difference between GAAP and adjusted net income was primarily due to $1.5 million (net of tax) in expenses incurred for merger and acquisition activities[6] Year-to-Date Operating Results For the first six months of 2025, H2O America saw a 27% increase in GAAP net income and a 20% increase in diluted EPS. Adjusted figures also showed robust growth, with adjusted net income up 30% and adjusted diluted EPS up 23%. Operating revenue increased by 12%, primarily from rate increases and higher customer usage, partially offset by regulatory mechanism adjustments. Operating expenses rose by 11% due to increased water production and administrative costs YTD 2025 Financial Performance (YoY) | Metric | YTD 2025 ($M) | YTD 2024 ($M) | Change (%) | | :-------------------------------- | :--------- | :--------- | :--------- | | GAAP Net Income | $41.2 | $32.4 | +27% | | Diluted EPS (GAAP) | $1.20 | $1.00 | +20% | | Adjusted Net Income (non-GAAP) | $42.9 | $33.0 | +30% | | Adjusted Diluted EPS (non-GAAP) | $1.25 | $1.02 | +23% | | Operating Revenue | $365.9 | $325.6 | +12% | | Operating Expenses | $286.1 | $257.1 | +11% | - Year-to-date operating revenue increase was driven by $34.8 million from rate increases (primarily California and Connecticut) and $5.9 million from higher customer usage, partially offset by a $2.4 million decrease from regulatory mechanism adjustments[9] - Year-to-date operating expenses increased due to: * $17.5 million increase in water production expenses, primarily from increased water pass-through costs and higher customer usage * $10.3 million increase in administrative and general expenses, mainly from customer credit losses (offsetting prior year collections from California Extended Water and Wastewater Arrearage Payment Program) and increases in acquisition, insurance, and contracted work costs[11] Strategic Initiatives & Capital Deployment This section outlines H2O America's capital expenditure progress and strategic growth through the significant Quadvest acquisition Capital Expenditures H2O America has invested $207.2 million in infrastructure through June 30, 2025, representing approximately 44% of its planned $473 million capital expenditures for the full year, indicating the company is on track to meet its target Capital Expenditures (YTD 2025) | Metric | Amount ($M) | | :-------------------------------- | :------- | | Infrastructure Investment (YTD) | $207.2 | | Planned 2025 Capital Expenditures | $473.0 | | % of Target Achieved | 44% | Growth through Acquisition (Quadvest) H2O America, through its Texas Water subsidiary, entered an agreement to acquire Quadvest's assets in the rapidly growing greater Houston area. This acquisition is expected to significantly expand Texas operations, making it the second-largest investor-owned water and wastewater utility in the state, serving seven of the 50 fastest-growing counties in the U.S. The transaction is projected to be accretive in 2028 and meaningfully accretive to long-term growth - Agreement signed on July 7, 2025, to acquire Quadvest's water and wastewater utility assets in the greater Houston area[13] - The acquisition will position Texas operations as the second-largest investor-owned water and wastewater utility in the state and serve seven of the 50 fastest-growing counties in the U.S[13] - The transaction is expected to be accretive in 2028 and meaningfully accretive to the long-term growth rate[13] Regulatory and Rate Activities This section details H2O America's recent regulatory approvals and rate adjustments across California, Connecticut, Maine, and Texas California Regulatory Updates The CPUC approved two advice letters in June 2025, resulting in a total authorized revenue increase of $29.3 million (5.2%) for H2O America's California operations. These increases are to offset higher purchased water charges and to recover investments in the advanced metering infrastructure (AMI) project - CPUC approved Advice Letter 616, increasing authorized revenue by $22.5 million (4.0%) effective July 1, 2025, to offset increased purchased potable water, groundwater extraction, and recycled water charges[15] - CPUC approved Advice Letter 617, increasing revenue by $6.8 million (1.2%) effective July 1, 2025, for San Jose Water's investment in its advanced metering infrastructure (AMI) project[16] Connecticut Regulatory Updates Connecticut enacted the Water Quality and Treatment Adjustment (WQTA) mechanism, expected to be available in 2026, to recover capital investments for PFAS and other emerging contaminants, with an estimated $190 million for PFAS treatment. Additionally, a $1.6 million revenue increase for infrastructure projects was implemented through the Water Infrastructure and Conservation Adjustment (WICA), bringing the cumulative WICA surcharge to 4.9% - Connecticut Governor Lamont signed the Water Quality and Treatment Adjustment (WQTA) into law on July 1, 2025, to recover capital investment for PFAS and other emerging contaminants, with an estimated $190 million for PFAS treatment expected to be recovered through this mechanism starting in 2026[17] - A $1.6 million revenue increase for Connecticut Water's infrastructure investment projects through the Water Infrastructure and Conservation Adjustment (WICA) was implemented on April 1, 2025, bringing the cumulative WICA surcharge to 4.9%[18] Maine Regulatory Updates The MPUC issued a final decision in Maine Water's Camden-Rockland general rate case, authorizing an $865,000 revenue increase. Water Infrastructure Charge increases totaling $547,000 (3.0%) were also approved for the Biddeford Saco and Oakland divisions. New legislation allows Maine water utilities to offer affordability programs, with the company working on an affordability tariff - MPUC authorized an $865,000 revenue increase for Maine Water's Camden-Rockland division in a general rate case decision on June 27, 2025[19] - Approved Water Infrastructure Charge increases totaling $547,000 (3.0%) for the Biddeford Saco and Oakland divisions on June 24, 2025[19] - Governor Mills signed legislation allowing Maine water utilities to offer affordability programs, with the company developing an affordability tariff as part of its application to unify ten rate districts[20] Texas Regulatory Updates Texas Water filed a Notice of Intent to Determine Fair Market Value (FMV) with the PUCT for the Quadvest transaction, with recovery expected in the next rate case. The PUCT also approved a System Improvement Charge (SIC) for an additional $4.1 million in revenues. New legislation was passed to reduce regulatory lag by allowing future/hybrid test years in rate cases and shortening SIC application processing timelines - Texas Water filed a Notice of Intent to Determine Fair Market Value (FMV) with the PUCT for the Quadvest transaction on July 9, 2025, with FMV recovery expected in TWC's next rate case[21] - PUCT approved Texas Water's request for a System Improvement Charge (SIC) on May 15, 2025, authorizing an additional $4.1 million in revenues[22] - Texas State Legislature passed two key pieces of legislation to reduce regulatory lag: authorizing future or hybrid test years in general rate cases and reducing SIC application processing from 120 to 60 days[23] Financial Outlook & Shareholder Returns This section outlines H2O America's reaffirmed 2025 guidance and long-term EPS growth targets, alongside its consistent dividend declaration 2025 Guidance Reaffirmation H2O America reaffirmed its 2025 adjusted diluted EPS guidance of $2.90 to $3.00 and its non-linear long-term diluted EPS growth of 5% to 7% through 2029, anchored off 2022's diluted EPS of $2.43. The company anticipates achieving growth in the top half of the long-term range 2025 and Long-Term Guidance | Metric | Guidance | | :-------------------------------- | :---------------- | | 2025 Adjusted Diluted EPS ($) | $2.90 to $3.00 | | Long-Term Diluted EPS Growth (to 2029) | 5% to 7% (from 2022 base of $2.43) | - Based on current business conditions, the company expects to achieve growth in the top half of the long-term range[24] Dividend Declaration H2O America declared a quarterly cash dividend of $0.42 per share, payable on September 2, 2025. The annualized dividend for 2025 is projected to be $1.68 per share, an increase from $1.60 in 2024. The company has a strong history of dividend payments, with increases for 57 consecutive years Dividend Information | Metric | Value ($) | | :-------------------------------- | :------ | | Q3 2025 Quarterly Cash Dividend | $0.42 | | 2025 Annualized Dividend (Expected) | $1.68 | | 2024 Annualized Dividend | $1.60 | - Dividends have been paid for over 80 consecutive years, with annual increases for 57 consecutive years[26] Corporate Information This section provides details on H2O America's financial results call, non-GAAP measures, company overview, forward-looking statements, and contact information Financial Results Call Information H2O America's CEO, CFO, and President/COO will review Q2 results in a live webcast presentation on Tuesday, July 29, 2025, at 11 a.m. Pacific Daylight Time. The webcast and related materials are accessible via the company's website, with an archive available until October 20, 2025 - Live webcast presentation scheduled for Tuesday, July 29, 2025, at 11 a.m. PDT (2 p.m. EDT)[27] - Webcast and presentation materials available at www.sjwgroup.com, with an archive accessible until October 20, 2025[28] Non-GAAP Financial Measures Explanation H2O America provides adjusted net income and adjusted diluted EPS as non-GAAP financial measures. These metrics exclude the effects of non-utility real estate transactions and merger/acquisition costs, aiming to offer investors additional insight into core business performance and to align with management's internal performance measurements and guidance communication. These measures are supplementary to GAAP figures - Adjusted net income and adjusted diluted EPS are non-GAAP measures that exclude non-utility real estate transactions and merger/acquisition costs[29] - These non-GAAP measures are provided to help investors evaluate business performance, understand actual results against guidance, and are used internally for performance measurement[29] - Non-GAAP measures should be considered supplementary to GAAP financial information, not an alternative[29] About H2O America H2O America is a leading investor-owned pure-play water and wastewater utility in the U.S., serving 1.6 million people. Its subsidiaries operate in California, Connecticut, Maine, and Texas, focusing on financial strength, operational expertise, and technological innovation to deliver high-quality service, safeguard the environment, and provide sustainable value to stockholders - H2O America is among the largest investor-owned pure-play water and wastewater utilities in the U.S., serving 1.6 million people[30] - Operates through subsidiaries: San Jose Water Company (California), The Connecticut Water Company (Connecticut), The Maine Water Company (Maine), and SJWTX, Inc. (dba The Texas Water Company) in Texas[30] - Focuses on investing in operations, community engagement, and delivering sustainable value to stockholders[30] Forward-Looking Statements This section outlines that the release contains forward-looking statements based on current expectations, estimates, and projections, which are subject to various risks, uncertainties, and assumptions. Actual results may differ materially due to factors such as risks associated with the Quadvest acquisition, governmental policies, demand changes, weather conditions, unexpected costs, and the ability to obtain financing. The company disclaims any obligation to update these statements - Forward-looking statements are subject to risks, uncertainties, and assumptions, and actual results may differ materially[31] - Key risk factors include those associated with the Quadvest acquisition (closing, regulatory approvals, integration), governmental policies and regulations (rates, capital structures, PFAS), changes in demand, unanticipated weather, unexpected costs, and financing availability[32] - Results for a quarter are not indicative of full-year results, and the company undertakes no obligation to publicly update or revise forward-looking statements[34] Contacts Contact information for H2O America's Chief Financial Officer and Treasurer, Ann P. Kelly, and Director of Investor Relations, Daniel J. Meaney, is provided for inquiries - Ann P. Kelly, Chief Financial Officer and Treasurer, can be reached at 408.385.4752 or Ann.Kelly@H2O-America.com[35] - Daniel J. Meaney, Director of Investor Relations, can be reached at 860.664.6016 or Daniel.Meaney@H2O-America.com[35] Appendices: Financial Statements This section provides unaudited condensed consolidated financial statements, including statements of income, balance sheets, and non-GAAP reconciliations Condensed Consolidated Statements of Income This section presents the unaudited condensed consolidated statements of income for the three and six months ended June 30, 2025, and 2024, detailing operating revenue, various operating expenses, operating income, other income/expense, income before taxes, provision for income taxes, net income, and earnings per share Condensed Consolidated Statements of Income (Selected Data) | Metric | Three months ended June 30, 2025 ($K) | Three months ended June 30, 2024 ($K) | Six months ended June 30, 2025 ($K) | Six months ended June 30, 2024 ($K) | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating revenue | $198,255 | $176,174 | $365,854 | $325,556 | | Total operating expense | $154,390 | $135,604 | $286,093 | $257,073 | | Operating income | $43,865 | $40,570 | $79,761 | $68,483 | | Net income | $24,675 | $20,696 | $41,226 | $32,395 | | Diluted Earnings per share ($) | $0.71 | $0.64 | $1.20 | $1.00 | | Dividends per share ($) | $0.42 | $0.40 | $0.84 | $0.80 | Condensed Consolidated Balance Sheets This section provides the unaudited condensed consolidated balance sheets as of June 30, 2025, and December 31, 2024, detailing assets (utility plant, nonutility properties, current assets, other assets) and capitalization and liabilities (stockholders' equity, long-term debt, current liabilities, deferred income taxes, advances for construction, contributions in aid of construction, postretirement benefit plans, regulatory liabilities, and other noncurrent liabilities) Condensed Consolidated Balance Sheets (Selected Data) | Metric | June 30, 2025 ($K) | December 31, 2024 ($K) | | :-------------------------------- | :-------------- | :---------------- | | Assets | | | | Total utility plant | $4,733,934 | $4,525,061 | | Net utility plant | $3,654,396 | $3,488,611 | | Total current assets | $200,450 | $190,714 | | Total assets | $4,846,926 | $4,658,309 | | Capitalization and Liabilities| | | | Total stockholders' equity | $1,465,971 | $1,366,974 | | Long-term debt, less current portion | $1,692,212 | $1,706,904 | | Total capitalization | $3,158,183 | $3,073,878 | | Total current liabilities | $314,234 | $261,173 | | Total capitalization and liabilities | $4,846,926 | $4,658,309 | Reconciliation of Non-GAAP Financial Measures This section provides a reconciliation of GAAP net income and diluted EPS to adjusted net income and adjusted diluted EPS for the three and six months ended June 30, 2025, and 2024. Adjustments primarily include the exclusion of loss on sale of real estate investments and expenses for merger and acquisition activities, net of their tax effects Reconciliation of Non-GAAP Financial Measures | Metric | Three months ended June 30, 2025 ($K) | Three months ended June 30, 2024 ($K) | Six months ended June 30, 2025 ($K) | Six months ended June 30, 2024 ($K) | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Reported GAAP Net Income | $24,675 | $20,696 | $41,226 | $32,395 | | Adjustments (net of tax) | $1,507 | $618 | $1,690 | $618 | | Adjusted Net Income (non-GAAP) | $26,182 | $21,314 | $42,916 | $33,013 | | Reported GAAP Diluted EPS ($) | $0.71 | $0.64 | $1.20 | $1.00 | | Adjustments (net of tax) ($) | $0.04 | $0.02 | $0.05 | $0.02 | | Adjusted Diluted EPS (non-GAAP) ($) | $0.75 | $0.66 | $1.25 | $1.02 | - Adjustments for Q2 2025 primarily include $2.093 million in merger and acquisition activities expense, with a tax effect of $(0.586) million[43] - Adjustments for YTD 2025 primarily include $2.347 million in merger and acquisition activities expense, with a tax effect of $(0.657) million[43]