California Water Service(CWT) - 2025 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS Presents unaudited condensed consolidated financial statements and notes on accounting policies, equity, debt, income taxes, and regulatory matters Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (In thousands): | Item | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :---------------- | | ASSETS | | | | Net utility plant | $4,334,611 | $4,158,704 | | Total current assets | $361,581 | $324,136 | | Total other assets | $703,737 | $697,443 | | TOTAL ASSETS | $5,399,929 | $5,180,283 | | CAPITALIZATION AND LIABILITIES | | | | Total equity | $1,657,269 | $1,638,286 | | Long-term debt, net | $1,104,046 | $1,104,571 | | Total capitalization | $2,761,315 | $2,742,857 | | Total current liabilities | $686,080 | $538,364 | | Deferred income taxes | $422,779 | $411,083 | | Regulatory liabilities | $845,657 | $814,551 | | TOTAL CAPITALIZATION AND LIABILITIES | $5,399,929 | $5,180,283 | - Total assets increased by $219.6 million from December 31, 2024, to June 30, 2025, primarily driven by an increase in net utility plant and current assets[11] - Total current liabilities saw a significant increase of $147.7 million, mainly due to higher short-term borrowings[14] Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (In thousands, except per share data): | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating revenue | $264,954 | $244,299 | $468,927 | $515,048 | | Total operating expenses | $213,145 | $196,133 | $394,773 | $388,988 | | Net operating income | $51,809 | $48,166 | $74,154 | $126,060 | | Net income attributable to California Water Service Group | $42,168 | $40,551 | $55,499 | $110,468 | | Basic EPS | $0.71 | $0.70 | $0.93 | $1.90 | | Diluted EPS | $0.71 | $0.70 | $0.93 | $1.90 | - For the three months ended June 30, 2025, operating revenue increased by $20.7 million (8.5%) and net income attributable to California Water Service Group increased by $1.6 million (3.9%) compared to the same period in 2024[17] - For the six months ended June 30, 2025, operating revenue decreased by $46.1 million (9.0%) and net income attributable to California Water Service Group decreased by $55.0 million (49.8%) compared to the same period in 2024, primarily due to a cumulative adjustment in 2024 for the delayed approval of the 2021 CA GRC[17][99] Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statements of Comprehensive Income (In thousands): | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $42,050 | $40,377 | $55,252 | $110,067 | | Other comprehensive income (loss), net of tax | $154 | $298 | $308 | $(13,068) | | Comprehensive income attributable to California Water Service Group | $42,322 | $40,849 | $55,807 | $97,400 | - Other comprehensive income (loss) for the six months ended June 30, 2024, included a significant unrecoverable pension benefit plan cost of $(13,663) thousand, which was not present in 2025[20] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (In thousands): | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $87,367 | $120,939 | | Net cash used in investing activities | $(229,313) | $(214,366) | | Net cash provided by financing activities | $142,415 | $91,136 | | Change in cash, cash equivalents, and restricted cash | $469 | $(2,291) | | Cash, cash equivalents, and restricted cash at end of period | $96,156 | $82,675 | - Net cash provided by operating activities decreased by $33.6 million for the six months ended June 30, 2025, primarily due to the receipt of $83.0 million from California's Extended Water and Wastewater Arrearages Payment Program in 2024 that did not recur[23][130] - Net cash provided by financing activities increased by $51.3 million, driven by higher short-term borrowings and the receipt of PFAS settlement proceeds in 2025[23][134][135] Notes to Unaudited Condensed Consolidated Financial Statements Details multi-state utility operations, accounting policies, equity, debt, income taxes, regulatory changes including a new $350 million equity agreement and PFAS settlement - The Company operates as a holding company providing water utility and related services across California, Washington, New Mexico, Hawaii, and Texas through regulated and non-regulated subsidiaries[25] Operating Revenue Disaggregation (In thousands): | Revenue Source | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue from contracts with customers | $256,216 | $226,665 | $438,917 | $381,566 | | Regulatory balancing account revenue | $8,738 | $17,634 | $30,010 | $133,482 | | Total operating revenue | $264,954 | $244,299 | $468,927 | $515,048 | - In May 2025, the Company entered into a new equity distribution agreement to sell up to $350.0 million of common stock over three years, replacing a previous agreement[55] Income Tax Expense (In thousands): | Period | 2025 | 2024 | | :------------------------ | :--------- | :--------- | | Three Months Ended June 30, | $8,667 | $9,995 | | Six Months Ended June 30, | $11,405 | $26,854 | Effective Tax Rate (before discrete items): | Period | 2025 | 2024 | | :------------------------ | :--------- | :--------- | | As of June 30, | 17.1% | 19.6% | - The Company received $10.6 million in May 2025 from a PFAS settlement with 3M Company, the first of ten expected installments, which will be used to offset capital expenditures for PFAS treatment[79] Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses financial performance, liquidity, capital resources, regulatory developments, financing strategies, and water supply FORWARD-LOOKING STATEMENTS - The report contains forward-looking statements based on current information, expectations, estimates, assumptions, and projections, which are subject to numerous uncertainties and business risks[92] - Factors that may cause actual results to differ include regulatory actions, rate increase opposition, cost recovery, changes in environmental and water quality requirements (e.g., PFAS MCLs), weather impacts, and economic conditions[93][95] CRITICAL ACCOUNTING POLICIES AND ESTIMATES - Critical accounting policies include regulated utility accounting, income taxes, and pensions (including SERP and postretirement health care benefit plans)[100] - For the six months ended June 30, 2025, there were no material changes in the methodology for computing critical accounting estimates or the underlying assumptions[96] - The company is evaluating the impact of the newly signed 'An Act to Provide for Reconciliation Pursuant to Title II of H. Con. Res. 14' on its consolidated financial statements, as it was signed after the quarter close[97] RESULTS OF OPERATIONS Net Income Attributable to California Water Service Group (In thousands, except per share data): | Period | Net Income | Diluted EPS | | :------------------------------- | :--------- | :---------- | | Three Months Ended June 30, 2025 | $42,168 | $0.71 | | Three Months Ended June 30, 2024 | $40,551 | $0.70 | | Six Months Ended June 30, 2025 | $55,499 | $0.93 | | Six Months Ended June 30, 2024 | $110,468 | $1.90 | - The $55.0 million decrease in net income for the six months ended June 30, 2025, was primarily due to a $46.1 million decrease in operating revenue, largely from a cumulative adjustment in 2024 related to the 2021 CA GRC delayed approval[99] Operating Revenue Change Drivers (In thousands): | Driver | Three Months Ended June 30, 2025 vs. 2024 | Six Months Ended June 30, 2025 vs. 2024 | | :------------------------------------------------- | :---------------------------------------- | :-------------------------------------- | | Net change due to rate changes, usage, and other | $30,312 | $58,612 | | Interim Rates Memorandum Account (IRMA) revenue | $(7,932) | $(88,596) | | Monterey-Style Water Revenue Adjustment Mechanism (MWRAM) revenue | $(1,535) | $(17,791) | | Deferred revenue | $(190) | $1,654 | | Net operating revenue change | $20,655 | $(46,121) | - Total operating expenses increased by $17.0 million (8.7%) for the three months and $5.8 million (1.5%) for the six months ended June 30, 2025, driven by higher water production costs, other operations expenses (including bad debt), and depreciation/amortization[102][104][106][109][111] REGULATORY MATTERS - Cal Water filed its 2024 CA GRC application proposing over $1.6 billion in investments for 2025-2027 and a Low-Use Water Equity Program, with proposed rate increases of 17.1% in 2026, 7.7% in 2027, and 8.1% in 2028[113][115][116] - The CPUC approved Cal Water's requests for 2025 escalation rate increases ($27.2 million), rate base offsets ($0.9 million and $1.6 million), and expense offsets ($17.1 million and $5.1 million) for various districts[118][119][120][121][122] - Cal Water filed an application requesting $125.0 million for PFAS treatment in 6 districts for 2026-2027, with associated annual revenue increases of $6.7 million (2027) and $9.0 million (2028)[123] - Regulatory approvals were also obtained in Washington (Stroh's 2025 Rate Case, $0.2 million revenue increase) and Hawaii (2024 Ka'anapali GRC, $7.5 million test year revenue requirement)[126][127] LIQUIDITY - Cash flow from operations decreased to $87.4 million for the six months ended June 30, 2025, from $120.9 million in 2024, primarily due to the non-recurrence of $83.0 million from the California Water and Wastewater Arrearages Payment Program[130] - Utility plant expenditures for the six months ended June 30, 2025, were $229.5 million, with an estimated range of $450.0 million to $550.0 million for the full year 2025[133] - Net cash provided by financing activities increased to $142.4 million in 2025 from $91.1 million in 2024, driven by $410.0 million in short-term borrowings and $10.6 million in PFAS settlement proceeds[134][135] - The Company maintains short-term liquidity through $600.0 million in unsecured revolving credit facilities, with $135.0 million available for the Company and $105.0 million for Cal Water as of June 30, 2025[137][147] Summarized Financial Information for Guarantors and the Issuer of Guaranteed Securities - Cal Water (Issuer) has $100.0 million in 5.5% First Mortgage Bonds due 2040, fully and unconditionally guaranteed by California Water Service Group (Guarantor)[141] Summarized Statement of Operations (in thousands) - Six Months Ended June 30, 2025: | Item | Issuer | Guarantor | | :------------------------ | :------- | :-------- | | Net sales | $429,457 | $— | | Income from operations | $77,649 | $385 | | Equity in earnings of guarantor | $— | $52,126 | | Net income | $58,365 | $55,195 | Summarized Balance Sheet Information (in thousands) - As of June 30, 2025: | Item | Issuer | Guarantor | | :---------------------------------------- | :--------- | :---------- | | Total assets | $4,906,591 | $1,556,042 | | Total liabilities | $3,549,485 | $72,124 | Dividends - Quarterly common stock dividend payments for the six months ended June 30, 2025, were $0.64 per share, including a one-time special dividend of $0.04 per share, compared to $0.56 per share in 2024[145] - The company's long-term goal is to achieve a dividend payout ratio of 60% of net income, up from 34.3% in 2024[145] - The Board of Directors declared a third-quarter dividend of $0.30 per share, marking the 322nd consecutive quarterly dividend[146] 2025 Financing Plan - The company plans to fund utility plant needs through a balanced approach of long-term debt and equity[147] - As of June 30, 2025, the Company and Cal Water had $135.0 million and $105.0 million, respectively, available on their unsecured revolving lines of credit[147] Book Value and Stockholders of Record Book Value per Common Share: | Date | Book Value per Share | | :---------------- | :------------------- | | June 30, 2025 | $27.77 | | December 31, 2024 | $27.49 | - As of May 12, 2025, there were approximately 1,673 stockholders of record for the company's common stock[148] Utility Plant Expenditures - Utility plant expenditures totaled $229.5 million for the six months ended June 30, 2025, comprising $216.7 million in Company-funded and $12.8 million in developer-funded projects[149] - Estimated utility capital expenditures for 2025 are between $450.0 million and $550.0 million[149] - Construction work in progress stood at $432.0 million as of June 30, 2025[150] PFAS Settlement Proceeds - Refer to Note 9, 'Commitments and Contingencies,' for detailed information on PFAS settlement proceeds[151] WATER SUPPLY Sources of Water as a Percent of Total Water Production: | Source | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Well production | 53% | 49% | 53% | 51% | | Purchased | 43% | 45% | 45% | 45% | | Surface | 4% | 6% | 2% | 4% | | Total | 100% | 100% | 100% | 100% | - Management believes that water supply from underground aquifers and wholesale suppliers will be adequate to meet customer demand in 2025 and beyond, despite potential rationing requirements[154] - The EPA finalized a National Primary Drinking Water Regulation for six PFAS in drinking water in April 2024, requiring initial monitoring by 2027 and treatment by 2029, with an estimated capital investment of $226.0 million for compliance[156] - The California Water Board adopted an MCL of 10 parts per billion for Chromium-6 in drinking water in April 2024, with compliance required within two to four years[157] CONTRACTUAL OBLIGATIONS - There were no material changes in contractual obligations outside the normal course of business during the six months ended June 30, 2025[158] Item 3. Quantitative and Qualitative Disclosure about Market Risk This section states that there have been no material changes to the company's quantitative and qualitative disclosures regarding market risk since its last annual report - No material changes to the Company's quantitative and qualitative disclosures about market risk were reported for the period[159] Item 4. Controls and Procedures Management found disclosure controls effective as of June 30, 2025, with no material changes to internal financial reporting controls - Management concluded that disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2025[162] - No material changes in internal control over financial reporting occurred during the second quarter of 2025[163] PART II—OTHER INFORMATION Item 1. LEGAL PROCEEDINGS The company is involved in legal proceedings, but management expects no material impact on financial position or results - Management does not believe the ultimate resolution of current legal proceedings will materially affect the Company's financial position, results of operations, or cash flows, considering existing reserves[165] Item 1A. RISK FACTORS This section states that there have been no material changes to the company's risk factors as previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes to the Company's risk factors were reported for the period[166] Item 5. OTHER INFORMATION This section reports that no director or Section 16 officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the last fiscal quarter - No director or Section 16 officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the last fiscal quarter[167] Item 6. EXHIBITS This section provides a list of exhibits filed as part of the Form 10-Q, including the Equity Distribution Agreement, Certificate of Incorporation, Bylaws, officer certifications, and iXBRL formatted financial statements - The exhibits include the Equity Distribution Agreement, corporate governance documents, officer certifications (Sarbanes-Oxley Act Sections 302 and 906), and financial statements in iXBRL format[169] SIGNATURE This section contains the official signature block, confirming that the report has been duly caused to be signed on behalf of California Water Service Group by James P. Lynch, Senior Vice President, Chief Financial Officer and Treasurer, on July 31, 2025 - The report was signed by James P. Lynch, Senior Vice President, Chief Financial Officer and Treasurer, on behalf of California Water Service Group on July 31, 2025[173]