H2O America Aktie

Good day, and thank you for standing by. Welcome to the H2O America 2026 Q1 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker, Jonathan Reeder. Please go ahead.

Thank you, Siobhan. Welcome to the first quarter of 2026 financial results conference call for H2O America. My name is Jonathan Reeder, and I am the Senior Director of Treasury and Investor Relations for H2O America. Presenting today will be Andrew Walters, Chair of the Board and Chief Executive Officer; Ann Kelly, Chief Financial Officer and Treasurer; and Bruce Hauk, President and Chief Operating Officer. For those who would like to follow along, slides accompanying our remarks are available on our website at h2o-america.com.

Before we begin today, I would like to remind you that this presentation and related materials posted on our website may contain forward-looking statements. These statements are based on estimates and assumptions made by the company in light of its experience, historical trends, current conditions and expected future results as well as other factors that the company believes are appropriate under the circumstances. Many factors could cause the company's actual results and performance to differ materially from those expressed or implied by the forward-looking statements. For a description of some of the factors that could cause actual results to be different from statements in this presentation, we refer you to the financial results press release and to our most recent.

Forms 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission, copies of which may be obtained on our website. All forward-looking statements are made as of today, and H2O America disclaims any duty to update or revise such statements. You will have an opportunity to ask questions at the end of the presentation. This webcast is being recorded, and an archive of the webcast will be available until July 29, 2026. You can access the press release and the webcast at H2O America's website.

In addition, some of the information discussed today includes non-GAAP financial measures of adjusted net income and adjusted diluted earnings per share have not been calculated in accordance with generally accepted accounting principles in the United States or GAAP. These non-GAAP financial measures should be considered as a supplement to the financial information prepared on a GAAP basis rather than as an alternative in respect to GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the table in the appendix of our presentation.

I will now turn the call over to Andrew.

Welcome, everyone, and thank you for joining us today. We are pleased to provide you with an update on our strong first quarter 2026 results, during which we earned $0.49 per share on a GAAP diluted basis and $0.50 per share on an adjusted diluted basis. Our first quarter 2026 results were consistent with our internal expectations in supportive of our stand-alone 2026 EPS guidance of $3.08 per share to $3.18.

Before I ask Dan to discuss the quarterly results in more detail, I want to update everyone on the very successful equity raise that we executed in early March. Following our year-end 2025 update and taking advantage of what we viewed as a receptive equity market, we decided to take the Quadvest acquisition-related equity risk off the table by coming to the market with a $550 million equity offering to fund not only the transaction, but also the $100 million to $125 million of equity needed for our 2026 stand-alone capital budget.

Our equity offering received an overwhelmingly positive response from investors. As it was more than 5x oversubscribed and priced at a tight 2.6% discount. Due to the overwhelming demand and our desire to accommodate some very high-quality, long-term oriented investors into our shareholder base, we upsized the issuance to $700 million, including a green shoot. The upsizing also served to address our forecasted equity needs through 2027.

I believe the successful equity offering is a direct reflection of the hard work of all my partners here at H2O America and their dedication to providing our customers with high-quality, reliable service while executing on the financial goals that we have communicated to investors. At the same time, we recognize that our work is far from complete. We remain steadfast in our commitment to deliver on the 2026 to 2030 plan that we rolled out at the end of February, including our increased long-term EPS CAGR target of 6% to 8%.

The core element of the plan is our tried and true strategy of growing the business and creating shareholder value by making the much needed water infrastructure investments across the national footprint of our systems while constructively engaging our key local stakeholders in the consensus building process to provide timely regulatory recovery while maintaining customer affordability. As a reminder, our plan does not include any M&A opportunities beyond our 2 pending Texas acquisitions.

On the regulatory front, our teams have been busy working to secure the necessary approvals to execute on our long-term plan. This includes leveraging infrastructure investment mechanisms, recoveries in Connecticut, Maine, Texas as well as making a PFAS remediation project recovery filing in Connecticut as well as California. In addition, a great deal of thought and effort has gone into preparing our general rate case filing in Connecticut and Maine.

And of course, there was a filing of the Quadvest LP sales transfer merger application earlier in the year, and our focus continues to be on closing the transformative acquisition later this year and delivering on the anticipated accretion beginning in 2028.

Bruce will provide more detailed updates on the Quadvest transaction as well as some of our key regulatory elements later in the call. But now I will turn it over to Ann to provide details on our first quarter 2026 results and the key elements of our financial plan. Ann?

Thank you, Andrew. Yesterday, after the market closed, we released our first quarter 2026 operating results. As Andrew mentioned, we were pleased to report first quarter 2026 diluted EPS of $0.49 and adjusted diluted EPS of $0.50. The results were consistent with our internal expectations and supportive of the financial guidance that we provided on our year-end 2025 update. Although we grew the underlying net income by roughly 15%, both our reported and adjusted diluted earnings per share were unchanged when compared to the first quarter of 2025 results due to the higher share count as a result of leveraging our ATM program in 2025 and our equity issuance in early March.

Moving to Slide 8. I'd like to briefly discuss all the key drivers resulting in the comparable year-over-year earnings per share. We realized $0.41 per share increase due to higher revenue. Roughly half of this or $0.20 was driven by rate relief received from general rate cases and infrastructure surcharges, primarily in California, Connecticut and Texas. There was also $0.11 of higher revenue for pass-through water supply costs that are offset in our water production expenses and do not impact our net income.

In addition, higher usage largely due to a hot dry March across our California service territory added $0.05. The revenue increase was partially offset by higher water production expenses of $0.20, attributable to $0.10 of higher water supply costs due to increases in average per unit cost for purchased water and groundwater extraction $0.09 from increases in water production balancing and memorandum accounts primarily related to the full cost balancing account in California and $0.08 from higher customer usage. These increases were partially offset by $0.07 decrease in water production expense as a result of increased availability of surface water.

In addition, other operating expenses increased $0.18. The biggest item here was an $0.11 increase in depreciation and amortization for new utility plant placed in service as well as an increase in maintenance, employee-related costs and higher nonlabor administrative and general expenses. The remaining drivers relate to $0.07 of dilution, which I alluded to earlier from the higher share count, partially offset by $0.04 of net other benefits. As for taxes during the quarter, our effective income tax in Q1 2026 was approximately 15% versus 17% in Q1 of 2025. The lower effective tax rate was primarily due to higher flow-through tax benefits.

Shifting from the first quarter results to our full year 2026 and beyond expectations, the figures on the next few slides should look familiar as we are reiterating all aspects of the guidance that we rolled out near the end of February with our year-end 2025 update. During the first quarter of 2026, we invested $85 million into infrastructure improvement. This represents 18% of our full year 2026 CapEx budget of $483 million, which did not include the impact of Quadvest. While the 18% might seem low, it reflects the seasonality of our CapEx cycle, particularly during the winter months for our Connecticut and Maine operations.

We are on track to deliver the full year 2026 CapEx budget as well as our plan to invest $2.7 billion of capital over the 2026 to 2030 period. Importantly, roughly 80% of the $2.7 billion capital plan qualifies for timely regulatory recovery either through California's 3-year forward-looking general rate case framework or through various infrastructure recovery mechanisms in Connecticut, Maine and Texas. Our 5-year capital investment plan, combined with our pending acquisition of Quadvest is expected to translate into a 13% rate base CAGR of our year-end 2025 estimated rate base of $2.8 billion.

As a reminder, these amounts represent our estimated rate base at year-end and not necessarily what was or will be recognized in rates by our state regulators in those particular years. We are laser-focused on not only delivering the rate base growth, but translating it into attractive earnings growth by minimizing regulatory lag and continually seeking ways to operate more efficiently in order to keep rates affordable while providing our customers with best-in-class service.

The details on Slide 10 are consistent with what we have provided on our year-end update. I won't go through them all, but wanted to reiterate our expectation to deliver a nonlinear EPS CAGR over the 2026 to 2030 period at or above the top end of our 6% to 8% long-term organic EPS growth rate target using our 2025 adjusted EPS of $2.99 as a base year.

The ability to deliver growth at or above our 6% to 8% long-term sustainable rate is enabled by: one, the line of sight that we have on our 5-year capital expenditure plan; two, the anticipated accretion from pending Quadvest acquisition beginning in 2028 once the new rates from the consolidated Texas general rate case that was planned to file in early 2027 go into effect; and three, our expectation to continue to work constructively with key stakeholders in each of our states to achieve fair and timely revenue regulatory outcomes. We remain excited about our 5-year plan and long-term prospects and believe our team is fully capable of delivering on it.

Turning to financing and credit. On Slide 11. As Andrew discussed, we executed on the equity needs needed to not only fund our pending Texas acquisition, but also our 2026 and 2027 base capital expenditures. We expect to stay out of the equity markets, including issuances through our ATM program through at least year-end 2027 as we have the ability to draw down on the $400 million forward agreement component of the March issuance over this period to fund our capital needs. And we still expect to raise $100 million to $200 million of debt across the parent and Texas operating company levels to fund the Quadvest transaction, although we have more flexibility now regarding the timing given the upsized equity issuance.

Our liquidity is strong to fund our daily operations. While we work towards closing Quadvest later this year, we utilized the cash received from the equity issuance to pay down our bank lines of credit, meaning the full $370 million is available, and we have invested the remainder of the proceeds into cash equivalents. In addition, our A- credit rating, which S&P affirmed earlier this month, affords us access to the capital needed to fund our longer-term investments. We expect our FFO to debt ratio to be in the 11% to 12% range through 2027, which is above S&P's 11% downgrade threshold. In 2028, we expect the ratio to be above 12%, and we will continue to delever throughout the rest of the plan through increased cash flows and the anticipated paydown of our 2029 holdco maturity.

And with that, I will turn the call over to Bruce to provide some regulatory updates, including on our pending acquisition of Quadvest.

Thank you, Ann. Our regulatory teams have been busy to start the year. While the California team is gearing up for the 2028 to 2030 GRC filing that will be made in January of 2027. Earlier this month, we filed a request with the CPUC outside of the GRC process for approval and recovery of our planned Williams Station PFAS remediation project. The estimated capital cost for the ion exchange project is $176 million. If approved, SJWC would adjust rates via annual rate base filing offsets. This is similar to the recovery approach we took for our current AMI project that is expected to be completed around the end of this year.

In Connecticut, we filed and received approval to implement annual revenue increases totaling a combined roughly $3.3 million under the WICA and WQTA mechanisms that went into effect on April 1, 2026. Also on April 1, we implemented our 2025 water revenue adjustment mechanism surcharge to reconcile revenues as authorized in CWC's most recent rate case. Notably, as a result of CWC achieving the PURA prescribed performance metrics in our last GRC, the WRA surcharge provides recovery of certain amounts of compensation expenses.

And then as most of you are aware, CWC filed a letter of intent on March 13 to file a GRC application within the next 60 days. The actual rate case will be filed in the weeks ahead, but per the letter, CWC plans to request an approximately $26 million increase in annual revenues or new rates become effective early 2027. As CWC seeks recovery for the approximately $129 million of infrastructure investments made between its last rate case and the end of 2026 as that investment is not reflected in current rates.

Moving on to Maine on Slide 14. After getting approval of the stipulation and the rate unification proceeding in January, MWC filed its first consolidated risk application in late February, requesting a $0.9 million increase. And then earlier this month, MWC filed its first consolidated GRC filing requesting a $9.5 million increase in annual revenues to recover the approximately $36 million of infrastructure investments that have been or are expected to be made in the state by the end of 2026 and are not currently in rates. We expect the new rates to go into effect by the second quarter of 2027.

Lastly, I'd like to shift to Texas regulatory activity. We continue to work through the $5.1 million SIC mechanism application we filed in October and expect a decision from the PUCT in the second half of 2026. We also continue to move the ball forward through the PUCT's approval process for the 2 pending acquisitions. In fact, I'm pleased to report that just last week, we filed a sales transfer merger or STM application for the Cibolo Valley wastewater plant and related collection system, which keeps us on track for an anticipated close of this transaction during the fourth quarter of 2026.

And then in early 2027, after the close of the Quadvest and Cibolo Valley acquisitions as well as the completion of our significant investments to bring an additional 6,000 acre feet of water annually into our existing system, Texas Water continues to expect to file a combined company general rate case with new rates effective in early 2028, so that these and other additions to Texas Water's rate base can be recognized in rates.

Beginning in 2024, the magnitude of needed infrastructure investments to improve water supply and reliability at our Texas utility increased considerably. Over the '24 through '26 period, we expect to have invested more than $300 million into the infrastructure and thus filing a GRC to get those investments recognized in rates is critical.

Now before I move to an update on Quadvest, I did want to point out that despite us making all of these significant and much needed capital investments in recent years across our service territories and seeking recognition of these investments from our regulators, our average bills are still below 1% of the median household income in each of our service territories.

This is well below the EPA's recent study that reported water and wastewater bills are affordable if when combined, they are less than 4.5% of median household income. Assuming a 50-50 split between water and wastewater, it would suggest below 2.25 for each is affordable. We believe this is a reasonable guideline depicting affordability and provides bill headroom for the recovery of our planned infrastructure investments going forward.

Now for an update on Quadvest. The STM application for the regulated portion of the Quadvest transaction was filed in January. And earlier this month, it was deemed administratively complete. As outlined on Slide 15, the STM application requests approval of TWC's acquisition of the Quadvest LT assets and certification of the value of the ratemaking rate base as determined in accordance with the Texas fair market value statute at TWC's $483.6 million purchase price. TWC is in the process of issuing the required public notices and once proof of those notices are filed with the commission, the PUCT's 120-day approval process will commence.

That said, the 120-day time frame may be extended if staff for the Office of Public Utility Counsel request a hearing and/or time line extension. As such, we are updating our expected closing of the Quadvest acquisition from mid-2026 to something during the second half of 2026. Meanwhile, we continue to see robust connection growth in the Houston-based Quadvest water and wastewater system, which now has more than 57,200 active connections as of March 31, 2026. This represents an impressive 5% increase in the first 3 months of 2026 after the active connection count increased 16% during 2025.

And as Quadvest's under contract and pending development pipeline converts into active connections, the pool of future connections continues to be replenished, extending the longevity of the growth profile. Specifically during the first quarter of 2026, despite Quadvest converting 2,800 connections from the pipeline to active, the pipeline was increased by 5,000 connections. Of course, future connection growth will vary based on a number of conditions, so this is no guarantee of future -- of the future pace of growth. However, these results are in line with our range of expectations, and we believe solid growth will continue in the Greater Houston area, which is the second fastest-growing metropolitan area in the United States.

The addition of Quadvest's active customers plus the continued conversion of its contracted development backlog is the primary contributor that is expected to drive Texas from 8% of our consolidated customer base today to 26% by 2025. Between Quadvest and Cibolo Valley, we are very excited about our long-term growth potential in Texas.

That concludes my regulatory updates. I will now turn the call back over to Andrew.

Thank you, Bruce. Before opening the call up to Q&A, I wanted to welcome Commissioner Patrick Rhode, who Governor Abbott appointment a few weeks ago to fill the remaining vacancy on the Public Utility Commission of Texas. and take a minute to expand a bit on Bruce's remarks with respect to customer affordability. We know the concern remains top of mind with customers, regulators and investors alike, especially as the recent uptick in energy prices due to the conflict in the Middle East has caused inflationary expectations to rise.

Affordability is and frankly, always has been a top priority of ours. And we will continue to work constructively with our state regulatory partners as we look to balance affordability with the extensive investment required to replace aging infrastructure and treat emerging contaminants, all while providing safe, high-quality water and reliable service.

As Bruce mentioned, as of year-end 2025, average H2O bills were less than 1% of median household income across all 4 of our states, which is well below the EPA's suggested 2.25% affordability threshold. In addition, we offer affordability tariffs in California, Connecticut and Maine with hopes to introduce this benefit to our Texas customer base as part of our future rate proceeding.

In addition -- and as always, we will continue to strive to run the business as efficiently as possible as we recognize that every dollar of avoided operating expenses enables the recovery of $7 of capital investments with a neutral impact on customer bills. Any time we can swap operating expenses for capital deployment, we will look to do it as it is a win-win for customers and the company.

So in closing, I believe our company is off to a good start operationally and financially. We have a busy regulatory agenda ahead of us, but I believe our team is up to the challenge, and our company is poised to deliver great things in 2026 and beyond. Our dedicated team remains focused on driving shareholder and customer value through disciplined infrastructure investment and executing on our financial goals, advancing the transformational Quadvest acquisition as well as Cibolo Valley, deepening our strong partnerships with local stakeholders and our unrelenting pursuit of operational excellence and identifying creative and sustainable solutions to serve generations to come while maintaining a focus on affordability.

With that, I will turn the call back over to the operator for questions.

[Operator Instructions] Our first question comes from the line of Alex Kania of BTIG.

I kind of had just 2 questions. The first one was just as you think about the regulatory -- the upcoming rate case process, I guess, I'd say, for Quadvest next year. Would you -- and I know, obviously, it's early, but just from a high level, how would you -- obviously, this rate case is going to be important, but how would you just think about maybe some of the affordability statistics that you provided for your other jurisdictions and maybe how they may end up looking relative to what you might expect from Quadvest kind of on a run rate basis?

I'll ask Bruce to take that question. And thank you very much, Alex.

Yes. Thank you, Alex, for the question. As it relates to Quadvest rates, we've not disclosed the potential impact on rates, but we have disclosed that it would be significant. With that in mind, there's been a lot of investment that needs to be made for reliability in the system, as you heard in my prepared remarks and also the FNB transaction itself. With that being said, we are in the process of being engaged with all the stakeholders, customers and also the regulatory commission as well. And we have to be creative and thoughtful in our preparations and preparing for that. And that will most likely be most public, if you will, sometime in 2027 when we file.

But with that being said, as Andrew mentioned in his comments, we are very focused on affordability and our rate design will take that into consideration. And we are going to be proposing a low-income tariff to address affordability issues in Texas as well, but also being mindful of how to most appropriately bring those investments to light into rates and how we can do that in conjunction in partnership with the commission.

Great. That's helpful. And then maybe a question for Ann. Just as you talked about the balance sheet and the fact that you might be in that 11% to 12% range for the next couple of years, given that cushion from the equity offering. Just thinking about the thoughts around the comments on just the desire to continue to deleverage. Is there kind of a target that we should be thinking of over the very long term from an FFO to debt? And maybe just the thinking behind wanting to be pretty sizably above maybe whatever downgrade threshold might be for your A rating?

Yes. Thanks, Alex. Yes. So as we mentioned, we do plan to delever over the 5-year plan with the target being to get into the A flat rating, which is comparable to our competitors. Right now, we have a -- I think a 15% FFO to debt upgrade threshold. So we would need to be north of that. We expect to be there by the end of the 5-year time period. And going to the A flat credit rating gives us flexibility. So we said overall that we're very committed to our A category rating currently at the A-. But building that up to an A flat gives us flexibility if we were to pursue an acquisition or any other transactions in the future to be able to do so while still maintaining the A category rating.

And our next question comes from the line of Davis Sunderland of Baird.

Maybe 2 for me. Just starting first on Quadvest. Wondering maybe Andrew or Bruce, if you guys could talk just a bit about the final steps needed to close this. Any risks you guys see to the time line? And then whether or not any small deviations, thinking months difference here would pose any risk to your guys' timing for potentially filing the Texas rate case application next year.

I'll have Bruce take that question, but thank you, David.

Yes. Thank you, David, for the question. And we're super excited about the major hurdle that we most recently covered, which was being deemed administratively sufficient. That specific step allows us to engage in the notice to customers of the acquisition and kicks off a process that allows us to actually get the 120-day procedural schedule set by the commission. So with that being said, if you think back when we actually announced this acquisition, filed notice for the FNB and then proceeded with filing over 7,000 pages of the STM filing, sales transfer merger process to only have had a 60-day examination of that process to get deemed administratively sufficient, that's significant in terms of an achievement.

With that being said, as things proceed, that puts us from where we said in my prepared remarks from a mid-2026 close to sometime in the latter half of 2026. That being said, all commissions across this country are inundated with a lot of dockets. Texas is no exception with the amount of investment and growth is taking place in Texas. So we have to work with the commission in partnership to proceed and prosecute the STM. And so far, we're on track, like I mentioned, for that late 2026, barring no significant exceptions in terms of delays with things that may come up in the due diligence process.

But so far, so good, and we are planning to close, as I mentioned, at the latter part of 2026, barring no unforeseen things that may come up by intervening parties or just basically with the commission staff being and able to get to things as timely as we would like based on their docket and all the actual cases that they're reviewing. But we're very happy with the process thus far and the total engagement by the commission and the staff. So we are happy with, I mentioned, crossing that hurdle at this point.

Yes. I think that it's an important point, Davis, too, just to kind of highlight that if anybody gets that amount of volume of documents to go through, they're not going to kind of shrimp on their review process. It just means they have to work very hard in order to get through it. And at least from our standpoint, we have nothing but gratitude for the hard work that the staff is putting into this.

That is super helpful. Maybe just one other, if I could sneak it in. I know this is a bit of a moving target, if you will, to an extent, but the EPA has been talking a bit more about regulating microplastics and other potentially harmful substances in drinking water. And I think in fairness, it took maybe 2.5 years to officially move forward on PFAS. So it's still early on. But I guess my question is, have you guys thought about whether or not treating for PFAS would also cover treating some of these other potentially harmful substances? Or is this maybe a tailwind to increased capital deployment longer term? Or just how to think of this in context of your guys' planned capital deployments?

Thank you, David, for that question and super engaged in the process with the EPA, working with the process. And just to kind of level set the 6 constituents that are actually PFAS regulated with MTLs and what have you, we're very much on track to make the improvements that are needed in Connecticut and California to achieve that compliance and things are on track there.

This new list of compounds that were part of that process that you just described, just like you had mentioned, the rule-making process is lengthy and long and the due process is pretty extensive. But the partnership that we have with the Water Research Foundation, also our other partners with EPA and other organizations NAWC allows us to be a significant and meaningful part of that process and a voice.

To your point of does ion exchange or GAC or any of these treatment processes that we use to mitigate PFAS, are there ancillary benefits? Absolutely. One of the things on microplastics, I'm super proud of is our Director of Water Quality based out of our San Jose Water operation is actually doing a pilot through the Water Research Foundation and actually using our Montevina plant to do a pilot on microplastics to inform the science behind what can be done to eliminate, treat, remediate microplastics.

So we're very much in on the research and participating in the process that will help our company as well as others as we work through the process and the rulemaking. So super excited about that.

Yes. And I think it's good to Bruce highlight that because I think as we look at the team that is supporting all of us, we get the honor of telling the story. The work that actually gets done on the field is nothing short of amazing for what those folks do every day. And Suzanne de Lorenzo, who Bruce just talked about, is one of those amazing partners that is continuing to drive progress in our company and actually put us at the forefront of things that impact the entire industry, not just us.

[Operator Instructions] I'm showing no further questions at this time. I would now like to turn it back over to Andrew Walters for any closing remarks.

Thank you. Thank you again for joining us today. H2O America proudly leverages our national platform to support our distinct local operations, all united by a shared mission, delivering reliable service and high-quality water to 1.6 million people across 4 states. Together, we protect what's precious.

At the same time, we continue executing our growth strategy and delivering our shareholder value, including our unwavering commitment to the dividend, which we paid for more than 80 consecutive years and increased it in each of the past 58. Our success is built on a culture of service and partnership. We value our customers, communities, the environment and capital partners, and I couldn't be prouder of our team whose dedication makes it all possible. I'm always available for follow-up along with my partners, Ann and Bruce. We appreciate your interest in H2O America.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Good day, and thank you for standing by. Welcome to the H2O America's Fourth Quarter Financial Results Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I'd now like to hand the conference over to your speaker today, Jonathan Reeder, Senior Director of Treasury and Investor Relations. Please go ahead.

Thank you, Liz. Welcome to the 2025 Financial Results and 5-year Plan Update Conference Call for H2O America. My name is Jonathan Reeder, and I'm the Senior Director of Treasury and Investor Relations for H2O America. Presenting today will be Andrew Walters, Chair of the Board and Chief Executive Officer; Anne Kelly, Chief Financial Officer and Treasurer; and Bruce Hauk, President and Chief Operating Officer.

For those who would like to follow along, slides accompanying our remarks are available on our website at h2o-america.com.

Before we begin today, I would like to remind you that this presentation and related materials posted on our website may contain forward-looking statements. These statements are based on estimates and assumptions made by the company in light of its experience, historical trends, current conditions and expected future results as well as other factors that the company believes are appropriate under the circumstances. Many factors could cause the company's actual results and performance to differ materially from those expressed or implied by the forward-looking statements.

For a description of some of the factors that could cause actual results to be different from statements in the presentation, we refer to you to the financial results press release and to our most recent Forms 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission, copies of which may be obtained on our website.

All forward-looking statements are made as of today, and H2 America disclaims any duty to update or revise such statements. You will have an opportunity to ask questions at the end of the presentation. This webcast is being recorded, and an archive of the webcast will be available until May 26, 2026. You can access the press release and the webcast at H2O America's website.

In addition, some of the information discussed today includes the non-GAAP financial measures of adjusted net income and adjusted diluted earnings per share that may not have been calculated in accordance with generally accepted accounting principles in the United States or GAAP. These non-GAAP financial measures should be considered as a supplement to the financial information prepared on a GAAP basis rather than as an alternative to the respective GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the table in the appendix of our presentation.

I will now turn the call over to Andrew.

Welcome, everyone, and thank you for joining us. I want to take a few minutes to briefly discuss some of our team's successes over the last year and where we are today as an organization before we get into what I believe is an exciting updated 5-year outlook.

2025 was another strong year, both strategically and financially and builds upon prior year successes. I am pleased to share that we delivered full year 2025 diluted EPS of $2.92 per share and adjusted or non-GAAP diluted EPS of $2.99 per share, which was near the top end of our upwardly narrowed $2.95 to $3 per share guidance range.

Our performance in 2025 reflects continued execution of our proven growth strategy, which focuses on making much needed water infrastructure investments across our national footprint of systems while constructively engaging our key local stakeholders in a consensus building process to provide timely regulatory recovery while maintaining customer affordability. We will touch on these more later in the call, but some highlights during the year include: in early July, we announced the transformative deal to acquire Houston, Texas-based Quadvest for $540 million. Upon closing, Quadvest is expected to add $483.6 million of rate-making rate base plus a small complementary wholesale business.

In the base business, we had a number of constructive regulatory and legislative developments in each of our states, including in California. We were able to secure another 1-year deferral in our filing of a new cost of capital application, which provides certainty as the current return parameters and construct remain in place through the end of 2027. In Connecticut, legislation was passed and signed into law, creating the Water Quality and treatment adjustment. The WQTA is the nation's first mechanism established to recover the capital investments needed to treat PFAS and other emerging contaminants.

In Texas, legislation was passed and signed into law authorizing water utilities to adopt a future or hybrid test year in general rate cases. And in Maine, regulators approved our stipulation reached with the Office of Public Advocate to consolidate our 10 districts into 1 as well as established our first affordability rate for low-income customers in the state.

On the CapEx front, we invested $501 million in 2025, which exceeded our upwardly revised budget of $486 million. 2025's actual spend represented a 41% increase over 2024. This record execution in 2025 bodes well as we see elevated CapEx needs for the foreseeable future across our 4 states as evidenced by the 31% increase in our 5-year 2026 to 2030 CapEx budget to $2.7 billion.

And then last month, our Board increased the quarterly dividend by 4.8%. The 2026 annualized dividend is expected to be $1.76 per share compared with $1.68 per share in 2025. The $0.08 annual increase is consistent with our recent annual increase cadence and marks the 58th consecutive year of increasing the annual dividend.

I would be remiss if I did not take this opportunity to again thank our former Chairman and CEO, Eric Thornburg, who I'm sure is listening to this call as we speak, who retired at the end of June 2025 from the company and then from the Board at the end of last month for all of his contributions over the years. Eric has been a mentor to me and helped instill the foundational strategy and culture that I believe our current team is poised to take to the next level as we enhance our executional capabilities, both operationally and financially and progress towards the further growing and diversifying our business with the transformational Quadvest transaction.

We have been active in recent years enhancing the company's capabilities by attracting highly accomplished industry leaders to our H2O America team, both at the corporate and state levels. Many have come to us from much larger, well-respected utilities, bringing with them the knowledge of these organizations' best practices.

Most recent addition is Nickolas Whitley, our new Vice President of Business Development. Nick joined us at the end of 2025 from Northwest Natural Holdings, where he was the Managing Director of Business Development. Nick brings deep transaction expertise, strategic discipline and a proven ability to scale infrastructure platforms. His leadership and experience across complex multi-jurisdictional acquisitions will be instrumental as we continue to grow responsibly and serve more communities across the country. Nick shares our commitment to culture, service and pursuing disciplined strategic growth opportunities, and we look forward to introducing him to many of you in the future.

I will now turn the call over to Ann to provide details on our full year 2025 results as well as key components of our updated 5-year plan and long-term EPS growth rate target. Then Bruce will provide updates on the Quadvest deal, approval process and connection growth as well as discuss other regulatory and legislative developments. Ann?

Thank you, Andrew. Yesterday, after the market closed, we released our full year 2025 and fourth quarter operating results. We were pleased to report full year 2025 diluted EPS of $2.92 and adjusted diluted EPS of $2.99. This compares to full year 2024 diluted EPS of $2.87 and adjusted diluted EPS of $2.95. And as Andrew mentioned, we're near the top end of our upwardly narrowed guidance range.

For 2026, we are offering stand-alone guidance of $3.08 to $3.18, which reflects $483 million of capital investments as well as the issuance of $100 million to $125 million of equity to fund the stand-alone CapEx budget. This stand-alone guidance excludes the potential impacts of the pending Quadvest and Cibolo acquisitions given uncertainty regarding the timing of the deal closures and planned external capital raises.

Shifting to our 5-year outlook. I'm excited to share the results of our updated and rolled forward plan, and we list a few of the key highlights here. As Andrew mentioned, we plan to invest $2.7 billion or an increase of 31% over our '25 to '29 budget to renew and replace aging infrastructure across our systems, improve reliability and service quality and comply with environmental regulations.

Those capital investments, along with our pending Texas acquisitions, are expected to drive a 13% rate base CAGR over the period. And as a result of our 2025 achievements and the groundwork that we have been putting in place over the last few years as well as our expectations to be able to continue to build upon this momentum into the future, we are increasing our nonlinear long-term EPS growth rate target to 6% to 8%. The 6% to 8% CAGR reflects what we believe is a long-term sustainable growth rate that extends beyond our 5-year plan and is predicated on a solid yet fairly straightforward organic growth plan plus the addition of the Quadvest business in the high-growth Houston market. This plan is well supported by our regulatory and financial execution track record and elevated capital investment needs for decades to come.

In the near term, we expect to deliver a nonlinear EPS growth rate at or above the top end of the 6% to 8% range over the 2026 to 2030 period using our actual 2025 adjusted diluted EPS of $2.99 as the new base. I will discuss the details of our 5-year plan and guidance in more depth in a few minutes. But first, let me walk you through the key year-over-year drivers that impacted the $0.04 increase in 2025 adjusted EPS.

As shown on Slide 9, revenue increased $1.42 per share. This includes $1.20 of rate increases driven by general rate cases and infrastructure surcharge recovery mechanisms and $0.63 of higher revenues for pass-through water supply costs that are offset in our water production expenses and do not impact our net income. These positive factors were partially offset by lower consumption and the impact of our regulatory mechanisms.

The revenue increase was partially offset by higher water production expense of $0.51, which reflects $0.66 of higher water supply costs and an increase from less surface water availability in California. These increases were partially mitigated by the lower usage and our regulatory mechanisms.

Other operating expenses increased $0.73, driven by primarily by 2 items. First was higher A&G expenses. This primarily reflects our decision to opportunistically reinvest back into our business in order to advance various strategic priorities during the second half of 2025 as well as higher insurance costs. The second item was increased customer credit losses. This was due to the fact that during the second quarter of 2024, we received funds under the California Water and Wastewater arrearages payment program that did not repeat in 2025. Beyond those 2 primary items were the more typical drivers of higher operating expenses such as depreciation of property taxes and increased maintenance.

The remaining drivers relate to share increases due to issuances under our ATM program, a positive benefit in the prior year due to a tax method change and other, which includes higher AFUDC equity as a result of our record CapEx deployment during 2025. These drivers were generally consistent with the quarterly variances that we highlighted throughout 2025.

Expanding on taxes, our effective income tax rate in 2025 was 11% versus 9% in 2024. Our ETR increase in '25 was primarily due to a lower uncertain tax position reserve release and lower reversals of excess deferred income taxes, along with the impact of the accounting method change that I just mentioned, partially offset by higher flow-through tax benefits.

Shifting from 2025 results to 2026 and beyond. As Andrew mentioned, the team did an outstanding job deploying over $500 million in capital for infrastructure improvements across our service territories in 2025. This was a record amount of capital investment for our company and includes ongoing work on some of our higher profile projects, such as rolling out AMI meters in California and developing the KT water wells in Texas to shore up much needed supply in the Hill Country region.

Our 2025 CapEx represented a 41% increase over 2024, and we see these elevated infrastructure needs persisting well into the future. As mentioned earlier and as shown on Slide 10, we refresh and roll forward our 5-year CapEx budget to the 2026 to 2030 period. We plan to invest $2.7 billion or an increase of 31% over our '25 to '29 budget. The increase in our 5-year CapEx budget is driven primarily by 3 factors: first, increased pipeline replacement work as we progress towards our goal of replacing 1% of our distribution pipe annually.

We believe a 1% annual replacement cycle best reflects the expected useful life of the assets in our distribution system. We are not yet to this target, which means this component of our CapEx budget is expected to increase annually until we get there in addition to expected inflation. To give you a sense of the magnitude of this effort, replacing 1% of our existing distribution pipeline across our 4 states would amount to nearly $175 million of annual capital expenditures.

Second, an updated estimate of roughly $400 million to install treatment for PFAS as compared to $300 million in our prior 5-year plan. The increase reflects a refinement in our initial estimates to the actual bids that we have received to complete the required remediation work. And third, including our elevated level of planned investments in Texas following the anticipated closing of our pending acquisition.

Also on this slide, and I know a lot of investors have been asking for this, we show what our expected rate base growth looks like over the 5-year period. These amounts represent our estimated rate base at year-end and not necessarily what was or will be recognized in rates by our state regulators in those particular years. At year-end 2025, our estimated consolidated rate base was nearly $2.8 billion. Between the addition of Quadvest and our $2.7 billion of planned capital investments, we expect rate base to grow to $5.1 billion by year-end 2030. This represents a 13% CAGR.

You will note that this exceeds our EPS growth guidance due to the anticipated equity needed to fund our capital plan and delever our balance sheet as well as some regulatory lag. We are laser-focused on not only delivering the roughly 13% rate base CAGR but translating it into attractive earnings growth by minimizing regulatory lag and continually seeking ways to operate more efficiently in order to keep rates affordable while providing our customers with best-in-class service.

On Slide 11, we provide a breakdown of our 2026 to 2030 capital budget, both by state and by category. As you can see, nearly half of the total spend is for distribution system improvement and another 15% is PFAS related. And with California's 3-year forward test year rate construct as well as infrastructure surcharge mechanisms in Connecticut, Maine and Texas, plus the recently passed WQTA in Connecticut for PFAS spend, we expect timely rate recognition of roughly 80% of this 5-year budget.

On Slide 12, we present a bridge from our 2025 actual adjusted diluted EPS of $2.99 to the $3.13 midpoint of our stand-alone 2026 guidance. I'll highlight a few of the key drivers. Starting with revenue, we expect an increase driven primarily by rate relief, including the second year step increase as part of San Jose Water's '25 to '27 general rate case, incremental infrastructure surcharge revenues in Connecticut, Maine and Texas and the pass-through of higher purchase water costs. The higher revenues are partially offset by increased water costs.

Next, operating expenses are expected to be lower in 2026, which reflects the absence of the strategic investments that I mentioned earlier that we made during the second half of 2025 as well as our ongoing expense efficiency efforts, partially offset by inflationary pressures. And then in terms of headwinds, most of the items are what you would expect to see from a utility with meaningfully -- meaningful organic rate base growth and include higher depreciation expense as well as the associated cost of the debt and equity needed to finance capital investments.

Moving to Slide 13. And as I mentioned earlier, we are increasing our nonlinear long-term EPS growth rate target to 6% to 8% and updating the anchor year to 2025 adjusted diluted EPS of $2.99. This compares to our prior target of 5% to 7% through 2029 with expectations to be in the top half, anchored off of 2022 diluted EPS of $2.43. Our new 6% to 8% EPS growth rate target reflects long-term sustainable organic growth rate that extends beyond 2030 and is supported by elevated CapEx investment needs. I also want to be clear that we do not factor in any potential M&A opportunities beyond Quadvest and Cibolo Valley into our growth rate target.

In the near term, over the 2026 to 2030 period, we expect to deliver a nonlinear EPS growth rate at or above the top end of the 6% to 8% range, given the line of sight that we have with respect to: one, our increased 5-year capital expenditure plan; two, the previously communicated accretion that we expect to realize from the pending Quadvest acquisitions beginning in '28; and three, our expectation to continue to work constructively with key stakeholders in each of our states to achieve fair and timely regulatory outcomes.

As a reminder, the Quadvest acquisition is expected to be initially dilutive to our EPS prior to our ability to implement new rates, reflecting the rate-making rate base of the acquired assets. This will come from a consolidated Texas general rate case that we expect to file in early 2027. During this time period, we will have the financing costs, including share dilution, along with recognizing depreciation expense based on the higher asset values determined through the FMV process, weighing on our operating results without the associated revenues.

Because of this, we expect our 2026 and 2027 consolidated EPS, including Quadvest, to fall below the ranges implied by our new 6% to 8% growth rate. The actual magnitude will depend on the timing of the closing and the financing structure, but dilution relative to our stand-alone plan could be in the 10% to 20% range before becoming accretive in 2028 and beyond. We are excited about our updated 5-year plan and long-term prospects and believe our team is fully capable of delivering on it.

Turning now to the financing and credit side of things on Slide 14. Our $370 million bank lines of credit provide ample liquidity to fund our daily operations. And our A- credit rating affords us access to the capital needed to fund our longer-term investments. In 2025, we also raised $123 million of gross equity proceeds through our ATM program. As previously disclosed, we expect to raise $100 million to $200 million of debt across the parent and operating company levels and $350 million to $450 million of equity or equity-like products in 2026 to fund the Quadvest transaction and protect our A- credit rating.

We would likely include $100 million to $125 million of equity needed to support our regular CapEx budget and the pending Cibolo Valley deal with any offering and would, therefore, not plan to use our ATM through 2026.

Assuming a receptive equity market, we will likely look to satisfy our 2026 equity needs during our upcoming open window prior to the Q1 2026 blackout period and follow up with the debt component of the deal financing closer to the actual closing date.

In terms of our credit metrics, our FFO to debt ratio in 2025 was 11.2%. This remains above the S&P downgrade threshold of 11% and is consistent with our expectations. We expect to be in the 11% to 12% range through 2027, above 12% in 2028, and we will continue to delever throughout the rest of the plan through increased cash flows and the anticipated paydown of our 2029 holdco maturity.

And with that, I will turn the call over to Bruce to provide updates on the Quadvest and Cibolo Valley acquisitions as well as key state regulatory and legislative developments.

Thank you, Ann. As Andrew and Ann have discussed, 2025 was a great year for H2O America. I am very proud of the progress the team has made on both the operational and regulatory sides of the business. While 2025 was great, I'm even more excited for what's in store for our company, including the positive benefits of the transformative Quadvest deal.

We continue to progress through the regulatory process for our pending $540 million acquisition of Houston-based water and wastewater utility, Quadvest. In late December 2025, Texas Water received the appraised fair market values from the 3 Public Utility Commission of Texas appointed appraisers for the regulated assets of Quadvest. In accordance with the Texas FMV statute, the purchase price of $483.6 million will serve as the rate-making rate base. We appreciate the hard work of all parties involved during the appraisal process and believe the FMV determination supports the transaction benefits that we laid out when announcing the deal last July.

The PUCT approval process for Quadvest has started with the filing of the cell transfer merger application in January 2026. As a reminder, the STM request approval of Texas Water's acquisition of the Quadvest regulated assets and certification of the value of the rate base. Meanwhile, we continue to see robust connection growth in Quadvest system, which now has more than 54,400 active connections as of December 31, 2025. This represents a 16% increase during 2025. And as Quadvest converts its under contract and pending development pipeline into active connections, it is worth noting that the pool of future connections continues to be replenished, extending the longevity of the growth profile. Of course, future connection growth will vary based on a number of conditions, so this is no guarantee of future growth rates. However, these results are in line with our range of expectations, and we believe solid growth will continue in the Greater Houston area, which is the second fastest-growing metropolitan area in the United States.

We continue to anticipate a mid-2026 close for the transformative transaction and expect Quadvest to drive Texas from 8% of our consolidated customer base today to 26% by 2029.

Slide 17 provides a brief update on our other pending Texas deal. In late August, we announced the acquisition of Cibolo Valley wastewater treatment plant and associated collection system. The acquisition will bring approximately 1,500 active connections and the opportunity for more than 250 additional ones that are under contract and pending construction. Like Quadvest, we are progressing through the Texas regulatory process. We are using FMV, and we expect to file the STM application with the PUCT around April 2026. We anticipate Cibolo Valley to close in the fourth quarter of 2026.

Between Quadvest and Cibolo Valley, we are very excited about our long-term growth potential in Texas. I'm pleased to share that our constructive engagement with regulators and other key stakeholders continues to create value for our customers and the company. Starting with California, some of the noteworthy 2025 achievements include securing a third 1-year deferral of cost of capital. This means absent an adjustment from the water cost of capital mechanism, SJWC's authorized 10.01% ROE and 54.55% equity ratio will remain in place through 2027.

I'd also like to highlight the approval of 2 advice letters. First was our requested $6.8 million revenue increase mid-2025 to recover investments for our ongoing AMI project. As of year-end 2025, roughly 53% of SJWC's total meters have been retrofitted or replaced with AMI-enabled meters that provide near real-time usage information and greater clarity into discrepancies between system flows and build consumption, which allows for an earlier identification of potential leaks within the distribution system.

We expect to complete the AMI rollout by year-end and are encouraged by customer benefits we already are seeing. For instance, during the latter half of 2025, SJWC issued more than 46,000 leak alert notifications, which enabled customers to identify issues earlier, more effectively manage water usage and reduce customer side water loss.

The second advice letter relates to the second year step rate increase as part of our SJWC's 2025 through '27 general rate case. We were approved to increase revenue $17.2 million at the start of 2026. SJWC's next general rate case filing is expected to be made in early January 2027 and will cover the 2028 to 2030 period.

In Connecticut, as was mentioned earlier, legislation was passed and signed into law creating the Water Quality and Treatment Adjustment. The WQTA is the nation's first mechanism established to recover the capital investment needed to treat PFAS and other emerging contaminants. The WQTA provides for an annual filing to recover the total capital invested during the period and the maximum surcharge is 7.5% per year and 15% between general rate cases. We made our initial WQTA filing in late January, requesting $0.6 million of incremental revenues, reflecting a relatively small amount of investment given we are in the early stages of constructing our PFAS remediation facilities.

As for our more traditional infrastructure recovery mechanism, the WICA, PURA approved our second half 2025 application as filed for a $3.1 million increase in late September. CWC submitted a new WICA filing in late January, requesting a $2.7 million increase in annualized revenues for $25.7 million invested in completed projects. If approved, the cumulative WICA surcharge as of April 1, 2026, will be 9.9%, collecting $12.1 million on an annual basis. The combination of the WICA and the WQTA mechanisms will allow for the timely recovery of a meaningful amount of our planned Connecticut investments in between general rate cases. And consistent with our roughly 3-year rate case cycle in Connecticut, we expect to file a general rate case during the first half of 2026.

Shifting to Texas. Two key pieces of water legislation were passed by the state legislature and signed by Governor Abbott in 2025 that provide an opportunity to reduce regulatory lag. The first authorizes water utilities to adopt a future or hybrid test year in general rate cases. Traditionally, Texas has been a historical test year jurisdiction for water utilities. The second reduces the time line for processing our infrastructure surcharge mechanism or SIC, applications from 120 days to 60 days. Texas Water supported these pieces of legislation, and we believe they are in the best interest of customers and the company.

Speaking of SIC, Texas Water filed for its third SIC increase in early October requesting $5.1 million increase for completed water and wastewater projects, and we expect a decision from the PUCT in mid-2026. Texas Water expects to file a combined company general rate case in early 2027 with new rates effective in early 2028. The timing of the case will follow the close of our pending Quadvest acquisition as well as the completion of our significant investments to bring an additional 6,000 acre feet of water annually into our existing system so that these and other additions to Texas Water's rate base can be recognized in rates.

Finally, I want to briefly discuss Maine and the approval last month of a stipulation that Maine Water reached with the Office of Public Advocate and the rate unification proceeding. The stipulation enables the consolidation of Maine Water's 10 rate divisions into a single division on a revenue-neutral basis. The consolidation will set comparable rates for service across all communities that Maine Water serves and provide a more efficient regulatory structure for Maine Water to make important infrastructure investments while creating administrative efficiencies in the regulatory process, which benefits customers.

To limit effects on customer bills, a transition rate took effect on February 1 and will adjust over time through the future rate filings until the uniform rate target is achieved. The stipulation also approves a need-based financial assistance rate program compliant with recent water affordability legislation in Maine. With successful completion of the unification proceeding, Maine Water filed a notice of intent at the end of January that it plans to file a consolidated general rate case around the end of March.

I believe the aforementioned regulatory and legislative accomplishments, combined with the pending acquisitions in Texas, positions our company to deliver on the 5-year plan that Ann previously laid out.

With that, I will turn it back over to Andrew.

Thank you, Bruce. I wanted to briefly touch on bill affordability for our ratepayers. We know what affordability is of -- is of paramount importance to our customers and regulators. We also know that it is a key investor concern across the utility industry given the rising levels of planned capital expenditures and the fact that 2026 is an election year in many states. Already, we have seen electric bill affordability play a prominent role in some politicians campaigns.

Affordability is a top priority of ours, and we will continue to work with our partners in our states to keep rates affordable for customers. But we do have to balance affordability with the extensive infrastructure needs throughout our service territories, all while providing safe, reliable and high-quality service.

A recent Environmental Protection Agency study said that water and wastewater bills are affordable if combined, they are less than 4.5% of median household income. This is up from 3% previously. As shown on Slide 22, average H2O bills are 1% or less across the 4 states as of year-end 2025. It should be noted that that includes water and wastewater individually, so you have to divide the EPA rates by half. We believe that these statistics are beneficial for our customers, but also provide reasonable bill headroom for recovery of our planned infrastructure investments.

In addition, we continue to work with -- or work to offer customer assistance programs to help with affordability for those that need it. As Bruce mentioned, with the approval of Maine's rate unification stipulation, we are excited to be able to introduce for the first time a needs-based financial assistance rate program for eligible Maine customers. We are pleased to be able to offer this affordability tariff for our main customers who need it as we already offer similar tariffs to our customers in California and Connecticut.

Further, we hope to be able to introduce this benefit to our Texas customer base as part of a future rate proceeding. And as always, we will continue to strive to run the business as efficiently as possible as we recognize that for every dollar of avoided operating expenses enables the recovery of $7 of capital investments with a neutral impact on customer bills.

As we look to balance affordability with extensive investment required to replace aging infrastructure and treat emerging contaminants, all while providing high-quality water and reliable service, we will continue to work constructively with our state regulatory partners. There's been a few commissioner changes that I would like to highlight, starting with Governor Newsom's recent announcement in California. We congratulate John Reynolds on his appointment to be the new CPUC President and thank Alice Reynolds for her service. We also welcome Commissioner Christine Harada to the CPUC. Then in Texas, we welcome Commissioner Morgan Johnson to the PUCT, who Governor Abbott appointed in October to fill 1 of the 2 commissioner vacancies.

In closing, 2025 was another strong year for H2O America by pretty much all accounts, financial, regulatory, legislative, strategic, you name it. And I believe our company is poised to deliver great things in 2026 and beyond. Our dedicated team remains focused on driving shareholder and customer value through disciplined infrastructure investment and executing on our financial goals, advancing the transformational Quadvest acquisition as well as Cibolo Valley, deepening our strong partnerships with local stakeholders and our unrelenting pursuit of operational excellence in identifying creative and sustainable solutions to serve generations to come while maintaining a focus on affordability.

And now I'll turn the call back over to the operator for questions.

[Operator Instructions] Our first question comes from Nicholas Campanella with Barclays.

Thanks for all the updates today. Maybe just a little bit more on Slide 13. You have the 6% to 8% EPS CAGR now. You mentioned that it's not linear like you said. I appreciate the disclosures that we have to get through this financing and some ROE lag in '26 and '27. Just maybe just at what point do you think you're going to be really in that 8% plus level like you said on the press release? Would that come as soon as 2028? Or how would you kind of frame that?

Yes, I'll take that one, Nick. We want to be respectful of the PUCT process. And you know that the outcome of the planned consolidated Texas rate case will be a key driver of our earnings in '28 and beyond, not just the magnitude of the rate increase, but also the effective date. So we do forecast accretion in 2028 versus our stand-alone plan under a number of different scenarios that we've worked. And as indicated in our prepared remarks, we do plan to be at or above the top end of our 6% to 8% for the total period, but I don't want to get ahead of the regulatory process to say exactly when that could happen.

Okay. I understand. And then maybe just, Andrew, maybe you kind of also mentioned in the slides here and then in the prepared that this outlook doesn't contemplate future M&A. Maybe just if you -- what is the time line to announce something further here? Do you want to wait until you get on the other side of the Texas rate case? Are you guys going to be out there remaining active across the jurisdictions? And then maybe where do you kind of see some of the best opportunities in your states or maybe even outside of your states today?

Nick, I appreciate the question. And there's a couple of things that I would just highlight. So first of all, the velocity typically in the water space is not that regular for acquisitions. Our typical acquisitions that we do are small tuck-in acquisitions. We will continue to remain active nonstop on those tuck-in acquisitions, but I wouldn't expect that to be as groundbreaking as the Quadvest acquisition is for us.

I would say that for us, as it stands today, we're very much focused on completing the Quadvest acquisition. That's going to be our focus for the near and medium terms. And we'll see what happens in the future. There's nothing that -- we don't comment on specific transactions, but I can assure you, we're very focused on Quadvest right now.

[Operator Instructions] Our next question comes from Angie Storozynski with Seaport.

I have to admit that I'm still in -- all of the 13% rate base growth and then the $2.7 billion CapEx, I mean, I was bullish in my estimates, but that was far more than I had expected. I'm just wondering -- and again, you obviously show me the CapEx per subsidiary, but how did that change? So is it fair to say that the vast majority of the pickup in that longer-term CapEx came from the acquisition from Quadvest?

No, I think it's a combination of things. You do have some additional CapEx related to the Quadvest acquisition. But as we look forward and get more granular in our project forecasting going forward, we are seeing additional projects. You're seeing increased cost as some of the bids come in. We saw the increase in the PFAS by about $100 million. So that's really what's driving that. I mean, Bruce, anything else you want to add?

We just mentioned in our prepared remarks, a little bit of opportunity on the 1% main replacement, quite a bit of investment on water supply, Angie, as well. So I think it's a fairly balanced approach, but it's not just the acquisition step-up. It's quite a bit of capital beyond that as well.

Okay. And then on the earnings trajectory, and I guess, I understand how CAGR works from the starting and ending point, I understand that. But I'm just -- so I'm just wondering, like -- so the accretion of the acquisition starts in '28, then it accelerates in '29. But I'm asking about the step change between '29 and '30. Is it fair to assume that there is an even bigger earnings step-up between '29 and '30. And I'm not just asking about Texas, I'm asking vis-a-vis all of the rate case timings in other jurisdictions.

Maybe I'll start, Andrew.

Please.

So Angie, when you think about our rate case cadence right now, as we mentioned in the prepared remarks, Maine has already filed an intent. Of course, Maine is our smallest jurisdiction. And Connecticut's 3-year cycle has them filing again this year. So we would expect those to be implemented sometime next year. And then we have the Texas rate case that is effective in '28 as well as increased California. Now California, of course, has step increases each year, but they do have a new rate case. So I won't -- wouldn't expect any new rate cases that would have new rates effective in '29, just any incremental step-ups from the current one. And of course, our infrastructure mechanisms such as the WIC, the WICA, the SIC and the WQTA, of course, for PFAS.

Understood. But -- okay. But I was more asking about '29 to '30, that step-up, if there is basically sort of this accelerating growth from -- coming mostly from Quadvest, but also other jurisdictions. I'm frankly fishing a little bit for another sort of like an equity injection that given the size of this plan, I mean, if I should just assume that there is some slowdown to the growth versus, for example, '29 simply because I need to dilute myself a bit to fund the growth.

Yes. I mean the one thing to note is that in Connecticut and Maine, if they do a 3-year cycle, which Connecticut has been, they would have actually new rates coming in in 2030. So that is one. I think the rest is just the capital plan. And then we did mention in '29 that we would have -- we have the maturity coming due of the parent company debt that we would expect to pay down.

Our next question comes from Alex Kania with BTIG.

Maybe just thinking -- coming off the last question. First, just on equity issuance. It's helpful that you broke out the Quadvest-related equity versus the, I guess, ongoing equity needed to support the overall program. Is that $125 million or whatnot type of number kind of a reasonable sort of expectation on a kind of an ongoing basis as you think about funding the updated CapEx plan?

Yes. I would say on average, that's probably about right. You may have some variances year-to-year just depending on timing of capital payments. But I would expect that just on an average basis. And of course, as our CapEx plan increases, you would expect that to increase somewhat a little bit as well.

Okay. Great. And then again, going back to the EPS long-term growth. So just as I was looking at the slide, right, I think the way that we should be reading this is that once we get to, let's say, 2030, that from whatever that number is, you've been presumably growing at the kind of at or above the 6% to 8% range through 2030. From 2030, whatever that level is, you still see line of sight where 6% to 8% can actually continue off of that 2030 as kind of a "base year?"

Yes, that's correct.

Okay. Maybe one last question is just on maybe Texas and the upcoming rate case as -- post Quadvest. Just how do you -- and I appreciate, Andrew, the discussion on affordability, just thinking about the rate trajectory for that jurisdiction in particular, given obviously you want a refresh of rates overall in the rate case, but also there is certainly a much higher customer growth there as well. But just how do you see looking through the regulatory process, the impact to kind of so-called average customer bills or whatnot?

I'm going to ask Bruce if you wouldn't mind answering that.

Yes. Thanks for the question. And again, as we had mentioned earlier, we don't want to get ahead of the PUCT process and portray any outcomes without actually getting closer to that and getting through the process. But we have a duty and obligation to make prudent investments and recover those. And we did mention earlier that it's been 13 years since we've been in. So we've made quite a bit of investment in some water supply.

So we think that the increase is substantial, but we don't want to get ahead of what that is. But affordability continues to be important to us and to our customers. And so in that process, as we've done in Connecticut, Maine and California, we'll be seeking ways to help our customers with affordability and propose a low-income tariff to help support that in other ways that will be creative in the process.

That concludes today's question-and-answer session. I'd like to turn the call back to Andrew Walters for closing remarks.

Thank you again for joining us today. H2O America proudly leverages our national platform to support our distinct local operations, all united by a shared mission, delivering reliable service and high-quality water to 1.6 million people across 4 states. At the same time, we continue executing our growth strategy and delivering shareholder value, including our unwavering commitment to the dividend, which we paid for more than 80 consecutive years and increased it in each of the past 58.

Our success is built on a culture of service and partnership. We value our customers, the communities, the environment and capital providers, and I couldn't be prouder of our team whose dedication makes it all possible. I am always available for follow-up along with my partners, Ann and Bruce. We appreciate your interest in H2O America.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the H2O America Third Quarter Financial Results Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Ann Kelly, Chief Financial Officer and Treasurer. Please go ahead.

Thank you, operator.

Welcome to the third quarter 2025 financial results conference call for H2O America. I will be presenting today with Andrew Walters, Chief Executive Officer; and Bruce Hauk, President and Chief Operating Officer.

For those who would like to follow along, slides accompanying our remarks are available on our website at h2o-america.com.

Before we begin today, I would like to remind you that this presentation and related materials posted on our website may contain forward-looking statements. These statements are based on estimates and assumptions made by the company in light of its experience, historical trends, current conditions and expected future results as well as other factors that the company believes are appropriate under the circumstances. Many factors could cause the company's actual results and performance to differ materially from those expressed or implied by the forward-looking statements. For a description of some of the factors that could cause actual results to be different from statements in this presentation, we refer you to the financial results press release and to our most recent Forms 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission, copies of which may be obtained on our website.

All forward-looking statements are made as of today, and H2O America disclaims any duty to update or revise such statements. You will have an opportunity to ask questions at the end of the presentation. This webcast is being recorded, and an archive of the webcast will be available until January 19, 2026. You can access the press release and the webcast at H2O America's website.

In addition, some of the information discussed today includes the non-GAAP financial measures of adjusted net income and adjusted diluted earnings per share that have not been calculated in accordance with the generally accepted accounting principles in the United States or GAAP. These non-GAAP financial measures should be considered as a supplement to the financial information prepared on a GAAP basis rather than an alternative to the respective GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the table in the appendix of our presentation.

I will now turn the call over to Andrew.

Thank you, Ann.

Welcome, everyone, and thank you for joining us. Before we discuss our third quarter 2025 progress to date, I would like to share that earlier this month, we welcomed another highly accomplished leader to H2O America. Jonathan Reeder is our new Senior Director of Treasury and Investor Relations. Many of you know Jonathan from his time as an equity research analyst at Wells Fargo Securities, where he covered the utility sector, including leading the teams water utility coverage. Jonathan has a deep understanding of the industry from his more than 2 decades of experience covering utility stocks, making him an outstanding addition to our team. He shares our commitment to culture, service and investor outreach, and we look forward to introducing him to many of you in the future.

I am pleased to share that in the third quarter of 2025, we delivered strong financial results, including net income of $1.27 per share on an adjusted or non-GAAP basis, an 8% increase over the third quarter of 2024. Our performance reflects our continued execution of our proven growth strategy, which focuses on making the much-needed water infrastructure investments across our national footprint of systems while constructively engaging our key local stakeholders and a consensus-building process to provide timely regulatory recovery while maintaining customer affordability.

Some highlights from the third quarter. Starting with the infrastructure surcharges, the application for Connecticut Water's Infrastructure and Conservation Adjustment was approved as filed, while Texas Water filed its third System Improvement Charge just after the quarter ended. I am also happy to share that we are trending ahead of the CapEx plan we guided to earlier in 2025. We have invested $358 million in water and wastewater utility infrastructure across all 4 states through September 30th. This is 74% of our upwardly revised $486 million budget.

Finally, on the M&A front, we announced 2 Texas deals. First, we -- was the transformational Quadvest deal at the start of the third quarter, followed by the tuck-in acquisition of Cibolo Valley wastewater treatment plant and related collection system in Comal County, Texas, which was announced in late August.

Bruce will provide updates on the Quadvest deal approval process and year-to-date connection growth as well as share more on the Cibolo Valley wastewater treatment plant acquisition later in the call.

Overall, it's been a strong year thus far, both strategically and financially with more to come.

With that, I will turn it over to Ann to walk through our financial results.

Thanks, Andrew.

Yesterday, after the market closed, we released our third quarter operating results. As Andrew mentioned, we are pleased to report diluted EPS and adjusted diluted EPS of $1.27 for the quarter. On a year-to-date basis, we earned adjusted EPS of $2.53 per share, a 14% increase over the 9 months ended September 2024. With these strong results, we are narrowing our 2025 guidance range of adjusted diluted earnings per share to $2.95 to $3. This represents the upper half of our original $2.90 to $3 range and demonstrate our team's commitment to delivering on our financial targets.

We are also reaffirming H2O America's 5% to 7% EPS CAGR through 2029 with the continued expectation that we will deliver on the top half of the range. This excludes any impact from the pending Quadvest acquisition, which we expect to be accretive in 2028 and to our long-term growth rate. We are very pleased with our strong performance in 2025. As we look ahead, we remain focused on disciplined execution to meet our annual and long-term growth targets.

The factors contributing to the 8% increase in third quarter earnings per share are shown on Slide 9. At a high level, increased revenue from rates and usage drove a $0.42 increase, while other income, which primarily reflects higher AFUDC equity and pension non-service credit added $0.13. These were partially offset by higher water production expense of $0.07, other operating expense of $0.18, $0.10 to an increase in the number of shares outstanding and an $0.11 delta due to the absence of the benefit from the third quarter 2024 tax accounting method change.

Turning to the next slide, I will provide more detail on each of these areas. Our revenues increased 7% in the third quarter. Rate increases in the general rate case in California, along with increases from our infrastructure mechanisms in Connecticut, Maine and Texas, contributed $14.6 million to the revenue increase. $6.6 million is attributable to higher pass-through water cost from our wholesale suppliers as these costs continue to increase each year. Higher customer usage added another $700,000 of increased usage in Connecticut in Texas, more than offset a reduction in California. And these revenue increases were partially offset by a reduction in regulatory mechanisms and other factors. Water production expenses increased 3% in the quarter and was primarily driven by an increase in the average per unit cost for purchased water and groundwater extraction of $5.1 million that are largely offset in revenue and a $1.1 million increase in cost due to mix as there was a decrease in the availability of the lower-cost surface water. These increases were partially offset by lower production volume of $2.7 million as well as a $900,000 impact from regulatory adjustments.

Turning to Slide 12. For the quarter, we reported an increase of 9% in other operating expenses. General and administrative expenses increased $5.6 million, primarily driven by pension costs, salaries and wages as well as other inflationary increases. Depreciation and amortization for new utility plant placed in service increased $1.3 million, and we experienced a small increase in property taxes and other non-income taxes. These increases were partially offset by lower maintenance costs in the quarter.

The factors impacting the $0.32 earnings per share increase for the year-to-date period are shown on Slide 13. At a high level, increased revenue from general rate cases and infrastructure recovery mechanisms drove a revenue increase of $1.48. This includes the increase or pass-through water supply costs. The revenue increase was partially offset by higher water production expenses of $0.54. Operating expenses increased $0.46, primarily driven by higher A&G expenses as well as increased customer credit losses.

As a reminder, during the second quarter of 2024, we received a onetime benefit from California's arrearage payment plan. The remaining drivers related to the share increase taxes and other are consistent with those in the quarterly variance discussed earlier. Breakdowns of revenue, water production expense and other operating expense for the first 9 months of 2025 are available in the appendix of our slide presentation.

On the financing side, through the first 9 months, we took advantage of investor interest and raised approximately $108 million of equity through our ATM program. At the end of the quarter, we had $126 million drawn on our $370 million bank lines of credit, leaving $244 million available for short-term financing of utility plant additions and operating activities.

For the first 9 months of 2025, the average borrowing rate for our line of credit advances has been approximately 5.42%, compared to 6.53% in the prior year. As for long-term debt, Texas Water issued a 30-year promissory note in September for a principal amount of $40 million at a fixed interest rate of 6.68%. And earlier today, Connecticut Water issued $60 million of 30-year debt at a fixed rate of 6.08%.

With respect to taxes, our consolidated income tax rate was 14% on a year-to-date basis compared to 10% in the same period of 2024. This difference in rate was primarily due to higher pretax income in 2025 and the tax accounting method change in 2024.

And with that, I will turn the call over to Bruce to provide updates on key state regulatory developments in the Quadvest and Cibolo Valley acquisitions.

Thank you, Ann.

I am pleased to share that our constructive engagement with regulators continues to create value for our customers and the company. At Connecticut Water, our request for a $3.1 million revenue increase in WICA surcharge for capital invested in pipeline replacement was approved as submitted and on time with new rates effective October 1st. Progress is being made in Maine Water's rate unification proceeding. In September, we filed a rate design proposal that would bring our 10 different districts into a single tariff. The rate design proposal is revenue neutral. But if approved, it would feature our first affordability tariff in May. We expect a decision on rate unification in the first quarter of 2026. After the quarter closed, Texas Water filed for a $5.1 million increase in the system improvement charge for completed water and wastewater projects. We expect a decision on the application in the first half of 2026.

As alluded to earlier, we have increased our planned 2025 capital spend to $486 million from $473 million. The increase primarily reflects the momentum of our successful advanced metering infrastructure deployment in California and our plans to accelerate the pace of implementation of the project. We will provide a holistic refresh of our 2026 and beyond CapEx budget in our year-end 2025 uptake in February when we roll forward our 5-year plan.

We'll now turn to an update on our planned Texas acquisitions. The Quadvest deal approval process remains in the early stages. We expect to receive the fair market valuation determination, which will be the average of the 3 PUCT appointed appraiser valuations in December. Shortly after receipt, we will file the formal deal approval, known as the sales transfer merger application with the PUCT, and we expect to close the deal by mid-2026.

While the FMV reports are not publicly disclosed, in the interest of transparency and to help the investment community more accurately model the deal's impact, we plan to disclose the determined FMV early next year. Meanwhile, we continue to see robust connection growth in the Quadvest system, which now has more than 52,400 active connections as of September 30, 2025. This represents an 11.5% increase since the end of 2024. And as Quadvest converts its under contract and pending development pipeline into active connections, it is worth noting that the pool of future connections continues to be replenished and win some. Of course, future connection growth will vary based on a number of conditions. So this is no guarantee of future growth rates. However, these results are in line with our range of expectations, and we believe solid growth will continue in the greater Houston area, which is the second fastest growing metropolitan area in the United States.

Our other pending Texas deal, which we announced in late August is the acquisition of the Cibolo Valley wastewater treatment plant. The acquisition would bring approximately 1,500 active connections and the opportunity for more than 250 additional ones that are under contract and pending construction. The acquisition is in the heart of our existing service territory, and we already provide water service, wastewater billing and customer service to these customers on a contract basis. We have filed with the PUCT to use fair market value for the Cibolo deal, and we expect this transaction to close in the fourth quarter of 2026. Between Quadvest and Cibolo Valley, we're excited about our long-term growth potential in Texas.

With that, I will turn it back over to Andrew.

Thank you, Bruce.

Just a couple of weeks ago, Newsweek notified us that H2O America has been selected for the second consecutive year as one of America's greenest companies. We are 1 of only 2 water utilities selected for this prestigious recognition. Only companies that meet the European Union stringent sustainability criteria considered to be the most advanced globally were eligible. This recognition reflects the passion and dedication of our people, who take our responsibility to our customers and the environment very seriously. This passion is also reflected in our 2024 sustainability report, which has been posted to our website. Among the highlights, we achieved a 43% reduction in Scope 1 and 2 emissions from the 2019 baseline, which is strong progress toward our 2030 goal of 50%. We increased solar generation by 73%, with 8 new solar projects, including the first in Texas, owning and solar generation lowered our operating cost for customers and provides a return for investors.

Finally, we also achieved world-class customer satisfaction rate of 85.2% and expanded our flexible payment plans and rate assistance programs.

Last, but certainly not least, Governor Lamont appointed 4 new commissioners to the Connecticut Public Utility Regulatory Authority. We extend a warm welcome to Thomas Wiehl, Janice Beecher, Holly Cheeseman, Everett Smith on their appointments. We look forward to working with the new commissioners to address the challenges facing water utilities, including the need to balance affordability with Connecticut's extensive investment requirements to replace aging infrastructure and treat emerging contaminants, all while providing high-quality water and reliable service.

In closing, the third quarter was a strong quarter for H2O America, and we have even more to look forward to in the home stretch of 2025. We remain focused on driving shareholder and customer value through a disciplined approach to infrastructure investment and executing on our financial goals, advancing the Quadvest and Cibolo Valley acquisitions, deepening our strong partnerships with local stakeholders and our unrelenting pursuit of operational excellence and identifying creative and sustainable solutions to serve generations to come while maintaining a focus on affordability.

And now I will turn the call back over to the operator for questions.

[Operator Instructions] And our first question comes from Angie Storozynski of Seaport.

Jonathan, congratulations. I can't wait to work with you on the other side. That's quite a change. Anyway, so let's start with Texas. So first, the Quadvest deal, I mean the fact that you guys are going to provide disclosures on the FMV only in January, you said or early the first quarter, why -- I mean just -- why such a long wait, so that's number one. Number two is on the back of the American Water Essential merger yesterday, you are gaining a big player in the Texas water market. I'm just wondering if it has any bearing on how you see the growth in that market. And then three, we're waiting for a PURA decision in Connecticut on the acquisition of Aquarion. I'm just wondering if you still have any appetite for this asset if it were to -- if the commission were to reject the current sale process.

Right. So first, why don't you take us through the Quadvest and FMV and then we'll go from there to Aquarion.

Sure. Yes, thanks, Angie, for your question. And as it relates to the FMV process, I think we're still on the same time line that we disclosed when we first announced the deal. So the time line for those appraisals to come in is in December and then shortly thereafter, we'll file the STM. So that's why on schedule as expected. So it's the soonest that we'll have the information, we can disclose it.

Okay. And so now you have absolutely no sense, right? Because the appraisals are still working, right? So they haven't basically submitted anything.

Correct. In order for the appraisers to complete their work, they need the resident engineering firm to perform the RC and LD, which is the most extensive process in creating the cost approach. So the net income and the market approach are pretty easy in terms of the process, but the most extensive process is the cost approach, which requires a full addressing of the assets by the engineer. And that's the process that we're in, that's not yet been completed.

Okay. And then American Water acquiring a Texas utility?

Well, certainly, there's a lot of interest in Texas by a lot of our peers and competitors. But the beautiful thing about Texas, it's a big state, and there's a lot of opportunity in Texas. And our biggest opportunity is something that we're very focused on and keenly addressing, which is the Quadvest acquisition. We're excited about that, and that's our focus. Competition has always been in our industry, and we've shown that we can be a formidable competitor, and we'll continue to do deals that make sense for us to come our way as long as they meet our investment criteria in the settings that we've put in forth in place for us to move forward with in terms of tuck-ins or other opportunistic opportunities that come along.

And I think -- Angie, I was just going to add to that. Like if you think about acquisitions in general, our company will meet its growth forecast without a single acquisition. And so as you think about that, that is on purpose, right? So we don't have to worry about this idea of using growth as a lever in order to meet our growth forecast. I think that put us in a really strong position, quite frankly. The other thing too, Essential is a very strong competitor all by themselves. And combined with America, are they more formable, absolutely. That being said, there's only a certain amount of financial formability that goes into any acquisition to start with. And if somebody can afford to pay more then that too -- that business belongs to be with. And we will not stretch beyond what we've already stated, which is we want to have our accretion goals, and we will not do so at the expense of our balance sheet. So I think those are the things we will continue and a very fair question, but I don't see our growth rate changing because of those 2 coming together. And quite frankly, I'm looking forward to having that strength actually benefit the industry. So I think it's good for the industry. I think it's good for both companies. And it also addresses affordability for the customers of those companies because as they continue to invest in their systems, they can do so where the customers are not paying the full cost. And I think that is a formula that works for every water company.

Any other question on those two or just Aquarion?

No, just Aquarion. Actually, Aquarion in both -- how you see acquisitions and the financing of them vis-a-vis your stock's performance? It seems like your stock is not really reacting to the strong results you're printing. Some of it could be the Aquarion overhang. But just if you could talk to us about given the stock price, and how you see accretion from both the Quadvest deal and any capacity you would have for additional transactions?

Yes. Look, it's a great question. So first of all, I'll start with Aquarion. Would that make strategic sense for us, for our customers? The answer is yes. But we also are occupied fully with the Quadvest acquisition. We do not have additional capacity in the straight equity market. So if we were to do a deal, and I'm not -- first of all, like I said very early, so to speak, to say that the deal is not going to happen. Nobody that I'm around had said that the deal is not going to happen, but if it didn't happen, then it would have to meet -- Eversource would have to decide whether they want to sell it, they would have to decide whether they have alternative ways of raising the equity or whatever else they wanted to do with those proceeds. And that's obviously all for them. But for us, that leaves us with how would we do something like this. And I think that the way we've always talked about this, is there would be 3 areas that we would go for equity. One is straight equity, second place is hybrid/debt markets and the third place is partner equity. If I take the straight equity off that leaves us with hybrid debt as well as partner equity. But it doesn't change our accretion goals. It doesn't change our goals that we have from a balance sheet protection perspective. So for me, nothing changes. And quite frankly, what this allows us to do is to do the same thing that Essential and American are doing, which is in order to take cost out of the system, which allows us to invest in those systems where the customers do not have to pay the full cost of the bills. So it is a very good model to use as long as people don't get aggressive on the other side.

Okay. Understood. And then one last question maybe for Ann. And maybe you have addressed it, and I wasn't paying full attention, what's the -- I mean, when I look at your narrowed guidance and year-to-date results that would imply really low earnings in the fourth quarter. Could you remind me what it is that weighs on those fourth quarter expectations to get to the midpoint of the narrow guidance?

Sure, Angie, good question. There are a number of factors that are driving the $0.27 to $0.32 reduction in EPS quarter-over-quarter. For first, we have some timing of gross margin and the regulatory adjustments. I should also ask you to keep in mind that the Connecticut Water rate case went into effect in July of 2024, so we experienced that additional favorability year-over-year in the first half of this year, but we're not experiencing that currently because it was already in rates last year. Second, we expect continuation of higher expense items that we've been reporting on as well as some additional operating expenses to advance our strategic priorities. And lastly, we expect to see the continued trend of higher year-over-year depreciation, interest, taxes and also some dilution from additional shares.

Okay. And what is this $0.20 of year-to-date other income? And again, I should have -- should have listened. Yes, it's about $0.20, I think, no?

Let me take a look.

Oh, I'm sorry, it's $0.12 or...

$0.13. And that is primarily -- one of the biggest contributors there is AFUDC even some of our substantial investments primarily in Texas, where we have longer-term construction cycles. And so those investments are earning AFUDC for a longer period of time.

[Operator Instructions] Our next question comes from Ian Rapp of Bank of America.

Echo Angie's comments on adding Jonathan, obviously, a really good pickup for the team, looking forward to working with him again, congrats there. And then I think you hit on most of them, but I think maybe just to clarify, have you refreshed or roll forward the EPS guidance through '29 kind of at the high end of 5% to 7%. But I think if I heard you correctly, you're also going to refresh the full sort of CapEx schedule on 4Q. Would you say at this point that the EPS guidance fully bakes expectations for that CapEx refresh, or are you planning to sort of refresh that EPS guidance view on fourth quarter as well?

You're talking about -- just to make sure I'm asking the right question or answering the right question. Ian, you're talking about the long-term guidance, right, and whether -- when we refresh the CapEx, whether that's that long-term guidance would be refreshed at that point as well?

Correct. Yes. I see in the slides that you have the 5% to 7% anchored to the high end through 2029 in the slides. I just wanted to check if that was fully baked for expectations for the CapEx refresh?

Look, I think our refresh on the long-term growth is going to be impacted by two factors. One will be our CapEx, but it will also be the view on where we'll come out from a Quadvest acquisition, right? So we will look at those areas as to what our future long-term growth rate is. And until we come out with that, then that's when everything will be refreshed all at one fell swoop. It's not going to be done incrementally.

Got it. That makes sense. And then just maybe two quick ones on the fair market value process. So it sounds like that's kind of the primary date for determining financing needs to finance this acquisition? A, is that correct? And then b, does the fair market value process, or it's kind of structured, allow you to fully capture these customer connection growth rates that you're highlighting, or would that be something that would maybe be more reflected in a future rate case?

Yes. So let me take the first one, Bruce. We've agreed to the $540 million. So that is not going to determine the financing cost of the transaction. The only thing that we will address or adjust is depending on the markets, right? It has nothing to do with FMV. We will address how much debt or how much equity we will do in the transaction. So that's the only thing that's going to be kind of adjusted, which is going to be market dependent. As it relates to the FMV, I'm going to have Bruce address the idea of kind of these new customers that are coming on, what the cutoff date are for those customers, and how that will be reflected in FMV today versus FMV in the future.

Yes. Thank you, Andrew. As it relates to the FMV, we've got all 3 appraisers signed up to the same time line in terms of the valuation of the assets. And so that's a terminus date of effective July 1, 2026, I believe. So that's that cutoff date in terms of the valuation of assets. So it's not really connections that make that number. It's really the actual assets that have been invested in and are available for valuation. So that's really the determining value or determining point of the fair market value. So it will be all those assets, including construction work in progress to that point.

And if I can just follow up on what Andrew said. I mean it's absolutely correct. I mean the amount of equity that we will issue in connection with the transaction is not dependent on the fair market value what we alluded to was that we did feel that it was important for investors to understand the fair market value. So that they could adequately model the transaction going forward. And we think that will be helpful for us in the equity raise going forward. And so when we think about timing, we're getting the FMV at the end of this year, will then be in blackout for year-end. We'll have to work to pull together the necessary offering documentation in that same time frame. As Bruce mentioned, we'll be filing the STM or the sales transfer merger. So once that deemed administratively complete, that's when the clock starts ticking on that approval process. So once we have a better eye towards closing the transaction, that's when we'll look to that equity raise.

I'm showing no further questions at this time. I'd like to turn it back to Andrew Walters for closing remarks.

Thank you, operator.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

Good day, and thank you for standing by. Welcome to the H2O America Second Quarter Financial Results Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Ann Kelly, Chief Financial Officer and Treasurer. Please go ahead.

Thank you, operator. Welcome to the Second Quarter 2025 Financial Results Conference Call for H2O America. I will be presenting today with Andrew Walters, Chief Executive Officer; and Bruce Hauk, President and Chief Operating Officer.

For those who would like to follow along, slides accompanying our remarks are available on our website at h2o-america.com. Before we begin today, I would like to remind you that this presentation and the related materials posted on our website may contain forward-looking statements. These statements are based on estimates and assumptions made by the company in light of its experience, historical trends, current conditions and expected future results as well as other factors that the company believes are appropriate under the circumstances.

Many factors could cause the company's actual results and performance to differ materially from those expressed or implied by the forward-looking statements. For a description of some of the factors that could cause actual results to be different from statements in this presentation, we refer you to the financial results press release and to our most recent Forms 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission, copies of which may be obtained on our website.

All forward-looking statements are made as of today, and H2O America disclaims any duty to update or revise such statements. You will have an opportunity to ask questions at the end of the presentation. This webcast is being recorded, and an archive of the webcast will be available until October 20, 2025. You can access the press release and the webcast at H2O America's website.

In addition, some of the information discussed today includes the non-GAAP financial measures of adjusted net income and adjusted diluted earnings per share that have not been calculated in accordance with generally accepted accounting principles in the United States, or GAAP. These non-GAAP financial measures should be considered as a supplement to the financial information prepared on a GAAP basis rather than an alternative to the respective GAAP financial measures.

Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the table in the appendix of our presentation. I will now turn the call over to Andrew.

Welcome, everyone, and thank you for joining us. Before I begin, I would like to take a moment to acknowledge those impacted by the devastating flooding in the Texas Hill Country earlier this month. We are deeply saddened by the loss of so many lives. .

Our hearts go out to those affected, including our communities, our coworkers, our customers and those who have lost loved ones. We also want to thank all of the first responders for their heroic efforts as well as our entire Texas Water team who continue to serve their neighbors with integrity and courage as they face concerns about the health and safety of their own loved ones.

Now I'll turn to our second quarter updates. There have been many changes at our company since the first financial results update. In May, we rebranded SJW Group as H2O America and changed our ticker to HTO. The name and ticker better reflect who we are as a company.

Water is now front and center in our name, which is fitting for one of America's largest investor-owned pure-play water and wastewater utilities. It also reflects our national platform and the strength we bring to our local utility operations so they can better serve their local customers.

On June 30, Eric Thornburg retired as President and CEO, leaving an impressive career that spaned more than 4 decades. He leaves an enduring legacy in the industry and at our company. We wish them the best. I was honored to step into the CEO role on July 1 and was joined by Bruce Hauk as President and Chief Operating Officer; Kristen Johnson, as President of Shared Services and Chief Administrative Officer; and Ann Kelly as our Chief Financial Officer and Treasurer.

Just yesterday, we welcomed another highly accomplished leader to H2O America. Megan Mattern is our new Principal Accounting Officer, Chief Accounting Officer and Controller. She joins us from UGI International, where she recently served as Vice President and Chief Financial Officer. Megan brings 2 decades of experience in complex regulated environments, spanning global energy, utilities and infrastructure, making her an outstanding addition to our national leadership team.

She shares our commitment to culture, service and communities. At H2O America, we protect what's precious and we do it right, we do it together, and we do it with heart. I'm pleased to share that our second quarter of 2025, we delivered strong financial results, including net income of $0.75 per share on an adjusted 14% increase over the second quarter of 2024.

Our performance reflects our continued execution of our proven growth strategy, focus on investments in our infrastructure and our water systems across our national footprint and constructive engagement in consensus building with key local stakeholders, all with an eye on affordability.

Some highlights from the second quarter. We spearheaded legislation in Connecticut that was signed into law and will allow for faster recovery of PFAS investments and avoid rate shock for customers.

We supported legislation in Texas that will similarly reduce how long it takes us to recover capital investments through infrastructure recovery mechanisms and provided for a future test year in general rate cases. We championed a law in Maine that allows water utilities to offer affordability programs to customers. We requested and received approval in California to recover the capital invested in our advanced metering infrastructure project.

And finally, Texas Water's second system improvement charge was approved by the Public Utilities Commission of Texas. I am also happy to share that we invested $207 million in water and wastewater utility infrastructure across all 4 states through June 30, and we are on track to meet our $473 million capital plan for 2025.

Just after the quarter ended, we announced an agreement to acquire Quadvest, a water and wastewater utility serving Greater Houston, Texas area, the second fastest-growing metropolitan area in the country. We expect the acquisition to close by mid-2026, at which point our combined Texas Water operation would become the second largest investor-owned water utility in Texas, serving 7 of the 50 fastest-growing counties in the United States, placing us in the top 2% of counties nationwide.

Quadvest adds significant operational scale to both our Texas operations and H2O America, with a strong and growing developer pipeline of connections under contract and pending future development. We expect the transaction to be dilutive to earnings in 2026 and 2027 before becoming accretive in 2028 and meaningfully accretive to our long-term growth.

Bruce will have more on the Quadvest acquisition and state regulatory matters later in the call. Overall, it's been a strong, strategic and financial first half of the year with several milestones we're proud of. With that, I'll turn it over to Ann to walk us through our financial results.

Thank you, Andrew. Yesterday, after the market closed, we released our second quarter operating results. As Andrew mentioned, we are pleased to report diluted EPS of $0.71 and adjusted diluted EPS of $0.75 for the quarter. With these strong results, we are reaffirming our 2025 guidance range of adjusted diluted earnings per share of $2.90. We are also reaffirming H2O America's 5% to 7% earnings growth rate through 2029, and we continue to expect to be in the top half of the range. .

We are very pleased with our strong performance in the first half of 2025. However, it's important to note that this period reflects the full benefit of new rate cases at San Jose Water, which was effective on January 1, 2025, and Kitwater, which was effective July 1, 2024, compared to the prior year.

And as a reminder, last year's results also benefited from tax favorability in the second half of 2024, including an $0.11 onetime benefit in Q3 '24 from a change in accounting method. As we look ahead, we remain focused on disciplined execution to meet our annual and long-term growth targets.

The factors impacting second quarter earnings per share are shown on Slide 10. At a high level, increased revenue from rates and usage drove a revenue increase of $0.57. The revenue increase was partially offset by higher water production expenses of $0.27, other operating expense of $0.19 and an additional $0.05 due to an increase in the number of shares outstanding.

Turning to the next slide, I will provide more detail on each of these areas. Our revenues increased 13% in the second quarter. Rate increases from the general rate cases in California and Connecticut, along with increases from our infrastructure mechanisms in Connecticut, Maine and Texas contributed $10.9 million to the revenue increase.

$6.7 million is attributable to pass-through water cost for our wholesalers as these costs continue to increase each year. Higher customer usage added another $4.9 million as increased usage in California more than offset a reduction in Texas due to ongoing conservation measures.

I'll speak more about that in a moment. And the revenue increase associated with the higher usage was partially offset by a reduction in regulatory mechanisms. As I mentioned a moment ago, water conservation measures remain in place in much of our Texas service area. Recent rains over the past months have helped our water supplies.

However, the recovery has not yet been enough to lift water conservation measures. We are more than halfway through our peak lawn irrigation season, and we do not expect any adjustment to our 2025 guidance based on Texas revenue. Water production expenses increased 15% in the quarter and was primarily driven by an increased cost of $8 million from our water wholesalers that are largely offset in revenue.

There was also a $2.7 million increase in expense associated with our higher production volume and a $300,000 reduction in other production costs and regulatory mechanisms. Turning to Slide 13. For the quarter, we reported an increase of 13% in other operating expenses. Customer credit losses increased $4.6 million over the same period of 2024.

You may recall that in the second quarter of last year, San Jose Water received a nonrecurring payment from the California water and wastewater arrearage payment program to relieve outstanding payment delinquencies. General and administrative expenses increased $3.7 million, primarily driven by contracted work and acquisition costs and lower maintenance costs offset increases in other areas.

Factors impacting earnings per share for the year-to-date period are shown on Slide 14. At a high level, increased revenue from GRCs and infrastructure recovery mechanisms drove a revenue increase of $1.04. The revenue increase was partially offset by higher water production expense of $0.45. And as noted during my remarks for the quarter, purchased water costs are largely offset in revenue.

Operating expenses increased $0.27 driven by increases in customer credit losses in addition to increased expenses for insurance and contracted work and an additional $0.08 was due to an increase in the number of shares outstanding. Breakdowns of revenue, water production expenses and other operating expense for the first 6 months of 2025 are available in the appendix of our slide presentation.

On the financing side, through the first 6 months, we took advantage of investor interest and raised approximately $84 million of our $120 million to $140 million expected annual equity proceeds through our at-the-market equity program. At the end of the quarter, we had $161 million drawn on our $360 million bank lines of credit, which left $199 million available for short-term financing of utility plant additions and operating activities.

The average borrowing rate for our line of credit has been approximately 5.45% compared to 6.53% in the prior year. Also, after quarter end, Maine Water borrowed $25 million under an existing loan agreement for 30-year debt at 6.7% fixed interest, and CTWS repaid the outstanding $25 million balance under its credit agreement.

On the tax front, our consolidated income tax rate was 16%, which was consistent over the first half of last year. And with that, I'll turn the call over to Bruce, who will provide updates on key state regulatory developments and the Quadvest acquisition.

Thank you, Ann. I am pleased to share that our constructive engagement with regulators legislators and policy leaders continue to create value for our customers and the company. At San Jose Water, our request for a $6.8 million revenue increase for our advanced metering infrastructure project was approved and effective on July 1, 2025.

The increase reflected our capital investment of $44 million in AMI. Just this month, we launched the SJ Water Hub, the customer AMIM payment portal. This platform gives customers NIL real-time information on their water usage and enables them to create high water usage alerts so they can conduct leaks earlier and better manage their bills.

We expect to fully build out our AMI platform to serve all customers by 2027. Maine Water successfully completed the general rate case in the Camden Rockland division. The Maine Public Utilities Commission authorized a $865,000 increase in revenues.

The MPUC also authorized a total of $547,000 in water infrastructure charge increases effective on July 1, 2025. At Texas Water, our system improvement charge increase of $4.1 million was approved and became effective on May 15, 2025. And at Connecticut Water, our latest Water Infrastructure and Conservation Adjustment surcharge increase of $1.6 million went into effect on April 1, 2025.

I want to give kudos to teams in our local states that are executing our $472 million 2025 CapEx plan, which was a significant increase over last year in designing and managing projects that are bringing critical infrastructure online to serve our customers, including our water supply resiliency projects in the Texas Hill county.

Turning to the next slide. Our regulatory affairs teams are making a meaningful difference at state legislators for our customers, the company and all of our stakeholders. Our approach of engaging with local stakeholders across our national footprint paid real dividends in this year's state legislative sessions.

Connecticut, we championed the water quality treatment adjustment to recover $190 million we estimate is needed through 2029 to meet the PFAS standards. The WQTA provides for annual recovery of our investment to address PFAS and other emerging contaminants. Further, the WQTA increases the percent of capital in our 5-year plan that is recovered on a timely basis to 75% from 66%.

I want to stress the recovery is for the total amount spent during the period, not just for completed projects. We have filed the required assessment report and expect to be able to make our first WQTA to recover invested capital beginning in early 2026.

To date, Texas has been a historic test year for water utility rate cases. Under new legislation signed by Governor Abbott, utilities will now have the option to use a future test year or a hybrid test year. In addition, the governor signed a bill that reduces the processing time for system improvement charge requests from 120 days down to 60 days. Both laws take effect in September and are expected to support more timely recovery of capital investments. In Maine, we worked to get a new law on the books that allows Maine Public Utility Commission to authorize an affordability tariff for income-eligible customers.

This is a win for customers facing financial challenges. We are working with the Office of Public Advocate on implementing this as part of our application before the MPUC to unify our 10 separate rate districts into a single tariff. We expect a decision on the unification proceeding in the fourth quarter.

We'll now turn to an update on the Quadvest acquisition in Texas we announced earlier this month. Adding Quadvest to the Texas Water Company is a unique opportunity to strategically diversify, enhance and expand H2O Americas operations in one of the fastest-growing regions in the U.S. It will allow us to strengthen our network of developers and drive stronger returns for our investors.

We're bringing together 2 highly aligned teams that share a culture of servant leadership positioning us to integrate seamlessly and execute effectively. By joining forces, we're expanding our geographic reach and enhancing our overall scale and diversification. This creates a more balanced utility portfolio and strengthens our ability to invest in infrastructure, operations and talent in Texas and across all states we serve. Texas currently represents about 7% of H2O America's customer base. By 2029, we anticipate double-digit growth fueled in large part by Quadvest, which will propel Texas to 26%, making it our second largest state in terms of customers served. I'll have more on the growth story on the next slide.

Just 1 day after the announcement, we notified the Public Utilities Commission of Texas of our intention to use fair market value for the transaction. That notification started a 30-day window for the PUCT to appoint 3 appraisers. Under Texas fair market value rules, the appraisers have 120 days to complete their work and the appraisals will be averaged to determine the fair market value. As we move through the regulatory process, we expect the transaction to close in mid-2026.

Concurrent with the Quadvest acquisition, Texas Water County is undertaking large infrastructure investment projects to increase the resilience of our water supply in the Texas Hill Country including the interconnection of KT water supply. We expect that project to be in service by the end of 2026.

If the current time line holds, we anticipate filing a general rate case in early 2027 for the combined Texas water operations. This filing would include the Quadvest rate base as determined through the fair market value process. We would expect new rates for Texas Water to become effective in early 2028.

The Quadvest acquisition is anticipated to be accretive in 2028 and meaningfully accretive to our long-term growth rate. I also want to give you a sense of the growth potential of the Quadvest assets. When we made our announcement, we were using December 31, 2024, connection numbers that showed Quadvest had 136,000 water and wastewater connections that were either active or under contract pending development.

We have updated those numbers through the second quarter. Quadvest now has more than 140,000 connections that are either active or under contract and pending development, a 4% increase over 6 months. It is worth noting that regulated active customer growth was 2,000 connections, a significant 6% increase. Of course, future connection growth will vary based on a number of conditions, so this is no guarantee of future growth rates. However, these results are in within the range of our expectations, and we believe solid growth will continue in the Greater Houston area, the second fastest-growing metropolitan area in the United States. With that, I will turn it back over to Andrew.

Thank you, Bruce. The second quarter was strong for H2O America, and we have even more to look forward to in the rest of 2025. We remain focused on driving shareholder and customer value through disciplined infrastructure investment, advancing the Quadvest acquisition, deepening our strong partnerships with local stakeholders and unrelenting pursuit of operational excellence and identifying creative and sustainable solutions that maintain affordability while investing in critical infrastructure as demands continue to grow across the water utility industry. And now I'll turn the call back over to the operator for questions. .

[Operator Instructions] Our first question comes from Storozynski with Report.

My question is about -- Okay. So the question on Texas, the SMV notification or the intent to use SMV. So what happens next? So we're waiting for those appraisers to be appointed and you're not going to be filing your perspective of what you think the value of the asset is, right? We're going to be waiting for the appraisers to express their views.

Correct, Angie. The process is we filed on July 9, the notice of intent to use fair market value. That sets off a 30-day process for the PUCT to appoint the 3 appraisers to do the valuation.

And then that kicks off after 30 days, another 120 days for those appraisals to be completed and discern the value. The fair market value for rate-making purposes based on the average of the 3 appraisers. Subsequent to that, we would file the sale transfer merger post those appraisals being discerned and that kicks off that process.

Okay. Okay. So yes. So we just basically have to wait for their assessment of the value just to have any sense of what the rate base of the assets will be, I understand. Okay. And secondly, the update on the connection increase.

I mean, yes, it is strong, but it's slower -- seemingly a slower growth than what we saw in the past, at least based on the report -- or the chart that was included in your slides. Is it just the law of large numbers, so the base is getting bigger, and that's why the growth off of the larger base is decelerating?

Yes. I think that's primarily it, Angie, is that as you grow the business, the percent increases are going to be coming down each year just because, as you mentioned, the law of large numbers. So that's why we've kind of guided folks to look at the actual total number of increases over the past couple of years versus the percentage.

Okay. And then one other question about that's meaningfully accretive to the long-term EPS growth rate. I'm going to ask you what it means meaningfully. Is it 100 bps versus whatever the 6% to 7% range that you're currently guiding to? Is it more than 100 basis points? What would be considered meaningful?

Look, I think meaningful obviously can be in the eye of the beholder in terms of how you think about it. But when you start talking about percentages of a growth rate, 100 basis points would absolutely be a meaningful increase as an example. But we won't comment on that until we move further along the line.

Okay. And then one more question. So we're hearing some opposition to the Aquarion transaction in Connecticut. I mean you're just an observer of the issue in the state. I mean do you have any general views about if you would be still interested in this asset if the current sales process were to fail?

Look, I think the asset would be very strategic for our company from that perspective. We've made our bed, so to speak, in terms of where we're heading right now with our Texas acquisition, that's going to keep us busy for a bit.

But yes, would that acquisition be strategic for us? It would be. And the reason why it's strategic is because it would be good for our customers and allow us to have a significantly lower rates that we would be able to charge customers at the end of the day. That's the part that's unique about an investor-owned utility is those cost savings belong in the pockets of our customers as opposed to being able to go somewhere else.

[Operator Instructions] Our next question comes from Jonathan Reeder with Wells Fargo.

Angie asked a couple of my other questions, but I wanted to say congrats on getting that Connecticut PFAS recovery mechanism in place. Just to understand a little bit of the nuances around it. Does the July 1, 2025, effective date mean that any PFAS CapEx after that date can be recovered through the mechanism? And then further what is the expected kind of approval process once the first filing is made in 2026?

Thank you, Jonathan, for that question. And I believe your comment is accurate in terms of it's a forward recovery, we will be able to file -- I believe it's in July -- or I'm sorry, January of the beginning of the year. and recover that in 2026. And I think it's very similar to the process that we have in our WICA in terms of recovery. So it's a couple of 2-, 3-month type of a review process for implementing it into rates.

Yes. And I would just add that the unique part too, as opposed to WICA, where they have to be in service and completed. This one takes us all the way to what we have spent. And I think that's a unique addition, it helps further kind of reduce rate shock for customers. And there's some really solid positives that we're going to be able to bring to our customers by being able to put that investment in over time as opposed to big lumps that they would otherwise see.

Yes. And just to add to that, Jonathan, it's more of like a forward look recovery of spend versus in-service to what Andrew described. And that was a comment that was made in my prepared remarks, and that's what that was intended to convey.

Yes. No, that is a good little wrinkle to it that it's just on the dollar spent. What about the Texas future hybrid test year law? Does it require the PUCT to adopt the future hybrid test year? Or could that still be a point of contention during the rate case process by either the commission itself or interveners?

Well, as you know, Jonathan, any time you have a historic future or hybrid, there's always contention in what you file potentially. But the process kicks off in terms of the approval of the bill, but then there's a rule-making process that will go through. So the specifics of the procedures will be a process that we go through with the PUCT and that will start in September.

Okay. And that will -- will that figure out whether it's future or a hybrid test year, you're saying like whether it's even like a requirement that the commission approve that future test year?

The procedures will lay out the process for a hybrid or a future. I mean we've already got established procedures for Historic, but it's up to the applicant to choose the path forward to filing.

So I believe it would be up to the applicant to choose the type of filing they want to make and the law would allow it pursuant to the rules and procedures through the rulemaking through the commission.

Okay. And yes, congrats on a good Q2 and a very busy Q2.

That concludes today's question-and-answer session. I'd like to turn the call back to Andrew Walters for closing remarks.

Thank you again for joining us today. As H2O America proudly leverages our national platform to support our distinct local operations, all united by a shared mission, delivering reliable service and high-quality water to 1.6 million people across 4 states.

At the same time, we continue executing our growth strategy and delivering shareholder value, including our unwavering commitment to the dividend, which we have paid for more than 80 consecutive years. Our success is built on a culture of service and partnership. We value our customers, communities and the environment and capital providers, and I couldn't be prouder of our team whose dedication makes it all possible. Ann, Bruce and I are always available for follow-up. We appreciate your interest in H2O America. Thank you, operator.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Ladies and gentlemen, thank you for standing by, and welcome to H2O America's Conference Call.

[Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Ann Kelly, Chief Financial Officer and Treasurer at H2O America. Please go ahead.

Good morning, everyone, and thank you for joining us this morning to discuss an exciting announcement for H2O America.

Earlier today, we shared that our regulated Texas water and wastewater utility, the Texas Water Company and its affiliate, Texas Water Operations Services, will acquire all of the assets owned by Quadvest.

Presenting on the call with me are Andrew Walters, Chief Executive Officer of H2O America; Bruce Hauk, Chief Operating Officer and President of H2O America; and Aundrea Williams, President of Texas Water Company.

For those who would like to follow along, slides accompanying our remarks are available on our website at h2o-america.com. A replay of this call will be available shortly after it concludes.

Before we begin today, I would like to remind you that this presentation and the related materials posted on our website may contain forward-looking statements. These statements are based on estimates and assumptions made by the company in light of its experience, historical trends, current conditions and expected future results as well as other factors that the company believes are appropriate under the circumstances. Many factors could cause the company's actual results and performance to differ materially from those expressed or implied by the forward-looking statements.

For a description of some of the factors that could cause actual results to be different from statements in this presentation, we refer you to the transaction press release and to our most recently filed Form 8-K filed with the Securities and Exchange Commission, copies of which may be obtained on our website.

All forward-looking statements are made as of today, and H2O America disclaims any duty to update or revise such statements. You will have an opportunity to ask questions at the end of the presentation. This webcast is being recorded, and an archive of the webcast will be available until October 7, 2025. You can access the press release and the webcast at H2O America's website.

I will now turn it over to Andrew to get us started.

Thank you, Ann, and good morning, everyone. Before I begin, I would like to take a moment to acknowledge those impacted by the devastating flooding in Texas. We are deeply saddened by this tragedy and know it affects not just the Hill Country, but all of Texas. Our hearts go out to those affected, including our communities, our coworkers, our customers and those who have lost loved ones. We also want to thank all of the first responders for their support during this difficult time as well as our entire Texas Water team for counting -- or continuing to serve our stakeholders with integrity and courage as they navigate their own personal challenges during this time. As you're about to hear, Texas is an important part of H2O America, and we're going to continue doing our part to support the state.

With that in mind, let's get into the announcement we made this morning. We are thrilled that Texas Water will acquire Quadvest, a family-owned water and wastewater utility operating in Southeast Texas. Together, Texas Water and Quadvest will be the second largest investor-owned water and wastewater utility in Texas. Adding Quadvest to Texas Water is a unique opportunity to strategically diversify, enhance and expand H2O America's operations in one of the fastest-growing regions in the U.S. and will allow us to strengthen our network of developers and drive stronger returns for our investors.

As you all may be aware, I stepped into the CEO role last week as part of a planned leadership transition. Our former CEO, Eric and I, along with the rest of the management team, have spent a lot of time thinking about how to keep growing our company in this next chapter. More importantly, how to do it in a way that stays true to our values. When this opportunity with Quadvest came up, it hit all the right notes. We are bringing together 2 highly compatible teams who uphold the same culture of servant leadership. And by joining forces, we're expanding our reach.

By increasing our scale and diversification, our portfolio of utilities will be better balanced, and we will be able to invest more in our infrastructure, operations and people across Texas and all of our states. This is transformative for H2O America, Texas Water and Quadvest positioning the combined company to grow faster and serve communities even better across Texas and the U.S.

Aundrea, Bruce and Ann will each speak to the details of the combination in greater depth. But first, I will provide a brief overview of the transaction and its benefits.

In terms of the deal structure, Texas Water and its affiliate, Texas Water Operations Services have agreed to acquire the assets of Quadvest LP and Quadvest Wholesale, LLC, respectively, for a total of $540 million. The acquisition of these assets collectively referred to as Quadvest, adds over 47,000 connections, provides access to a strong and expanding development pipeline and increases our exposure in the incredibly fast-growing Houston region. It also enhances our portfolio diversification nationally and regionally with Texas customers expected to represent about 17% of the H2O Americas' total customer base using 2024 year-end data. Importantly, this transaction is expected to be meaningfully accretive to our long-term growth rate, which you will hear more about in a few minutes.

But first, I'll turn it over to Aundrea to share more about Quadvest.

Thanks, Andrew. First, I would like to reiterate how truly heartbroken we are for all those affected by the floods. I am a native Texan, and I've been based right here in the Hill Country for some time now. So this is indeed deeply personal to me. I share my condolences to all who are impacted, the bravery and courage of the first responders, the volunteers and communities coming to support one another with grit and with heart. It is a perfect example of who we are. We are Texans.

Here at Texas Water, we will continue to do our part to support our state, and I'm excited to tell you more about how this combination will do just that. Since 2006, Texas Water has built a strong foundation in the Texas Hill Country, and we have quadrupled the number of connections we serve. Keeping up that kind of growth requires investments and resources, and we believe the addition of Quadvest will help us do so.

Quadvest is one of the largest investor-owned water and wastewater utilities in Texas and a family-owned company with deep roots in the Houston area. Since its founding in 1978, Quadvest has earned the trust and respect of the communities it serves, goodwill and local relationships that remain a vital part of the company's ongoing success. This is reflected in its growth trajectory. In addition to its over 47,000 active connections, Quadvest is positioned for rapid expansion with over 89,000 additional connections under contract and pending development. The company continues to benefit from the Houston area's population growth and the build-out of master planned communities by leading homebuilders, further supporting expectations of sustained double-digit customer growth.

Quadvest also brings strong partnerships with developers and community leaders as well as in-house engineering, procurement and construction capabilities. We believe these deep local relationships and growth prospects represent a compelling capital investment opportunity in one of the most dynamic housing markets in the country. I've personally known Quadvest's CEO, Simon, for many years now. And through this process, we've spent meaningful time with his leadership team. We've been consistently impressed by their integrity, work ethic and deep commitment to their people and communities. It's clear that both of our companies share similar values, which gives me great confidence in our ability to integrate successfully and grow together.

What excites us most is the opportunity to create value for customers through operational excellence, enhanced service and continued investment in critical infrastructure. Both of our companies bring strong foundations of trusted service, deep local expertise and proven technology and best practices. Together, we are well positioned to build on that foundation and expand our impact in Texas. The addition of Quadvest's talented team, assets and relationships and our combined scale will help us deliver meaningful value for the communities and stakeholders we serve.

To be clear, even as we expand into the Houston metro area, we will remain focused as ever on strengthening our water resiliency in the Texas Hill Country and serving current customers. Long term, we will be able to better meet our increasing water needs in Texas with deep local roots and greater capacity to invest in necessary upgrades.

So with that, I'll turn it over to Bruce to share more about the incredible growth opportunity this transaction presents.

Thanks, Aundrea. This is a tremendous growth story. Quadvest operates in 3 of the fastest-growing counties by population growth in the entire country with cumulative growth in the double digits over the past 5 years. And in 2024, Houston ranked second among U.S. metropolitan areas for new private housing units authorized. Texas Water already operates in 4 other high-growth counties along the San Antonio and Austin corridor. Together, we'll have a presence in 7 of the 50 fastest-growing counties in the U.S., placing us squarely in the top 2% of growth markets nationwide. This combination expands our scale across Texas, extending our footprint into some of the most promising fast-developing areas. We are well positioned to capture this growth and drive long-term value, not only for Texas Water, but for H2O America as a whole.

As you'll see on Slide 7, with Quadvest, we expect our Texas customer connections to grow from about 7% of our total in 2024 as a stand-alone company to approximately 26% by 2029 as a combined platform. This transaction not only accelerates our growth, but it creates a more balanced portfolio of water utilities across California, Texas, Connecticut and Maine.

As you saw on the last slide, this transaction meaningfully advances our strategic profile by creating a more balanced customer base across our states and within Texas. We enhance our ability to manage weather, economic and regulatory risk nationally and regionally. It also deepens our growth profile by expanding our presence in one of the fastest-growing regions in the U.S., supported by a constructive regulatory environment and proven cost recovery mechanisms. And as Andrew shared at the top of the call, the combination creates the second largest regulated private water and wastewater utility in Texas.

Our combined size and scale will allow us to deepen our foundation in Texas, a market where we have experience and infrastructure investment is critical. We plan to deploy over $500 million across Texas Water and Quadvest in the next 5 years to drive growth, improve safety and reliability and deliver strong value, all while supporting the state's ongoing economic development.

I'll now turn it over to Ann to talk through how this translates financially. Ann?

Thanks, Bruce. As Bruce outlined, this combination is a key part of our long-term growth strategy. With the more than $500 million we plan to invest in Texas over the next 5 years, we're increasing H2O America's total capital plan by 6% from $2 billion to $2.1 billion. The combination of strong underlying customer growth and meaningful investment opportunities positions us to drive sustained EPS growth over time. We believe this transaction strengthens H2O America's long-term growth outlook and expect it to be accretive to EPS and our credit metrics by 2028.

The total purchase price reflects a combined transaction value of $540 million. We've structured this as a debt-free transaction, subject to customary closing conditions, including the approvals of the Public Utility Commission of Texas and expiration or termination of the waiting period under the Hart-Scott-Rodino Act. We expect to be able to close in mid-2026. This transaction is not subject to any financing conditions and will be financed by a combination of privately placed debt and equity infusions from H2O America. Importantly, we're financing the transaction in a way that enables us to maintain our strong balance sheet and credit rating. We expect to issue $350 million to $450 million of common equity and $100 million to $200 million of debt. We would then expect to further recapitalize following our first rate case.

In the near term, we'll be focused on combining our 2 companies while continuing to uphold our reputation as an exceptional provider of water and wastewater services. Ultimately, this transaction is about growth. We expect new opportunities for employees of both businesses as part of a larger, more diversified organization, and we also expect to continue our meaningful investments in the region.

Andrew, I'll now pass it back over to you to conclude.

Thanks, Ann. This is a truly great milestone for everyone at H2O America and particularly our Texas colleagues. Our combined teams will leverage strengthened operations and the highly collaborative Texas environment to drive stronger returns for our investors. Aundrea and her team have done an excellent job thus far, and we are confident in their continued leadership as we progress. This combination with Quadvest, of course, also benefits H2O America and by extension, all our local utilities.

Our natural platform working in conjunction with local expertise enables us to operate with speed and flexibility and get projects done, which translates into value for our customers and our investors. We're charting a well-defined path to achieving our vision of thriving communities with high-quality water today and for generations to come. The entire H2O America leadership team and I are deeply grateful for the hard work of our team across the U.S., without whom this transformative moment would not be possible. And we look forward to realizing the new opportunities for growth, innovation and advancement this will unlock.

With that, operator, we can open the line for questions.

[Operator Instructions] Our first question will be coming from Agnieszka Storozynski of Seaport.

So I mean, is there -- are you willing to provide any additional information about maybe the rate base or anything that would help us quantify the earnings power of the assets that you're acquiring? I don't think that the typical rule of thumb about per customer per connection earnings or payments would work here.

Yes. So I'll take the first part of that, Angie. And first of all, thank you for your question. I know it's going to be difficult to quantify the financial impact on the transaction at this time. The company, Quadvest has not been in for rates for such a long time frame that there is no defined rate base that you could really use to quantify that value, particularly when you're using the fair market value process. So that's something that will just have to come out once the fair market value process gets done, but you can be assured that we did a lot of work around driving what the value is and what the value will be. And I think the key that this does for us from my perspective is that it further enhances our long-term growth rate.

And I don't know, Ann, if you would want to add anything else to that.

Andrew, no, I think you hit on most of the key points. I mean, as Andrew said, we do intend to file to use the FMV process. We've modeled a range of outcomes of both FMV and also growth rates and are very comfortable with our valuation of the company and being diligent in connection with our process.

Okay. But can you at least say, for example, how big of an increase in the growth rate does that deliver by '28? I mean anything like, I don't know, percentage accretion? Again, something that will actually allow us to put it in the ballpark, what the financial impact of the acquisition is?

Yes. I mean when I...

You go first, please.

Sorry. What I would say is we expect it to be meaningfully accretive in '28.

Okay.

And it will -- Angie, just to be clear, it will be dilutive in the first 2 years or less than the first 2 years based off of that timing. It depends on when it closes and when we would be able to get in for our first rate case. So the FMV itself doesn't produce new rates. It's -- the new rates get produced when we go in for our first rate case.

Okay. So the dilution is not just about additional equity, right, that is being used to acquire this. The set is also about under earning. I mean, you were guys planning to have a rate case for your own Texas utility, right? And so would it be sort of combined that this -- the upcoming rate case would actually cover both of the -- both of the companies basically?

Ann, do you want to take the first crack, and I'll add anything to that?

Sure. Yes. I mean, so we filed our first a couple of years ago. And so we are required to file a rate case by 2028. We've also previously guided that we are in the process of making substantial investments in Texas with respect to the KT Water acquisition and bringing those wells online, and that will be completed by 2026, and we also expect this acquisition to close mid-2026. So once those milestones are completed, we would expect to file for the rate case, but in no case, later than our requirement in 2028.

So from a baseline perspective, Angie, you'll have the share issuance, as you highlight, plus the debt issuance that will be the drag. In addition to that, any of the depreciation or amortization that comes from the FMV before those are included in rates. So there's going to be kind of 3 areas that nick the earnings power for that period of time. But following the rate case, it will be meaningfully accretive to the company. It obviously depends on the outcome, hence, why we're somewhat circumspect on the FMV process and the rate case process.

Right. And then last question about the financing structure. So I understand that it's, I mean, primarily equity based and then some leverage at the -- at your basically current business. Now is this -- is it just because the systems that you're acquiring already heavily levered? Is it just because you think that that's needed to get regulatory approvals, meaning that there is basically no way to add any additional leverage to the businesses that you're currently acquiring?

Ann, go ahead.

Sure. Yes. So we are buying the business on a debt-free basis. So there will be some room. And so the $100 million to $200 million of debt is actually a combination of operating company and corporate debt. So we will intend to put some leverage on the business. The amount of equity is to be focused on our balance sheet and to maintain our credit ratings throughout this period.

So it's not like there is any, I don't know, credit ring-fencing or anything associated with the business that you're acquiring that would prevent some additional leverage. Again, I mean, we've seen that happen with some acquisitions of regulated electric assets in Texas. So I'm just making sure that there is no, again, credit ring-fencing of the business being acquired.

Yes, nothing currently, and we don't expect that going forward.

[Operator Instructions] I would now like to turn the conference back to Andrew for closing -- actually, we did have one last minute question come from Ian Elkins of GWI.

Can you hear me? Congratulations on the deal, guys. That's a real. Just a couple of questions. I wondered, first of all, if you could illustrate the mix of water versus wastewater connections in the business that you're acquiring and what impact that will have on the balance across your wider portfolio? And also given the private nature of the equity that you mentioned, I wonder if there's room for a strategic investor to come in and take the equity in one go or whether it's likely to be syndicated.

Sure. Well, first of all, thank you for asking the question. From a water versus wastewater perspective, this does add significantly to our wastewater expertise, but it's still weighted to a greater degree to the water side of the business. The -- in terms of the equity, the equity that I would expect us to do would be in the market as opposed to doing some type of strategic investor. If we had something that's larger than this, then that would be maybe a need to include a strategic investor. But for this, I think we're in a good spot to just issue it on the regular way financing.

Our next question is a follow-up from Angie Storozynski of Seaport.

I just wanted to ask about the wholesale business. I mean, it's somewhat new to us on the public side. So could you give us a sense, for example, what's the profile of profitability of this business versus regulated utilities? I mean, duration of contracts? I mean anything that would give us a sense how to project the earnings power of this business?

Sure. And Bruce, maybe you could take a crack at that first, please.

Sure, Andrew. Thank you, Angie, for your question. As it relates to the wholesale business, those are typically contracts that are 50 years. So we consider that regulated like. So those contracts exist for long term, and it's a situation where we actually build the water and wastewater facilities, the treatment plants and provide that service wholesale to generally the MUDs in the area, if you will. So that's how that works. And as a connection count of the 47,000 connections that we mentioned earlier, about 12,570 of those are water and wastewater wholesale accounts, but there's some serious opportunity for growth in that area as well.

And the profitability, I mean, is it similar level of returns? I mean -- yes, I mean it's basically like a fee-for-service, right? So it's not an asset-based profitability.

No, that's correct, Angie. It's more based off of a contract that's based off of per connections, but it's also has escalators in there that are associated with either CPI or the water -- wastewater index. So those are the 2 things that can drive the rate. So I call it more like contractually regulated as opposed to regulated like the other entities that we have that's regulated by the PUCT. I would say those are the primary differences in terms of the profile of that business. Obviously, for us, I would say the value of the business is much greater in the core regulated business. But this does allow us to attack a broader area within the city of Houston, which is predominantly financed by MUDs for new utilities in there. So this gives us another tool in the tool chest to continue to enhance our growth profile.

Sorry, I was just going to add a couple of extra steps. As Bruce mentioned, backed by very long-term contracts, utility like, the average age of those contracts is 42.4 years. So very long term. And then also, when you think about our long-term plan by 2029, we would expect the combined business to have approximately 7% of unregulated business, including this wholesale business and 93% regulated. So that's H2O America as a whole.

And that's based on the customer count or based on earnings, what that percentage is based on?

That's based on net income.

Okay. And then lastly, I mean, is there any -- I mean, like an earnings benefit related to the economies of scale? You already have operations in Texas. Yes, I mean, basically any sort of SG&A accretion? I mean, you're keeping the management team in place. But again, is there any benefit of scale?

Yes. Thanks, Angie, for that question. The answer is yes. But I think those benefits, they come in the form of procurements as an example. So we talked about in the past how we have a new customer information system going in. And in that customer information system, it's priced at different tiers. And this tier for this business will be at the lowest tier to meant to handle the extra growth that we're offering. And that tier is at a significant discount to the first tier that we have as a company. So that is just an example.

In addition to that, kind of the scope and scale of skills that we have by the combined teams gives us the opportunity to continue to grow. Texas is a place where we're growing so quickly. It's just a question of how many employees we add and when we add them. And so for this, this gives us that opportunity to put those teams together. And to the extent the synergies come out, it's an effect of not adding as many people as we would have had to add anyway.

Okay. And then just one more. I mean, Texas tends to have severe drought issues. So talk to us about how that impacts the risk profile of this business, not just the one that you're acquiring, but your existing one and how the profitability of the Texas operations actually changes or not depending on the degree of drought conditions in the state.

So Bruce, if you would take the first and then Ann, you can do a follow-up.

Yes. Thank you, Angie. The diversity of Texas in terms of water resources is significant. And obviously, you're aware of the pervasive drought that we've seen in the Hill Country and how we're addressing that from a source of supply with our KT project, adding 6,000 acre feet of groundwater to our supply there to serve our customers. Houston is a much different scenario in terms of water prevalence and availability. So this really helps us diversify our risk in the state and candidly, across our entire footprint from Connecticut, Maine, Texas and California as a whole. So we're very fortunate to be able to add these assets, diversify our opportunities to provide service to our customers and then also derisk some of the situations or occurrences that may happen across the portfolio.

Yes, Bruce, you definitely summed it up. I mean this is about diversifying both across H2O America and across Texas. And the fact that Houston is located in an area that has ample access to water does not exacerbate the drought conditions that we have been experiencing in the whole country.

Angie, thank you very much for all your questions. Much appreciated.

And I'm showing no further questions. I would now like to hand the call back to Andrew for closing remarks.

Well, thank you very much. First of all, I would like to again thank the team for their incredible hard work in bringing us this transformational transaction. I believe that this sets our company up for a growth profile that we have not seen in this company's history to date. Together, we will be in 7 of the top 50 fastest-growing counties in the entire United States. And just to highlight that, that's out of 2,500 counties nationwide. So it's a very rare error for the number of counties and the speed of growth that we'll be in.

We will sustainably improve the long-term growth rate. And I know we can't comment on the specific numbers yet because until we go through all the process, we won't have all that, but we know under a variety of scenarios that this will be sustainably better for our company. This further diversifies our regulatory, weather and earnings contributors. That will be meaningful as we continue to grow the company and add further stability to our earnings growth profile.

Finally, I want to express to all impacted by the flooding that you are in our hearts and our prayers. With that, I'd like to conclude the call. Thank you.

And this concludes today's conference. Thank you for participating. You may now disconnect.