H2O America

What they do

H2O America operates through wholly owned public utility subsidiaries: San Jose Water Company in California, The Connecticut Water Company, The Maine Water Company, and SJWTX, Inc. (doing business as The Texas Water Company), which also serves parts of Comal and Kendall counties in Texas with wastewater. These utilities produce, purchase, store, purify, distribute and sell water at wholesale and retail, serving a combined population of over 1.6 million. Non-tariffed activities such as contract water and sewer operations, maintenance agreements and antenna site leases sit outside the single reportable segment, which is Water Utility Services.

Revenue drivers

• Water Utility Services — The company's single reportable segment: SJWC (excluding Cupertino concession operations), CWC, MWC, TWC and Acequia. It is the dominant source of revenue, collected through regulated water and wastewater rates approved by state public utility commissions.
• Rate increases — Second quarter 2026 operating revenue rose 6% to $210.5 million, driven primarily by $14.5 million of rate increases across all states, mainly California and Connecticut, partly offset by $1.7 million of regulatory mechanism adjustments.
• Other Services — Non-reportable activities including SJWC's City of Cupertino service concession arrangement, TWOS, TWR, NEWUS, H2O America Land Company and Chester Realty, covering contract water and sewer operations, maintenance agreements, antenna site leases, property management and land holdings.

Recent performance

Second quarter 2026 GAAP net income was $26.6 million, up 8% from $24.7 million a year earlier, though GAAP diluted EPS fell to $0.62 from $0.71. Adjusted net income (non-GAAP) rose 17% to $30.7 million, but adjusted diluted EPS slipped to $0.72 from $0.75. Revenue increased 6% to $210.5 million on rate increases of $14.5 million. Operating expenses rose 9% to $167.7 million, reflecting $4.6 million higher water production expenses, $3.4 million higher depreciation and $5.3 million in other operating expenses. Year-to-date 2026 reported diluted EPS was $1.12 versus $1.20 a year earlier, and adjusted diluted EPS was $1.23 versus $1.25.

Strategy

Management pursues three areas: investing in regional regulated water utility operations, providing non-tariffed water utility-related services, and out-of-region water and utility-related services. The company invested $206.9 million in infrastructure during the first half of 2026 and has filed general rate cases in Connecticut and Maine seeking recovery of more than $180 million of combined investments not yet recognized in rates. It has agreed to acquire regulated systems from Quadvest L.P. for $483.6 million, with TWOS acquiring Quadvest Wholesale LLC systems for $56.4 million, which management says brings operational scale and exposure to the Houston, Texas region.

Risks

• Quadvest acquisition approvals — Completion requires regulatory approvals including Hart-Scott-Rodino clearance, state and municipal permits, and PUCT consent for transfer of Quadvest's water and sewer utility business, and regulators may impose conditions, limitations or costs.
• Integration and execution of growth — The company states it may incur significant costs integrating Quadvest, face diversion of management time, assume known and unknown liabilities, enter markets where it has limited experience, and fail to realize projected benefits.
• Regulatory rate outcomes — Results depend on water, utility and environmental regulation, including regulatory actions on rates, authorized return on equity, authorized capital structures and capital expenditures.
• Weather and demand variability — Water supply and customer usage are exposed to unanticipated weather and changes in seasonality, which can affect demand for water and other services.

Outlook

Management reiterated all aspects of financial guidance, including 2026 standalone adjusted diluted EPS guidance of $3.08 to $3.18, excluding impacts of the pending Quadvest acquisition and its financing. It expects the Quadvest acquisition to close at the end of the third or early fourth quarter of 2026. Active Quadvest connections were up 10%, or 5,400, in 2026, while connections under contract and pending development grew 14%, or nearly 12,000 connections. The second quarter release also notes declared a $0.44 cash dividend per share of common stock.