H2O America Stock

Good day, everyone, and thank you for standing by. Welcome to H2O America 2026 Second Quarter Financial Results Call. [Operator Instructions] Please be advised that today's conference is being recorded. It is my pleasure to hand the conference over to Jonathan Reeder.

Thank you, Operator. Welcome to the second 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, 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 October 27th, 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 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. Reconciliation 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 second quarter 2026 results during which we earned 62 cents per share on a GAAP diluted basis and 72 cents per share on an adjusted diluted basis. This brings our year-to-date 2026 earnings per share to $1.12 on a GAAP diluted basis and $1.23 per share on an adjusted diluted basis. Our results during the first half of 2026 were consistent with our internal expectations and supportive of both our standalone 2026 adjusted diluted EPS guidance of $3.08 to $3.18, as well as our long-term EPS CAGR target of 6% to 8%. We also remain steadfast in our commitment to deliver on our 2026 to 2030 plan.

Before I ask Ann to discuss our financial results in more detail, I want to provide everyone with a brief update on a few of the higher-profile elements of our strategy to grow the business and create shareholder value. We plan to do this by making the 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.

Teams are executing on the regulatory front as well as have been busy working to secure rate recognition of the infrastructure investments that are needed to provide our customers with the high-quality, reliable service they deserve. This includes leveraging infrastructure investment mechanism recoveries in Connecticut, Maine, and Texas, as well as filing for recovery of our PFAS remediation project in California. In addition, a great deal of thought and effort went into preparing the General Rate Case filings, or GRCs, that we made in Connecticut and Maine during the second quarter. It is relatively early in the process, but we anticipate being able to achieve constructive outcomes in both GRCs.

I am also excited to report that we are making good progress towards receiving PUCT approval of the Quadvest LP Sale, Transfer, Merger application, and we anticipate closing the acquisition of Quadvest around the end of the third quarter or early fourth quarter. Our teams are gearing up for the close and integration of Quadvest into Texas Water Company later this year and delivering on the anticipated accretion beginning in 2028. Bruce will provide more detailed updates on the pending Quadvest and Cibolo Valley transactions, as well as some of our other key regulatory developments later in the call. But for now, I will turn it over to Ann to provide details on our second quarter 2026 financial results and key elements of our 5-year financial plan.

Thank you, Andrew. Yesterday, after the market closed, we released our second quarter and year-to-date 2026 operating results. As Andrew mentioned, we reported second quarter 2026 diluted EPS of 62 cents a share, and year-to-date diluted EPS of $1.12. On an adjusted basis for the second quarter of 2026, we earned adjusted diluted EPS of 72 cents, which compares to 75 cents during the second quarter of 2025. On a year-to-date basis, our adjusted 2026 diluted EPS was $1.23 compared to $1.25 during the same period in 2025.

The results were consistent with our internal expectations and supportive of our standalone 2026 adjusted diluted EPS guidance of $3.08 to $3.18. While we grew our underlying adjusted net income by 17% during the first half of 2026, this was more than offset by the higher share count as weighted average diluted shares outstanding were 19% higher during the first half of 2026 versus 2025. As a result of leveraging our ATM program throughout 2025 and our equity issuance in early March of this year.

As discussed on our call last quarter, we took advantage of what we viewed as a receptive equity market following our year-end update and decided to take the Quadvest acquisition-related equity risk off the table by coming to the market in early March with an equity raise that we ultimately upsized to $700 million. The year-to-date impact of raising that equity and doing so earlier in the year, partially offset by interest income and savings, as we used the proceeds to pay off our bank lines of credit and invest the cash balance in cash equivalents, reduced our EPS by a net $0.06. So for those of you keeping track of our progress against our standalone 2026 adjusted diluted EPS guidance, adding that 6 cents to the aforementioned $1.23 of adjusted diluted EPS puts us at $1.29 of standalone adjusted diluted EPS for the first half of 2026.

Our teams have also been very productive in terms of deploying capital across our service territories. Through the first half of 2026, we have invested $207 million into infrastructure improvement. This puts us at 43% of our full year 2026 CapEx budget of $483 million, which does not include the impacts of Quadvest. While that might sound like we are a bit behind, that is not the case at all. It simply reflects the seasonality of our CapEx cycle, particularly during the winter months for our Connecticut and Maine operations.

Moving to Slide 8, I'd like to briefly discuss the key second quarter drivers resulting in the slightly lower year-over-year EPS. Since the drivers are similar, I will keep the quarterly discussion higher level, but then provide more details when discussing the first half results. During Q2, we realized a 30-cent per share increase in higher revenues, with the bulk of this driven by rate relief as well as higher revenues for pass-through water supply costs. The revenue increase was partially offset by higher water production expense of 11 cents, primarily reflecting higher water supply costs, as well as an increase in operating expenses of 15 cents, with the biggest component being 9 cents of higher depreciation and amortization expense associated with utility plant additions placed in service. The remaining drivers relate to 14 cents of dilution due to the increase in the number of shares outstanding, partially offset by 7 cents of net other benefits. As for taxes during the quarter, our effective income tax rate for Q2 2026 was approximately 13% versus 16% in Q2 of 2025.

On Slide 9, we illustrate the key first half drivers resulting in year-over-year EPS variance. First, we realized a 70-cent per share increase in higher revenue. More than half of this, or 41 cents, was driven by rate relief primarily received from the prior general rate case in California and infrastructure surcharges in Connecticut, Maine, and Texas. To date, more than 90% of our budgeted year-over-year revenue increase has been approved by regulators, which gives us good visibility into the back half of the year. There is also 25 cents of higher revenues for pass-through water supply costs that are largely offset in our water production expenses such that they do not impact our net income. Lastly, higher usage across all four of our states added 6 cents.

The revenue increase was partially offset by higher water production expenses of 29 cents. The increase was attributable to 20 cents of higher water supply costs due to increases in the average per unit cost for purchased water and groundwater extraction fees. 10 cents from increases in water production balancing and memorandum accounts, primarily related to the full cost balancing account in California, and 5 cents from higher customer usage. These increases were partially offset by a 6-cent decrease in water production expenses as a result of the increased availability of surface water.

In addition, other operating expenses increased 32 cents. The biggest driver here was a 20-cent increase in depreciation and amortization attributable to new utility plant placed in service, while higher administrative and general expenses were an 8-cent headwind. The remaining drivers relate to 21 cents of dilution, which I mentioned earlier stem from the ATM share issuances in 2025, and our March 2026 equity raise. This was partially offset by 10 cents in net other benefits, with the biggest driver being 7 cents of higher AFUDC. As for taxes, our effective income tax rate for the first half of 2026 was approximately 14% versus 16% during the same period of 2025. The lower effective tax rate was primarily due to higher flow-through tax benefits.

Shifting from the first half results to our full year 2026 and beyond expectations, the details and figures on Slide 12 should look familiar to everyone as we are reiterating all aspects of our financial guidance, including our expectations to deliver a non-linear EPS CAGR over the 2026 to 2030 period at or above the top end of our 6% to 8% long-term organic EPS growth target. The backbone of the plan is our 5-year capital investment budget of $2.7 billion combined with our pending acquisitions of Quadvest. We expect these drivers to translate into a 13% rate-based CAGR off our year-end 2025 estimated rate base of $2.8 billion.

[ H2O America ] is focused on not just delivering the rate-based growth but converting it into attractive earnings growth. And we believe that we can execute on this plan by continuing to work constructively with our regulators and other key constituents to achieve fair and timely outcomes that minimize regulatory lag while finding ways to operate more efficiently to not only provide our customers with best-in-class service but at affordable rates. And as a reminder, our plan does not include any M&A opportunities beyond our two pending Texas acquisitions. We remain very excited about our 5-year plan and long-term prospects.

Turning to the financing and credit side of things on Slide 11. No change here either. We expect to stay out of the equity markets, including issuances through our ATM program, which we typically utilize to fund base capital expenditures through at least year-end 2027, barring any new M&A transactions, as we have the ability to draw down on our $400 million forward agreement component of the March issuance over this period to fund our capital needs. We still expect to raise between $100 million and $200 million of debt across the parent and Texas operating companies levels to fund the Quadvest transaction, although as we previously indicated, we have more flexibility now regarding the timing given the upsized March equity issuance. Our liquidity remains strong to fund our daily operations. We have all but $1 million available under our $370 million bank lines of credit, while our A-minus credit rating offers us the access to the capital needed to fund our longer-term investments. And with that, I will turn the call over to Bruce to provide some regulatory updates, including our pending acquisition of Quadvest.

Thank you, Ann. Before jumping into the regulatory updates, with customer affordability continuing to be at the forefront of many of your minds, I wanted to reiterate that affordability remains a top priority of our company, and we will continue to work with our partners in our states to keep rates as affordable as possible for our 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.

Our team works very hard to communicate with our regulators and other key constituents the importance of not only investing in our water infrastructure, but the importance of doing so on a proactive basis to minimize system failures and water loss, while ensuring the reliability and resiliency of our operations and water supply for the long term. We aim to keep our average water bills in each of our service territories below the EPA's most recent study that suggested below 2.25% of median household income is affordable.

With that, I'm pleased to update everyone on the continued progress our team has made on the regulatory front throughout the second quarter. Starting in California, we filed a request in April with the CPUC for approval and recovery of our planned Williams Station PFAS remediation project outside of the GRC process. The estimated capital cost of the ion exchange project is $176 million, and we expect a CPUC decision before the end of the year. If approved, SJWC would adjust rates as the capital is invested via annual rate-based filing offsets. This is similar to the recovery approach we took for our current AMI project, which at the end of last month was approved as requested for an $8.4 million rate-based filing offset increase effective July 1st for the recovery of an incremental $53 million of AMI project investments. The overall AMI project remains on track to be completed around the end of this year. In addition, the California team continues to prepare for the 2028 to 2030 GRC filing that will be made in January 2027.

In Connecticut, the $3.3 million of combined annual WICA and WQTA mechanism revenue increases went into effect on April 1st, as did our 2025 Water Revenue Adjustment Mechanism surcharge. The WRAM reconciles revenues as authorized in CWC's most recent rate case, while also providing recovery of certain amounts of compensation expenses as a result of CWC achieving the PURA prescribed performance metrics in our last GRC. And then on May 11th, Connecticut Water filed a GRC application that requests a $28.8 million increase in annual revenues for new rates to become effective early 2027. As CWC seeks recovery for the approximately $145 million of infrastructure investments made between its last rate case and the end of 2026 as that investment is not yet reflected in current rates. It remains early in the process, but thus far the case is progressing as expected. We have not observed any unanticipated key stakeholder reaction, and we remain optimistic that a constructive outcome will be achieved. Based on the procedural schedule that was issued, intervener testimony is due at the end of this month, evidentiary hearings are scheduled to begin September 21st, and a final decision is slated for late January.

Moving on to Maine on Slide 14, MWC's first consolidated WISC application was approved as filed and the $0.9 million revenue increase went into effect on May 1st. And similar to Connecticut, Maine is still fairly early in its general rate case proceeding. While intervener testimony was filed earlier this month, our rebuttal testimony is not due until mid-September, and evidentiary hearings are scheduled to begin in early January. As a reminder, Maine Water filed in mid-April requesting a $9.25 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 new rates to be effective by May 2027, consistent with Maine's 12-month statutory timeframe. More details on the pending Maine and Connecticut GRCs, including the key procedural schedule dates, are outlined on a new slide we added into the appendix of our presentation.

Shifting to Texas regulatory activity, we continue to work through the third SIC mechanism application we filed last October and expect a decision from the PUCT within the next few months. An administrative law judge issued a Proposal for Decision, or PFD, outlining a $285,000 revenue decrease as compared to our requested $5.1 million increase. At issue are two primary adjustments related to the documentation of the included projects and adjustments made to the accounting for retirements and replacements. We acknowledge that as part of our ongoing commitment to process improvements, we can and will make improvements in future filings now that we have a better understanding regarding documentation expectations of certain interveners.

That said, we are disappointed by the PFD and filed exceptions earlier this month requesting that the evidence that we provided in our rebuttal testimony be given the appropriate weight. We're hopeful the PUCT recognizes the merits of the investments Texas Water has made to continue to provide high-quality, reliable service to our customers and ultimately improves upon the PFD with its final order consistent with our filings in the docket outlining the prudence of these investments. Should the PUCT's final approved amount be lower than we requested, we have identified financial offsets that we could make to address the potential gap during the remainder of the year and still deliver on our 2026 standalone adjusted diluted EPS guidance. And if the recovery of these customer investments is ultimately not permitted in our SIC filing, Texas Water will request recovery of these used and useful investments as part of our general rate case that we plan to file early next year.

Shifting to the Sale, Transfer, Merger, or STM, processes that are underway for our two pending acquisitions in Texas. I'd now like to discuss the considerable progress our team has made in recent months towards obtaining PUCT approval and getting the deals closed. For Quadvest, I'm pleased to report that the PUCT staff recommended on July 9th that the proposed transaction will serve the public interest and should be allowed to proceed without a public hearing. Since no other parties requested a hearing by the July 16th deadline, we expect the remainder of the docket to proceed in accordance with the procedural schedule's 120-day statutory deadline of August 26th. This would allow the Quadvest acquisition to close around the end of the third quarter or early fourth quarter of this year. As for the Cibolo Valley wastewater plant and related collection system, we remain on track for an anticipated close during the fourth quarter of 2026. The STM application's procedural schedule indicates September 29th as the 120-day deadline.

For PUCT, as I alluded to earlier, Texas Water plans to file a combined company general rate case 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, and the Texas Hill Country. The rate case is necessary so that all of the investments made into improving the water supply and reliability of our operations can be recognized into Texas Water's rate base and customer rates. We would expect new rates to be effective in early 2028.

And although I already provided an update of where we are in the Quadvest STM approval process, I did want to take a few minutes to highlight the robust connection growth that Quadvest's water and wastewater system continues to realize in the Houston area. As shown in the figure on Slide 15, Quadvest was serving more than 59,800 active connections at the end of June. This represents a 10% increase over the first half of the year and puts Quadvest on track for another year of impressive growth following the 16% growth realized during 2025. And what is equally impressive is that even as Quadvest pipeline converts into active connections, the number of connections under contract and pending development has been more than replenished, which extends the longevity of the growth profile.

Specifically, Quadvest's 99,000 connections under contract and pending development at the end of June 2026 is nearly 14% higher than the 87,000 at year-end 2025, despite converting roughly 5,400 connections into active customers. Of course, future connection growth will vary based on a number of conditions, so this is no guarantee 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. As a reminder, the addition of Quadvest active customers plus the continued conversion of the connections under contract and pending development is the primary contributor that is expected to drive Texas from 8% of our consolidated customer base today to 26% by 2029. Between Quadvest and Cibolo Valley plus our existing Hill Country operations, we are very excited about our long-term growth potential in Texas. That concludes my regulatory update, and I will now turn the call back over to Andrew.

Thank you, Bruce. As has been mentioned multiple times in this call, as well as on our previous calls, maintaining affordable rates for our customers while providing high-quality, reliable services is of paramount importance to our company and is part of our core values. As part of those efforts, we continuously strive to run the business as efficiently as possible. Every $1 of avoided operating expense enables recovery of $7 of the much-needed capital investments with a neutral impact on customer bills. This is true whether it is a pass-through cost to our customers as part of our regulatory compact in a state or an expense that directly impacts our bottom line.

With that in mind, I want to take a few minutes to discuss the water supply situation at our California subsidiary, San Jose Water Company. The Santa Clara Valley Water District, or Valley Water, is the regional government agency that manages the groundwater basin in our region of California, operates dams and reservoirs, and sets wholesale charges that SJWC and other utilities must pay to provide local groundwater. In a normal rainfall year, more than 90% of SJWC's water supply is either purchased from Valley Water or we pump groundwater from the basin for which we have to pay an extraction fee to Valley Water.

Unlike our operations and rates that we charge to deliver to our customers, which are regulated by the California Public Utilities Commission, Valley Water sets its own rates. It is governed by an elected board and is not regulated by the CPUC. Over the last 10 years, Valley Water has increased its rates for purchased water at a 10% compounded annual growth rate, or roughly 150% on an absolute basis, while the groundwater extraction fees have increased even faster at an 11% CAGR, or roughly 175% on an absolute basis.

Although SJWC is able to pass through these charges to our customers without any markup as part of our regulatory compact, they have a substantial impact on bills of our customers and impacts overall and the overall affordability. Currently, 42 cents of every dollar that SJWC customers pay goes towards the water cost set by Valley Water. Said differently, nearly half of our customers' bills are to cover supply costs that we cannot directly control and that we do not earn a regulated return on. As we look forward, we are concerned as Valley Water's current rates are projected to more than double within the next 10 years. This is simply unsustainable for our customers from an affordability perspective.

For more than a decade, our engagement through normal channels to try to get Valley Water to better control cost and fully utilize their assets have been largely unsuccessful. While we plan to continue those efforts, we are seriously exploring more cost-effective water supply solutions for our SJWC customers. The first is direct potable reuse, or purified water, where our efforts are focused on two parallel paths, a pilot system and a full-scale regional plant. The pilot is intended to build SJWC's operational knowledge and technical capabilities in the purified water space, while also demonstrating to customers, and potential partners that SJWC has the expertise to develop and operate advanced purified water systems.

Design and construction of the roughly $3 million mobile water purification unit began earlier this year, and the project is currently ahead of schedule. SJWC is targeting completion and full operation of the pilot in time for its first major public demonstration by September of 2027. As for the potential full-scale regional purified water plant, we are in the process of developing a defined full-scale project concept and exploring suitable sites pending positive pilot results.

The second potential option is leading the efforts on a regional desalination plan alongside other participants. SJWC is starting a feasibility study to determine whether desalination, including deep water desalination, as well as other approaches in emerging technologies, is feasible in Monterey Bay, and how best to convey the water to SJWC's service territory. We believe either solution could provide a reliable, drought-proof, cost-effective water supply while reducing SJWC's long-term reliance on Valley Water and customers' exposure to Valley Water's continuously rising cost.

This would be a win for customers providing a resilient long-term water supply. Any meaningful capital expenditures associated with these endeavors likely falls outside of our current 5-year plan. In other words, our 2026 to 2030 capital budget of $2.7 billion does not reflect these water supply opportunities.

So, in closing, I believe our first half 2026 accomplishments puts our company in a great position both operationally and financially. My fellow partners here at H2O America continue to execute on our strategy, including making the needed infrastructure investments to better serve our customers, and we are nearing the finish line in terms of receiving PUCT approval for Quadvest, which is a huge milestone for our company, given the transformational nature of the acquisition.

We have a busy regulatory agenda over the next 18 months, but I believe our team is up to the challenge and our company is poised to deliver great things in 2026 and beyond. Looking ahead, I know our dedicated team will remain focused on driving customer and shareholder value through disciplined infrastructure investment and executing on our financial goals, advancing the transformational Quadvest acquisition as well as Cibolo Valley, deepening 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, including exploring cost-effective solutions to address long-term water supply concerns for our California customers. With that, I will turn the call back over to the operator for questions.

Our first question comes from [ Shar Purisa ] with Wells Fargo. Please proceed.

Hi, actually it's [ Andrew Cadeveon ] for [ Shar ]. Thank you for taking my question.

Of course. Good morning, [ Shar ].

With the rapid growth in Quadvest connections, how should we think about the cadence of rate cases in Texas moving forward to recover the investment required for those connections?

That's an excellent question, [ Shar ]. I'm going to have Bruce kind of take you through our general plan in Texas, but obviously that growth will actually have a huge impact on the timing of when we go in for rates too.

Thank you, Andrew. As mentioned in my prepared remarks, we are intending to file our general rate case combined Quadvest and our Hill Country operations in 2027 for 2028 rates, and we have not communicated indicated when we would file again, but I would just high level say it would not be any sooner than a 3-year kind of timeframe or some time beyond that if that makes sense.

Yes, actually. And then just a follow-up for the depreciation expense from Quadvest, how do you anticipate the accounting for that between the close of the transaction and new rates becoming effective in 2028? Will it be stepped up to reflect the higher fair market value, or will it be the existing depreciation rate?

Yes, it will be stepped up based on the higher fair market value. That is one of the reasons that we've highlighted for the 10% to 20% of dilution from our stand-alone plan.

Thank you. I'll leave it there.

All right. Thanks, [ Shar ].

Our next question comes from Angie Storozynski with Seaport. Please proceed.

Thank you. So I wanted to go back to this pending SIC request in Texas and how it impacts, if at all, your expectations for the rate case you're going to file in Texas next year. So one of the points that the staff is making or the Commission is making is that you should be filing a larger rate case, which you're about to. I'm wondering if what is being proposed in this infrastructure charge filing is sort of in anticipation of a larger rate case coming or is there, you know, any signs that the regulatory setup for water utilities is deteriorating in the state?

Angie, that's an excellent question and certainly something that we'll highlight. I'll have Bruce kind of talk through some of the details, but as we highlighted in the remarks, you know, there were some things that we could have done differently, and that's on us. And so it's not really an issue from my perspective with us, the compact, it's us understanding the requirements that we need to hit, and they changed a little bit from the past. And so maybe, Bruce, you could elaborate, but that's what I would say was the biggest issue.

Yes, thank you Andrew and Angie, thank you for your question and I would also reiterate that we do not see a deterioration in the Texas regulatory commission or compact. Actually, we're encouraged by what we've seen take place specifically through the rulemaking process and working with the Commission. Adding to our tools in the repertoire of being able to file in the future, a future test year hybrid or historical test year, the improvement around SIC processing. And again, as Andrew mentioned, we can make some improvements there. But to answer your question specifically about the impact to the revenue requirement based on any SIC eligible plant that wasn't approved in the SIC filing that was investment that is used and useful and in service is approximately $40 million of revenue that would be added to the GRC filing roughly in...

$40 million of assets.

Assets. Yes, that revenue. Well, $40 million of assets or investment in the 2027 filing.

Right, but one of the points that is being made in this filing, in this current SIC proceeding is an outdated depreciation study, right? So that's one of the issues, right? And then the fact that you had to file your rate case basically by the end of March, right? March of 2028 just because it's a 4-year tenure of that previous SIC mechanism, etc. So you will be able to comply with that, you know, you will have filed by basically before the end of March of next year, and by then you will have conducted a new depreciation study.

Correct. Absolutely.

Okay. Okay. So this is, in a sense, the commission acting in anticipation of that upcoming proceeding. Okay. Okay. That's all I have. Thank you.

Thank you, Angie. Excellent questions. Thank you.

Our next question comes from Davis Sunderland with Baird. Please proceed.

Hey, good morning everyone. Thank you very much for the comments and for taking our questions. Maybe I could start. Two questions for me, and actually I'm going to start maybe on the Texas rate case, just where you left off with your prepared remarks, Bruce. And I know fully recognizing that it's early, but just wondering if you could elaborate a bit more on key items to consider, any tidbits you can share about the asks, or just how we think about managing risks or potential shifts in the timeline, just knowing that it's going to be a lot of work, a very big Texas rate case early next year.

Thank you, Dave. From a timing standpoint, as Ann mentioned in my prepared remarks, two things are critically important for the timing. One, closing both Quadvest and Cibolo, and we are on track for closing both of those pursuant to their procedural schedules in, you know, the latter part of 2026, as I had mentioned in my prepared remarks. Having that completion take place, that would put us in a position to file in the first quarter of 2027 for effective rates in 2028 for our Texas Water Company subsidiary.

Yes, and we haven't provided guidance in terms of the, you know, exact amount of the increase of the ask. You know, we have said that it will be significant, but there's been a significant amount of investment that has been made over the past couple years both in our Texas, our Texas Hill Country, so over $300 million over the last couple years, as well as the new Quadvest acquisition.

Yes, just to supplement that, the rate making rate base that was determined through the FMV process plus the $300 million that Ann just mentioned, that gives you a little color.

That is super helpful. Thank you both for the details. And then maybe just my second one, maybe for you, Ann, or I guess for the team more broadly. Andrew, appreciate your comment about the $1 of OPEX savings and what that translates to in CAPEX. I guess just with that as context, just wondering if you guys are seeing anything material as it relates to labor inflation, raw material inflation, anything just as a product of, I guess, everything going on globally right now with cost inflation and just anything specific to call out there on the cost front.

Yes, I mean I'd say nothing specific really on the material side. You know, we had seen some increase in inflation over the last couple years that has come back down to a more normal level. You know wage inflation is still slightly higher than historically we've seen, but you know we've been able to manage that through our financial processes.

Great, I'll pass it on. Thanks, team.

Thank you so much. Thank you.

And now our next question is from Nick Campanella with Barclays. Please proceed.

Hey, good morning. Thanks for the disclosures and updates. Appreciate it. Maybe just to tie off one last thing on Quadvest, just the statutory deadline would be in August. Are there any other key dates to be focused on to actually get to close at this point?

Look, I think there's, Nick, first of all, thank you so much for the question and support. I would say that, you know, for us, there's obviously some normal timeframe that it takes to do the financial close, so it's not going to happen, like, right on, you know, the order of the commission, based on when the actual order comes through, then that's when we'll schedule the financial close. And we generally try to do that on a month end so that it just makes it easier from an accounting perspective to kind of pull the books over to the new, to our system, et cetera. But that's at a high level. And I'll ask Ann if there's anything else that she would add.

Yes, the only thing I'd add is we did just file HSR. And so the waiting period would end shortly before, I think it's a good day or two before the August 26th deadline. So, you know, assuming that either the early termination is not approved or if they recommend an extension.

Great. Thank you so much for that. You bet. And that's not typically, knock on wood, it's not typically a thing that drives in our sector given our regulated nature.

Absolutely, absolutely. Okay, and then I guess just moving to Connecticut with the case there. I know in the past, I don't think you have settled some of these cases, but things have changed at this commission. And I guess that now that you've filed and you've started to interact with constituents, just how are you viewing the potential to settle that case specifically? And if you're open to that, thank you.

Certainly open to it and cautiously optimistic that we can have some meaningful conversations regarding settlement once rebuttal testimony is submitted. So very much on our radar and hope to have, like I said, meaningful conversations to allow for a settlement.

Yes. There's like, and it's a new commission for us, and so we'll be there to work with them in any way that they see as productive. There's obviously no guarantees around settlement, because that's not something that has historically been kind of a common process, but as a commission gets sophisticated and it's a little bit more...

Allows for these types of activities. Yes, we also have our funding is pretty straightforward and our last rate case was fully litigated, so those also point to potential settlement.

All right. Well, thanks so much for the time. Appreciate it.

You're so welcome. Take care.

Our next question is from Alex Kania with BTIG. Please proceed.

Hi there, good morning. Just again, to kind of follow up maybe more on the Texas rate case filing early next year. You know, just I guess as we have been moving forward with the Quadvest approval process, you know, hopefully kind of get a timely resolution to that. But I just, thinking about the context of all that, if just based on your discussions with, you know, interested parties that there's a broad understanding about, you know, kind of the, you know, the factors that are really going to be going into this, this upcoming rate case. You know, just thinking about the obviously the investments you've made to date, the FMV determination at Quadvest and whatnot, just to make sure that there are ways that it's not going to come as a surprise to anybody necessarily. And then if you've been thinking about any potential structures, just to keep in mind that affordability is an important consideration you've been talking about, that'd be helpful.

Sure. I'll ask Bruce to comment on this and Ann or I will maybe add to it. So, go ahead.

Yes, certainly there's been much discussion around in the anticipation of us filing a GRC in 2027 for 2028 rates. We've communicated that directly outside of the process of filing properly that that's coming forth. Affordability is first and foremost of our mind. One of the things that we've disclosed previously is we've got what we call customer assistance programs with tariff assistance in three of our four subsidiaries, California, Connecticut, and Maine, and when we file in 2027, we would anticipate filing something similar for consideration with the PUCT from an affordability standpoint. We've also continued to message as part of the process that we would be filing a combined case, as you had just mentioned, the $300 million plus the FMV. We have been talking about ways to bring that in over a process and we've communicated in the past on calls similar to how we did the Maine Saco drinking water facility and then discussed that. We'll talk through that in the future as well as we continue to think about how to bring things in.

Yes, look, I think the key is that we understand affordability for the customers and the process that we will go about is coming up with the best way possible to allow for our customers to absorb those rates. The key that Bruce highlights is for those that are the most vulnerable, that we will be really focusing on those customers and being able to provide an outcome that works for everybody. The key that we also have to keep in mind is there is substantial investment that has gone into our Texas water subsidiary. And I mean substantial. And that is in order to provide a resilient water supply, which is challenging in today's environment where you have weather swings that cause a greater change in the precipitation that falls in particular areas. So that's created a need for us to invest in the future. It's created a need for us to have more transmission to move water around the system and interconnect things that were never interconnected before.

So those costs are going to be, are real. They're important for the customer's reliability. Nobody wants to go to a tap and not have the water supply that they want to have. Nobody wants to have drought restrictions all the time. So those are the things that we are continuing to work on to create that better service. And when you kind of compare the cost of water today relative to bottle water and other things like that, we're a mere, mere fraction of the cost of those types of things.

Absolutely. That makes sense. Thanks. Sorry. I apologize.

Yes. That's it. I'm done. Thank you.

Oh, perfect. Great. And then I guess just thinking about the -- thank you for the input on the discussion about water supply in California. Are there going to be any milestones or whatnot that we should keep in mind as you kind of make a determination about what's the best way to do this? The best, most cost-effective path forward for customers in terms of water supply over the next year or so or longer?

Yes, look, I think it's going to take us a year to two to kind of go through the process in order to dimension the different things that we're talking about and make sure that we have viable projects that produce the outcomes that we expect. But let me be clear. I see huge potential for this. And I mean huge potential in order to help our customers. And I think that's going to be something that, you know, as we look at the affordability for customers long term, we look at the rate increases that are expected there. Our goal is to actually bend the curve, as our president, Tanya Moniz-Witten, and she talks a lot about bending the curve for the affordability for customers. That's what we want to do is bend that curve so it maintains affordability. And these projects that we're talking about, believe it or not, pencil out well relative to bending that affordability.

And it allows us to gain much neater needed control over those types of water supply projects and provides valuable oversight that's not there today with the CPUC. And I think that's the part that really sets us apart relative to the other models out there is we are regulated private water. And regulated is an important aspect where other people, they can just put through the rates, whatever it is, at any given year.

Makes sense. Well, great. Well, thank you so much.

Thank you.

[Operator Instructions] We have a follow-up from Angie Storozynski with Seaport.

Thank you. I just wanted to understand how you will actually finance the acquisition, the closing of the Quadvest acquisition. So it's $530 million, right? And then you have a $400 million forward. So should I assume that you fully flex the forward to pay for whatever, 400 out of the 530 million?

Well, I mean, I think about it this way. We raised $700 million, including the forward. So the 300 that was already issued has been used to reduce our operating lines of credit and actually invested in short-term cash equivalents. So we'll be using that money that we originally issued that hasn't been used for capital expenditures as well as the forward. And then we do have, I said, the 100 to 200 of debt. The timing of that is flexible. We may do some prior to the closing and some after because we do have the option of the forward.

Okay, I mean, I'm basically trying to roughly estimate the weighted average share count for '26. Okay, I mean, would it be somewhere near the share count that you currently have or you're showing me, like somewhere around 43 million shares? Is that fair for the year, like a weighted average?

Yes. No, the current weighted average, like I said, only reflects the 300, and it's weighted average for the year. So you have the first couple months where we had the lower share count. So I would assume that if you think about the year, we have the 540 for the transactions, and I said 100 to 200 of debt, but then we also have another, say 100 to 150, which we typically issue through our ATM that we financed this year under that equity issuance. So if you take essentially the 540 less 200, like I said, we have some flexibility there, and then the 500 to 200, we have some flexibility there, add the $150,000 for our normal equity needs, that's what we would have issued this year.

And I think the key, Angie, and this is hard for you because we don't really have the answer yet, depends where the debt markets are at the time. It can be beneficial from an EPS perspective to actually just draw down on the forward because it's going to be better than locking in rates where they are today. So that's the part that we just have to keep in mind is it's, you know, we're not trying to talk around it. We don't really know the answer until we actually get to the day, and it depends where the market is at the time.

And the, that's correct, but just one clarification, the annual equity issuance of around $100 million to $150 million is, that was not embedded in that $700 million equity deal that you did. I would have thought that at least for '26, I'm set, no?

Oh, it was, it was, but that's why I was trying to do that as an option of how much we draw down for this year.

Okay, I understand. So you got this year and next year, right? Because it's two years' worth of equity that we did in one shot.

Exactly.

Okay, thank you.

All right, thanks. Thank you so much.

This will conclude our Q&A session, and I will pass it back to Andrew Walters for closing comments.

Well, thank you again for joining us today, and I do really appreciate all the questions, so thank you all for following. H2O America proudly leverages our national platform to support our distinct local operations, all united by a shared mission, delivering reliable service with high-quality water to 1.6 million people across the country, four states. Together, we protect what's precious. At the same time, we continue executing our growth strategy and delivering shareholder value, including our unwavering commitment to the dividend, which we've 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 partners. 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, and we appreciate your interest in H2O America.

Thank you. And this concludes our conference. Thank you for participating, and you may now disconnect.

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.