Earnings Recap — Q2 FY2026
CY Q3 2026 · Reported July 27, 2026 · Beat 4 of last 5 quarters
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H2O America's results are driven by regulated water infrastructure investment and customer growth, with no direct AI or data center exposure. The company's $2.7 billion five-year capital plan and pending Texas acquisitions support rate base growth, but the AI infrastructure buildout's water demand is not a stated driver. The company's focus on affordability and water supply alternatives in California highlights the broader challenge of water scarcity, which could become more relevant as data center water consumption grows.
H2O America reported Q2 2026 adjusted diluted EPS of $0.72, down from $0.75 a year ago, as 17% underlying adjusted net income growth was offset by a 19% increase in weighted average diluted shares from the March equity raise and 2025 ATM issuances. Revenue increased $0.30 per share, driven by rate relief and pass-through water supply costs, partially offset by higher water production and operating expenses, including $0.09 of higher depreciation. The company invested $207 million in infrastructure in H1, and regulators have approved more than 90% of the budgeted year-over-year revenue increase. Quadvest's active connections grew 10% in H1 to over 59,800, with connections under contract up 14% from year-end 2025.
Management reiterated full-year 2026 standalone adjusted diluted EPS guidance of $3.08 to $3.18, and reaffirmed the 2026–2030 plan targeting a non-linear EPS CAGR at or above the top end of the 6%–8% long-term organic growth range. The plan is anchored by a $2.7 billion five-year capital budget and the pending Quadvest and Cibolo Valley acquisitions, expected to drive a 13% rate base CAGR off the year-end 2025 base of $2.8 billion. Management expects to close Quadvest around the end of Q3 or early Q4 2026, with accretion beginning in 2028, and plans to file a combined Texas general rate case in early 2027 for rates effective in 2028. They expect to stay out of the equity markets through at least year-end 2027, using the $400 million forward agreement to fund capital needs, and plan to raise $100–200 million of debt for the Quadvest transaction. Management also flagged a potential $285,000 revenue decrease in the Texas SIC filing as per the PFD, and expressed optimism for constructive outcomes in the Connecticut and Maine GRCs.
“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.”
on EPS dilution from equity issuance
“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 2 parallel paths, a pilot system and a full-scale regional plant.”
on California water supply alternatives
“We have not observed any unanticipated key stakeholder reaction, and we remain optimistic that a constructive outcome will be achieved.”
on Connecticut GRC progress
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?
Bruce Hauk said the company intends to file a combined general rate case in 2027 for 2028 rates, and would not file again sooner than a 3-year timeframe. Ann Kelly added that Quadvest's depreciation will be stepped up to fair market value, contributing to the 10%–20% dilution from the standalone plan.
How does the pending SIC request in Texas impact expectations for the rate case you're going to file next year, and is there any sign of regulatory deterioration in the state?
Andrew Walters said the issues were about documentation expectations, not the regulatory compact. Bruce Hauk noted no deterioration, citing improvements in SIC processing and future test year options, and confirmed that approximately $40 million of SIC-eligible assets not approved would be added to the 2027 GRC filing.
With the statutory deadline in August, are there any other key dates to focus on to get to Quadvest close?
Andrew Walters said the financial close will follow the commission order, typically at month-end for accounting ease. Ann Kelly added that the HSR waiting period ends shortly before the August 26 deadline, and assuming no extension, the close should occur around the end of Q3 or early Q4.