California Water Service 2026 Q2 Earnings Call

Welcome everyone to the second quarter 2026 results call for California Water Service Group. With me today is Marty Kropelnicki, our Chairman and CEO. Replay dial-in information for the call can be found in our quarterly results earnings release, which was issued earlier today. The call replay will be available until September 28th, 2026. As a reminder, before we begin, the company has a slide deck to accompany today's earnings call. The slide deck was furnished with an 8-K and is also available on the company's website at www.calwatergroup.com. Before looking at our second quarter 2026 results, I'd like to cover some forward-looking statements. Because these statements deal with future events, they are subject to various risks and uncertainties. Our actual results could differ materially from the company's current expectations.

As a result, we strongly advise all current shareholders and interested parties to carefully read the company's disclosures on risks and uncertainties found in our Form 10-K, Form 10-Qs, press releases, and the other reports we file with the Securities and Exchange Commission. Now I'll turn the call over to Marty to provide a brief overview.

Thanks, Jim. Good morning, everyone. Consistent with our past earnings call, I'm going to give you a quick overview of the agenda and then Jim and I are going to jump into some of the details for the quarter. There's only six items on the agenda today that we want to go through. Starting obviously in the second quarter, the end of April, we received a decision on our California general rate case. As part of that decision, during the quarter, we recognized our IRMA, which is the balancing account that takes the retroactive portion of the rate case back to January 1st. This rate case was close to being on time, which was very good news. It was approximately 90-100 days delayed, but we are made whole back to the original date of January 1st.

That was recognized in the quarter as well as other items that Jim will be talking about. In addition, during the quarter, we reached full settlement in our rate case up in Washington. I will provide some more details about that when we get to that slide. During the second quarter, we had record capital. We invested a record $276 million of new plant for the first six months of the year. That continues to move ahead, especially as we start to invest in our PFAS treatment programs throughout our service territory. To partially offset that growth, we did raise about $88 million through our ATM, or at the market, stock program, and the company declared its 326th quarterly consecutive dividend of 33.5 shares. In addition, in the quarter, we continued to work on our Nexus integration plans.

Nexus has been great to work with and things are progressing there. We will give you some more details on that. Lastly, for those of you that like to look at some of the numbers on sustainability and some of our ESG numbers, we did publish our water quality and sustainability reports, as well as receive a number of awards during the quarter. Later on towards the end, I will introduce the two new officers. As some of you may note, Greg Milleman is not here. As you remember at the last call, that was his last call with us, and he retired, officially retired from the company. I will be talking a little bit about his replacement as well as one other key promotion we had during the quarter. That is the agenda for today.

Jim, why don't I turn over to you and we will go through the numbers.

Thanks, Marty. As Marty mentioned, the Q2 results reflect the decision that we received in our 2024 California GRC and also the retroactive application of the decision through the IRMA to the beginning of 2026. The net income for the quarter was $56.5 million, or $0.93 per diluted share. That compares to Q2 2025 net income of $42.2 million, or $0.71 per diluted share. Revenue for the quarter was $308.6 million compared to $265 million in the second quarter of 2025. The primary earnings drivers included $15.3 million of IRMA revenue related to the delayed 2024 California GRC, and of which about $9.2 million of that was related to the first quarter. That was the look back portion that was recognized in Q2.

We also had $15 million that was due to rate changes and changes in regulatory mechanisms, $9.3 million of remaining deferred WRAM revenue that's now expected to be collected over the next two years. If you remember when we stopped decoupling, we still had some residual WRAM balances that were deferred until we reached the proper accounting guidance that would allow us to report the revenue. We've now reached that place and at this point, we have recognized the remaining deferred balances. These increases were partially offset by $6.3 million in higher per unit water supply costs, about $7.9 million in costs related to the deferred WRAM revenue, and $7 million in higher income taxes that was due primarily to higher income and an increase in our effective tax rate.

If we move on to slide six, you can see the impact of the activity of our second quarter on our diluted earnings per share. The primary drivers were customer rate changes, the IRMA, the deferred WRAM revenue, each of which contributed $0.20, $0.15, and $0.11 per diluted share respectively. These increases were partially offset by the water production cost and deferred WRAM related expenses of $0.08 and $0.10 per diluted share respectively. If we turn to slide seven, on a year-to-date basis, net income through the end of the quarter was $60.5 million or $1.01 per diluted share, that compared to year-to-date net income in the prior year of $55.5 million or $0.93 per diluted share. Revenue was $523.2 million compared to $468.9 million year-to-date in 2025.

The primary earnings drivers were largely the same as those we experienced for the quarter. Turning to slide eight, you can see the impact on the year-to-date drivers with regards to our diluted earnings per share. Customer rate changes, the IRMA, and deferred WRAM revenue contributed $0.30, $0.20, and $0.11 per diluted share respectively. These were partially offset by higher water production costs and the deferred WRAM related expenses of $0.19 and $0.10 per diluted share. That's kind of a summary of the financial performance. Now I'll turn the call back over to Marty to walk us through some of our capital activities.

Great. Thanks, Jim. I'm on slide nine for everyone on the call. Looking at our infrastructure investment through the second quarter. For the quarter, CapEx was $147 million. That was up from $119.4 million the prior year. That's about a 23% increase year-over-year. Our 10-year compound annual growth rate increase in capital or growth capital is hovering right around 11% right now. As a reminder, the capital estimates for 2026 and going out now until they complete the project include an estimated net $155 million that's been budgeted for PFAS. I say net because we have approximately $60 million of recovery from polluters that's being used. The sum of the two numbers will get you back close to the original estimates that we provided about a year and a half ago, two years ago, when we started looking at that PFAS.

I will say the PFAS numbers will still tend to move around a little bit as our legal team has continued to do an outstanding job at getting recoveries to offset the cost of the PFAS Treatment on behalf of our customers from the polluters. They continue to get more dollars coming in, as well as some grant dollars are coming in. The main theme is being consistent with what we've had the last 20 years, which is our compound annual growth rate on the capital investment on our growth capital is holding in a little north of 10%. Our internal target that we try to strive for is 10%, so it's up a little bit really driven by the PFAS assessment.

I think because everyone knows when you go to the next slide, when you are increasing your rate base at 10% plus a year, or your CapEx, excuse me, you're growing your rate base. Right now we have a compound annual growth rate of almost 12% on our rate base growth. The slides that you see here today have all been trued up for the California decision based on the numbers that were in that decision. We anticipate having approximately $3.5 billion in rate base by the end of 2028, assuming we can get all the capital in the ground on time. Obviously the company remains very capital focused. Obviously, CapEx continues to be strong. The company continues to execute the capital plans well. We're able to get that capital built into rates in California.