American States Water Company Q4 2025 Earnings Call Transcript

American States Water Company (NYSE: AWR) Q4 2025 Earnings Call dated Feb. 19, 2026

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the American States Water Company Conference Call discussing the Company’s Fourth Quarter and Full-Year 2025 Results. The call is being recorded. If you would like to listen to the replay of this call, it will begin this afternoon at 5:00 PM Eastern Time and run through February 26, on the company’s website, www.aswater.com. The slides that the company will be referring to are also available on the website. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] This call will be limited to an hour.

Presenting today from American States Water Company are Bob Sprowls, President and Chief Executive Officer and Eva Tang, Senior Vice President of Finance and Chief Financial Officer. As a reminder, certain matters discussed during this conference call may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees or assurances of any outcomes, financial results, levels of activity, performances or achievements, and listeners are cautioned not to place undue reliance upon them.

Forward-looking statements are subject to estimates and assumptions and known and unknown risks, uncertainties and other factors. Listeners should review the description of the company’s risks and uncertainties that could affect the forward-looking statements in our most recent Form 10-K and Form 10-Q on file with the Securities and Exchange Commission. Securities made on this conference call speak only as of the date of this call and expect as required by law, the company does not undertake any obligation to publicly update or revise any forward-looking statement.

In addition, this conference call will include a discussion of certain measures that are not prepared in accordance with Generally Accepted Accounting Principles or GAAP in the United States and constitute non-GAAP financial measures under SEC rules. These non-GAAP financial measures are derived from consolidated financial information but are not presented in our financial statements that are prepared in accordance with GAAP. For more details, please refer to the press release.

At this time, I will turn the call over to Bob Sprowls, President and Chief Executive Officer of American States Water Company. Please go ahead, sir.

Robert J. Sprowls — President and Chief Executive Officer

Thank you, Chloe. Welcome, everyone, and thank you for joining us today. I’ll begin with a discussion of the year. Eva will then discuss some financial details for both the fourth quarter and the year and then, I’ll wrap it up with updates on regulatory activity ASUS and dividends and then, we’ll take your questions.

2025 was a very productive and positive year for the company. January, the company’s water utility, Golden State Water Company received the final decision from the California Public Utilities Commission or CPUC on its general rate case setting rates for 2025 through 2027. Our electric subsidiary also received its final decision in January of 2025 for new rates covering the period 2023 through 2026. Both decisions represent constructive regulatory outcomes and position us to continue investing in our utility infrastructure for safe and reliable services for generations to come.

In addition, our contracted services business, American States Utility Services or ASUS, contributed a significant increase in earnings for the year. As a result, I’m pleased to announce we delivered strong financial results for 2025 with reported earnings that were $0.20 per share higher compared to 2024 or $0.33 per share higher as adjusted. Included in the company’s reported earnings in 2024 was a tax benefit of $0.13 per share for Golden State Water following the final decision in its general rate case. Excluding this item, adjusted earnings for 2024 were $3.04 per share as compared to $3.37 per share for 2025.

In 2025, we invested $210.9 million in infrastructure at our regulated utilities, reflecting our continued strong ability to execute our capital plan. In addition, we continue to seek opportunities to expand our regulated water operations. During the year, Golden State Water completed a transaction with a developer to own and operate the water and wastewater systems assets serving a new planned community to be built out over time, which is expected to have approximately 1,300 customer connections generating two revenue streams for delivering water and wastewater services to this community for many years to come.

In addition, during the fourth quarter, we received CPUC approval to provide water services at another new planned community that will be built out over time, with the first development expected to serve up to 3,800 customer connections during the next five years and over the long term, 20 plus years allows for the construction of 17,500 total dwelling units at full build out. Also, Golden State Water has signed an agreement with the City of Norwalk in Los Angeles County to acquire its water system assets serving about 900 residential customers.

In January 2026, Golden State Water filed an application with the CPUC to expand its existing Region 2 ratemaking area and include the $5.25 million purchase price in rate base. ASUS continues to enter into U.S. government awarded contract modifications for new construction projects and was awarded $29.4 million in new capital upgrade construction projects during 2025. These newly-awarded projects are expected to be completed through 2028. In 2025, we increased our quarterly cash dividend by 8.3%. This is our 71st consecutive year of annual dividend increases and we remain proud of our dividend history and continued growth.

With that, I will turn the call over to Eva to discuss earnings and liquidity.

Eva G. Tang — Senior Vice President – Finance, Chief Financial Officer, Corporate Secretary and Treasurer

Thank you, Bob. Hello, everyone. Let me start with our fourth quarter results. Adjusted earning for AWR consolidated increased $0.18 per share over the prior year when excluding the impact of a one-time tax benefit recorded in the fourth quarter of 2024 resulting from the water general rate case decision and retroactive rates related to 2023 and the first nine months of 2024 recorded in the fourth quarter of 2024 as a result of receiving the final CPUC decision on the electric general rate case.

Reported consolidated earnings were $0.74 per share as compared to $0.75 per share for the fourth quarter of 2024 or $0.56 per share as adjusted for that quarter. For our water utility, Golden State Water, reported earnings were $0.50 per share for the quarter as compared to $0.52 per share in 2024 or $0.39 per share as adjusted. Included in 2024 reported earning was the previously mentioned $0.13 per share tax benefit recorded in the fourth quarter as a result of the final CPUC decision on the water GRC. Excluding this item, the $0.11 per share increase as adjusted was largely due to new water rates for 2025, higher gains generated on investment held to fund a retirement plan, lower interest expense and a lower effective income tax rate from changes in certain flows through income tax items partially offset by higher operating expenses.

Lastly, there was a decrease in earnings of $0.01 per share due to the dilutive effect from shares issuance under the parent company’s at-the-market offering program. Our electric segment reported earnings were $0.11 per share for the quarter as compared to $0.13 per share for 2024, a $0.02 per share decrease or a $0.04 per share increase as suggested.

As previously noted, included in 2024 reported electric earnings is the impact of retroactive rates related to the full year of 2023 and first nine months of 2024 of $0.06 per share recorded in the fourth quarter of 2024 as a result of receiving the final CPUC decision on the electric GRC. Excluding this item, the $0.04 per share increase is primarily related to third-year rate increases partially offset by higher overall operating and interest expenses.

Earnings from ASUS were $0.16 per share for the quarter and compared to $0.11 per share for the same quarter last year, an increase of $0.05 per share. Bob will discuss the details later in the call. Lastly, losses from our parent company were $0.03 per share for the quarter as compared to losses of $0.02 per share for the same quarter in 2024 largely due to an increase in interest expense resulting from higher borrowing levels from AWR’s credit facility, partially offset by lower average interest rates. Consolidated revenue for the quarter increased by $21.2 million when compared to 2024.

Revenues for the water segments increased $17.4 million largely due to new 2025 water rates. Revenue for the electric segment decreased by $5.7 million. Included in the revenues for the quarter of 2024 were $9.2 million of retroactive rates as a result of receiving the final decision as mentioned earlier. Excluding this item, the increase in revenues was partially due to third-year rate increases. Revenue from ASUS increased at $9.5 million primarily due to higher construction activities during the quarter due to timing.

Turning to Slide 10, supply costs increased by $10.7 million mostly due to higher overall per unit purchased water cost included in customer rates in 2025. Looking at total operating expenses other than supply cost, consolidated expenses increased by $4.2 million compared to 2024. This increase is partially offset by the impact of the electric generator decision which authorized higher operating expenses for vegetation management and other wildfire mitigation efforts that were retroactive to January 1st, 2023 and recorded in the fourth quarter of 2024. These costs were partially — were previously excluded from customer rates and not expensed prior to receiving the approved general rate case decision as they were being tracked in memorandum accounts. They are now included in adopted electric revenues.

In addition, the increase was due to higher ASUS construction expenses and higher overall operating expenses. There was also an increase in interest expense net of interest income primarily due to reduced interest income from a decrease in regulatory asset balances partially offset by lower interest expense. Lastly, there was an increase in other income net of other expense due largely to higher gain generated on investment held to fund a retirement plan during the quarter as compared to the same period in 2024 due to financial market conditions.

Slide 11 shows the EPS bridge comparing reported EPS for the fourth quarter of 2025 with the same period in 2024. This slide reflects our full-year earnings per share by segment as reported and adjusted. Consolidated earnings for the full year of 2025 as reported were $3.37 per share as compared to $3.17 per share for 2024. Included in the result in 2024 was $0.13 per share related to the impact of a one-time tax benefit recorded in 2024 related to our water segment. Excluding this item from 2024’s earnings, reported earnings for 2025 were $3.37 per share as compared to adjusted earnings of $3.04 per share for 2024. That is an increase of $0.33 per share or 10.9%. The increase is largely generated from higher earnings at our regulated utilities due mostly to implementation of new rates and higher earnings at ASUS from increased management fee revenue, higher construction activities and lower interest expenses.

Turning to liquidity, net cash provided by operating activity was $229.7 million for 2025 as compared to $190 — excuse me, $198.7 million for 2024 with increase largely related to the implementation of new rates at our regulated utilities from approved general rate cases as well as various approved surcharges for additional base rates from advice letter filings. In addition, the increase also resulted from settlement proceeds received related to PFAS contamination litigation as plaintiffs in class action lawsuits, billing and cash receipts for construction work at military bases at ASUS and the timing of vendor payment.

For investing activities, our regulated utility invested $210.9 million on company-funded capital projects in 2025 and we project company-funded capital expenditures to reach $185 million to $225 million this year. For financing activities, American State Water under its at-the-market offering program raised proceeds of $67 million during the year net of issuing costs and legal fees, leaving a remaining balance of $40.7 million available for issuing under the program. We do not expect to continue the ATM program once the remaining balance has been fully utilized.

With that, I’ll turn the call back to Bob.

Robert J. Sprowls — President and Chief Executive Officer

Thank you, Eva. On the regulatory front, as previously mentioned, In January of 2025, the CPUC issued a final decision in connection with the recent water general rate case that covers rates for 2025 through 2027. We have discussed the details of this rate case decision in our prior earnings releases and calls. We have begun preparation for our next water rate case expected to be filed by July 1st, 2026.

As a reminder, the final decision ordered Golden State Water to transition from a full decoupling mechanism and a full supply cost balancing account which were requested again in the general rate case application to a modified rate adjustment mechanism known as the Monterey-style Water Revenue Adjustment Mechanism or M-WRAM and an incremental cost balancing account for supply costs effective January 1st, 2025. Without the continuation of a full revenue decoupling mechanism and a full cost balancing account for water supply, the company may be subject to future volatility in revenues and earnings as a result of fluctuations in water consumption by its customers and changes in water supply source mix.

Golden State Water’s 2025 earnings were favorably impacted by an actual water supply source mix that included less purchased water than what was authorized in the general rate case and included in the revenue requirement which was partially offset by the negative impact from a nearly 4% decrease in water consumption compared to amounts adopted in the final general rate case. As a result, the combined impact from the changes in water supply source mix compared to adopted levels and fluctuations in consumption did not have a material impact on Golden State Water’s 2025 earnings.

In December of 2025, Golden State Water received approval from the CPUC to implement its full second-year rate increases which were effective January 1st, 2026. This approval results in higher adopted operating revenues, less water supply cost for 2026 of approximately $32 million compared to 2025’s adopted operating revenues less water supply cost. Included in the 2026 increase is nearly $11 million related to advice letter capital projects.

Under the approved settlement agreement, beginning in 2025, all of the advice letter projects were allowed to accrue in a memorandum account interest during the construction period at Golden State Water’s adopted cost of debt until the assets are in service and the full rate of return that includes a debt and equity component and all applicable components of the revenue requirement for the projects from the period the assets are in service until the date of the attrition filings. The assets from the advice letter projects and the related amounts in the memorandum account were added to the adopted rate base for inclusion in the revenue requirement effective January 1st, 2026.

In November 2025, the CPUC approved a request by Golden State Water and three other investor-owned California water utilities to defer the cost of capital application by another year. CPUC’s approval postponed the filing date of the application by one year until May 1st, 2027 with a corresponding effective date of January 1st, 2028. CPUC also approved the joint parties’ request to leave the current water cost of capital mechanism in place through the one year deferral period.

Golden State Water’s current authorized rate of return on rate base is 7.93% based on its weighted cost of capital which will continue in effect through December 31st, 2027. In August 2023, Golden State Water entered into an agreement to purchase from a developer the water and wastewater system assets in a development located in California’s Central Coast region. This is a new planned community which will serve up to approximately 1,300 customers at full buildout, which is anticipated to occur by 2034 under the current construction schedule barring any future delays.

This development will be handled under the incremental acquisition approach for Golden State Water will take ownership of the incremental water and wastewater distribution assets in phases as they are completed and ready to accommodate new connections. In December 2024, the CPUC approved a final decision granting Golden State Waters Certificates of public convenience and necessity that established rates for water and sewer services, including the company’s recovery of the purchase price of the incremental assets through future customer rates in this new San Juan Oaks service area.

In May 2025, after receiving CPUC approval and finalizing other closing procedures, the parties completed the closing of the transaction which included the initial installation and conveyance of backbone water and wastewater system assets of $10.7 million by the developer. In the future, Golden State Water will take ownership of the incremental water and wastewater system assets in phases as they are completed and ready to accommodate new connections. In addition, Golden State Water and the Public Advocates Office of the CPUC filed a joint motion with the PUC in March of last year to adopt a settlement agreement to authorize initial rates for water service in the new Sutter Pointe service area.

In October of last year, the CPUC approved the settlement agreement in its entirety. The approval establish — establishes initial water service rates for 2026 through 2028 and authorizes various balancing and memorandum accounts for the area. This new planned community in Northern California will be built out over time, with the first development expected to serve up to 3,800 customer connections during the next five years and over the long term, 20 plus years allows for the construction of 17,500 total dwelling units at full buildout as part of the overall plan that was approved by the respective county. This development will also be handled under the incremental acquisition approach where Golden State Water will take ownership of the incremental water distribution assets in phases as they are completed and ready to accommodate new connections.

Lastly, in January of this year, Golden State Water filed an application with the CPUC to acquire the water system assets from Norwalk, a city located within Los Angeles County. The application requested the expansion of its Certificate of Public Convenience and Necessity to incorporate the new service area into one of Golden State Water’s existing ratemaking areas and to include the $5.25 million purchase price in rate base. The acquisition is forecasted to increase revenues by approximately $1 million if approved as filed. The city’s service area serves almost 900 primary residential customers.

Turning our attention to Slide 17, we present the growth in Golden State Water’s adopted average water rate base from 2021 through 2026, which increased from $980.4 million in 2021 to $1,673.2 million in 2026. That represents a compound annual growth rate of 11.3% over the five-year period using 2021 as the base year for the calculation. Golden State Water anticipates a robust and sustained growth in its rate base over the next few years. The annual increases in rate base reflect, among other factors, the net effect of capital investments less depreciation.

The Water General rate case decision issued in early 2025 authorized the company to invest $573.1 million in capital infrastructure, which includes $17.7 million of advice letter projects. In addition, the decision required Golden State Water to treat $58.2 million of capital projects as additional advice letter projects rather than including them in base rates for 2025. Some of these projects began construction in 2023. As a result, you don’t see a higher increase in rate base from 2024 to 2025 as these projects were not included in rate base in 2025.

However, as noted earlier, all advice letter projects were permitted to accrue either a full rate of return or interest expense in a memorandum account prior to the filing for recovery as agreed to in settlement. Golden State Water completed these projects and filed them concurrently with the step increase filings in November 2025. CPUC approved the filings in December. As a result, the project costs and accumulated memorandum account balances totaling $80 million were added to the 2026 adopted rate base, generating an incremental revenue requirement of approximately $11 million beginning in 2026 and forward. Accordingly, you see a healthy increase in rate base from 2025 to 2026.

Turning our attention to Bear Valley Electric. As previously noted, in January of 2025, CPUC issued a final decision on the electric general rate case that sets rates for 2023 through 2026. Like the water utility rate case, we have discussed the details of the electric rate case in our prior earnings releases and calls. This past April, Bear Valley Electric also implemented new base rates to recover the revenue requirement associated with $11.6 million of capital projects approved for recovery through advice letters. On January 30th, 2026, Bear Valley Electric filed a general rate case application that will determine new electric rates for the years 2027 through 2030.

Among other things, Bear Valley Electric requested capital budgets of approximately $133 million for the four-year rate cycle and another approximately $17 million plus allowance for funds used during construction or AFUDC for capital projects to be filed for revenue recovery through advice letters when the projects are completed. A return on equity of 11.3%, an embedded cost of debt of 5.92%, a capital structure of 60% equity and 40% debt and a return on rate base of 9.15%.

Lastly, in December 2025, we received a final decision approving a settlement agreement between Bear Valley Electric and the Public Advocates Office of the CPUC authorizing construction of the solar and battery storage projects totaling $28 million plus AFUDC. Solar generation project will help Bear Valley Electric meet approximately 18% of its renewables portfolio standard requirement. These facilities will also help enable Bear Valley Electric to better control its energy and energy-related costs through self supply from a local generation resource and also provide energy shifting capabilities and additional capacity during emergencies in peak load conditions. Costs associated with the projects are recoverable in customer rates at the time the projects are completed and in service.

Let’s continue to ASUS which contributed earnings of $0.61 per share in 2025 as compared to $0.55 per share for 2024, an 11% increase. The increase was a result of higher management fee revenue resulting from the commencement of operations at the Joint Base Cape Cod and Naval Air Station Patuxent River, new bases for a full year in 2025 and resolution of various economic price adjustments, an increase in construction activities and lower interest expense from lower borrowing levels partially offset by higher overall operating expenses and lower earnings due to the dilutive effects of shares issued under AWR’s at-the-market offering program, ASUS was awarded $29.4 million in new capital upgrade construction projects to be completed through 2028.

As we look ahead to 2026, we project that ASUS will contribute $0.63 to $0.67 per share. We remain confident that we can effectively compete for new military-based contract awards. I’d like to turn our attention to dividends. In the third quarter of 2025, we raised our dividend by 8.3% and our quarterly dividend rate has grown at a compound annual growth rate or CAGR of 8.5% over the last five years since the first quarter of 2021. These increases are consistent with our policy to achieve a compound annual growth rate in the dividend of more than 7% over the long term. Our unrivaled dividend history since 1931 is something the company is proud of and will continue to be an asset to our shareholders.

I’d like to conclude our prepared remarks by thanking you for your interest in American States Water and we’ll now turn the call over to the operator for questions.

Question & Answers

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] At this time, there is no one in our queue, so this concludes our question-and-answer session. I would like to turn the conference back over to Bob Sprowls for any closing remarks.

Robert J. Sprowls — President and Chief Executive Officer

Thank you, Chloe. I just want to wrap up today by thanking you all for your participation, and we look forward to speaking with you next quarter.

Operator

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.