American States Water Q3 2026 Earnings Call Transcript

American States Water (NYSE:AWR) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

American States Water Company reported third-quarter 2026 earnings per share of $1.06, consistent with the previous year, despite a $0.05 per share impact from volatile investment returns.

The company is investing $185 to $220 million in infrastructure for the year and has secured $31 million in new projects for ASUS, expected to complete by 2029.

Golden State Water filed a general rate case for 2028-2030, requesting $1 billion in capital investments and regulatory framework changes.

Bear Valley Electric plans to file for new rates for 2027-2030, including $133 million in capital budgets and a proposed return on equity of 11.3%.

The company raised its dividend by 8.2% in the third quarter, marking 72 consecutive years of dividend increases.

Full Transcript

Chloe (Operator)

Ladies and gentlemen, thank you for standing by. Welcome to the American States Water Company conference call discussing the company’s third quarter 2026 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 November 12th on the company’s website, www.aswater.com. The slides that the company will be referring to are also available on the website.

Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. To ask a question you may press star then one on your telephone keypad. To withdraw your question, please press star then two. This call will be limited to an hour. Presenting today from American States Water Company are Bob Sprouse, 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, performance 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. Statements made on this conference call speak only as of the date of this call and, except 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 Sprouse, President and Chief Executive Officer of American States Water Company.

Bob Sprouse (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 quarter, Eva will discuss some financial details, and then I’ll wrap it up with updates on regulatory activity, ASUS and dividends, and then we’ll take your questions. Reported earnings per share for the third quarter were $1.06, consistent with reported earnings from last year. However, this year’s third quarter included a $0.05 per share unfavorable period-over-period impact from changes in returns on investments held to fund one of the company’s retirement plans, driven by volatile market conditions. Removing the effects of the gains and losses on investments from both periods, adjusted earnings for the third quarter of 2026 remained at $1.06 per share, as compared to adjusted earnings of $1.01 per share for the same period in 2025, an increase of $0.05 per share.

All three of our operating business segments have performed well year to date and report year-over-year earnings increases. On the regulatory front, Golden State Water filed its general rate case in July with the California Public Utilities Commission, or CPUC, to set new rates for the years 2028 through 2030. The filing included a request for capital investments of approximately $1 billion over the rate cycle. In July, Golden State Water and the Public Advocates Office at the CPUC, or Cal Advocates, filed a joint settlement to approve the acquisition of an existing water system that serves almost 900 customer connections located in the City of Norwalk in Los Angeles County.

We continue to seek opportunities to expand our regulated water operation. Our regulated utilities are on pace to invest $185 to $220 million in infrastructure investments for the full year as we continue to invest in our water, wastewater and electric utility systems for the long-term benefit of our customers. ASUS continues to secure funding from the U.S. Government for new construction projects at the bases we serve and was awarded $31 million in new capital upgrade construction projects during the nine months ended September 30th of this year.

These newly awarded projects are expected to be completed through 2029. With that, I’ll turn the call over to Eva to discuss earnings and liquidity.

Eva Tang (Senior Vice President of Finance and Chief Financial Officer)

Thank you, Bob. Hello everyone. I’ll begin on slide 7. As Bob mentioned, our consolidated reported earnings were $1.06 per share and were flat compared to last year. But included in the quarterly consolidated and water segment earnings comparison was an unfavorable variance of $0.05 per share related to gains generated on investments in the third quarter of 2025 compared to a small loss generated in the current quarter. Excluding the impact of gains and losses on investments from both periods, adjusted consolidated earnings remain at $1.06 per share for the current quarter compared to adjusted earnings of $1.01 per share last year, an increase of $0.05 per share. The increase in adjusted net earnings resulted largely from the implementation of new customer rate increases approved by the CPUC at our regulated utilities.

Our water utility, Golden State Water, reported earnings of $0.85 per share as compared to $0.86 per share for the third quarter of last year, or $0.85 per share as adjusted for 2026 as compared to adjusted earnings of $0.81 per share for the same period in 2025, an increase of $0.04 per share excluding the effect of gains and losses on investments. As discussed, the $0.04 per share increase in adjusted earnings was due to an increase in water rates for 2026 including additional revenue associated with the completed advice letter capital projects filed and approved for recovery in late 2025, partially offset by increasing operating expenses and interest expenses net of interest income, as well as a higher effective income tax rate. Lastly, there was a decrease in earnings of $0.02 per share due to the dilutive effect from the share issuances under the parent company’s ATM offering program.

Our electric segment reported earnings of $0.05 per share for the quarter as compared to $0.04 per share for the same quarter last year. The $0.01 per share increase is from rate increases partially offset by higher operating and interest expenses and the higher effective income tax rate. Earnings from ASUS were $0.17 per share for the quarter compared to $0.19 per share for the same quarter last year, a decrease of $0.02 per share primarily from an increase in overall operating and construction expenses partially offset by increasing total revenue recognized.

There was also a decrease of $0.02 per share in losses from our parent company. This decrease is principally from a decrease in interest expense resulting from lower borrowing levels under its credit facility and lower interest rates. The decrease in borrowing needs was driven primarily by additional proceeds raised under the company’s ATM offering program. Consolidated revenue for the third quarter increased by $9.89 million when compared to the same quarter of 2025. Revenues increased by $7.6 million in the water segment and $1.6 million in the electric segment, driven mostly by the new 2026 rates and additional revenues associated with advice letter projects approved in 2025. Revenue from ASUS increased $6.6 million primarily due to higher management fees.

Turning to slide 9, overall operating expenses increased by $4.2 million. Looking at total operating expenses other than supply cost, expenses increased by $3.7 million compared to last year. The increase comes largely from higher depreciation and amortization expenses, higher ASUS construction expenses, and higher other operation expenses. Interest expense, net of interest income, also increased largely from a decrease in interest income due to the capitalization of debt costs associated with certain advice letter projects in 2025, with no similar items in 2026 as the projects were completed.

A new rate took effect in 2026 and reduced interest income from a decrease in regulatory asset balances for both regulated utilities. Lastly, other income decreased during the quarter mainly due to changes in market conditions that resulted in gains on investments held to fund retirement plans in 2025 compared to losses on those investments in 2026. Slide 10 shows the EPS bridge comparing adjusted EPS for the third quarter of 2026 against the same period for 2025. Moving on to slide 11, consolidated earnings for the nine months ended September 2026 as reported were $2.92 per share compared to $2.63 per share for the same period in 2025, an increase of $0.29 per share. Removing the effect of the gains on investments from both periods, adjusted earnings for year-to-date 2026 were $2.86 per share as compared to adjusted earnings of $2.54 per share in 2025, an increase of $0.33 per share, or 12.6%.

All three of our operating business segments have performed well and reported year-to-date increases in earnings per share. Turning to liquidity on slide 12, net cash provided by operating activities was largely consistent with last year. The implementation of new rates and surcharges at our regulated utilities added to cash flows from operations. However, the timing of cash receipts and disbursements related to working capital items continues to impact our cash flows from operations. For investing activities, our regulated utilities invested $149.3 million on company-funded capital projects year to date and, as Bob mentioned earlier, we’re on target to reach $185 to $220 million this year.

In July, Standard & Poor’s affirmed the company’s strong credit ratings of A for American States Water with a stable outlook and A for Golden State Water with also a stable outlook. These are some of the highest credit ratings in the U.S. investor-owned water utility industry. With that, I’ll turn the call back to Bob.

Bob Sprouse (President and Chief Executive Officer)

Thank you, Eva. Turning now to updates on the regulatory front, let’s start with the latest water general rate case that set new rates for the years 2025 through 2027. In December, Golden State Water received approval from the CPUC to implement its full second-year and other rate increases, which were effective January 1st of this year. This approval results in higher adopted operating revenues, less water supply cost, for the full year 2026 of $32 million compared to adopted operating revenues, less water supply costs, for 2025.

Included in the 2026 increase is nearly $11 million related to advice letter capital projects. The advice letter projects were added to the adopted rate base for inclusion in the revenue requirement effective January 1, 2026. In comparison, the net change in adopted operating revenue less water supply costs in 2025 over 2024 adopted levels was $23 million. As a reminder, due to the CPUC’s required use of a modified revenue decoupling mechanism and an incremental water supply cost balancing account effective January 1, 2025, Golden State Water’s earnings face future volatility from consumption fluctuations and water supply mix changes. Golden State Water’s year-to-date earnings benefited from higher customer consumption of approximately 1% and a favorable water supply source mix that included less purchased water than in the same period of 2025.

This improvement in the supply mix was due in part to certain wells that had been temporarily offline returning to service during 2026. It remains uncertain whether these favorable conditions will continue through the remainder of 2026 or if their positive earnings impact will reverse. Customer consumption can fluctuate due to factors like climate change, conservation efforts, and weather conditions. For example, El Niño or La Niña weather events could significantly affect precipitation levels and outdoor water use.

Additionally, water supply mix changes can occur due to unforeseen groundwater quality issues and changes in the operating conditions of groundwater basins and associated pumping facilities. Any of these factors could directly impact Golden State Water’s future net earnings. Next, we review pending and future regulatory proceedings at the water segment. On July 1, Golden State Water filed a general rate case application for all its water regions and the General Office. This general rate case will determine new water rates for the years 2028 through 2030. Golden State Water requested capital budgets of approximately $1 billion for the three-year rate cycle and, among other items, requested to reinstate the regulatory framework for a full revenue decoupling mechanism and a full supply cost balancing account for water supply.

A decision in this rate case is scheduled for the fourth quarter of 2027. Also, as mentioned on prior earnings calls, in November 2025 the CPUC approved a request by Golden State Water and three other large 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 1, 2027 with a corresponding effective date of January 1, 2028. The CPUC also approved the joint parties’ request to leave the current water cost of capital mechanism in place through the one-year deferral period.

For the period from October 1, 2025 through September 30, 2026, the Moody’s AA utility bond rate did not change by more than 100 basis points from the benchmark. As a result, Golden State Water’s return on equity remains unchanged as there was no trigger of the water cost of capital adjustment mechanism. Golden State Water’s current authorized rate of return on rate base is 7.93%, which includes a return on equity of 10.06% and a capital structure with 57% equity and 43% debt based on its weighted average cost of capital, which will continue in effect through December 31, 2027.

Furthermore, as I had previously highlighted, on July 13, Golden State Water and Cal Advocates filed a joint motion seeking approval of the settlement agreement to acquire a water system in Norwalk, California. If the settlement agreement is approved by the CPUC, the system will be incorporated into one of Golden State Water’s existing rate-making areas and will result in increased water revenues. A proposed decision is scheduled for the fourth quarter of this year.

Turning our attention to slide 15, 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. Golden State Water anticipates a robust and sustained growth in its rate base over the next few years. The annual increase in rate base reflects, among other factors, the net effect of capital investments less depreciation.

The higher increase in 2026 as compared to the increases in prior years represents the effects of the advice letter projects completed prior to 2026 that were included in rate base effective January 1st of this year. Please see the first footnote at the bottom of the slide. The affordability of our customer bills is a priority for the company. We remain focused on balancing the need for continued investment in system reliability and resiliency with the impact on customer bills. CPUC evaluates affordability using metrics such as the affordability ratio, which measures essential utility bills relative to household income, particularly for low-income customers. The majority of our water service areas perform well under the CPUC’s affordability metrics.

For a very few smaller service areas where affordability challenges exist, we are either implementing or have proposed measures to address those concerns. Our electric customer bills and affordability metrics remain within a manageable range. Now turning our attention to Bear Valley Electric, which continues to be a strong contributor to the company’s results. The current general rate case set rates for 2023 through 2026. In January, Bear Valley Electric implemented new rates for 2026, which is the last year of its four-year rate cycle. There are also increases in revenues in 2025 and 2026 associated with approximately $28 million of capital projects, including AFUDC, approved for recovery through advice letters that were completed and placed in service.

Bear Valley Electric’s adopted average rate base has grown from $69.2 million in 2021 to $166 million in 2026, representing a compound annual growth rate of 19.1% over the five-year period. In January of this year, 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 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%.

Let’s continue to ASUS, which contributed earnings of $0.17 per share for the quarter, which was $0.02 per share lower than last year. This was primarily the result of higher overall operating and construction expenses, partially offset by an increase in total revenues recognized. With year-to-date earnings of $0.47 per share, ASUS is on target to contribute $0.63 to $0.67 per share this year, representing an increase of 3.3% to 9.8% year over year.

ASUS was awarded $31 million in new capital upgrade construction projects through year-to-date September 2026 to be completed through 2029. As we look ahead to 2027, we project that ASUS will contribute $0.67 to $0.71 per share. In addition, we remain confident that we can effectively compete for new military base contract awards. I’d like to turn our attention to dividends. In the third quarter we raised our dividend by 8.2%, and our quarterly dividend rate has grown at a compound annual growth rate, or CAGR, of 8.4% over the last five years. 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 record of dividend increases every calendar year for 72 consecutive years is a testament to our enduring commitment to delivering value to shareholders.

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

Chloe (Operator)

Thank you. We will now take your questions. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. We will begin with Angie Storozynski from Seaport. Please go ahead.