AWR Q1 2026 Earnings Call Transcript

Image source: The Motley Fool.

DATE

Thursday, May 7, 2026 at 2 p.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — Robert J. Sprowls
• Senior Vice President of Finance and Chief Financial Officer — Eva G. Tang

TAKEAWAYS

• Consolidated Earnings Per Share -- $0.76, reflecting an 8.6% increase compared to $0.70 in the prior year period.
• Water Segment Earnings -- $0.55 per share, up from $0.52 due to higher 2026 water rates and incremental revenues from an advice letter project, partially offset by higher supply and operating costs, increased interest expense, and the dilutive impact of share issuance.
• Electric Segment Earnings -- $0.08 per share, compared to $0.07, driven primarily by rate increases and partially offset by higher operating and interest costs.
• ASUS Segment Earnings -- $0.15 per share, versus $0.13, reflecting increased construction activity and reduced interest expense, partially offset by higher operating expenses.
• Consolidated Revenue -- Increased by $21.2 million; water segment contributed $11.1 million, electric segment added $3.7 million, and ASUS contributed $6.4 million, subtotal does not sum due to additional factors.
• Net Cash From Operating Activities -- $71.6 million, compared to $45.1 million, largely due to new rates, surcharges, and ASUS billing receipts.
• Capital Expenditures (Regulated Utility) -- Invested $42.1 million in company-funded projects this quarter; projected full-year 2026 capital expenditures stand at $185 million to $225 million.
• At-the-Market (ATM) Offering -- $6.2 million raised; $34.3 million capacity remains, and continuation not expected after exhausting current balance.
• Regulatory Developments -- Filed a new electric general rate case (2027-2030) in January; water rate case targeted for July with effective period 2028-2030.
• Rate Base Growth -- Golden State Water's adopted rate base grew at a 11.3% compound annual growth rate from 2021 through 2026, with the 2026 increase supported by $80 million in consolidated advice letter project costs and associated balances.
• Dividend Growth -- Quarterly dividend rate recorded an 8.5% compound annual growth rate over five years, exceeding stated policy goal of over 7% growth.
• CPUC Cost of Capital Decision -- Application filing deferred to May 2027 with rate mechanism and authorized rate of return (7.93%) and equity return (10.06%) unchanged through December 2027.
• Bear Valley Electric Rate Request -- General rate case includes capital budget of $133 million plus $17 million (incremental via advice letters), targets an 11.3% return on equity, and 9.15% return on rate base.
• ASUS Full-Year Earnings Guidance -- Projected contribution of $0.63 to $0.67 per share for 2026.
• Recognition -- The company was ranked number one in the energy and utilities industry on Newsweek's “Most Trustworthy Companies in America” list.

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

• The shift to the Monterey-style water revenue adjustment mechanism (MRAM) and incremental supply cost balancing account may increase future earnings volatility due to fluctuations in water consumption and supply source mix, as discussed by management.
• Golden State Water's earnings for this quarter were "impacted by an actual water supply source mix that included more purchased water than in the same period of 2025 due in part to certain wells being temporarily offline," indicating sensitivity to supply mix deviations.

SUMMARY

American States Water Company (NYSE:AWR) delivered higher consolidated earnings per share, accompanied by segment-level gains for water, electric, and contracted services during the quarter. Management provided capital guidance for regulated utilities, underpinned by recent regulatory approvals, and elaborated on anticipated regulatory filings across both water and electric businesses. Operational cash flows strengthened, with increased revenue attributed to approved rate increases, surcharges, and project completions, while liquidity was augmented by proceeds from the at-the-market equity offering. The regulatory outlook was clarified with cost of capital applications deferred and legacy authorized returns preserved, shaping multi-year rate certainty for the core businesses.

• The company expects ASUS earnings to contribute $0.63 to $0.67 per share this year, supported by construction activity and improved pricing adjustments.
• Bear Valley Electric’s newly filed rate case will govern electric rates through 2030 and proposes higher capital investment and authorized returns.
• Diversification efforts yielded higher contracted services income due to military base projects, while operating expense inflation and supply mix disruptions remain material monitoring factors.

INDUSTRY GLOSSARY

• Advice Letter Project: A regulatory mechanism allowing utilities to seek recovery of specific capital project costs outside a general rate case once those assets are placed in service.
• Monterey-style Water Revenue Adjustment Mechanism (MRAM): A regulatory tool that limits full revenue decoupling, exposing utility revenue to fluctuations in customer water usage and supply mix variations.
• Cost of Capital Application: A regulatory filing where a utility requests approval for its authorized capital structure, return on equity, and overall allowed return on rate base.
• CPUC: California Public Utilities Commission, the state agency responsible for regulation of investor-owned utilities.
• AFUDC (Allowance for Funds Used During Construction): An accounting method that capitalizes the financing costs of long-term construction projects before they are placed into service.
• ASUS: American States Utility Services, Inc., the company's contracted services segment focused on serving military installations.

Full Conference Call Transcript

Mr. Bob Sprowls, president and chief executive officer, and Ms. Eva Tang, senior vice president of finance and chief financial officer. As a reminder, certain matters discussed during the 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 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 company's 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 would like to turn the call over to Robert J. Sprowls, president and chief executive officer of American States Water Company. Please go ahead, sir.

Robert J. Sprowls: Thank you, Chuck. Welcome, everyone, and thank you for joining us today. I will begin with a discussion of the quarter. Eva will discuss some financial details, and then I will wrap it up with updates on regulatory activity, ASUS, and dividends, and then we will take your questions. We started 2026 with strong financial results, and I am pleased to report consolidated earnings per share for the quarter of $0.76 compared to $0.70 for the same quarter in 2025, an increase of 8.6%. All three of our operating business segments performed well and reported year-over-year increases.

Our regulated utilities are on pace to invest a combined $185 million to $225 million in infrastructure investments this year as we continue to invest in our water, wastewater, and electric utility systems for the long-term benefit of our customers. We saw the benefits this quarter of step rate increases for both our water and electric utilities. We filed a new electric general rate case in January covering 2027 through 2030 and are poised to file a new water general rate case in July covering 2028 through 2030. In addition, our cost of capital application was deferred for another year, which I will discuss later.

Our contracted services segment performed with much higher construction activity during the quarter, and we continue to have strong water utility, electric utility, and contracted services businesses. American States Water Company remains a leader with our strong earned return on equity and dividend histories, and we continue to deliver value and returns to our shareholders. Lastly, we were recently recognized on Newsweek's list of Most Trustworthy Companies in America and ranked number one in the energy and utilities industry. It is an honor to be recognized based on the views of our key stakeholders made up of customers, employees, and investors. With that, I will turn the call over to Eva to discuss earnings and liquidity.

Eva G. Tang: Thank you, Bob. Let me start with our first quarter results. Reported consolidated earnings were $0.76 per share, as compared to $0.70 per share for 2025. For our water utility, Golden State Water, reported earnings were $0.55 per share compared to $0.52 per share for the first quarter of last year. The $0.03 per share increase was largely due to new water rates for 2026, including additional revenues associated with an advice letter project approved last year, partially offset by higher water supply costs overall, operating expenses, interest expense net of interest income, other expense net of other income, and income taxes.

Lastly, there was a decrease in earnings of $0.01 per share due to the dilutive effect from shares issued under the parent company's at-the-market offering program. Our electric segment reported earnings of $0.08 per share for the quarter as compared to $0.07 per share for the same quarter last year. The $0.01 per share increase is primarily related to rate increases, partially offset by higher overall operating and interest expenses. Earnings from ASUS were $0.15 per share for the quarter, compared to $0.13 per share for the same quarter last year, an increase of $0.02 per share largely due to higher construction activities and lower interest expenses, partially offset by an increase in operating expenses.

Slide 8 shows consolidated revenue for the first quarter. Revenue increased by $21.2 million compared to the same quarter of 2025. Revenue for the water segment increased by $11.1 million largely due to new 2026 water rates. Revenue for the electric segment also increased by $3.7 million, mainly due to fourth-year rate increases and additional revenues from approved advice letter projects in 2025. Revenues from ASUS increased $6.4 million, largely driven by higher construction activities during the quarter due to timing. Turning to Slide 9.

Supply costs increased by $5.1 million, mostly driven by higher overall per-unit purchased water cost, included in water rates in 2026 with no impact to net earnings, and higher purchased water volume when compared to the same quarter last year. Looking at total operating expenses other than supply cost, consolidated expenses increased by $10.2 million compared to 2025. The increase was due to higher ASUS construction expenses resulting from an increase in construction activity and an overall increase to operating expenses, some of which is due to timing.

In addition, there was an increase in interest expense net of interest income, largely from the impact of capitalizing debt costs related to certain advice letter projects approved by the CPUC in the latest water general rate case that was recorded in 2025 with no similar items in 2026, and reduced interest income from a decrease in regulatory balances for both regulated utilities, partially offset by a decrease in overall interest expense. Slide 10 shows the earnings per share bridge comparing reported earnings per share for 2026 against the same period for 2025. Turning to liquidity, net cash provided by operating activities was $71.6 million for 2026, compared to $45.1 million for the same period in 2025.

The increase is largely related to the implementation of new rates at our regulated utilities from approved general rate case proceedings as well as various approved surcharges and additional base rates from advice letter filings. In addition, the increase also resulted from billing and cash receipts for work at ASUS's military bases and timing of its standard payment terms. For investing activities, our regulated utility invested $42.1 million on company-funded capital projects in the first quarter of this year. We project company-funded capital expenditures to reach $185 million to $225 million for the full year of 2026.

For financing activities, American States Water Company, under its at-the-market offering program, raised proceeds of $6.2 million during the quarter net of issuance and legal costs, leaving a remaining balance of $34.3 million available for issuance under the program. We do not expect to continue the ATM program once the remaining balance has been fully utilized. With that, I will turn the call back to Bob.

Robert J. Sprowls: Thank you, Eva. On the regulatory front, we are in the process of preparing our next water rate case, expected to be filed by July 1. As a reminder, the California Public Utilities Commission, or CPUC, issued a final decision on 01/30/2025 on Golden State Water's prior general rate case requiring the company to transition from a full revenue decoupling mechanism and a full supply cost balancing account for water supply, which were requested again in that general rate case application, to a modified rate adjustment mechanism known as the Monterey-style water revenue adjustment mechanism, or MRAM, and an incremental cost balancing account for supply cost, effective 01/01/2025.

As a result, 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 earnings have been and will be subject to future volatility from favorable and unfavorable changes in the water supply source mix compared to the adopted mix incorporated in the revenue requirement. Golden State Water's earnings for this first quarter were impacted by an actual water supply source mix that included more purchased water than in the same period of 2025 due in part to certain wells being temporarily offline in a few service areas.

In December, Golden State Water received approval from the CPUC to implement its full second-year rate increases, which were effective January 1. This approval results in higher adopted operating revenues less water supply cost for 2026 of approximately $32 million compared to 2025 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 that Golden State Water had with the Public Advocates Office at the CPUC on the general rate case.

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 filings for the step increases. The assets from the advice letter projects and the related amount in the memorandum account were added to the adopted rate base for inclusion in the revenue requirement effective 01/01/2026.

In comparison, the net change in adopted operating revenues less water supply cost in 2025 over 2024 adopted levels was $23 million. Also, as mentioned on prior earnings calls, the CPUC approved a request by Golden State Water and the 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 05/01/2027 with a corresponding effective date of 01/01/2028. 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%, 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 12/31/2027. Turning our attention to Slide 14, we present the growth in Golden State Water's adopted average water rate base. From 2021 through 2026, it increased from $980.4 million in 2021 to [inaudible] 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 robust and sustained growth in its rate base over the next few years.

The annual increase in rate base reflects, among other things, 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 for the 2025 through 2027 rate cycle. 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 the base rates for 2025. Some of these projects had been under construction since 2023.

As a result, you do not 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 have been added to the 2026 adopted rate base, generating an incremental revenue requirement of approximately $11 million beginning in 2026 and onward. Accordingly, you see a healthy increase in rate base in 2026. 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 were also increases in base rates in 2025 to recover the revenue requirement associated with $23.8 million for capital projects approved for recovery through advice letters that were completed and placed in service, including allowance for funds used during construction, or AFUDC. In January, 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 letter projects when the projects are completed; a requested return on equity of 11.3% and embedded cost of debt of 5.92%; a capital structure of 60% equity and 40% debt; and a requested return on rate base of 9.15%. Let us continue to ASUS, which contributed earnings of $0.15 per share for the quarter, which was $0.02 per share higher than last year.

This was a result of an increase in construction activities, higher management fee revenues resulting from the resolution of various economic price adjustments, and lower interest expense from lower borrowing levels and lower average interest rates, partially offset by higher overall operating expenses. ASUS is projected to contribute $0.63 to $0.67 per share for this year. In addition, we remain confident that we can effectively compete for new military base contract awards in the future based on our strong reputation with the military and our expertise. I would like to turn our attention to dividends. Our quarterly dividend rate has grown at a compound annual growth rate of 8.5% over the last five years.

We continue to exceed our policy goal of achieving a compound annual growth rate in the dividend of more than 7% over the long term. I would like to conclude our prepared remarks by thanking you for your interest in American States Water Company. We will now open the call for questions.

Operator: Thank you. We will now begin the question-and-answer session. 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 2. To assemble our roster. As there are no questions, this concludes our question-and-answer session. I would like to turn the conference back over to Robert J. Sprowls for any closing remarks.

Robert J. Sprowls: Thank you, Chuck. Thank you all for your participation today, and we look forward to speaking with you next quarter.

Eva G. Tang: Thank you.

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

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.