HTO 10-K & 10-Q changes, risk factors and insider trading

Investors should carefully consider the following risk factors and warnings before making an investment decision. The risks described below are not the only ones facing SJWH2O GroupAmerica and its subsidiaries. Additional risks that SJWH2O GroupAmerica and its subsidiaries does not yet know of or that it currently thinks are immaterial may also impair its business operations. If any of the following risks actually occur, SJWH2O GroupAmerica and its subsidiaries’ business, operating results or financial condition could be materially affected. In such case, the trading price of SJWH2O Group’sAmerica’s common stock could decline and you may lose part or all of your investment. Investors should also refer to the other information set forth in this Annual Report on Form 10-K, including the consolidated financial statements and the notes thereto.

In some of our applications for rate approvals, we rely upon estimates and forecasts to propose rates for approval by the Regulators. No assurance can be given that our estimates and forecasts will be accurate or that the Regulators will agree with our estimates and forecasts and approve our proposed rates. To the extent our authorized rates may be too low, revenues may be insufficient to cover Water Utility Services’ operating expenses, capital requirements and SJWH2O Group’sAmerica’s historical dividend rate. In addition, delays in approving rate increases may negatively affect our operating results and operating cash flows.

We have various regulatory mechanisms such as balancing and memorandum accounts and rate adjustment mechanisms for infrastructure replacement,replacements and/or improvements, to recover certain costs and expenses. If the Regulators disagree with our calculations of our balancing and memorandum accounts, we may be required to make adjustments that could adversely affect our results of operations. Furthermore, there is no guarantee that the Regulators will approve our applications to recover all or a portion of our capital expenditure or infrastructure investment through such rate adjustment mechanisms, and their failure to do so will adversely affect our financial conditions and results of operations.

Generally accepted accounting principles (“GAAP”) for water utilities include the recognition of regulatory assets and liabilities to reflect the actions of regulators as permitted by Financial Accounting Standards Board (“FASB”) ASC Topic 980—“Regulated Operations.” These actions may result in the recognition of revenues and expenses in time periods that are different from non-rate-regulated enterprises. In accordance with ASC Topic 980, Water Utility Services record deferred costs on the balance sheet as regulatory assets when it is probable that these costs will be recovered in the ratemaking process. Also, Water Utility Services record regulatory liabilities for amounts expected to be refunded to customers in the ratemaking process and for amounts collected in advance of the related expenditures. Please refer to Note 3 of the “Notes to Consolidated Financial Statements” for a summary of regulatory assets and liabilities. If the assessment of the probability of recovery in the ratemaking process is incorrect and the applicable ratemaking body determines that a deferred cost is not recoverable through future rate increases, the regulatory assets would need to be adjusted, which could have an adverse effect on our results of operations and financial condition.

In October 2023, CWC, a subsidiary of SJWH2O GroupAmerica in our Water Utility Services segment, was named as a defendant in a class action lawsuit alleging that the water provided by CWC contained contaminants. CWC is vigorously defending itself in this lawsuit. There can be no guarantee that additional lawsuits will not occur in the future. Any environmental or product-related lawsuit, including the class action against CWC, may require us to incur significant legal costs and we may not be able to recover the legal costs from ratepayers or other third parties. Although Water Utility Services has liability insurance coverage for bodily injury and property damage, pollution liability is excluded from this coverage and our excess liability coverage. Pollution liability coverage is in place for the majority of the SJWH2O GroupAmerica locations and operations but is subject to exclusions and limitations. In addition, any complaints or lawsuits against us based on water quality and contamination may receive negative publicity that can damage our reputation and adversely affect our business and trading price of our common stock.

Under the federal Safe Drinking Water Act,Act (“SDWA”), Water Utility Services is subject to regulation by the EPA relating to the quality of water it sells and treatment techniques it uses to make the water potable. The EPA promulgates, from time to time, nationally applicable standards, including maximum contaminant levels for drinking water. For example, in April 2024, the EPA issued new national primary drinking water regulations for PFAS. The regulations impose maximum contaminant levels and monitoring requirements for the nation’s water system for six PFAS chemicals under the Safe Drinking Water Act.SDWA. The final regulation requires water systems to comply with PFAS monitoring requirements by 2027, and to comply with the maximum contaminant levels by 2029. H2O America estimates capital expenditures of approximately $400 million for PFAS treatment based on finalized maximum contaminant levels. Additional or more stringent requirements may be adopted by each state. There can be no assurance that Water Utility Services will be able to continue to comply with all water quality requirements.

Water Utility Services has implemented monitoring activities and installed specific water treatment improvements in order to comply with existing maximum contaminant levels and plan for compliance with future drinking water regulations. However, the EPA and the respective state agencies have continuing authority to issue additional regulations under the Safe Drinking Water Act.SDWA. New or more stringent environmental standards could be imposed that will raise Water Utility Services’ operating costs and capital expenditures, including requirements for increased monitoring, additional treatment of underground water supplies, fluoridation of all supplies, more stringent performance standards for treatment plants, additional procedures to further reduce levels of disinfection by-products, and more comprehensive measures to monitor, reduce or eliminate known or newly identified contaminants, such as PFAS. There are currently limited regulatory mechanisms and procedures available to us for the recovery of such costscosts, andhowever, there can be no assurance that such costs will be fully recovered and failure to do so may adversely affect our operating results.

We purchase our water supply from various governmental agencies and others. Water supply availability may be affected by weather conditions, funding and other political and environmental considerations. In addition, our ability to use surface water is subject to regulations regarding water quality and volume limitations. If new regulations are imposed or existing regulations are changed or given new interpretations, the availability of surface water may be materially reduced. A reduction in surface water could result in the need to procure more costly water from other sources, thereby increasing our water production costs and adversely affecting our operating results if not recovered in rates on a timely basis. From time to time, we enter into water supply agreements with third parties and our business is dependent upon such agreements in order to meet regional demand. The parties from whom we purchase water maintain significant infrastructure and systems to deliver water to us. The maintenance of these facilities is beyond our control. If these facilities are not adequately maintained or if these parties otherwise default on their obligations to supply water to us, we may not have adequate water supplies to meet our customers’ needs.

The concentration of our business in CaliforniaCalifornia, Texas and Connecticut makes us susceptible to adverse developments affecting these two states.

While SJWH2O GroupAmerica operates in multiple states, a significant majority of our current revenues and earnings are generated by our California and Connecticut operations. Following the consummation of the transactions with Quadvest, a significant amount of our revenues and earnings will also be generated by our Texas operations. As a result, our financial results are largely subject to political, regulatory, economic, water supply, weather, labor, and energy cost risks affecting California and Connecticut.Connecticut and, following the consummation of the transactions with Quadvest, Texas.

Conservation efforts and construction codes, which require the use of low-flow plumbing fixtures and appliances, could diminish water consumption and result in reduced revenue. In addition, in time of drought, such as in the drought experienced in California in 2021 to early 2023, mandatory water conservation may become a regulatory requirement that impacts the water usage of our customers. While the impacts of conservation and drought may be mitigated by certain regulatory mechanisms that may apply, such regulatory mechanisms are subject to review and change by the Regulators. Accordingly, there could be no assurance that such regulatory mechanisms will offset the effects of any revenue losses or other adverse impacts to our operating results attributable to these fluctuations in customer demand.

We distribute water through an extensive network of mains and store water in reservoirs and storage tanks located across our service areas. The Water Utility Services’ distribution systems were constructed during the period from the early 1900’s through today. We routinely assess the operational quality of our mains and have implemented various main replacement programs throughout our service territory to better mitigate potential main failures. A failure of major mains, reservoirs, or tanks could result in injuries and damage to residential and/or commercial property for which we may be responsible, in whole or in part. The failure of major mains, reservoirs or tanks may also result in the need to shut down some facilities or parts of our water distribution network in order to conduct repairs. Such failures and shutdowns may limit our ability to supply water in sufficient quantities to our customers and to meet the water delivery requirements prescribed by governmental regulators, which could adversely affect our financial condition, results of operations, cash flow, liquidity and reputation. We also own and operate numerous dams in California, Connecticut and Maine, and a failure of such dams could result in losses and damages that may adversely affect our financial condition and reputation. Any business interruption or other losses might not be covered by existing insurance policies or be recoverable in rates, and such losses may make it difficult for us to secure insurance in the future at acceptable rates. Our insurance policies may not cover or may not be sufficient to cover the costs of these claims.

As of December 31, 2024,2025, 241242 of our 822837 total employees were union members. Most of our unionized employees are represented by the UWUA, except certain employees in the engineering department who are represented by the OE. Only employees at SJWC are union members. TheBoth currentof three-yearthe bargaining3-year agreementsunion willcontracts expirewere signed on December 31, 2025.2025 and will expire December 31, 2028.

Our business is capital-intensive. Expenditure levels for renewal and modernization of the system will grow at an increasing rate as components reach the end of their useful lives. In addition, EPA regulations impose maximum contaminant levels and monitoring requirements for the nation’s water systems for six PFAS chemicals under the Safe Drinking Water ActSDWA and will require an increase in capital expenditures. SJWWe Group’salso subsidiarieswill fundneed to raise a significant amount of debt and equity capital expendituresto through a variety of sources, including cash received from operations, funds received from developers as contributions or advances, borrowings through lines of credit and debt financings, as well as equity financings by SJW Group. We cannot provide any assurance thatcomplete the historicalpending sourcestransactions ofwith funds for capital expenditures will continue to be adequate or that the cost of funds will remain at levels permitting us to earn a reasonable rate of return. A significant change in any of the funding sources could impair the ability of Water Utility Services to fund its capital expenditures, which could impact our ability to grow our utility asset base and earnings. Any increase in the cost of capital through higher interest rates or otherwise could adversely affect our results of operations.Quadvest.

Our ability to raise capital through equity or debt may be affected by the economy and condition of the debt and equity markets. Disruptions in the capital and credit markets or deterioration in the strength of financial institutions could adversely affect SJWH2O Group’sAmerica’s ability to draw on its lines of credit, issue long-term debt or sell its equity. In addition, government policies, the state of the credit markets and other factors could result in increased interest rates, which would increase SJWH2O Group’sAmerica’s cost of capital. Furthermore, equity financings may result in dilution to our existing stockholders and debt financings may contain covenants that restrict the actions of SJWH2O GroupAmerica and its subsidiaries.

We have incurred substantial indebtedness and plan to incur substantial indebtedness in the future, including to complete the transactions with Quadvest, resulting in a higher debt-to-equity ratio, which may have the effect, among other things, of:

SJWH2O GroupAmerica has committed to certain “ring-fencing” measures which will enhance CTWS’s separateness from SJWH2O Group,America, which may limit SJWH2O Group’sAmerica’s ability to influence the management and policies of CTWS (beyond the limitations included in other existing governance mechanisms).

Pursuant to the agreements related to the acquisition of CTWS and commitments made by SJWH2O GroupAmerica as part of the application for PURA and MPUC approval of the acquisition of CTWS, SJWH2O GroupAmerica has instituted certain “ring-fencing” measures to enhance CTWS’s separateness from SJWH2O GroupAmerica and to mitigate the risk that CTWS would be negatively impacted in the event of a bankruptcy or other adverse financial developments affecting SJWH2O GroupAmerica or its non-ring-fenced affiliates. These commitments became effective upon the closing of the acquisition.

In order to satisfy the ring-fencing commitments, SJWH2O GroupAmerica formed SJWNEH2O America NE LLC a wholly owned special purpose entity (“SPE”), to own the capital stock of CTWS. The SPE, CTWS and its subsidiaries (collectively, the “CTWS Entities”) adopted certain measures designed to enhance their separateness from SJWH2O Group,America, with the intention of mitigating the effects on the CTWS Entities of any bankruptcy of SJWH2O GroupAmerica and its affiliates other than the CTWS Entities (collectively, the “Non-CTWS Entities”). As a result of these ring-fencing measures, in certain situations, SJWH2O GroupAmerica will be restricted in its ability to access assets of the CTWS Entities as dividends or intercompany loans to satisfy the debt or contractual obligations of any Non-CTWS Entity, including any indebtedness or other contractual obligations of SJWH2O Group.America. In addition, the ring-fencing structure may negatively impact SJWH2O Group’sAmerica’s ability to achieve certain benefits, including synergies and economies of scale to reduce operating costs of the combined entity, that it anticipates will result from the merger. This ring-fencing structure also subjects SJWH2O GroupAmerica and the CTWS Entities to certain governance, operational and financial restrictions since the closing of the merger. Accordingly, SJWH2O GroupAmerica may be restricted in its ability to direct the management, policies and operations of the CTWS Entities, including the deployment or disposition of their respective assets, declarations of dividends, strategic planning and other important corporate issues. Furthermore, the CTWS Entities’ directors have considerable autonomy and, as described in our commitments, have a duty to act in the best interest of the CTWS Entities consistent with the ring-fencing structure and applicable law, which may be contrary to SJWH2O Group’sAmerica’s best interests or be in opposition to SJWH2O Group’sAmerica’s preferred strategic direction for the CTWS Entities. To the extent they take actions that are not in SJWH2O Group’sAmerica’s interests, our financial condition, results of operations and prospects may be materially adversely affected.

As part of our pursuit of the above three strategic areas, we consider from time-to-time opportunities to acquire businesses and assets. The proposed transactions with Quadvest are an example of this strategy. However, we cannot be certain we will be successful in identifying and consummating any strategic business combination or acquisitions relating to such opportunities. In addition, the execution of our business strategy will expose us to different risks than those associated with the current utility operations. We expect to incur costs in connection with the execution of this strategy and any integration of an acquired business could involve significant costs, the assumption of certain known and unknown liabilities related to the acquired assets, the diversion of management’s time and resources, the potential for a negative impact on SJWH2O Group’sAmerica’s financial position and operating results, entering markets in which SJWH2O GroupAmerica has no or limited direct prior experience and the potential loss of key employees of any acquired company. Any strategic combination or acquisition we decide to undertake may also impact our ability to finance our business, affect our compliance with regulatory requirements, and impose additional burdens on our operations. Any businesses we acquire may not achieve sales, customer growth and projected profitability that would justify the investment. Any difficulties we encounter in the integration process, including the integration of controls necessary for internal control and financial reporting, could interfere with our operations, reduce our operating margins and adversely affect our internal controls. SJWH2O GroupAmerica cannot be certain that any transaction will be successful or that it will not materially harm operating results or our financial condition.

SJWH2O Group’sAmerica’s dividend policy is subject to the discretion of our board of directors and may be limited by legal and contractual requirements.

We anticipate continuing to pay a regular quarterly dividend, though any such determination to pay dividends will be at the discretion of our board of directors and will be dependent on then-existing conditions, including our financial condition, earnings, legal requirements, including limitations under Delaware law, restrictions in our credit agreements and other debt instruments that limit our ability to pay dividends to stockholders, and other factors the board of directors deems relevant. The board of directors of SJWH2O GroupAmerica may, in its sole discretion, change the amount or frequency of dividends or discontinue the payment of dividends entirely.

SJWH2O GroupAmerica is a holding company that depends on cash flow from its subsidiaries to meet its financial obligations and pay dividends on its common stock.

As a holding company, we conduct substantially all of our operations through subsidiaries and our only significant assets are investments in those subsidiaries. This means that we are dependent on distributions of funds from our subsidiaries to meet SJWH2O Group’sAmerica’s debt service obligations and to pay dividends on our common stock. Our subsidiaries are separate and distinct legal entities and generally have no obligation to pay any amounts due on SJWH2O Group’sAmerica’s debt or to provide SJWH2O GroupAmerica with funds for dividends. Our subsidiaries only pay dividends if and when declared by their respective boards of directors. Additionally, our subsidiaries may be subject to restrictions on their ability to pay dividends to us, including under state law, pursuant to regulatory commitments, and under their credit agreements and other debt instruments. In this regard, the CTWS Entities are limited from paying dividends to us in certain circumstances under PURA and MPUC regulatory commitments. Furthermore, our right to receive cash or other assets in the unlikely event of liquidation or reorganization of any of our subsidiaries is generally subject to the prior claims of creditors of that subsidiary. Any inability of our subsidiaries to pay us dividends may have a material and adverse effect on our ability to pay dividends to our stockholders, meet our financial obligations, or make additional investments.

SJWH2O Group’sAmerica’s Certificate of Incorporation and Bylaws contain provisions that could delay or prevent a change in control of SJWH2O Group.America. These provisions could also make it more difficult for our stockholders to remove or replace directors or take other corporate actions. These provisions include, but are not limited to, the following:

In addition, the provisions of Section 203 of the Delaware General Corporate Law (“DGCL”) govern SJWH2O Group.America. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time without the consent of the Board of Directors.

Furthermore, SJWH2O Group’sAmerica’s Certificate of Incorporation provides, unless the company consents in writing to the selection of an alternate forum, (a) a state or federal court located within the State of Delaware is the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of SJWH2O Group,America, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of SJWH2O GroupAmerica to the company or its stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL, or (iv) any action asserting a claim governed by the internal affairs doctrine; and (b) the U.S. federal district courts is the sole and exclusive forum for any claim arising under the Securities Act of 1933 (unless such provision is deemed illegal, invalid or unenforceable, in which case the sole exclusive state court forum for any claim arising under the Securities Act of 1933 will be the Court of Chancery in the State of Delaware). Such “exclusive forum” provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with SJWH2O GroupAmerica or its directors, officers or other employees, which may discourage such lawsuits.

SJWH2O GroupAmerica focuses its business initiatives in three strategic areas:

SJWH2O Group’sAmerica’s regulated utility operation is conducted through SJWC, CWC, TWC and MWC. SJWH2O GroupAmerica plans and applies a diligent and disciplined approach to maintaining and improving its water system infrastructures and also seeks to acquire regulated water systems adjacent to or near its existing service territory. CWC and TWC also provide regulated wastewater services.

Non-tariffed services provided by SJWH2O Group’sAmerica’s subsidiaries include water system operations, maintenance agreements, antenna site leases under agreements with municipalities and other utilities, wholesale water service to adjacent utilities, wastewater services, and Linebacker©®, an optional service line protection program covering a limited amount of the cost of repairs for leaking or broken water and wastewater service lines and in-home plumbing to eligible residential customers in Connecticut and water service lines to eligible residential customers in Maine.

SJWH2O GroupAmerica also seeks appropriate non-tariffed business opportunities that complement its existing operations or that allow it to extend its core competencies beyond existing operations. SJWH2O GroupAmerica seeks opportunities to fully utilize its capabilities and existing capacity by providing services to other regional water systems, which also will benefit its existing regional customers.

SJWH2O GroupAmerica also from time to time pursues opportunities to participate in out-of-region water and utility related services, particularly regulated water and wastewater businesses. SJWH2O GroupAmerica evaluates out-of-region and out-of-state opportunities that meet SJWH2O Group’sAmerica’s risk and return profile.

The factors SJWH2O GroupAmerica considers in evaluating such opportunities include:

Together, SJWC, excluding the Cupertino service concession arrangement operations, CWC, MWC and TWC are referred to as “Water Utility Services,” whichServices is our single reportable segment. Other business activities that are not separately reportable segments are SJWC’s City of Cupertino service concession arrangement operations, TWOS,H2O TWR, NEWUS, SJWAmerica Land Company and Chester Realty, Inc.Inc, contract water and sewer operations and other water-related services provided by NEWUS and are collectively referred to as “Other Services.”

SJWH2O GroupAmerica has identified accounting estimates delineated below as estimates critical to its business operations and the understanding of the results of operations. The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the reporting period. SJWH2O GroupAmerica bases its estimates on historical experience and other assumptions that are believed to be reasonable under the circumstances. For a detailed discussion on the application of these and other accounting policies, see Note 2 of “Notes to Consolidated Financial Statements.” SJWH2O Group’sAmerica’s critical accounting estimates are as follows:

Generally accepted accounting principlesGAAP for water utilities include the recognition of regulatory assets and liabilities as permitted by ASC Topic 980. In accordance with ASC Topic 980, Water Utility Services, to the extent applicable, records regulatory assets for incurred costs that are deemed probable of recovery from customers. Also, Water Utility Services recognizes regulatory liabilities for amounts expected to be refunded to customers in the rate-makingratemaking process and for amounts collected in advance of the related expenditures. Regulatory assets or liabilities are also recognized for special revenue programs such as WCMA and WRA in accordance with guidance on alternative revenue programs under ASC Topic 980, including the requirement that such revenues will be collected within 24 months of the year-end in which the revenue is recorded. A reserve is recorded for amounts SJWH2O GroupAmerica estimates will not be collected within the 24-month period. This reserve is based on an estimate of actual usage over the recovery period. The WCMA allows SJWC to track revenue, net of related water costs, associated with reduced sales due to water conservation and associated calls for water use reduction. SJWC records the lost revenue captured in the WCMA balancing accounts, including amounts related to a 20-basis point reduction in the authorized return on equity per the terms of the WCMA. Applicable drought surcharges collected are used to offset the revenue losses tracked in the WCMA. WRA, a decoupling mechanism authorized by PURA for CWC, mitigates risks associated with changes in demand. The WRA is used to reconcile actual water demands with the demands projected in the most recent general rate case and allows the company to implement a surcharge or sur-credit as necessary to recover or refund the revenues approved in the general rate case. The WRA allows the company to defer, as a regulatory asset or liability, the amount by which actual revenues deviate from the revenues allowed in the most recent general rate proceedings. Application of ASC Topic 980, including determining whether recovery is probable, requires significant judgement by management and includes assessing evidence that may exist prior to regulatory authorization, including regulatory rules and decisions, historical ratemaking practices, and other facts and circumstances that would indicate the recovery or refund is probable. The regulatory assets and liabilities recorded by Water Utility Services primarily relate to asset removal costs, the recognition of deferred income taxes for ratemaking versus tax accounting purposes, balancing and memorandum accounts, pensions and other postretirement benefits, and employee benefit costs. The disallowance of any asset in future ratemaking, including regulatory assets, would require Water Utility Services to immediately recognize the impact of the costs for financial reporting purposes. There were no material disallowances recognized during the years ended December 31, 2024,2025, 20232024 and 2022.2023.

In assessing the probability criteria for balancing and memorandum accounts between general rate cases, SJWC considers evidence that may exist prior to CPUC authorization that would satisfy ASC Topic 980 subtopic 340-25 recognition criteria. Such evidence may include regulatory rules and decisions, past practices, and other facts and circumstances that would indicate that recovery or refund is probable. When such evidence provides sufficient support, the balances are recorded in SJWH2O Group’sAmerica’s financial statements.

Goodwill represents the excess of the purchase price paid over the estimated fair value of the assets acquired and liabilities assumed in the acquisition of a business. Goodwill is not amortized but is tested for impairment annually on October 1st or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. SJWH2O GroupAmerica first performs a qualitative assessment to determine whether it is necessary to perform the quantitative impairment test. In assessing the qualitative factors, SJWH2O GroupAmerica considers the impact of these key factors: change in industry and competitive environment, financial performance, macroeconomic conditions, and other relevant Company-specific events. If SJWH2O GroupAmerica determines that as a result of the qualitative assessment it is more likely than not (> 50% likelihood) that the fair value is less than carrying amount, then a quantitative test is performed. SJWH2O GroupAmerica performed an impairment analysis as of October 1, 2024.2025. The qualitative assessment found no indicators of impairment and therefore SJWH2O GroupAmerica did not perform the quantitative impairment test. No impairments occurred during the years ended December 31, 2024,2025, 20232024 or 2022.2023.

SJWH2O Group’sAmerica’s financial condition and results of operations are influenced by a variety of factors including the following:

Pursuant to Texas regulation, TWC employs a historical test year. To address regulatory risk due to regulatory lag and changing legislation policies and regulations, rate cases may be filed as necessary in Texas, provided thereit ishas no current rate case outstanding. Further, rate cases may not be filedbeen more frequently than once every 12 months.months since TWC’s most recent application to change rates was filed. Additionally, to mitigate regulatory lag for capital improvements, Texas has implemented its first SIC.SIC in 2021. The SIC allows TWC to earn a return on some of its capital improvements made after 2020 through a monthly surcharge to its customers. TheAn application for a SIC isor SIC amendment may be filed once per year, and the initial approval of a costSIC recoverytriggers mechanisma thatrequirement wasto adopted by the PUCT in 2021 and avoids the immediate need forfile a general rate case.case within four years of the date of approval. The PUCT permits the acquisition of utilities using a process termed the Fair Market Value.FMV. This process brings in three appraisers to determine the market value of a systemsystem. whichThe average of the acquiringthree utilityappraisals canis applythen ascompared to the purchase price for the acquisition to determine the value of utility plant included in rate base. In addition, after recent legislation the PUCT adopted rules allowingto theallow application of the Filed Rate Doctrine. This allowsa water utilitiesutility theto optionrequest ofto applyingapply theirits previouslycurrent approved rates to the customers of newly acquired systems, which encourages consolidation byand minimizingminimizes rate case expenses. During 2025, the Texas legislature passed House Bill 2712 which took effect on September 1, 2025 and allows water utilities to use future test year information for ratemaking purposes beginning with applications filed on or after September 1, 2026. The legislation was enacted to enable water utilities to seek rate recovery based on projected costs, encourage timely replacement of infrastructure and improve regulatory alignment with capital planning. Upon implementation of the law, water utilities will be able to utilize the future test year, historical test year or a combination of both when filing a general rate case.

The water utility business is capital-intensive. In 20242025 and 2023,2024, company-funded capital improvements were $353,029$489,607 and $271,772,$353,029, respectively, for additions to, or replacements of, property, plant and equipment for our Water Utility Services. We plan to spend approximately $451,000$458,000 in 20252026 which excludes amounts related to the Company’s previously announced acquisition of Quadvest L.P and $1,900,000$2,568,000 over the next five years for capital improvements.improvements SJWinclusive Groupof amounts related to the acquisition. In addition to these capital expenditures, Water Utility Services expects to incur approximately $100,000 over the next five years, including $25,000 in 2026, in capitalizable costs associated with cloud-based computing arrangements. H2O America funds these expenditures through a variety of sources, including earnings received from operations, debt and equity financing, and other borrowings. SJWH2O GroupAmerica relies upon lines of credit to fund capital expenditures in the short term and has historically issued long-term debt to refinance our short-term debt. While our ability to obtain financing will continue to be a key risk, we believe that based on our successful 20242025 activities, we will have access to the external funding sources necessary to implement our ongoing capital investment programs in the future. See discussion below under “Liquidity and Capital Resources” for additional information on capital expenditures.

Water Utility Services’ operations are subject to water quality and pollution control regulations issued by the EPA and environmental laws and regulations administered by the respective states and local regulatory agencies. Under the federal Safe Drinking Water Act,SDWA, Water Utility Services is subject to regulation by the EPA of the quality of water it sells and treatment techniques it uses to make the water potable. The EPA promulgates nationally applicable standards, including maximum contaminant levels for drinking water. Water Utility Services has implemented monitoring activities and installed specific water treatment improvements enabling it to comply with existing maximum contaminant levels and plan for compliance with future drinking water regulations. However, the EPA and the respective state agencies have continuing authority to issue additional regulations under the Safe Drinking Water Act.SDWA. Water Utility Services incur substantial costs associated with compliance with environmental, health and safety and water quality regulation to which our water services are subject.

In April 2024, the EPA issued new national primary drinking water regulations for six PFAS substances. The regulations impose maximum contaminant levels and monitoring requirements for the nation’s water system for six PFAS chemicals under the Safe Drinking Water Act.SDWA. The final regulation requires water systems to comply with PFAS monitoring and reporting requirements by 2027, and to comply with the maximum contaminant levels by 2029. SJWH2O GroupAmerica estimates capital expenditures of approximately $300,000$400,000 for PFAS treatment based on finalized maximum contaminant levels. See discussion below under “Liquidity and Capital Resources” for additional information on capital expenditures.

Customer growth in Water Utility Services is driven by: (i) organic population growth within our authorized service areas and (ii) the addition of new customers to our regulated customer base by acquiring regulated water systems adjacent to or near our existing service territories. We did not have any cash outflows for business acquisitions in 2025 or 2024. During 2023the third quarter of 2025 we announced our anticipated acquisitions of Quadvest L.P and 2022,South Central Water Company both of which are expected to close in the second half of 2026. During 2023, we had cash outflows of 7,537 and $433, respectively,$7,537, for business acquisitions which we believe will allow SJWH2O GroupAmerica to expand our regulated customer base. Before entering new regulated markets, we evaluate the regulatory environment to ensure that we will have the opportunity to achieve an appropriate rate of return on our investment while maintaining our high standards for quality, reliability and compliance with environmental, health and safety, and water quality standards.

The following is the change in combined residential and business customer usage in 20242025 compared to 20232024:

With the availability of the WCMA in California and the WRA in Connecticut, which allows for recovery of authorized revenues, decreases in consumption year to year do not present the same financial risk as in our other water utility services utilities.

See Item 1, “Business” and Item 1A, “Risk Factors” for a discussion of SJWH2O Group’sAmerica’s general businessbusiness, regulatory activities, and regulatoryinformation activities.about water supply.

SJWH2O Group’sAmerica’s consolidated net income for the year ended December 31, 20242025 was $93,967,$102,578, compared to $84,987$93,967 for the same period in 2023.2024. This represents an increase of $8,980$8,611 or 11%,9%, from 2023.2024. The increase in net income was primarily driven by higher revenue associated with rate increases in California and Connecticut, higher customer usage, decreases in the allowance for credit losses, lower income tax expense attributable to a tax accounting method change,Connecticut partially offset by higher water production expenses, higher administrative and general expenses, higher water production expenses, lower customer usage, and higher depreciation and amortization expense primarily related to new utility plant additions.

The revenue increase consists of $80,535 for Water Utility Services which is primarily due to an increase in authorized rates in California and Connecticut, which resulted in an additional $36,076 in revenue, an increase in rates of $26,057 attributable to water supply costs that are passed through to customers, an increase of $14,861 due to higher usage, an increase of $2,532 from new customers, and increases in services and other revenue of $7,642, partially offset by decreases of $6,633 in other regulatory mechanisms and a decrease of $2,459 in Other Services. The decrease in Other Services is primarily attributable to lower real estate activity.mechanisms.

Water production in 20242025 increased by 1.70.2 billion gallons from 2023.2024. The changes are primarily attributable to changesincrease in consumption by customers drivenin primarilyConnecticut partially offset by weather conditionsdecrease in ourconsumption serviceby areas.customers in California.

CWC has an agreement with RWA to purchase water from RWA. The agreement was signed in April 2006 and became effective upon the receipt of all regulatory approvals in 2008 and will remain in effect for a minimum of 50 years upon becoming effective. In addition, CWC is able, but under no obligation, to purchase up to one million gallons of water per day at the then-current wholesale rates per the agreement, $3.1 million per billion gallons as of December 31, 2024.2025. CWC has an agreement with MDC to purchase water from MDC to serve the Unionville system. The agreement became effective on October 6, 2000 and has a term of 50 years beginning May 19, 2003, the date the water supply facilities related to the agreement were placed in service. CWC has agreed to purchase 0.28 billion gallons of water annually from MDC at the published retail rate, three dollars and eighty cents$3.91 per hundred cubic feet as of December 31, 2024.2025.

MWC hashad an agreement with the Kennebec Water District for potable water service. The agreement hashad previously been in place for 20 years andprior wasto extendedbeing renewed on November 7, 20202020. forThe arenewal newcontained an initial term of five years and the ability to renew for up to 20 years.years at Kennebec Water District’s option. In November 2025, the agreement was terminated and MWC transitioned from the previously negotiated rate to a standard tariff rate. MWC guarantees a minimum consumption of 0.05 billion gallons of water annually. WaterThrough November 2025, water sales to MWC arewere billed at a wholesale discount of twenty cents$0.20 per hundred cubic feet of water below Kennebec Water District's tariffed rates. The current tariff rate was one dollar and fifty-one cents$1.51 per hundred cubic feet as of December 31, 2024.2025.

Water production expenses increased $25,035$19,139 duein 2025 primarily related to higherincreased perwater unitpass-through costs paid forincluding purchased water, groundwater extraction, energy priceextraction charges and other production expenses, $10,254 due to higher customer usage, and an increase of $5,181 as a result of decreased availability of California surface waterwater, in 2024 compared to 2023,partially offset by a decrease of $4,492 in water productiondecreased balancing and memorandum accountsaccount forcost therecovery FCBA.and lower customer usage.

Property taxes and other non-income taxes for 2024 increased $1,453$1,758 fromin 2023.2025. The increase was primarily the result of an increase in property taxes due to utility plant additions and higher payroll taxes due to increases in wages and headcount.

Depreciation and amortization expense increased $6,987$2,468 in 2024 from 2023.2025. The increasesincrease werewas primarily due to increases in depreciation related to new utility plant additions.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Risk Factors” in H2O America’s Annual report on Form 10-K for the year ended December 31, 2025 and our other public filings, which could materially affect our business, financial condition or future results. Other than the risk factors listed and referenced below, thereThere have been no material changes from risk factors previously disclosed in “Risk Factors” in H2O America’s Annual report on Form 10-K for the year ended December 31, 2025.

In May 2025, the Company changed the corporate name from SJW Group to H2O America. H2O America is a holding company whose primary business involves ownership of public utilities that provide water and wastewater services, including the production, purchase, storage, purification, distribution, wholesale and retail sale of water. The water utility business of H2O America is conducted through the following wholly owned subsidiaries: San Jose Water Company (“SJWC”), The Connecticut Water Company (“CWC”), The Maine Water Company (“MWC”), and SJWTX, Inc. doing business as The Texas Water Company (“TWC”). These subsidiaries provide water service to approximately 409,000 water and wastewater service connections and serve a combined population of over 1.6 million people in California, Connecticut, Maine and Texas. Water utility services provided by these businesses are subject to regulation by the applicable state public utility commissions. These subsidiaries also engage in non-tariffed operations that are not subject to public utility commission regulation, including contract water and sewer operations, maintenance agreements, and antenna site leases.

As previously disclosed, H2O America, through its indirect subsidiary, TWC, is set towill acquire regulated systems owned by Quadvest L.P. for $483.6 million, and TWOS will acquire systems owned by Quadvest Wholesale LLC for $56.4 million. Please see Note 10 “Acquisitions” for further discussion. On the completion of this acquisition, Quadvest will bring operational scale, a strong development pipeline, and increased exposure to one of America’s fastest growing regions, Houston, TX. Quadvest brings a strong legacy of local relationships and reliable service. It has been providing water and sewer service in Southeast Texas for nearly 50 years through its operating entities.

Our critical accounting estimates are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2025. Our significant accounting policies are described in the notes to the 2025 consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2025. There have been no changes to critical accounting estimates or significant accounting policies during the three and six months ended MarchJune 31,30, 2026.

H2O America’s financial results and highlights for the three months ended March 31, 2026 and 2025 include:

The increase in water production expenses of $7.5$4.6 million for the three months ended MarchJune 31,30, 2026, compared to the same period in 2025, was primarily attributable to increases in average per unit costs for purchased water and groundwater extraction, higher customer usage, and increases in water production balancing and memorandum accounts primarily relating to the FCBA partially offset by decreaseslower in costs as a result of increased availability of surface water.usage.

Operating expenses, excluding water production expenses, increased $6.7$5.3 million for the three months ended MarchJune 31,30, 2026, compared to the same period in 2025. The increase was primarily attributable to increasesa net increase in depreciationgeneral and amortizationadministrative forexpenses newdriven utility plant placed in service,by increased maintenance,merger and acquisition costs, increased outsourced services costs, increased employee-related costs and higherincreased non-labormaintenance administrativeagreement and general expenses.costs.

For the three months ended MarchJune 31,30, 2026, compared to the same period in 2025, the change in other (expense) income of $0.9$2.3 million was primarily due to an increase in investment income from higher investment balances, an increase in pension non-service credits, and higher income from the equity portion of the Allowance for Funds Used During Construction (AFUDC), an increase in interest expense, and an increase in pension non-service credit..

The following tables reconcile Net Income and EPS, each as defined under GAAP, to our non-GAAP financial measures of Adjusted Net Income and Adjusted EPS for the three and six months ended MarchJune 31,30, 2026, compared to the same period in 2025:

In the threesix months ended MarchJune 31,30, 2026, H2O America and its subsidiaries received $290.2 million in proceeds from an underwritten offer of common stock. From these amounts, H2O America expects to fund its acquisition of Quadvest L.P. and Quadvest Wholesale LLC and capital expenditures. See Note 3 “Capitalization” and Note 4 "Lines of Credit and Long-term Liabilities” for discussion on the equity and debt financing activities of H2O America. In addition, H2O America paid cash dividends on its common stock of $15.9$34.3 million during the threesix months ended MarchJune 31,30, 2026.

The following table provides a summary of our operating, investing and financing cash flows for the threesix months ended MarchJune 31,30, 2026 and 2025.

In threethe six months ended MarchJune 31,30, 2026, H2O America generated cash flow from operations of $43.7$104.4 million compared to $43.2$104.0 million during threesix months ended MarchJune 31,30, 2025. Cash flow from operations are primarily generated by net income from revenue producing activities, adjusted for non-cash expenses for depreciation and amortization, deferred income taxes, share-based compensation, allowance for equity funds used during construction, gains on the sale of assets, and other changes in working capital items.

In threethe six months ended MarchJune 31,30, 2026, the increase in cash flows from operations was primarily attributable to higher net income, changes in working capital balances, and changes in regulatory assets and liabilities.

Cash flows from investing activities consist of cash payments and cash receipts for capital expenditures and investments. Net cash used in investing activities for the threesix months ended MarchJune 31,30, 2026, increaseddecreased by $8.2$1.7 million from the same period in the prior year related to lower company-funded utility capital expenditures of $4.7$10.2 million andpartially offset by increased developer-funded capital expenditures of $3.5$8.2 million.

Cash flows from financing activities consist of cash payments to and cash receipts from creditors, investors, and developers. Net cash provided by financing activities for the threesix months ended MarchJune 31,30, 2026 increased by $127.4$72.6 million from the same period in the prior year, primarily as a result of (1) an increase in net proceeds from common stock equity offerings of $262.1$204.9 million, (2) an increase in proceeds of $16.9 million from the issuance of long-term debt, (3) proceeds from PFAS litigation settlement of $7.3 million, offset by (4) an increase in net repayments on the lines of credit of $127.2 million, (5) an increase in net repayments on long-term borrowings of $15.1 million, (6) a decrease in cash receipts of advances and contributions in aid of construction of $2.5 million, offset by (3) an increase in net repayments on the lines of credit of $120.3 million, (4) an increase in net repayments on long-term borrowings of $15.2$9.9 million and (57) an increase in payments of dividends of $1.8$5.6 million.

Water Utility Services’ estimated utility capital expenditures for 2026, exclusive of capital expenditures financed by customer contributions and advances, are anticipated to be approximately $458.0 million. The budgeted capital expenditures exclude capitalizable costs of $25.0 million forecasted in 2026 that are associated with cloud-based computing arrangements. As of MarchJune 31,30, 2026, $82.1$194.3 million, or approximately 18%,42%, of the $458.0 million has been invested.

In addition to these capital expenditures, Water Utility Services expects to incur approximately $100.0 million over the next five years, including $25.0 million in 2026, in capitalizable costs associated with cloud-based computing arrangements. For the threesix months ended MarchJune 31,30, 2026, Water Utility Services incurred $3.1$12.6 million in cloud-based computing expenses.

A summary of the line of credit agreements as of MarchJune 31,30, 2026 are as follows:

Total outstanding borrowings under the unsecured lines of credit as of MarchJune 31,30, 2026 were less than $0.1$1.4 million. For the threesix months ended MarchJune 31,30, 2026, the cost of borrowing on the lines of credit averaged 4.61% compared to 5.47%5.45% in the same period in 2025. As of MarchJune 31,30, 2026, the unusedborrowing portioncapacity of the lines of credit available for future borrowings was $370.0$367.7 million.million, which excludes a $0.9 million standby letter of credit issued on behalf of H2O America Risk Solutions and guaranteed by H2O America under the Syndicated Credit Agreement.

All of H2O America’s and subsidiaries’ lines of credit contain customary representations, warranties and events of default, as well as certain restrictive covenants customary for facilities of this type, including restrictions on indebtedness, liens, acquisitions and investments, restricted payments, asset sales, and fundamental changes. All of the lines of credit also include certain customary financial covenants such as a funded debt to capitalization ratio and a minimum interest coverage ratio. As of MarchJune 31,30, 2026, H2O America and its subsidiaries were in compliance with all covenants on their lines of credit.

The balance of long-term debt outstanding, net of unamortized debt issuance costs and debt premium and discount, as of MarchJune 31,30, 2026 was $1,865.5$1,881.5 million. The current portion of long-term debt as of MarchJune 31,30, 2026 was $8.6 million. During the three months ended March 31, 2026, H2O America repaid $15.0 million of outstanding principal relating to its Senior D Notes, which matured in January 2026, and anticipates making principal payments of approximately $7.7 million for the remainder of the fiscal year.

The debt and credit agreements of H2O America and its subsidiaries contain various financial and other covenants. Non-compliance with these covenants could result in accelerated due dates and termination of the agreements. In addition, the debit and credit agreements contain customary representations and warranties and are subject to customary events of default, which may result in outstanding debt becoming immediately due and payable. As of MarchJune 31,30, 2026, H2O America and its subsidiaries were in compliance with all covenants related to their debt and credit agreements.

In October 2024, H2O America entered into an equity distribution agreement (the “Equity Distribution Agreement”) with BofA Securities, Inc., J.P. Morgan Securities LLC, RBC Capital Markets, LLC and Wells Fargo Securities, LLC, pursuant to which the company may offer and sell shares of its common stock, $0.001 par value per share, from time to time in “at-the-market” offerings, having an aggregate gross sales price of up to $200.0 million. The Equity Distribution Agreement replaced the previous agreement that ended in 2024. For the three and six months ended MarchJune 31,30, 2026, H2O America did not issue or sell any shares of its common stock under the Equity Distribution Agreement and, accordingly, received no net proceeds therefrom. Since the inception of the Equity Distribution Agreement, H2O America has issued and sold 2,763,359 shares of common stock at a weighted average price of $52.39 for total net proceeds of $143.0 million, and has $55.2 million of aggregate gross sales price of shares remaining to issue under the Equity Distribution Agreement as of MarchJune 31,30, 2026.