H2O AMERICA 10-Q

ITEM 1A. RISK FACTORS 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, 2024 and our other public filings, which could materially affect our business, financial condition or future results. Other than the risk factors listed and referenced to below, there 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, 2024. The following discusses certain risk factors relating to the proposed transactions with Quadvest, L.P., a Texas limited partnership, (“Quadvest Retail”) and Quadvest Wholesale, LLC, a Texas limited liability company (“Quadvest Wholesale” and together with Quadvest Retail, “Quadvest”) and does not include all of the risk factors associated with the proposed transactions and H2O America after the proposed transactions. Our proposed transactions with Quadvest are subject to the receipt of consents and clearances from regulatory authorities that may impose conditions that could have an adverse effect on H2O America or, if not obtained, could prevent completion of the proposed transactions. Completion of the proposed transactions is contingent upon, among other things, the receipt of all required regulatory approvals, which consist of compliance with and filings and the applicable waiting period under the Hart Scott-Rodino Antitrust Improvements Act, compliance with and applications for permits with state and municipal agencies and consent required by the PUCT for the transfer of Quadvest’s water and sewer utility business (the “Regulated Business”). The terms and conditions of the approvals that are granted by such governmental entities and regulatory authorities may impose requirements, limitations, costs, or place restrictions on the conduct of H2O America’s business. The asset purchase agreements may require H2O America to comply with conditions imposed by regulatory entities and, in certain circumstances, either company may refuse to close the proposed transactions on the basis of regulatory conditions imposed. There can be no assurance that regulators will not impose conditions, terms, obligations or restrictions or that such conditions, terms, obligations or restrictions will not have the effect of delaying completion of the proposed transactions or imposing additional material costs 31 Table of Contents on or materially limiting the revenues of H2O America following the proposed transactions. Additionally, H2O America cannot provide assurance that any such conditions, terms, obligations or restrictions will not result in the delay or abandonment of the proposed transactions, or the consummation of the proposed transactions on terms different than those contemplated by the asset purchase agreements. The length of the regulatory approval process required by the PUCT, which may be extended beyond its current estimates, may reduce or eliminate the benefits to be achieved under the proposed transactions. As a condition to the consummation of the proposed transactions, the sale of the Regulated Business must be approved by the PUCT. While we expect the transaction to receive PUCT approval by mid-2026, the exact timeline for this approval process is unknown and may not occur until later, if at all. In addition to the required regulatory clearances, the proposed transactions are subject to a number of other conditions beyond H2O America’s control that may prevent, delay or otherwise materially adversely affect its completion. We cannot predict whether and when these other conditions will be satisfied. Furthermore, the requirements for obtaining the required clearances and approvals could delay the completion of the proposed transactions for a significant period of time or prevent them from occurring. Any delay in completing the proposed transactions could cause H2O America to not realize, or to be delayed in realizing, some or all of the benefits that we expect to achieve if the proposed transactions are successfully completed within the expected time frame. Failure to achieve these anticipated benefits within the expected time frame could result in increased costs and/or lower-than-expected revenues or income generated by H2O America after the completion of the proposed transactions. We may be unable to successfully integrate Quadvest’s business with ours and realize the anticipated benefits of the acquisition, which could negatively impact the future business and financial results of H2O America. The anticipated benefits expected from the proposed transactions are based on projections and assumptions about the combined Quadvest and H2O America businesses, which may not materialize as expected or which may prove to be inaccurate. Achieving the benefits of the proposed transactions will depend, in part, on H2O America’s ability to integrate the business and operations of Quadvest successfully and efficiently with our business. The challenges involved in this integration, which will be complex and time-consuming, include the following: • successfully managing relationships with our combined customer base and retaining Quadvest’s customers; • the ability to successfully integrate Quadvest’s business with ours in a manner that permits H2O America to achieve the synergies and other benefits anticipated to result from the proposed transactions; • integrating complex systems, operating procedures, regulatory compliance programs, technology, networks, and other assets of Quadvest and H2O America in a manner that minimizes any adverse impact on customers, suppliers, employees, and other constituencies; • diversion of the attention of the management and other key employees of Quadvest and H2O America; • integrating the workforces of Quadvest and H2O America while maintaining focus on providing clean, high quality water and exceptional service; • disruption of, or the loss of momentum in, the ongoing business of H2O America; • liabilities that are significantly larger than we currently anticipate and unforeseen increased expenses or delays associated with the proposed transactions, including transition costs to integrate the businesses of Quadvest and H2O America, that may exceed the costs that we currently anticipate; and • the increased scale of our operations resulting from the proposed transactions. If we do not successfully manage these issues and the other challenges inherent in integrating Quadvest, then we may not achieve the anticipated benefits of the proposed transactions and our business, financial condition and results of operations could be materially adversely affected. The fair market value determination made in connection with the PUCT approval process may result in a lower realized value for the Regulated Business. As a part of the application process, H2O America and Quadvest will submit appraisal reports to the PUCT for approval of a fair market value of the assets of the Regulated Business (the “FMV”) which H2O America may use for purposes of setting water rates in Texas by a separate application filed with the PUCT following the consummation of the proposed transactions. If the approved FMV is lower than H2O America anticipates, H2O America may, under certain circumstances, still be required to consummate the proposed transactions (subject to the satisfaction of all other conditions contained in the asset purchase agreements) but may not be able to realize the full expected value of the Regulated Business in rates following the consummation of the proposed transactions. 32 Table of Contents Failure to complete the proposed transactions as currently contemplated or at all could negatively impact the stock prices, business operations and financial results of H2O America. Completion of the proposed transactions is not assured and is subject to risks, including the risks that approval of the proposed transactions by governmental entities will not be obtained or that certain other closing conditions will not be satisfied. If the proposed transactions are not completed, or are completed on different terms than as contemplated by the asset purchase agreements, the ongoing businesses and financial results of H2O America may be adversely affected and H2O America will be subject to several risks, including the following: • having to pay certain significant costs relating to the proposed transactions without receiving the benefits of the proposed transactions, including, in certain circumstances, payment of a termination fee; • reputational harm due to the adverse public perception of any failure to successfully complete the proposed transactions; and • H2O America’s management having focused on the proposed transactions instead of on conducting its day-to-day business and operational matters and pursuing other opportunities that could have been beneficial to the companies. Any delay in the completion of the proposed transactions, any uncertainty about the completion of the proposed transactions on terms other than those contemplated by the asset purchase agreements and any failure to complete the proposed transactions could adversely affect the business, financial results and stock price of H2O America. The asset purchase agreements with Quadvest may be terminated in certain circumstances, which would result in the benefits of the proposed transactions not being realized, and under certain circumstances, we may be required to pay a termination fee. Either H2O America or Quadvest may terminate the asset purchase agreements under certain circumstances, including if the proposed transactions have not been consummated by January 7, 2027 (unless such date is extended to a date mutually agreed to by the parties to obtain regulatory approval under certain circumstances, which could be up to an additional eighteen months). However, this termination right will not be available to a party if such failure to complete the proposed transactions on or before such date is the result of such party’s failure to perform or comply, in all material respects, with any of the covenants, agreements or conditions of the asset purchase agreements. If we are not able to complete the proposed transactions by the end date, even if we decide not to terminate the asset purchase agreements, we may not be able to prevent Quadvest from exercising its right to terminate the asset purchase agreements. In addition, if the asset purchase agreements are terminated under certain circumstances related to regulatory approvals, H2O America may be required to pay to Quadvest a termination fee of $21 million. Failure to obtain financing for the proposed transactions on favorable terms or at all could negatively impact the operating results and financial condition of H2O America. H2O America may seek to raise capital to finance the proposed transactions, including through the issuance of debt or equity securities. There can be no assurance that such financing will be available on favorable terms, or at all. The incurrence of additional indebtedness could adversely affect H2O America’s financial condition, results of operations, or cash flows. Additionally, equity financings may result in dilution to our existing stockholders and debt financings may contain covenants that restrict the actions of H2O America and its subsidiaries. Furthermore, any downgrade in H2O America’s credit ratings by rating agencies may negatively impact the market value and liquidity of H2O America’s debt and equity securities. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 33 Table of Contents