What changed in this filing

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Item 1. Financial Statements

2023-05-03 compared with 2022-11-10 · 353 added, 320 removed, 385 unchanged (64% of the section changed)

1 unchanged sentence

GLOBAL WATER RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

CONDENSED CONSOLIDATED BALANCE SHEET

(in thousands, except share and per share amounts)

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

PROPERTY, PLANT AND EQUIPMENT:

10 unchanged sentences

Unbilled revenue 2,674 2,557

Prepaid expenses and other current assets 1,841 1,645

Taxes, prepaid expenses, and other current assets 1,402 2,439

Total current assets 8,777 14,158

17 unchanged sentences

NONCURRENT LIABILITIES:

Line of credit 3,500 —

Long-term debt 104,957 104,945

12 unchanged sentences

Common stock, $ 0.01 par value, 60,000,000 shares authorized;

24,094,144 and 22,832,013 shares issued as of September 30, 2022 and December 31, 2021, respectively.

Treasury stock, 224,100 and 182,445 shares at September 30, 2022 and December 31, 2021, respectively.

24,095,139 and 24,095,139 shares issued as of March 31, 2023 and December 31, 2022, respectively.

Treasury stock, 224,093 and 224,093 shares at March 31, 2023 and December 31, 2022, respectively.

Paid in capital 44,456 44,157

3 unchanged sentences

See accompanying notes to the condensed consolidated financial statements

Table of Contents PART I—FINANCIAL INFORMATION

T a b l e o f C o n t e n t s

GLOBAL WATER RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

CONDENSED CONSOLIDATED STATEMENTS OPERATIONS

(in thousands, except share and per share amounts)

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Three Months Ended March 31,

Water services $ 4,839 $ 4,348

9 unchanged sentences

OTHER INCOME (EXPENSE):

Interest income 21 4 25 17

Interest expense ( 1,296 ) ( 1,326 )

Other 604 803 2,226 2,447

Allowance for equity funds used during construction 299 —

Allowance for borrowed funds used during construction 128 121

Other - Net 423 1,074

Total other expense ( 446 ) ( 131 )

INCOME BEFORE INCOME TAXES 3,331 1,232

INCOME TAX BENEFIT (EXPENSE) ( 612 ) ( 323 ) ( 805 ) ( 919 )

INCOME TAX (EXPENSE) ( 865 ) ( 343 )

NET INCOME $ 2,466 $ 889

6 unchanged sentences

See accompanying notes to the condensed consolidated financial statements

Table of Contents PART I—FINANCIAL INFORMATION

T a b l e o f C o n t e n t s

GLOBAL WATER RESOURCES, INC.

5 unchanged sentences

— — — — ( 781 ) ( 889 ) ( 1,670 )

Treasury stock — — ( 398 ) — — — —

Stock option exercise 250 — — — 3 — 3

2 unchanged sentences

BALANCE - March 31, 2022 22,832,263 228 ( 182,445 ) ( 2 ) 29,414 — 29,640

Dividend declared $ 0.07 per share

— — — — 330 ( 1,982 ) ( 1,652 )

Issuance of common stock 54,163 — — — — — —

Treasury stock — — ( 24,599 ) — 4 — 4

Stock option exercise 2,875 — — — — — —

Stock compensation — — — — 38 — 38

Net income — — — — — 1,982 1,982

BALANCE - June 30, 2021 22,748,143 $ 227 ( 127,708 ) $ ( 1 ) $ 30,955 $ ( 217 ) $ 30,964

Dividend declared $ 0.07 per share

— — — — ( 151 ) ( 1,498 ) ( 1,649 )

Issuance of common stock — — ( 53,994 ) ( 1 ) — — ( 1 )

Stock option exercise 82,745 1 — — — — 1

Stock compensation — — — — 112 — 112

Net income — — — — — 1,498 1,498

BALANCE - September 30, 2021 22,830,888 $ 228 ( 181,702 ) $ ( 2 ) $ 30,916 $ ( 217 ) $ 30,925

BALANCE - December 31, 2022 24,095,139 239 ( 224,093 ) ( 2 ) 44,157 — 44,394

1 unchanged sentence

— — — — — ( 1,778 ) ( 1,778 )

Stock option exercise 250 — — — 3 — 3

Stock compensation — — — — 299 — 299

1 unchanged sentence

BALANCE - March 31, 2023 24,095,139 239 ( 224,093 ) ( 2 ) 44,456 688 45,381

Dividend declared $ 0.07 per share

— — — — 433 ( 2,107 ) ( 1,674 )

Stock option exercise 107,548 — — — — — —

Treasury stock — — ( 40,756 ) — ( 257 ) — ( 257 )

Stock compensation — — — — 45 — 45

Net income — — — — — 2,107 2,107

BALANCE - June 30, 2022 22,939,811 $ 228 ( 223,201 ) $ ( 2 ) $ 29,635 $ — $ 29,861

Dividend declared $ 0.07 per share

— — — — 537 ( 1,686 ) ( 1,149 )

Issuance of common stock 1,150,000 11 — — 14,862 — 14,873

Treasury stock — — ( 899 ) — ( 282 ) — ( 282 )

Stock compensation — — — — 45 — 45

Net income — — — — — 1,686 1,686

BALANCE - September 30, 2022 24,089,811 $ 239 ( 224,100 ) $ ( 2 ) $ 44,797 $ — $ 45,034

See accompanying notes to the condensed consolidated financial statements

Table of Contents PART I—FINANCIAL INFORMATION

T a b l e o f C o n t e n t s

GLOBAL WATER RESOURCES, INC.

1 unchanged sentence

(Unaudited, in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

5 unchanged sentences

Amortization of deferred debt issuance costs and discounts 11 11

Other losses ( 3 ) 35

(Gain) Loss on disposal of fixed assets ( 11 ) ( 8 )

Provision for doubtful accounts receivable 19 26

10 unchanged sentences

Cash paid for acquisitions, net of cash acquired ( 6,246 ) ( 85 )

Other cash flows from investing activities ( 24 ) —

Net cash used in investing activities ( 12,786 ) ( 6,254 )

4 unchanged sentences

Principal payments under finance lease ( 132 ) ( 28 )

Refunds of advances for construction ( 1,105 ) ( 968 )

Loan repayments ( 103 ) ( 1 )

Repayments of bond ( 1,917 ) —

Proceeds from sale of stock 14,892 —

Net cash (used) provided by financing activities 8,840 ( 2,657 )

DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH 3,145 779

Line of credit borrowings, net 3,500 —

Net cash provided by (used in) financing activities 1,791 ( 619 )

INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH ( 4,511 ) ( 1,502 )

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — Beginning of period 7,562 13,443

1 unchanged sentence

See accompanying notes to the condensed consolidated financial statements

Table of Contents PART I—FINANCIAL INFORMATION

Supplemental disclosure of cash flow information:

September 30, 2022 September 30, 2021

Three Months Ended March 31,

Cash and cash equivalents $ 1,907 $ 11,135

1 unchanged sentence

Total cash, cash equivalents, and restricted cash $ 3,051 $ 11,941

T a b l e o f C o n t e n t s

GLOBAL WATER RESOURCES, INC.

3 unchanged sentences

The condensed consolidated financial statements of Global Water Resources, Inc.

(the “Company”, “GWRI”, “we”, “us”, or “our”) and related disclosures as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 are unaudited.

(the “Company”, “GWRI”, “we”, “us”, or “our”) and related disclosures as of March 31, 2023 and for the three months ended March 31, 2023 and 2022 are unaudited.

The December 31, 2022 condensed consolidated balance sheet data was derived from the Company’s audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S.

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These financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2022.

In our opinion, these financial statements include all normal and recurring adjustments necessary for the fair statement of the results for the interim period.

The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the full year, due to the seasonality of our business.

In the Company's opinion, these financial statements include all normal and recurring adjustments necessary for the fair statement of the results for the interim period.

The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the full year, due to the seasonality of our business.

The Company prepares its financial statements in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC").

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Corporate Transactions

Stipulated Condemnation of the Operations and Assets of Valencia Water Company, Inc.

On July 14, 2015, the Company closed the stipulated condemnation to transfer the operations and assets of Valencia Water Company, Inc.

("Valencia") to the City of Buckeye.

Terms of the condemnation were agreed upon through a settlement agreement and stipulated final judgment of condemnation wherein the City of Buckeye acquired all the operations and assets of Valencia and assumed operation of the utility upon close.

The City of Buckeye is obligated to pay the Company a growth premium equal to $ 3,000 for each new water meter installed within Valencia’s prior service areas in the City of Buckeye, for a 20 -year period ending December 31, 2034, subject to a maximum payout of $ 45.0 million over the term of the agreement.

The Company received growth premiums of $ 0.6 million and $ 0.8 million for the three months ended September 30, 2022 and 2021, respectively, and $ 2.2 million and $ 0.9 million for the nine months ended September 30, 2022 and 2021, respectively.

The increase was due to increased meter connections in the area over the prior year period.

Arizona Corporation Commission (the “ACC”) Tax Docket

The Company had a regulatory asset of $ 3.2 million and $ 2.3 million at September 30, 2022 and December 31, 2021, respectively, and regulatory liabilities of $ 0 and $ 0.8 million at September 30, 2022 and December 31, 2021, respectively, related to the Federal Tax Cuts and Jobs Act (the "TCJA") signed into law on December 22, 2017.

Under Accounting Standards Codification ("ASC") 740, Income Taxes , the tax effects of changes in tax laws must be recognized in the period in which the law is enacted.

ASC 740 also requires deferred income tax assets and liabilities to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled.

Thus, at the date of enactment, the Company’s deferred income taxes were re-measured based upon the new tax rate.

For the Company’s regulated entities, substantially all of the change in deferred income taxes is recorded as an offset to either a regulatory asset or liability because the impact of changes in the rates are expected to be recovered from or refunded to customers.

Effective as of June 30, 2022, the Company reversed the regulatory liability balance of $ 0.8 million related to the TCJA due to Rate Decision No.

Refer to Note 2 - "Regulatory Decision and Related Accounting Policy and Changes."

On December 20, 2017, the ACC opened a docket to address the utility ratemaking implications of the TCJA.

The ACC subsequently approved an order in February 2018 requiring Arizona utilities to apply regulatory accounting treatment, which includes the use of regulatory assets and regulatory liabilities, to address all impacts from the enactment of the TCJA.

On September 20, 2018, the ACC issued Rate Decision No.

76901, which set forth the reductions in revenue for our Santa Cruz, Palo Verde, Greater Tonopah, and Northern Scottsdale utilities due to the lower corporate tax rates under the TCJA.

Rate Decision No.

76901 adopted a phase-in approach for the reductions to match the phase-in of our revenue requirement under Decision No.

74364 enacted in February 2014.

In 2021, the final year of the phase-in, the aggregate annual reductions in revenue for our Santa Cruz, Palo Verde, Greater Tonopah, and Northern Scottsdale utilities was approximately $ 415,000 , $ 669,000 , $ 16,000 , and $ 5,000 , respectively.

The ACC also approved a carrying cost of 4.25 % on regulatory liabilities resulting from the difference of the fully phased-in rates applied in 2021 versus the phased-in rates refunded in the years leading up to 2021 (i.e., 2018 through 2020).

Rate Decision No.

76901, however, did not address the impacts of the TCJA on accumulated deferred income taxes (“ADIT”), including excess ADIT (“EADIT”).

Following the ACC's request for a proposal, the Company made its proposal in filings on December 19, 2018 and July 1, 2019.

ACC Staff reviewed the Company's filing and requested that the Company defer tariff revisions until such revisions were to be considered in the next rate case.

ACC Staff also requested that the Company defer consideration of the regulatory assets and regulatory liabilities associated with 2018 EADIT amortization.

On July 18, 2019, the Company made a filing proposing these items be deferred to the next rate case.

Arizona Corporation Commission (" ACC") Rate Case

On July 27, 2022, the ACC issued Rate Decision No.

78644, which approved an adjustor mechanism for income taxes.

The adjustor mechanism permits the Company to flow through potential changes to state and federal income tax rates as well as refund or collect funds related to TCJA.

The Company expects any remaining TCJA recovery to be addressed through the income tax adjustor.

Refer to Note 2 — "Regulatory Decision and Related Accounting and Policy Changes" for additional information regarding the Company's recently approved rate case.

On November 27, 2018, February 20, 2019, February 28, 2019, and January 23, 2020, the ACC adopted orders relating to the funding for income taxes on contributions in aid of construction (“CIAC”) and advances in aid of construction (“AIAC”) (which became taxable for our regulated utilities under the TCJA).

Those orders 1) require that under the hybrid sharing method, a contributor will pay a gross-up to the utility consisting of 55 % of the income tax expense with the utility covering the remaining 45 % of the income tax expense;

2) remove the full gross-up method option for Class A and B utilities and their affiliates (which includes all of our utilities);

3) ensure proper ratemaking treatment of a utility using the self-pay method;

4) clarify that pass-through entities that are owned by a “C” corporation can recover tax expense according to methods allowed;

and 5) require Class A and B utilities to self-pay the taxes associated with hook-up fee contributions but permit using a portion of the hook-up fees to fund these taxes.

The Company's utilities have adopted the hybrid sharing method for income tax on CIAC and AIAC.

On November 15, 2021, the Infrastructure Investment and Jobs Act was signed into law and became Public Law No.

117-58, which excludes AIAC and CIAC for regulated water and sewage disposal facility companies from income under Internal Revenue Code ("IRC") Section 118, effective January 1, 2021.

Revolving Line of Credit

On April 30, 2020, the Company entered into an agreement with The Northern Trust Company, an Illinois banking corporation (the "Northern Trust Loan Agreement"), for a two-year revolving line of credit initially up to $ 10.0 million with an initial maturity date of April 30, 2022.

This credit facility, which may be used to refinance existing indebtedness, to acquire assets to use in and/or expand the Company’s business, and for general corporate purposes, initially bore an interest rate equal to the London Interbank Offered Rate (LIBOR) plus 2.00 % and has no unused line fee.

This credit facility replaced the previous revolving line of credit with MidFirst Bank, which was terminated in April 2020.

As of September 30, 2022, we had no outstanding borrowings under this credit line.

On April 30, 2021, the Company and The Northern Trust Company entered into an amendment to the Northern Trust Loan Agreement pursuant to which, among other things, the maturity date for the revolving line of credit was extended to April 30, 2024.

On July 26, 2022, the Company and Northern Trust entered into the second amendment (the "Second Modification Agreement") to the Northern Trust Loan Agreement.

Pursuant to the Second Modification Agreement, the terms and conditions set forth in the Northern Trust Loan Agreement were further amended to, among other things, (i) extend the scheduled maturity date from April 30, 2024 to July 1, 2024;

(ii) increase the maximum principal amount available for borrowing under the revolving line of credit from $ 10.0 million to $ 15.0 million;

and (iii) replace the LIBOR interest rate provisions with provisions based on the Secured Overnight Financing Rate (SOFR).

Acquisition of Rincon Water Company, Inc.

On January 20, 2022, the Company acquired the assets of Rincon Water Company, Inc., a water utility in Pima County, Arizona.

The acquisition added an additional 73 connections and approximately 8.6 square miles of service area at the time of acquisition.

Acquisition of Twin Hawks Utility, Inc.

On January 13, 2022, Santa Cruz acquired the assets of Twin Hawks Utility, Inc., a water utility in Pinal County, Arizona.

The acquisition added an additional 18 connections and approximately 0.5 square miles of service area at the time of acquisition to the assets of Santa Cruz.

Definitive Agreement to Acquire Farmers Water Co.

On April 14, 2022, the Company signed a definitive agreement to acquire Farmers Water Co., an operator of a water utility with service area in Pima County, Arizona, subject to customary closing conditions and ACC approval.

The acquisition, if completed, is expected to add approximately 3,300 active water service connections, approximately $ 1.5 million in annual revenue, and 21.1 square miles Certificate of Convenience & Necessity ("CC&N") service area in Sahuarita, Arizona.

On October 3, 2022, the Company filed an application with the ACC in connection with the acquisition of Farmers Water Co.

The timing of the close of the acquisition is dependent upon regulatory approval and other closing conditions.

78644 relating to the Company's recent rate case.

Pursuant to Rate Decision No.

78644, the ACC approved, among other things, a collective annual revenue requirement increase of approximately $ 2.2 million (including the acquisition premiums discussed below) based on 2019 test year service connections, and phased-in over approximately two years .

The ACC also approved:

(i) the consolidation of water and/or wastewater rates to create economies of scale that are beneficial to all customers when rates are consolidated;

(ii) acquisition premiums relating to the Company’s acquisitions of its Red Rock and Turner Ranches utilities, which increase the rate base for such utilities and result in an increase in the annual collective revenue requirement included in the table above;

(iii) the Company’s ability to annually adjust rates to flow through certain changes in tax expense, primarily related to income taxes, without the necessity of a rate case proceeding;

and (iv) a sustainable water surcharge, which will allow semiannual surcharges to be added to customer bills based on verified costs of new water resources.

Refer to Note 2 – “Regulatory Decision and Related Accounting and Policy Changes” for additional information.

Public Offering of Common Stock

2 unchanged sentences

Certain directors and/or their affiliates purchased an aggregate of the 652,000 shares of common stock at the public offering price.

Recent Acquisitions

On February 1, 2023, the Company acquired all of the equity of Farmers Water Co.

("Farmers"), an operator of a water utility with service area in Pima County, Arizona.

The acquisition added approximately 3,300 active water service connections and approximately 21.5 square miles service area in Sahuarita, Arizona and the surrounding unincorporated area of Pima County at the time of the acquisition.

T a b l e o f C o n t e n t s

Stipulated Condemnation of the Operations and Assets of Valencia Water Company, Inc.

On July 14, 2015, the Company closed the stipulated condemnation to transfer the operations and assets of Valencia Water Company, Inc.

("Valencia") to the City of Buckeye.

The City of Buckeye is obligated to pay the Company a growth premium equal to $ 3,000 for each new water meter installed within Valencia’s prior service areas in the City of Buckeye, for a 20-year period ending December 31, 2034, subject to a maximum payout of $ 45.0 million over the term of the agreement.

The Company received growth premiums of $ 0.4 million and $ 1.1 million for the three months ended March 31, 2023 and 2022, respectively.

Significant Accounting Policies

Basic and Diluted Earnings per Common Share

Diluted earnings per share is based upon the weighted average number of common shares, including both outstanding shares and shares potentially issuable in connection with stock options and restricted stock awards granted.

As of September 30, 2022, the Company had 518,231 options outstanding to acquire an equivalent number of shares of GWRI common stock.

The 318,321 options outstanding from the 2017 option grant equated to 99,245 and 113,613 common share equivalents for the three and nine months ended September 30, 2022, respectively, which were included within the calculation of diluted earnings per share for the three and nine months ended September 30, 2022.

The remaining 199,910 options outstanding from the 2019 option grant equated to 21,490 and 30,023 common share equivalents for the three and nine months ended September 30, 2022, respectively, which were included within the calculation of diluted earnings per share for the three and nine months ended September 30, 2022.

As of September 30, 2022, there were 15,000 and 95,134 restricted stock awards outstanding from the 2020 grant and 2021 grant, respectively.

The 15,000 restricted stock awards outstanding from the 2020 grant equated to 7,690 and 30,980 common share equivalents for the three and nine months ended September 30, 2022, respectively, which were included within the calculation of diluted earnings per share for the three and nine months ended September 30, 2022.

The 95,134 restricted stock awards outstanding from the 2021 grant for the three and nine months ended September 30, 2022 were not included within the dilutive earnings per share calculation, as to do so would be antidilutive.

As of September 30, 2021, the Company had 537,731 options outstanding to acquire an equivalent number of shares of GWRI common stock.

The 320,321 options outstanding from the 2017 option grant equated to 171,669 and 167,320 common share equivalents for the three and nine months ended September 30, 2021, respectively, which were included within the calculation of diluted earnings per share for the three and nine months ended September 30, 2021.

The remaining 217,410 options outstanding from the 2019 option grant equated to 70,674 and 61,755 common share equivalents for the three and nine months ended September 30, 2021, respectively, which were included within the calculation of diluted earnings per share for the three and nine months ended September 30, 2021.

As of September 30, 2021, there were 74,164 restricted stock awards outstanding from the 2020 grant.

The 74,164 restricted stock awards outstanding equated to 42,362 and 56,777 common share equivalents for the three and nine months ended September 30, 2021, respectively, which were included within the calculation of diluted earnings per share for the three and nine months ended September 30, 2021.

As of September 30, 2021, there were 143,800 restricted stock awards outstanding from the 2021 grant and equated to 20,472 for the three months ended September 30, 2021.

The 143,800 restricted stock awards outstanding from grant 2021 were not included within the calculation of diluted earnings per share for the three and nine months ended September 30, 2021, as to do so would be antidilutive.

Refer to Note 13 – “Deferred Compensation Awards” for additional information regarding the option and restricted stock grants.

Customer payments in-transit

Customer payments in-transit represent funds received by our third-party payment processor related to customer payments, a majority of which were paid for with debit cards, credit cards, and checks, to which the Company does not have immediate access but settles within a few days of the payment transaction.

Basic earnings per share (“EPS”) in each period of this report were calculated by dividing net income by the weighted-average number of shares during those periods.

Diluted EPS includes additional weighted-average common stock equivalents (options and restricted stock awards), if dilutive.

Unless otherwise noted, the term “earnings per share” refers to basic EPS.

A reconciliation of the denominator used in basic and diluted EPS calculations is shown in the following table:

(In thousands) March 31, 2023 March 31, 2022

Basic weighted average common shares outstanding 23,871 22,649

Effect of dilutive securities:

2017 Option grant 97 128

2019 Option grant 27 51

2020 Restricted stock awards 11 58

2021 Restricted stock awards 21 15

Total dilutive securities 156 252

Diluted weighted average common shares outstanding 24,027 22,901

Anti-dilutive shares excluded from earnings per diluted shares (1) — —

(1) Shares excluded from the dilutive-effect calculation because the outstanding awards' exercise prices were greater than the average market price of the Company's common stock.

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”, or "ASC 842").

ASC 842 requires lessees to record a right-of-use asset and corresponding lease obligation for lease arrangements with a term of greater than twelve months and requires additional disclosures about leasing arrangements.

The Company implemented Topic 842 on January 1, 2021.

The implementation did not result in material changes to our consolidated financial statements.

Refer to Note 4 — "Leases" of the notes to the unaudited condensed consolidated financial statements for additional information.

In August 2018, the FASB issued ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (Topic 350) ("ASU 2018-15").

ASU 2018-15 amends ASC 350 to include in its scope implementation costs of a Cloud Computing Arrangement ("CCA") that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in a CCA that is considered a service contract.

The Company implemented Topic 350 on January 1, 2021.

The implementation did not result in material changes to our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment ("ASU 2017-04").

ASU 2017-04 eliminates Step 2 from the impairment test which requires entities to determine the implied fair value of goodwill to measure if any impairment expense is necessary.

Instead, entities will record impairment expenses based on the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

ASU 2019-10 extended the effective date for this ASU.

The Company implemented ASU 2017-04 on January 1, 2021.

The implementation did not result in material changes to our consolidated financial statements.

Recently Adopted Accounting Standards

In June of 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, which changed the impairment model for certain financial assets that have a contractual right to receive cash, including trade and loan receivables.

The new model required recognition based upon an estimation of expected credit losses rather than recognition of losses based on the probability of occurrence.

The Company is a Public Business Entities that is a Smaller Reporting Companies, and therefore ASU 2016-13 was effective for annual reporting periods beginning after December 15, 2022 .

The Company adopted the standard utilizing the modified retrospective method for its trade receivables and unbilled revenue on January 1, 2023.

Based on the composition of the Company’s trade receivables and unbilled revenue, and expected future losses, the adoption of ASU 2016-13 is not expected to have a material impact on its consolidated financial statements.

REGULATORY DECISION AND RELATED ACCOUNTING AND POLICY CHANGES

Our regulated utilities and certain other balances are subject to regulation by the ACC and meet the requirements for regulatory accounting found within ASC 980, Regulated Operations ("ASC 980").

The Company's regulated utilities and certain other balances are subject to regulation by the ACC and meet the requirements for regulatory accounting found within ASC 980, Regulated Operations .

In accordance with ASC 980, rates charged to utility customers are intended to recover the costs of the provision of service plus a reasonable return in the same period.

Changes to the rates are made through formal rate applications with the ACC, which we have done for all of our operating utilities as described below.

On August 28, 2020, 12 of the Company's regulated utilities each filed a rate case application with the ACC for water, wastewater, and recycled water rates, based on a 2019 test year.

In addition to a rate increase, the Company requested, among other things, the consolidation of water and/or wastewater rates for certain of its utilities, including its Red Rock, Santa Cruz, Palo Verde, Picacho Water, and Picacho Utilities located in Pinal County.

Of the Company’s utilities filing a rate case, these utilities made up approximately 96 % of the Company's active service connections at the time of the filing of the rate case application.

Changes to the rates are made through formal rate applications with the ACC, which the Company has done for all of the operating utilities and which are described below.

T a b l e o f C o n t e n t s

On July 27, 2022, the ACC issued Rate Decision No.

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On the other hand, if active connections decrease or the Company experiences declining usage per customer, the Company may not realize all of the anticipated revenues.

Rate Decision No.

78644 also addressed the primary impacts of the Federal Tax Cuts and Jobs Act (the "TCJA") on the Company, which is the reduction of the federal income tax rate from 35 percent to 21 percent beginning on January 1, 2018.

The TCJA required the Company to re-measure all existing deferred income tax assets and liabilities to reflect the reduction in the federal tax rate.

On September 20, 2018, the ACC issued Rate Decision No.

76901, which set forth the reductions in revenue for the Santa Cruz, Palo Verde, Greater Tonopah, and Northern Scottsdale utilities due to the TCJA.

Rate Decision No.

76901 adopted a phase-in approach for the reductions to match the phase-in of the revenue requirements under Rate Decision No.

In 2021, the final year of the phase-in, the aggregate annual reductions in revenue for the Santa Cruz, Palo Verde, Greater Tonopah, and Northern Scottsdale utilities were approximately $ 415,000 , $ 669,000 , $ 16,000 , and $ 5,000 , respectively.

The ACC also approved a carrying cost of 4.25 % on regulatory liabilities resulting from the difference of the fully phased-in rates to be applied in 2021 versus the years leading up to 2021 (i.e., 2018 through 2020).

Rate Decision No.

76901, however, did not address the impacts of the TCJA on accumulated deferred income taxes (“ADIT”), including excess ADIT (“EADIT”).

Subsequently, Rate Decision No.

78644 approved an adjustor mechanism for income taxes.

The adjustor mechanism permits the Company to flow through potential changes to state and federal income tax rates as well as refund or collect funds related to TCJA.

The ACC also approved:

(i) the consolidation of water and/or wastewater rates to create economies of scale that are beneficial to all customers when rates are consolidated;

revenue requirement included in the table above;

(iii) the Company’s ability to annually adjust rates to flow through changes in property tax expense and/or changes in income tax expense, without the necessity of a rate case proceeding;

and (iv) a sustainable water surcharge, which will allow semiannual surcharges to be added to customer bills based on verified costs of new water resources.

(iii) the Company’s ability to annually adjust rates to flow through certain changes in tax expense, primarily related to income taxes, without the necessity of a rate case proceeding;

(iv) a sustainable water surcharge, which will allow semiannual surcharges to be added to customer bills based on verified costs of new water resources.

Finally, Rate Decision No.

78644 requires the Company to work with ACC staff and the Residential Utility Consumer Office to prepare a Private Letter Ruling request to the Internal Revenue Service (“IRS”) to clarify whether the failure to eliminate the deferred taxes attributable to assets condemned in a transaction governed by Section 1033 of the IRC would violate the normalization provisions of Section 168(i)(9) of the IRC.

78644 requires the Company to work with ACC staff and the Residential Utility Consumer Office to prepare a Private Letter Ruling request to the Internal Revenue Service (“IRS”) to clarify whether the failure to eliminate the deferred taxes attributable to assets condemned in a transaction governed by Section 1033 of the Internal Revenue Code ("IRC") would violate the normalization provisions of Section 168(i)(9) of the IRC.

If the IRS accepts the request and issues its ruling, a copy must be provided to the ACC.

Within 90 days after providing the ruling to the ACC, ACC Staff shall prepare, for ACC consideration, a memorandum and proposed order regarding guidance issued within the Private Letter Ruling.

This may result in further action by the ACC, which we are unable to predict due to the uncertainties involved, that could have an adverse impact on our financial condition, results of operations and cash flows.

This may result in further action by the ACC, which the Company is unable to predict due to the uncertainties involved, that could have an adverse impact on its financial condition, results of operations and cash flows.

Certain accounting implications related to Rate Decision No.

78644 were recognized and recorded as of June 30, 2022, and are as follows:

T a b l e o f C o n t e n t s

• Reclassification of Red Rock Water, Red Rock Wastewater, and Turner Ranches acquisition premiums of approximately $ 0.8 million in the aggregate from goodwill to regulatory assets to be included in rate base.

2 unchanged sentences

• Write-off of approximately $ 0.3 million in capitalized rate case costs.

On September 20, 2018, the ACC issued Rate Decision No.

76901, which set forth the reductions in revenue for our Santa Cruz, Palo Verde, Greater Tonopah, and Northern Scottsdale utilities due to the TCJA.

Infrastructure Coordination and Financing Agreements (“ICFAs”) are agreements with developers and homebuilders where the Company provides services to plan, coordinate, and finance the water and wastewater infrastructure that would otherwise be required to be performed or subcontracted by the developer or homebuilder.

Rate Decision No.

76901 adopted a phase-in approach for the reductions to match the phase-in of our revenue requirements under Rate Decision No.

Refer to Note 1 — "Basis of Presentation, Corporate Transactions, Significant Accounting Policies, and Recent Accounting Pronouncements — Corporate Transactions — ACC Tax Docket" for details regarding Rate Decision No.

The following provides additional discussion on accounting and policy changes resulting from Rate Decision No.

74364 enacted in February 2014.

Infrastructure Coordination and Financing Agreements – ICFAs are agreements with developers and homebuilders whereby GWRI, the indirect parent of the operating utilities, provides services to plan, coordinate, and finance the water and wastewater infrastructure that would otherwise be required to be performed or subcontracted by the developer or homebuilder.

Under the ICFAs, GWRI has a contractual obligation to ensure physical capacity exists through its regulated utilities for water and wastewater to the landowner/developer when needed.

This obligation persists regardless of connection growth.

Fees for these services are typically a negotiated amount per equivalent dwelling unit for the specified development or portion of land.

Payments are generally due in installments, with a portion due upon signing of the agreement, a portion due upon completion of certain milestones, and the final payment due upon final plat approval or sale of the subdivision.

The payments are non-refundable.

The agreements are generally recorded against the land and must be assumed in the event of a sale or transfer of the land.

The regional planning and coordination of the infrastructure in the various service areas has been an important part of GWRI’s business model.

In February 2014, the ACC issued Rate Decision No.

74364, and concluded ICFA funds already received would no longer be deemed CIAC for rate making purposes.

ICFA funds already received or which had become due prior to the date of Rate Decision No.

74364 were recognized as revenue once the obligations specified in the ICFA were met.

74364, issued by the ACC in February 2014, established the policy for the treatment of ICFA funds and also prohibited the Company from entering into any new ICFAs.

Rate Decision No.

74364 prescribes that of the ICFA funds which come due and are paid subsequent to December 31, 2013, 70 % of the ICFA funds will be recorded in the associated utility subsidiary as a hook-up fee (“HUF”) liability, with the remaining 30 % to be recorded as deferred revenue, which the Company accounts for in accordance with the Company's ICFA revenue recognition policy.

A HUF tariff, specifying the dollar value of a HUF for each utility, was approved by the ACC as part of Rate Decision No.

The Company is responsible for assuring the full HUF value is paid from ICFA proceeds, and recorded in its full amount, even if it results in recording less than 30 % of the ICFA fee as deferred revenue.

The Company will account for the portion allocated to the HUF as a CIAC contribution.

74364 requires a hook-up fee ("HUF") tariff to be established for all ICFAs that come due and are paid subsequent to December 31, 2013, which is a set amount per equivalent dwelling unit determined by the ACC based on the utility and meter size.

In addition, since ICFA funds are generally received in installments, Rate Decision No.

74364 prescribes that 70 % of funds received must be recorded as a HUF liability, with the remaining 30 % to be recorded as deferred revenue, until the HUF liability is fully funded.

The Company is responsible for assuring that the full HUF tariff, which is the set amount determined by the rate decision, is funded in the HUF liability, even if it results in recording less than 30% of the overall ICFA funds as deferred revenue.

Refer to Note 3 – “Revenue Recognition - Unregulated Revenue” for additional information.

The Company accounts for the portion allocated to the HUF as a contribution in aid of construction (“CIAC”).

However, in accordance with the ACC directives, the CIAC is not deducted from rate base until the HUF funds are expended for utility plant.

Such funds will be segregated in a separate bank account and used for plant.

A HUF liability will be established and will be amortized as a reduction of depreciation expense over the useful life of the related plant once the HUF funds are utilized for the construction of plant.

Such funds are segregated in a separate bank account and used for plant.

A HUF liability is established and amortized as a reduction of depreciation expense over the useful life of the related plant once the HUF funds are utilized for the construction of plant.

For facilities required under a HUF or ICFA, the utilities must first use the HUF moneys received, after which, it may use debt or equity financing for the remainder of construction.

The Company will record 30 % of the funds received, up until the HUF liability is fully funded, as deferred revenue, which is to be recognized as revenue once the obligations specified within the ICFA are met, including construction of sufficient operating capacity to serve the customers for which revenue was deferred.

As of September 30, 2022 and December 31, 2021, ICFA deferred revenue recorded on the consolidated balance sheet totaled $ 20.9 million and $ 19.0 million, respectively, which represents deferred revenue recorded for ICFA funds received on contracts.

Intangible assets / Regulatory liability – Pursuant to Rate Decision No.

74364, approximately 70 % of ICFA funds to be received in the future will be recorded as a HUF, until the HUF is fully funded at the Company’s applicable utility subsidiary.

The remaining approximate 30 % of future ICFA funds will be recorded at the parent company level and will be subject to the Company’s ICFA revenue recognition accounting policy.

As the Company now expects to experience an economic benefit from the approximately 30 % portion of future ICFA funds, 30 % of the regulatory liability, or $ 3.4 million, was reversed in 2014.

The remaining 70 % of the regulatory liability, or $ 7.9 million, will continue to be recorded on the balance sheet.

The intangible assets amortize when the corresponding ICFA funds are received in proportion to the amount of total cash expected to be received under the underlying agreements.

The recognition of amortization expense will be partially offset by a corresponding reduction of the regulatory liability.

As of September 30, 2022, regulatory liability recorded on the consolidated balance sheet totaled $ 6.5 million, of which $ 5.9 million relates to the offset of intangible assets related to ICFA contracts obtained in connection with our Santa Cruz, Palo Verde, and Sonoran acquisitions, and the remaining $ 0.6 million relates to the TCJA rate reduction mandated by the ACC pursuant to Rate Decision No.

Regulatory Assets and Liabilities

Regulatory assets and liabilities are the result of operating in a regulated environment in which the ACC establish rates that are designed to permit the recovery of the cost of service and a return on investment The Company capitalizes and records regulatory assets for costs that would otherwise be charged to expense if it is probable that the incurred costs will be recovered in future rates.

Regulatory assets are amortized over the future periods that the costs are expected to be recovered.

Final determination of whether a regulatory asset can be recovered is decided by the ACC in regulatory proceedings.

If the Company determines that a portion of the regulatory assets is not recoverable in customer rates, the Company would be required to recognize the loss of the assets disallowed.

If costs expected to be incurred in the future are currently being recovered through rates, the Company records those expected future costs are regulatory liabilities.

The Company's regulatory assets and liabilities consist of the following (in thousands):

Recovery Period March 31, 2023 December 31, 2022

Regulatory Assets

Income taxes recoverable through future rates (1)

Various $ 1,462 1,482

Rate case expense surcharge (2)

2 years 407 467

Acquisition premiums (3)

25 years 1,293 1,220

Total regulatory assets $ 3,162 $ 3,169

Regulatory Liabilities

Income taxes payable through future rates (1)

Acquired ICFAs (4)

Total regulatory liabilities $ 6,366 $ 6,371

T a b l e o f C o n t e n t s

(1) The TCJA required the Company to re-measure all existing deferred income tax assets and liabilities to reflect the reduction in the federal tax rate.

(2) Rate Decision No.

78644, issued July 27, 2022, approved $ 500 K in rate case expenses to be recovered through a rate case expense surcharge over a two-year period.

Rate Decision No.

78319, issued on December 3, 2021, approved an acquisition premium of $ 452 K to be amortized over 25 years related to the acquisition of Global Water - Rincon Water Company, Inc ("Rincon").

Amortization will begin once the Company finalizes the next rate case and the acquisition premium is included in customer rates.

(3) Rate Decision No.

78644 approved acquisition premiums totaling $ 798 K related to the acquisitions of Global Water - Turner Ranches Irrigation, Inc.

and Global Water - Red Rock Utilities Company, Inc.

Amortization began in 2022 as the acquisition premiums were included in customer rates as approved in the decision.

(4) The Acquired ICFA liability relates to the offset of intangible assets related to ICFA contracts obtained in connection with the Santa Cruz, Palo Verde, and Sonoran acquisitions.

When ICFA funds are received, a portion of the funds reduce the Acquired ICFA liability as a partial offset to the amortization expense recognition of the related intangible asset.

REVENUE RECOGNITION

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The unbilled revenue estimate is based upon the number of unbilled days that month and the average daily customer billing rate from the previous month (which fluctuates based upon customer usage).

The Company applies the invoice practical expedient and recognizes

revenue from contracts with customers in the amount for which the Company has a right to invoice.

The Company applies the invoice practical expedient and recognizes revenue from contracts with customers in the amount for which the Company has a right to invoice.

The Company has the right to invoice for the volume of consumption, service charge, and other authorized charges.

The Company satisfies its performance obligation to provide water, wastewater, and recycled services over time as the services are rendered.

The Company satisfies its performance obligation to provide water, wastewater, and recycled water services over time as the services are rendered.

Regulated services may be terminated by the customers at will, and, as a result, no separate financing component is recognized for the Company's collections from customers, which generally require payment within 15 days of billing.

The Company applies judgment, based principally on historical payment experience, in estimating its customers' ability to pay.

Total revenues do not include sales tax as we consider ourselves a pass-through conduit for collecting and remitting sales taxes.

Total revenues do not include sales tax as the Company considers itself a pass-through conduit for collecting and remitting sales taxes.

Unregulated Revenue

Unregulated revenues represent those revenues that are not subject to the ratemaking process of the ACC.

Unregulated revenues are limited to rental revenue and imputed revenues resulting from a portion of ICFA funds received.

For the three months ended March 31, 2023 and March 31, 2022, unregulated revenues are limited to imputed revenues resulting from a portion of ICFA funds received.

ICFAs are agreements with developers and homebuilders where the Company provides services to plan, coordinate, and finance the water and wastewater infrastructure that would otherwise be required to be performed or subcontracted by the developer or homebuilder.

In return, the developers and homebuilders pay the Company an agreed-upon amount per dwelling unit for the specified development or portion of land.

In addition, under ICFA agreements, the Company has a contractual obligation to ensure physical capacity exists through its regulated utilities for water and wastewater to the developer when needed.

Services provided within these agreements include coordination of construction services for water and wastewater treatment facilities as well as financing, arranging, and coordinating the provision of utility services.

In return, the developers and homebuilders pay the Company an agreed-upon amount per dwelling unit for the land legally described in the agreement, or a portion thereof.

Under ICFA agreements, the Company has a contractual obligation to ensure physical capacity exists through its regulated utilities for the provision of water and wastewater utility service to the land when needed.

This obligation persists regardless of connection growth.

The Company believes that these services are not distinct in the context of the contract because they are highly interdependent with the Company’s ability to provide fitted capacity for water and wastewater services.

T a b l e o f C o n t e n t s

As these arrangements are with developers and not with the end water or wastewater customer, revenue recognition coincides with the completion of our performance obligations under the agreement with the developer and the regulated utilities ability to provide fitted capacity for water and wastewater service.

Fees for these services are typically a negotiated amount per equivalent dwelling unit for the for the land legally described in the agreement, or a portion thereof.

The payments are non-refundable.

The agreements are generally recorded against the land with the appropriate recorder's office and must be assumed in the event of a sale or transfer of the land.

The regional planning and coordination of the infrastructure in the various service areas has been an important part of the Company’s business model.

Rate Decision No.

As ICFA funds are generally received in installments, Rate Decision No.

74364 prescribes that 70% of funds received must be recorded as a HUF liability, with the remaining 30% to be recorded as deferred revenue, until the HUF liability is fully funded.

Refer to Note 2 – “Regulatory Decision and Related Accounting and Policy Changes” for additional information on the accounting treatment of HUF.

The Company believes that these services are not distinct in the context of the contract because they are highly interdependent with the regulated utilities ability to provide fitted capacity for water and wastewater services.

The Company concluded that the goods and services provided under ICFA contracts constitute a single performance obligation.

ICFA revenue is recognized at a point in time when the Company has the necessary capacity in place within its infrastructure to provide water/wastewater services to the developer.

The Company exercises judgment when estimating the number of equivalent dwelling units that the Company has capacity to serve.

ICFA revenue is recognized at a point in time when the regulated utilities have the necessary capacity in place within its infrastructure to provide water/wastewater services to the developer.

The Company exercises judgment when estimating the number of equivalent dwelling units that the regulated utilities have capacity to serve.

As of March 31, 2023 and December 31, 2022, ICFA deferred revenue recorded on the consolidated balance sheet totaled $ 18.8 million and $ 21.0 million, respectively, which represents deferred revenue recorded for ICFA funds received on contracts.

For the three months ended March 31, 2023, ICFA revenue recognized totaled $ 2.3 million.

No ICFA revenue was recognized for the three months ended March 31, 2022.

Disaggregated Revenues

For the three and nine months ended September 30, 2022 and 2021, disaggregated revenues from contracts with customers by major source and customer class are as follows (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

For the three months ended March 31, 2023 and 2022, disaggregated revenues from contracts with customers by major source and customer class are as follows (in thousands):

T a b l e o f C o n t e n t s

Three Months Ended March 31,

REGULATED REVENUE

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ICFA revenues 2,268 —

Rental revenues — — 5 47

TOTAL UNREGULATED REVENUE 2,268 —

1 unchanged sentence

Contract Balances

Our contract assets and liabilities consist of the following (in thousands):

September 30, 2022 December 31, 2021

The Company's contract assets and liabilities consist of the following (in thousands):

March 31, 2023 December 31, 2022

CONTRACT ASSETS

3 unchanged sentences

Total contract assets (1)

$ 2,765 $ 2,303

CONTRACT LIABILITIES

2 unchanged sentences

Total contract liabilities $ 18,774 $ 20,974

(1) The increase in accounts receivable was primarily due to increased connections through organic growth and rate increases resulting from Rate Decision No.

Refer to Note 2— "Regulatory Decision and Related Accounting and Policy Changes" for further details.

(2) The decrease in refund liability related to tax reform is due to the phase-in approach approved in Rate Decision No.

Refer to Note 2— "Regulatory Decision and Related Accounting and Policy Changes" for further details.

T a b l e o f C o n t e n t s

Remaining Performance Obligations

Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods.

Contracted revenue expected to be recognized in future periods was approximately $ 20.9 million and $ 19.0 million at September 30, 2022 and December 31, 2021, respectively.

Contracted revenue expected to be recognized in future periods was approximately $ 18.8 million and $ 21.0 million at March 31, 2023 and December 31, 2022, respectively.

Deferred revenue - ICFA is recognized as revenue once the obligations specified within the applicable ICFA are met, including construction of sufficient operating capacity to serve the customers for which revenue was deferred.

7 unchanged sentences

The Company notes that this practical expedient applies to all expired or existing contracts as of the effective date of the Company's adoption.

The Company elected this practical expedient package for all lessee arrangements.

On January 10, 2022, the Company entered into a five-year finance lease for office equipment which expires on January 31, 2027.

The Company elected this practical expedient package for all lessee and lessor arrangements.

The Company measures the lease liability at the present value of future lease payments, excluding variable payments based on usage or performance, and calculates the present value using implicit rates.

Leases with an initial term of twelve months or less are not recorded on the balance sheet.

During the year ended December 31, 2022, the Company entered into nine new finance leases for vehicles with either 48 or 60 month terms, all of which include a purchase option.

January 10, 2022, the Company entered into a five-year finance lease for office equipment which expires on January 31, 2027.

There is no purchase option in the lease agreement but the Company controls and obtains substantially all of the benefit from the identified asset.

The lease does not provide an implicit borrowing rate (“IBR”), and as such, we used an estimated IBR of 2.39 % which was derived from The Treasury High Quality Market Corporate Bond Yield Curve.

On September 28, 2021, the Company entered into a new five-year corporate office lease agreement with a commencement date of May 1, 2022.

Refer to Note 15 – “Commitments and Contingencies” for additional information regarding the components of the lease agreement.

In December 2021, the Company entered into a new five-year corporate office lease agreement with a commencement date of May 1, 2022.

The new monthly rent expense increased to $ 23,750 for each full calendar month commencing on May 1, 2022 through April 30, 2025 and will increase to $ 41,572 for each calendar month commencing on May 1, 2025 through April 30, 2027.

On March 1, 2022 the Company amended the terms of the lease to incorporate construction of tenant improvements.

Should the Company incur additional costs in excess of the landlord improvement allowance, the Company will have the option of paying the expenses at time of possession or amortized over the lease term as additional rent at three percent cost of funds.

Rent expense arising from the operating leases totaled approximately $ 93,000 and $ 55,000 for the three months ended ended March 31, 2023 and 2022, respectively.

The right-of-use ("ROU") asset recorded represents the Company’s right to use an underlying asset for the lease term and ROU lease liability represents the Company’s obligation to make lease payments arising from the lease.

Lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

Right-of-use assets at September 30, 2022 and December 31, 2021 consist of the following (in thousands):

September 30, 2022 December 31, 2021

Right-of-use assets at March 31, 2023 and December 31, 2022 consist of the following (in thousands):

March 31, 2023 December 31, 2022

Finance Leases $ 388 $ 405

1 unchanged sentence

Total $ 1,795 $ 1,891

Lease liabilities at September 30, 2022 and December 31, 2021 consist of the following (in thousands):

September 30, 2022 December 31, 2021

Lease liabilities at March 31, 2023 and December 31, 2022 consist of the following (in thousands):

March 31, 2023 December 31, 2022

Finance Leases $ 542 $ 597

1 unchanged sentence

Total $ 2,007 $ 2,121

T a b l e o f C o n t e n t s

PROPERTY, PLANT AND EQUIPMENT

Property, plant, and equipment at September 30, 2022 and December 31, 2021 consist of the following (in thousands):

September 30, 2022 December 31, 2021

Plant, equipment, and water and sewer lines $ 328,374 $ 311,041

Computers, office equipment and software 2,905 2,659

Depreciable property, plant, and equipment at March 31, 2023 and December 31, 2022 consist of the following (in thousands):

March 31, 2023 December 31, 2022

Equipment 56,720 55,178

Office buildings and other structures 54,999 54,647

Transmission and distribution plant 257,332 234,218

Total property, plant, and equipment 369,051 344,043

Depreciation of property, plant and equipment is computed based on the estimated useful lives as follows:

Plant, equipment, and water and sewer lines 5 to 50 years

Computers, office equipment and software 3 to 15 years

Equipment 3 to 30 years

Office buildings and other structures 30 years

Transmission and distribution plant 10 to 50 years

ACCOUNTS RECEIVABLE

Accounts receivable as of September 30, 2022 and December 31, 2021 consist of the following (in thousands):

September 30, 2022 December 31, 2021

Accounts receivable as of March 31, 2023 and December 31, 2022 consist of the following (in thousands):

March 31, 2023 December 31, 2022

Billed receivables $ 2,765 $ 2,303

2 unchanged sentences

GOODWILL AND INTANGIBLE ASSETS

The goodwill balance was $ 5.1 million at September 30, 2022.

The balance is related to the Turner, Red Rock, Mirabell, Francesca, Tortolita, Lyn Lee, Las Quintas Serenas, Rincon and Twin Hawks acquisitions.

The goodwill balance was $ 10.9 million at March 31, 2023 and is related to the Turner, Red Rock, Mirabell, Francesca, Tortolita, Lyn Lee, Las Quintas Serenas, Rincon, Twin Hawks, and Farmers acquisitions.

As of June 30, 2022, the Company reclassified approximately $ 0.8 million of goodwill to regulatory assets related to Red Rock Water, Red Rock Wastewater, and Turner Ranches acquisition premiums as a result of Rate Decision No.

78644 (refer to Note 2 - "Regulatory Decision and Related Accounting and Policy Changes" for additional information).

The Farmers acquisition contributed $ 6.0 million to the change in the goodwill balance (refer to Note 15 - "Acquisitions" for additional information.

There were no indicators of impairment identified as a result of the Company's review of events and circumstances related to its goodwill subsequent to the acquisitions.

As of March 31, 2023 and December 31, 2022, the goodwill balance consisted of the following (in thousands):

Goodwill balance, December 31, 2022 $ 4,957

Acquisition activity 5,956

Adjustments subsequent to acquisition date 16

Goodwill balance, March 31, 2023 $ 10,929

Intangible Assets

As of September 30, 2022 and December 31, 2021, intangible assets consisted of the following (in thousands):

September 30, 2022 December 31, 2021

Goodwill at March 31, 2023 and December 31, 2022, consisted of the following (in thousands):

T a b l e o f C o n t e n t s

March 31, 2023 December 31, 2022

Amount Accumulated

13 unchanged sentences

Total intangible assets $ 27,155 $ ( 17,009 ) $ 10,146 $ 27,148 $ ( 17,009 ) $ 10,139

A CC&N is a permit issued by the ACC allowing a public service corporation to serve a specified area, and preventing other public service corporations from offering the same services within the specified area.

A Certificate of Convenience & Necessity ("CC&N") is a permit issued by the ACC allowing a public service corporation to serve a specified area, and preventing other public service corporations from offering the same services within the specified area.

The CP Water CC&N intangible asset was acquired through the acquisition of CP Water Company in 2006.

This CC&N permit has no outstanding conditions that would require renewal.

Franchise contract rights and organizational costs relate to our 2018 acquisition of Red Rock.

Franchise contract rights are agreements with Pima and Pinal counties that allow the Company to place infrastructure in public right-of-way and permits expected to be renewable indefinitely.

Franchise contract rights and organizational costs relate to the 2018 acquisition of Red Rock and the 2023 acquisition of Farmers.

Franchise contract rights are agreements with Pima and Pinal counties for Red Rock and Pima county for Farmers that allow the Company to place infrastructure in public right-of-way and permits expected to be renewable indefinitely.

The organizational costs represent fees paid to federal or state governments for the privilege of incorporation and expenditures incident to organizing the corporation and preparing it to conduct business.

Acquired ICFAs and contract rights related to our 2005 acquisition of Sonoran Utility Services, LLC assets are amortized when cash is received in proportion to the amount of total cash expected to be received under the underlying agreements.

Due to the uncertainty of the timing of when cash will be received under ICFA agreements and contract rights, we cannot reliably estimate when the remaining intangible assets' amortization will be recorded.

Amortization in the amount of $ 0.1 million was recorded for both the three and nine months ended September 30, 2022, compared to $ 0.1 million and $ 0.6 million recorded for the three and nine months ended September 30, 2021, respectively .

Acquired ICFAs and contract rights related to the 2005 acquisition of Sonoran Utility Services, LLC assets are amortized when cash is received in proportion to the amount of total cash expected to be received under the underlying agreements.

Due to the uncertainty of the timing of when cash will be received under ICFA agreements and contract rights, the Company cannot reliably estimate when the remaining intangible assets' amortization will be recorded.

There was no amortization recorded for these balances for both the three months ended March 31, 2023 and 2022.

TRANSACTIONS WITH RELATED PARTIES

The Company provides medical benefits to our employees through our participation in a pooled plan sponsored by an affiliate of a significant shareholder and director of the Company.

Medical claims paid to the plan were approximately $ 0.4 million and $ 0.2 million for the three months ended September 30, 2022 and 2021, respectively.

Medical claims paid to the plan were approximately $ 0.7 million and $ 0.5 million for the nine months ended September 30, 2022 and 2021, respectively.

Refer to Note 1 — "Basis of Presentation, Corporate Transactions, Significant Accounting Policies, and Recent Accounting Pronouncements — Corporate Transactions — Public Offering of Common Stock" for additional information regarding other related party disclosures.

The Company provides medical benefits to employees through its participation in a pooled plan sponsored by an affiliate of a significant shareholder and director of the Company.

Medical claims paid to the plan were approximately $ 0.1 million for both the three months ended March 31, 2023 and 2022.

Refer to Note 1 — "Description of Business, Basis of Presentation, Corporate Transactions, Significant Accounting Policies, and Recent Accounting Pronouncements — Corporate Transactions — Public Offering of Common Stock" for additional information regarding other related party disclosures.

ACCRUED EXPENSES

Accrued expenses at September 30, 2022 and December 31, 2021 consist of the following (in thousands):

September 30, 2022 December 31, 2021

Accrued expenses at March 31, 2023 and December 31, 2022 consist of the following (in thousands):

T a b l e o f C o n t e n t s

March 31, 2023 December 31, 2022

Deferred compensation $ 740 $ 818

Property taxes 1,834 1,195

Income taxes 898 1,407

Accrued project liabilities 949 1,585

Interest 1,722 483

2 unchanged sentences

Accrued bonus 295 557

Customer prepayments 591 588

Accrued Professional Fees 285 60

Accrued Payroll 249 50

Other accrued liabilities 1,706 1,430

6 unchanged sentences

• Level 3 - Unobservable inputs developed using the Company's estimates and assumptions, which reflect those that the Company believes market participants would use.

Financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021 were as follows (in thousands):

September 30, 2022 December 31, 2021

Financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022 were as follows (in thousands):

March 31, 2023 December 31, 2022

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

6 unchanged sentences

— 840 — 840 — 840 — 840

Long-term debt (3)

— 105,212 — 105,212 — 125,650 — 125,650

Acquisition Liability (3)

2 unchanged sentences

(1) HUF Funds - restricted cash and Certificate of Deposit - Restricted are presented on the Restricted cash line item of the Company's consolidated balance sheets and are valued at amortized cost, which approximates fair value.

The increase is primarily driven by additional funds received in growth areas of several utilities.

The increase was primarily driven by additional funds received in growth areas of several utilities.

(2) Demand Deposit is presented on the Cash and cash equivalents line item of the Company's consolidated balance sheets and is valued at amortized cost, which approximates fair value.

(3) The fair value of our debt was estimated based on interest rates considered available for instruments of similar terms and remaining maturities.

(3) As part of the Red Rock acquisition, the Company is required to pay to the seller a growth premium equal to $ 750 (not in thousands) for each new account established within three specified growth premium areas, commencing in each area on the date of the first meter installation and ending on the earlier of ten years after such first installation date, or twenty years from the acquisition date.

2 unchanged sentences

year of the first meter installation, total new accounts per year, years to complete full build out, and discount rate .

The outstanding balances and maturity dates for short-term (including the current portion of long-term debt) and long-term debt as of September 30, 2022 and December 31, 2021 are as follows (in thousands):

September 30, 2022 December 31, 2021

T a b l e o f C o n t e n t s

The outstanding balances and maturity dates for short-term (including the current portion of long-term debt) and long-term debt as of March 31, 2023 and December 31, 2022 are as follows (in thousands):

March 31, 2023 December 31, 2022

Short-term Long-term Short-term Long-term

7 unchanged sentences

Total debt $ 3,833 $ 104,957 $ 3,833 $ 104,945

Debt is measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022 were as follows (in thousands):

March 31, 2023 December 31, 2022

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

Long-term debt (3)

— 104,364 — 104,364 — 103,611 — 103,611

(3) The fair value of debt was estimated based on interest rates considered available for instruments of similar terms and remaining maturities.

2016 Senior Secured Notes

4 unchanged sentences

The senior secured notes are collateralized by a security interest in the Company’s equity interest in its subsidiaries, including all payments representing profits and qualifying distributions.

Debt issuance costs totaled $ 0.5 million as of both September 30, 2022 and December 31, 2021.

Debt issuance costs totaled $ 0.5 million as of both March 31, 2023 and December 31, 2022.

The senior secured notes require the Company to maintain a debt service coverage ratio of consolidated EBITDA to consolidated debt service of at least 1.10 to 1.00.

4 unchanged sentences

The debt service ratio increases to 1.25 for any fiscal quarter during the period from and after June 30, 2024.

As of September 30, 2022, the Company was in compliance with its financial debt covenants.

Revolving Line of Credit

As of March 31, 2023, the Company was in compliance with its financial debt covenants.

Revolving Credit Line

This credit facility replaced the previous revolving line of credit with MidFirst Bank, which was terminated in April 2020.

On April 30, 2021, the Company and The Northern Trust Company entered into an amendment to the Northern Trust Loan Agreement pursuant to which, among other things, the maturity date for the Company's revolving line of credit was extended from April 30, 2022 to April 30, 2024.

As of September 30, 2022, the Company had no outstanding borrowings under this credit line.

There were $ 12,000 and $ 17,000 unamortized debt issuance costs as of September 30, 2022 and December 31, 2021, respectively.

This credit facility, which may be used to refinance existing indebtedness, to acquire assets to use in and/or expand the Company’s business, and for general corporate purposes, initially bore an interest rate equal to London Interbank Offered Rate (LIBOR) plus 2.00 % and has no unused line fee.

On April 30, 2021, the Company and The Northern Trust Company entered into an amendment to the Northern Trust Loan Agreement pursuant to which, among other things, the maturity date for the Company's revolving credit line was extended from April 30, 2022 to April 30, 2024.

As of March 31, 2023 and December 31, 2022, the outstanding borrowings on this credit line were $ 3.5 million and $ 0 , respectively.

There were approximately $ 8,000 and $ 9,800 unamortized debt issuance costs as of March 31, 2023 and December 31, 2022, respectively.

T a b l e o f C o n t e n t s

The Northern Trust Loan Agreement requires the Company to maintain a debt service coverage ratio of consolidated EBITDA to consolidated debt service of at least 1.10 to 1.00.

The Northern Trust Loan Agreement also contains a provision limiting the payment of dividends if the Company falls below a debt service ratio of 1.25 .

However, for the quarter ending June 30, 2021 through the quarter ending March 31, 2024, the debt service ratio drops to 1.20 .

As of September 30, 2022, the Company was in compliance with its financial debt covenants.

On July 26, 2022, the Company and The Northern Trust Company entered into the Second Modification Agreement, which, among other things, further extended the maturity date for the revolving line of credit to July 1, 2024, increased the maximum principal amount available for borrowing to $ 15.0 million and replaced the LIBOR interest rate provisions.

Refer to Note 1 — "Basis of Presentation, Corporate Transactions, Significant Accounting Policies, and Recent Accounting Pronouncements - Corporate Transactions - Revolving Line of Credit " for additional information regarding the Second Modification Agreement.

At September 30, 2022, the remaining aggregate annual maturities of debt and minimum lease payments under finance lease obligations for the years ended December 31 are as follows (in thousands):

However, for the quarter ending June 30, 2021 through the quarter ending March 31, 2024, the ratio drops to 1.20 .

As of March 31, 2023, the Company was in compliance with its financial debt covenants.

On July 26, 2022, the Company and The Northern Trust Company entered into the second amendment (the "Second Modification Agreement") to the Northern Trust Loan Agreement, which, among other things, further extended the scheduled maturity date for the revolving line of credit from April 30, 2024 to July 1, 2024, increased the maximum principal amount available for borrowing from $ 10.0 million to $ 15.0 million, and replaced the LIBOR interest rate provisions with provisions based on the Secured Overnight Financing Rate (SOFR).

In 2020, Accounting Standards Update (ASU) 2020-04 was issued establishing ASC 848, Reference Rate Reform, and in 2021 ASU 2021-01 was issued, Reference Rate Reform (Topic 848):

Scope (collectively, ASC 848).

ASC 848 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts.

The guidance in ASC 848 is optional and may be elected over time as reference rate reform activities occur.

In 2022, ASU 2022-06 was issued, Deferral of the Sunset Date of Topic 848 (ASU 2022-06), to defer the sunset date of ASC 848 to December 31, 2024.

ASU 2022-06 is effective immediately for all companies.

The Company continues to evaluate the impact of ASC 848.

At March 31, 2023, the remaining aggregate annual maturities of debt and minimum lease payments under finance lease obligations are as follows (in thousands):

Debt Finance Lease

Remaining three months of 2022 $ 1,917 $ 234

2024 $ 3,800 $ 144

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Total $ 108,790 $ 542

During the three months ended September 30, 2022, the Company recorded a tax expense of $ 0.6 million on pre-tax income of $ 2.3 million.

Tax expense of $ 0.3 million was recorded on pre-tax income of $ 1.8 million for the three months ended September 30, 2021.

During the nine months ended September 30, 2022, the Company recorded a tax expense of $ 0.8 million.

Refer to Note 2 — "Regulatory Decision and Related Accounting and Policy Changes" for additional information.

The tax expense calculated on pre-tax income of $ 5.5 million for the nine months ended September 30, 2022, was approximately $ 0.8 million, offset by approximately $ 0.7 million from the reversal of the regulatory liability.

Tax expense of $ 0.9 million was recorded on pre-tax income of $ 4.2 million for the nine months ended September 30, 2021.

The income tax provision was computed based on the Company’s estimated effective tax rate and forecasted income expected for the full year, including the impact of any unusual, infrequent, or non-recurring items.

The Company's effective tax rate decreased during the three and nine months ended September 30, 2022 due to the exercise and vesting of stock-based compensation in 2021, resulting in windfall tax benefits.

During the three months ended March 31, 2023, tax expense of $ 0.9 million was recorded on pre-tax income of $ 3.3 million for the three months ended March 31, 2023, and tax expense of $ 0.3 million was recorded on pre-tax income of $ 1.2 million for the three months ended March 31, 2022.

The income tax provision was computed based on the Company’s estimated effective tax rate and forecasted income expected

for the full year, including the impact of any unusual, infrequent, or non-recurring items.

The Company's effective tax rate

decreased during the three months ended March 31, 2023.

DEFERRED COMPENSATION AWARDS

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The fair value of stock option awards is determined using a Black-Scholes option-pricing model.

We recognize compensation expense associated with the options over the vesting period.

The Company recognizes compensation expense associated with the options over the vesting period.

2017 stock option grant

Stock-based compensation expense of $ 0.0 and $ 29 ,000 was recorded for the three months ended September 30, 2022 and 2021, respectively, and $ 0.0 and $ 160 ,000 was recorded for the nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, there were 318,321 options outstanding and 2,000 options were exercised with no forfeitures during the three months ended September 30, 2022.

T a b l e o f C o n t e n t s

In August 2017, GWRI's Board of Directors granted stock options to acquire 465,000 shares of GWRI's common stock to employees throughout the Company.

The options were granted with an exercise price of $ 9.40 , the market price of the Company's common shares on the NASDAQ Global Market at the close of business on August 10, 2017.

The options vested over a four-year period, with 25 % having vested in August 2018, 25 % having vested in August 2019, 25 % having vested in August 2020, and 25 % having vested in August 2021.

The options have a 10 -year life.

The Company expensed the $ 1.1 million fair value of the stock option grant ratably over the four-year vesting period.

As of August 2021, these options were fully expensed.

As of March 31, 2023, 77,454 options have been exercised and 69,225 options have been forfeited with 318,321 options outstanding.

2019 stock option grant

Stock-based compensation expense of $ 45 ,000 and $ 23 ,000 was recorded for the three months ended September 30, 2022 and 2021, respectively, and $ 135 ,000 and $ 118 ,000 was recorded for the nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, there were 199,910 options outstanding and no options were exercised or forfeited during the three months ended September 30, 2022.

In August 2019, GWRI's Board of directors granted stock options to acquire 250,000 shares of GWRI's common stock to employees throughout the Company.

The options were granted with an exercise price of $ 11.26 , the market price of the Company's common shares on the NASDAQ Global Market at the close of business on August 13, 2019.

The options vest over a four-year period, with 25 % having vested in August 2020, 25 % having vested in August 2021, 25 % having vested in August 2022, and 25 % vesting in August 2023.

The options have a 10-year life.

The Company will expense the $ 0.8 million fair value of the stock option grant ratably over the four-year vesting period.

Stock-based compensation expense of $ 0.04 million and $ 0.05 million was recorded for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, 27,217 options have been exercised and 23,782 options have been forfeited with 199,001 options outstanding.

A summary of stock option activity is as follows (in thousands, except option prices and years):

Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life Aggregate Intrinsic Value

Options Outstanding at December 31, 2021 520 $ 10.12 6.6 $ 3,635.4

Options Vested at December 31, 2021 420 $ 9.84 6.2 $ 3,050.9

Exercised ( 2 ) $ 9.61

Forfeited — $ 11.26

Options Outstanding at December 31, 2022 518 $ 10.12 5.4 $ 1,638.4

Options Vested at December 31, 2022 468 $ 10.00 5.3 $ 1,537.6

Exercised ( 1 ) $ 11.26

Options Outstanding at March 31, 2023 517 $ 10.12 5.2 $ 1,198.1

Options Vested at March 31, 2023 468 $ 9.99 5.0 $ 1,139.7

Phantom stock/Restricted stock units compensation

The following table details total awards granted and the number of units outstanding as of September 30, 2022 along with the amounts paid to holders of the phantom stock units ("PSUs") and/or restricted stock units ("RSUs") for the three and nine months ended September 30, 2022 and 2021 (in thousands, except unit amounts):

Amounts Paid For the Three Months Ended September 30, Amounts Paid For the Nine Months Ended September 30,

Restricted stock units are granted in the first quarter based on the prior year's performance and vest over a three year period.

The units are credited quarterly using the closing price of the Company's common stock on the applicable record date for the respective quarter.

The following table details total awards granted and the number of units outstanding as of March 31, 2023, along with the amounts paid to holders of the phantom stock units ("PSUs") and/or restricted stock units ("RSUs") for the years ended March 31, 2023 and 2022 (in thousands, except unit amounts):

Amounts Paid For the Three Months Ended March 31,

Grant Date Units Granted Units Outstanding 2023 2022

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Q1 2020 22,481 — 24 31

Q1 2020 22,481 3,649 25 31 86 91

27,403 8,924 30 38

22,262 14,841 25 —

30,366 30,366 — —

Total 134,702 54,131 $ 79 $ 114

T a b l e o f C o n t e n t s

(1) Pursuant to the Global Water Resources, Inc.

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Stock appreciation rights compensation

The following table details the recipients of the stock appreciation rights (“SARs”) awards, the grant date, units granted, exercise price, outstanding units as of September 30, 2022 and amounts paid during the three and nine months ended September 30, 2022 and 2021 (in thousands, except unit and per unit amounts):

Amounts Paid For the Three Months Ended September 30, Amounts Paid For the Nine Months Ended September 30,

The following table details the recipients of the stock appreciation rights ("SARs") awards, the grant date, units granted, exercise price, outstanding units as of March 31, 2023 and amounts paid during the three months ended March 31, 2023 and 2022 (in thousands, except unit and per unit amounts):

Amounts Paid For the Three Months Ended March 31,

Recipients Grant Date Units Granted Exercise Price Units Outstanding 2023 2022

1 unchanged sentence

Q1 2015 299,000 $ 4.26 45,500 $ 165 $ 62

Key Executives (2)(4)

Q2 2015 300,000 $ 5.13 — — —

Members of Management (1)(3)

3 unchanged sentences

Total 735,000 70,750 $ 165 $ 62

(1) The SARs vested ratably over 16 quarters from the grant date.

(1) The SARs vest ratably over 16 quarters from the grant date.

(2) The exercise price was determined to be the fair market value of one share of GWRC stock on the grant date of February 11, 2015.

1 unchanged sentence

(4) The exercise price was determined to be the fair market value of one share of GWRI stock on the grant date of March 12, 2018.

For the three months ended September 30, 2022 and 2021, the Company recorded approximately $ 0.1 million of negative compensation expense and $ 0.4 million of compensation expense related to the PSUs/RSUs and SARs, respectively.

For the nine months ended September 30, 2022 and 2021, the Company recorded approximately $ 0.2 million of negative compensation expense and $ 1.1 million of compensation expense related to the PSUs/RSUs and SARs, respectively.

For the three months ended March 31, 2023 and 2022, the Company recorded approximately $ 0.0 million and $ 0.1 million of compensation expense related to the PSUs/RSUs and SARs, respectively.

These are liability awards, so when the stock price decreases, cumulative compensation expense is reduced, which can lead to negative compensation in a given period.

Based on GWRI’s closing share price on September 30, 2022 (the last trading date of the quarter), deferred compensation expense to be recognized over future periods is estimated for the years ending December 31 as follows (in thousands):

PSUs/RSUs SARs

Remaining three months of 2022 $ 72 $ 3

Total $ 435 $ 27

Based on GWRI’s closing share price on March 31, 2023 (the last trading date of the quarter), deferred compensation expense to be recognized over future periods is estimated for the years ending December 31 as follows (in thousands):

Restricted stock compensation

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The Company assumes that forfeitures will be minimal and recognizes forfeitures as they occur, which results in a reduction in compensation expense.

During the three and nine months ended September 30, 2022, no RSAs were granted.

For the three and nine months ended September 30, 2022, the Company recorded approximately $ 0.3 million and $ 0.9 million of compensation expense related to the partial vesting of RSAs, respectively.

For the three and nine months ended September 30, 2021, the Company recorded approximately $ 0.3 million and $ 0.8 million of compensation expense related to the grant and partial vesting of RSAs, respectively.

The following table summarizes the RSA transactions as of the three months ended September 30, 2022:

During the three months ended March 31, 2023, no RSAs were issued.

The Company recorded approximately $ 0.3 million of compensation expense related to the grant and partial vesting of RSAs for the three months ended March 31, 2023.

During the three months ended March 31, 2022, no RSAs were issued.

The Company recorded approximately $ 0.3 million of compensation expense related to the grant and partial vesting of RSAs for the three months ended March 31, 2022.

The following table summarizes the RSA transactions for the three months ended March 31, 2023:

Number of RSAs Weighted Average Fair Value

Nonvested stock units at beginning of period 196,665 $ 15.25

Stock units vested and issued 2,333 14.40

Nonvested RSAs at the beginning of period 192,467 $ 14.88

Forfeited 1,067 14.13

Nonvested stock units at end of period 191,832 $ 15.46

Nonvested RSAs at the end of period 191,400 $ 14.88

T a b l e o f C o n t e n t s

SUPPLEMENTAL CASH FLOW INFORMATION

The following is supplemental cash flow information for the nine months ended September 30, 2022 and 2021 (in thousands):

For the Nine Months Ended September 30,

The following is supplemental cash flow information for the three months ended March 31, 2023 and 2022 (in thousands):

For the Three Months Ended March 31,

Supplemental cash flow information:

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Capital expenditures included in accounts payable and accrued liabilities $ 185 $ 602

Business acquisition through issuance of contingent consideration payable $ 1,330 $ —

Acquisition of Farmers Water Company

On February 1, 2023, the Company acquired all of the equity of Farmers Water Co., an operator of a water utility with service area in Pima County, Arizona, for a total consideration of $ 7.6 million;

$ 6.2 million in cash plus a growth premium estimated at $ 1.4 million.

The acquisition added approximately 3,300 active water service connections and approximately 21.5 square miles of CC&N service area in Sahuarita, Arizona and the surrounding unincorporated area of Pima County.

The acquisition was accounted for as a business combination under ASC 805, "Business Combinations" and the purchase price was allocated to the acquired utility assets and liabilities based on the acquisition-date fair values.

Fair values are determined in accordance with ASC 820 "Fair Value Measurement," which allows for the characteristics of the acquired assets and liabilities to be considered, particularly restrictions on the use of the asset and liabilities.

Regulation is considered both a restriction on the use of the assets and liabilities, as it relates to inclusion in rate base, and a fundamental input to measuring the fair value in a business combination.

Substantially all the Company's operations are subject to the rate-setting authority of the ACC and are accounted for pursuant to accounting guidance for regulated operations.

The rate-setting and cost recovery provisions currently in place for the Company's regulated operations provide revenues derived from costs, including a return on investment of assets and liabilities included in rate base.

As such, the fair value of the Company's assets and liabilities subject to these rate-setting provisions approximates the pre-acquisition carrying values and does not reflect any net valuation adjustments.

Under the terms of the purchase agreement, the Company is obligated to pay the seller a growth premium equal to $ 1,000 for each new account established in the service area, up to a total aggregate growth premium of $ 3.5 million.

The obligation period of the growth premium commences on the closing date of the acquisition and ends ten years after the first new account for residential purposes is established on land that is, at the time of the closing date of the acquisition, undeveloped or un-platted and owned by the seller within the service area or ten years after the date of closing if a new account (as previously described) has not been established.

T a b l e o f C o n t e n t s

A preliminary purchase price allocation of the net assets acquired in the transaction is as follows (in thousands):

Net assets acquired:

Accounts receivable 72

Property, plant and equipment 10,386

Construction work-in-progress 126

Intangibles 1

Other taxes ( 35 )

Other accrued liabilities ( 44 )

Developer deposits ( 22 )

AIAC ( 1,481 )

CIAC ( 7,425 )

Total net assets assumed 1,620

Goodwill 5,956

Total purchase price $ 7,576

1 Intangibles consist of franchise contract rights and organization costs.

Refer to Note 7 — "Goodwill & Intangible Assets" for additional information regarding the intangibles.

The goodwill reflects the value paid primarily for the long-term potential for connection growth as a result of the Company’s increased scale and diversity, opportunities for synergies, and an improved risk profile.

While the Company uses the best available estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, such estimates are inherently uncertain and subject to refinement.

Events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.

As a result, during the one-year measurement period from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.

Any adjustments subsequent to the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, will be recorded to the Company’s Condensed Consolidated Statements of Operations.

COMMITMENTS AND CONTINGENCIES

In January 2019, the Company's corporate office lease agreement was amended to extend the term of the lease, with a commencement date of March 1, 2019 and termination date of May 31, 2022.

As such, the Company's monthly rent expense increased to approximately $ 16,000 .

In May 2022, the Company entered into a new five-year corporate office lease agreement with a commencement date of May 1, 2022.

On March 1, 2022, the Company amended the terms of the lease to incorporate construction of tenant improvements.

Rent expense arising from the operating leases totaled approximately $ 97,000 and $ 51,000 for the three months ended September 30, 2022 and 2021, respectively, and $ 223,000 and $ 144,000 for the nine months ended September 30, 2022 and 2021, respectively.

The Company has operating and finance leases for vehicles, office equipment, and office space.

Refer to Note 4 – “Leases” for additional information.

On October 16, 2018, the Company completed the acquisition of Red Rock, an operator of a water and a wastewater utility with service areas in the Pima and Pinal counties of Arizona.

Under the terms of the purchase agreement, the Company is obligated to pay to the seller a growth premium equal to $ 750 for each new account established within three specified growth premium areas, commencing in each area on the date of the first meter installation and ending on the earlier of ten years after such first installation date or twenty years from the acquisition date.

As of March 31, 2023, no meters have been installed and no accounts have been established in any of the three growth premium areas.

Contingencies

From time to time, in the ordinary course of business, the Company may be subject to pending or threatened lawsuits in which claims for monetary damages are asserted.

Management is not aware of any legal proceeding of which the ultimate resolution could materially affect our financial position, results of operations, or cash flows.

SUBSEQUENT EVENTS

The Company has evaluated subsequent events through November 9, 2022, which is the date the financial statements was available to be issued and also the filing date.

There are no other subsequent events that require disclosure, except for the following:

On November 9, 2022, the Arizona Corporation Commission verbally approved Global Water’s proposed acquisition of Farmers Water Co., a signed order is anticipated to be received by the end of the year.

Management is not aware of any legal proceeding of which the ultimate resolution could materially affect the Company's financial position, results of operations, or cash flows.

T a b l e o f C o n t e n t s

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements