What changed in this filing

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Item 1. Financial Statements

2023-11-09 compared with 2023-08-10 · 158 added, 137 removed, 615 unchanged (32% of the section changed)

3 unchanged sentences

(in thousands, except share and per share amounts)

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

PROPERTY, PLANT AND EQUIPMENT:

45 unchanged sentences

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

24,477,252 and 24,095,139 shares issued as of June 30, 2023 and December 31, 2022, respectively.

Treasury stock, 306,735 and 224,093 shares at June 30, 2023 and December 31, 2022, respectively.

24,478,252 and 24,095,139 shares issued as of September 30, 2023 and December 31, 2022, respectively.

Treasury stock, 306,735 and 224,093 shares at September 30, 2023 and December 31, 2022, respectively.

Paid in capital 47,321 44,157

4 unchanged sentences

GLOBAL WATER RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OPERATIONS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

Three Months Ended June 30, Six Months Ended June 30,

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

2023 2022 2023 2022

15 unchanged sentences

INCOME BEFORE INCOME TAXES 3,522 2,298 9,323 5,487

INCOME TAX BENEFIT (EXPENSE) ( 731 ) 150 ( 1,596 ) ( 193 )

INCOME TAX EXPENSE ( 888 ) ( 612 ) ( 2,484 ) ( 805 )

NET INCOME $ 2,634 $ 1,686 $ 6,839 $ 4,682

24 unchanged sentences

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

Dividend declared per share — — — — 537 1 ( 1,686 ) ( 1,149 )

Issuance of Common Stock 1,150,000 11 — — 14,862 1 — 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

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

7 unchanged sentences

Issuance of Common Stock 230,000 1 — — 2,747 — 2,748

Treasury stock — — ( 82,642 ) — — — —

Stock option exercise 152,113 — ( 82,642 ) — — — —

2 unchanged sentences

BALANCE - June 30, 2023 24,477,252 $ 240 ( 306,735 ) $ ( 2 ) $ 47,101 $ 688 $ 48,027

Dividend declared $ 0.07 per share

— — — — — ( 1,801 ) ( 1,801 )

Stock option exercise 1,000 — — — 9 — 9

Stock compensation — — — — 211 — 211

Net income — — — — — 2,634 2,634

BALANCE - September 30, 2023 24,478,252 240 ( 306,735 ) ( 2 ) 47,321 1,521 49,080

See accompanying notes to the condensed consolidated financial statements

2 unchanged sentences

(Unaudited, in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

24 unchanged sentences

Refunds of advances for construction ( 1,076 ) ( 1,105 )

Refunds of developer taxes ( 5 ) —

Proceeds from stock option exercise 10 3

6 unchanged sentences

Proceeds from sale of stock 2,748 14,892

Net cash provided by (used in) financing activities 4,077 ( 3,820 )

INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH ( 3,207 ) ( 6,727 )

Net cash provided by financing activities 2,265 8,840

INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH 103 3,145

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

2 unchanged sentences

Supplemental disclosure of cash flow information:

Six Months Ended June 30,

Nine Months Ended September 30,

Cash and cash equivalents $ 5,289 $ 15,613

6 unchanged sentences

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

(the “Company”, “GWRI”, “we”, “us”, or “our”) and related disclosures as of June 30, 2023 and for the three and six months ended June 30, 2023 and 2022 are unaudited.

(the “Company”, “GWRI”, “we”, “us”, or “our”) and related disclosures as of September 30, 2023 and for the three and nine months ended September 30, 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.

4 unchanged sentences

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 and six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the full year, due to the seasonality of our business.

The results of operations for the three and nine months ended September 30, 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”).

4 unchanged sentences

Arizona Corporation Commission (“ACC”) Rate Case

On June 27, 2023, seven of the Company’s 13 regulated utilities each filed a rate case application with the ACC for water rates based on a 2022 test year.

In addition to a rate increase, the Company requested, among other things, the consolidation of water rates for certain of its utilities, including Global Water-Mirabell Water Company, Inc.

(“Mirabell”), Global Water-Lyn Lee Water Company, Inc.

(“Lyn Lee”), Global Water-Francesca Water Company, Inc.

(“Francesca”), Global Water-Tortolita Water Company, Inc.

(“Tortolita”), Global Water-Rincon Water Company, Inc.

(“Rincon”), Global Water-Las Quintas Serenas Water Company, Inc.

(“Las Quintas Serenas”), and Global Water-Red Rock Water Company, Inc.

(“Red Rock”), each located in Pima County.

Of the Company’s utilities, these utilities filing rate applications make up approximately 3 % of the Company’s active service connections.

On July 3, 2023, Global Water-Palo Verde Utilities Company, Inc.

(“Palo Verde”) and Global Water-Santa Cruz Water Company, Inc.

(“Santa Cruz”) filed an application with the ACC for approval of an accounting order to defer and record as a regulatory asset the depreciation expense recorded for the Company’s Southwest Plant, plus the carrying cost at the authorized rate of return set in Palo Verde’s and Santa Cruz’s most recent rate order, until the plant is considered for recovery in the utilities’ next rate case.

On June 27, 2023, seven of the Company’s 13 regulated utilities, all located in Pima County, each filed a rate case application with the ACC for water rates based on a 2022 test year.

There can be no assurance that the ACC will approve the requested rate increase or any increase or the consolidation of water rates described above, and the ACC could take other actions as a result of the rate case.

25 unchanged sentences

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 $ 0.5 million for both the three months ended June 30, 2023 and 2022 and $ 0.9 million and $ 1.6 million for the six months ended June 30, 2023 and 2022, respectively.

The Company received growth premiums of $ 0.7 million and $ 0.6 million for the three months ended September 30, 2023 and 2022, respectively, and $ 1.6 million and $ 2.2 million for the nine months ended September 30, 2023 and 2022, respectively , and is included in “Other - Net” on the Condensed Consolidated Statements of Operations.

Significant Accounting Policies

4 unchanged sentences

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

Three Months Ended June 30, Six Months Ended June 30,

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

(In thousands) 2023 2022 2023 2022

21 unchanged sentences

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.

On or after July 1, 2023, the water processing facility and part of the wastewater processing facility of the Southwest Plant was placed in service with the remaining parts of the plant to be placed in service once sufficient flows are established.

The Southwest Plant was substantially constructed prior to 2009 to process water, wastewater, and recycled water for the area southwest of the City of Maricopa.

Due to the unprecedented collapse of the housing market during the Great Recession, the nearly completed plant remained idle for well over a decade.

The total cost of the plant was approximately $ 38.4 million.

Also, on July 3, 2023, Global Water-Palo Verde Utilities Company, Inc.

On July 3, 2023, Global Water-Palo Verde Utilities Company, Inc.

(“Palo Verde”) and Global Water-Santa Cruz Water Company, Inc.

(“Santa Cruz”) filed an application with the ACC for approval of an accounting order to defer and record as a regulatory asset the depreciation expense recorded for the Southwest Plant, plus the carrying cost at the authorized rate of return set in Palo Verde’s and Santa Cruz’s most recent rate order, until the plant is considered for recovery in the utilities’ next rate case.

The Southwest Plant was substantially constructed prior to 2009 to provide water, wastewater, and recycled water utility service for the area southwest of the City of Maricopa.

Due to the unprecedented collapse of the housing market during the Great Recession, the nearly completed plant remained idle for well over a decade.

The total cost of the Southwest Plant was approximately $ 38.4 million.

In July 2023, $ 27.5 million related to the water production plant and a portion of the wastewater processing plant was placed in service, with the remaining parts of the Southwest Plant to be placed in service once sufficient flows, provided by connection growth, are established.

There can be no assurance, however, that the ACC will approve the application as submitted and the ACC could take other actions regarding the application.

On June 27, 2023, seven of the Company’s 13 regulated utilities each filed a rate case application with the ACC for water rates based on a 2022 test year.

In addition to a rate increase, the Company requested, among other things, the consolidation of water rates for certain of its utilities, including Mirabell, Lyn Lee, Francesca, Tortolita, Rincon, Las Quintas Serenas, and Red Rock, each located in Pima County.

On June 27, 2023, seven of the Company’s 13 regulated utilities each filed a rate case application with the ACC for increased water rates based on a 2022 test year.

In addition to a rate increase, the Company requested, among other things, the consolidation of water rates for certain of its utilities, including Global Water-Mirabell Water Company, Inc.

(“Mirabell”), Global Water-Lyn Lee Water Company, Inc.

(“Lyn Lee”), Global Water-Francesca Water Company, Inc.

(“Francesca”), Global Water-Tortolita Water Company, Inc.

(“Tortolita”), Global Water-Rincon Water Company, Inc.

(“Rincon”), Global Water-Las Quintas Serenas Water Company, Inc.

(“Las Quintas Serenas”), and Global Water-Red Rock Water Company, Inc.

(“Red Rock”), each located in Pima County.

Of the Company’s utilities, these utilities filing rate applications make up approximately 3 % of the Company’s active service connections.

13 unchanged sentences

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.

78644 also addressed the primary impacts of the Federal Tax Cuts and Jobs Act (the “TCJA”) on the Company, which includes 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.

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.

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).

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.

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.

78644 approved an adjustor mechanism for income taxes (as described below) that 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:

4 unchanged sentences

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 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 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.

78644 required 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.

The IRS accepted the request and issued its Private Letter Ruling, dated September 22, 2023.

The Private Letter Ruling determined that the deferred taxes attributable to assets condemned in a transaction governed by Section 1033 of the IRC must be eliminated and failure to do so would violate the normalization provisions of Section 168(i)(9) of the IRC.

As required by Rate Decision No.

78644, the Private Letter Ruling has been provided to the ACC.

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

The Private Letter Ruling was consistent with the adjustments used to determine the revenue requirements in Rate Decision No.

Accordingly, the Company has requested that no further action be taken by the ACC.

However, there can be no assurance provided until the ACC process is complete.

Certain accounting implications related to Rate Decision No.

9 unchanged sentences

Rate Decision No.

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.

overall ICFA funds as deferred revenue.

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

12 unchanged sentences

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

Recovery Period June 30, 2023 December 31, 2022

Recovery Period September 30, 2023 December 31, 2022

Regulatory Assets

9 unchanged sentences

Acquired ICFAs (4)

Depreciation adjustment (5)

Total regulatory liabilities $ 6,094 $ 6,371

3 unchanged sentences

78743, issued on October 24, 2022, approved approximately $ 0.5 million in rate case expenses to be recovered through a rate case expense surcharge over a two-year period.

(3) Decision No.

78319, issued on December 3, 2021, approved an acquisition premium to be amortized over 25 years related to the acquisition of its Rincon Utility.

(3) Rate Decision No.

78319, issued on December 3, 2021, approved an acquisition premium to be amortized over 25 years related to the acquisition of the Company’s Rincon utility.

Amortization will begin once the Company receives a decision on the recently filed rate case and the acquisition premium is approved to be included in customer rates.

The acquisition premium balance as of June 30, 2023 was approximately $ 0.5 million.

The acquisition premium balance as of September 30, 2023 was approximately $ 0.5 million.

Rate Decision No.

78644 approved acquisition premiums of approximately $ 0.8 million related to the acquisitions of its Turner Ranches and Red Rock utilities.

78644, issued on July 27, 2022, approved acquisition premiums related to the acquisitions of the Company’s Turner Ranches and Red Rock utilities.

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

The acquisition premium balance as of September 30, 2023 was approximately $ 0.8 million.

(4) The acquired ICFA regulatory liability relates to the offset of intangible assets related to ICFA contracts obtained in connection with the Santa Cruz, Palo Verde, and Sonoran Utility Services, LLC (“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.

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.

(5) Rate Decision No.

78644 issued on July 27, 2022, approved an adjustment to update previously approved depreciation rates.

REVENUE RECOGNITION

13 unchanged sentences

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

For the three and six months ended June 30, 2023 and June 30, 2022, unregulated revenues primarily related to the revenues recognized on a portion of ICFA funds received.

For the three and nine months ended September 30, 2023, unregulated revenues primarily related to the revenues recognized on 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.

10 unchanged sentences

Rate Decision No.

74364 requires a 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.

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.

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

3 unchanged sentences

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

As of June 30, 2023 and December 31, 2022, ICFA deferred revenue recorded on the consolidated balance sheet totaled $ 19.4 million and $ 21.0 million, respectively, which represents deferred revenue recorded for ICFA funds received on contracts.

For the six months ended June 30, 2023, ICFA revenue recognized totaled $ 2.3 million.

No ICFA revenue was recognized for the three months ended June 30, 2023 or the three and six months ended June 30, 2022.

As of September 30, 2023 and December 31, 2022, ICFA deferred revenue recorded on the consolidated balance sheet totaled $ 19.7 million and $ 21.0 million, respectively, which represents deferred revenue recorded for ICFA funds received on contracts.

For the three and nine months ended September 30, 2023, ICFA revenue recognized totaled $ 0.5 million and $ 2.8 million, respectively.

No ICFA revenue was recognized for the three months or nine months ended September 30, 2022.

Disaggregated Revenues

For the three and six months ended June 30, 2023 and 2022, disaggregated revenues from contracts with customers by major source and customer class are as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

For the three and nine months ended September 30, 2023 and 2022, 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,

2023 2022 2023 2022

21 unchanged sentences

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

CONTRACT ASSETS

9 unchanged sentences

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 $ 19.4 million and $ 21.0 million at June 30, 2023 and December 31, 2022, respectively.

Contracted revenue expected to be recognized in future periods was approximately $ 19.7 million and $ 21.0 million at September 30, 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.

8 unchanged sentences

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 $ 98,000 and $ 71,000 for the three months ended June 30, 2023 and 2022, respectively.

Rent expense arising from the operating leases totaled approximately $ 195,000 and $ 127,000 for the six months ended June 30, 2023 and 2022, respectively.

Rent expense arising from the operating leases totaled approximately $ 100,000 and $ 97,000 for the three months ended September 30, 2023 and 2022, respectively.

Rent expense arising from the operating leases totaled approximately $ 295,000 and $ 223,000 for the nine months ended September 30, 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.

ROU assets at June 30, 2023 and December 31, 2022 consist of the following (in thousands):

June 30, 2023 December 31, 2022

ROU assets at September 30, 2023 and December 31, 2022 consist of the following (in thousands):

September 30, 2023 December 31, 2022

Financing Lease $ 443 $ 405

1 unchanged sentence

Total $ 1,706 $ 1,891

Lease liabilities at June 30, 2023 and December 31, 2022 consist of the following (in thousands):

June 30, 2023 December 31, 2022

Lease liabilities at September 30, 2023 and December 31, 2022 consist of the following (in thousands):

September 30, 2023 December 31, 2022

Financing Lease $ 534 $ 597

1 unchanged sentence

Total $ 1,897 $ 2,121

At June 30, 2023, the remaining aggregate annual minimum lease payments are as follows (in thousands):

At September 30, 2023, the remaining aggregate annual minimum lease payments are as follows (in thousands):

Finance Lease Obligations Operating Lease Obligations

5 unchanged sentences

PROPERTY, PLANT AND EQUIPMENT

Depreciable property, plant, and equipment at June 30, 2023 and December 31, 2022 consist of the following (in thousands):

June 30, 2023 December 31, 2022

Depreciable property, plant, and equipment at September 30, 2023 and December 31, 2022 consist of the following (in thousands):

September 30, 2023 December 31, 2022

Equipment $ 60,200 $ 55,178

7 unchanged sentences

ACCOUNTS RECEIVABLE

Accounts receivable as of June 30, 2023 and December 31, 2022 consist of the following (in thousands):

June 30, 2023 December 31, 2022

Accounts receivable as of September 30, 2023 and December 31, 2022 consist of the following (in thousands):

September 30, 2023 December 31, 2022

Billed receivables $ 3,219 $ 2,303

2 unchanged sentences

GOODWILL AND INTANGIBLE ASSETS

The goodwill balance was $ 10.9 million at June 30, 2023 and is related to the Turner, Red Rock, Mirabell, Francesca, Tortolita, Lyn Lee, Las Quintas Serenas, Rincon, Twin Hawks, and Farmers acquisitions.

The goodwill balance was $ 10.9 million at September 30, 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.

2 unchanged sentences

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 June 30, 2023 and December 31, 2022, the goodwill balance consisted of the following (in thousands):

December 31, 2022 Balance Acquisition Activity Adjustments Subsequent to Acquisition Date June 30, 2023 Balance

As of September 30, 2023 and December 31, 2022, the goodwill balance consisted of the following (in thousands):

December 31, 2022 Balance Acquisition Activity Adjustments Subsequent to Acquisition Date September 30, 2023 Balance

Goodwill $ 4,957 $ 5,956 $ 10 $ 10,923

Intangible Assets

As of June 30, 2023 and December 31, 2022, intangible assets consisted of the following (in thousands):

June 30, 2023 December 31, 2022

As of September 30, 2023 and December 31, 2022, intangible assets consisted of the following (in thousands):

September 30, 2023 December 31, 2022

Amount Accumulated

21 unchanged sentences

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 the three and six months ended June 30, 2023 and 2022.

There was $ 1.4 million of amortization recorded for these balances for both the three and nine months ended September 30, 2023.

There was $ 0.1 million of amortization recorded for these balances for both the three and nine months ended September 30, 2022.

TRANSACTIONS WITH RELATED PARTIES

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 $ 0.2 million for both the three months ended June 30, 2023 and 2022.

Medical claims paid to the plan were approximately $ 0.3 million for both the six months ended June 30, 2023 and 2022.

Medical claims paid to the plan were approximately $ 0.3 million for the three months ended September 30, 2023 and $ 0.4 million for the three months ended September 30, 2022.

Medical claims paid to the plan were approximately $ 0.6 million for the nine months ended September 30, 2023 and $ 0.7 million for the nine months ended September 30, 2022.

Refer to Note 1 — “Basis of Presentation, Corporate Transactions, Significant Accounting Policies, and Recent Accounting Pronouncements — Corporate Transactions” (specifically the “Public Offering of Common Stock” and “Private Placement Offering of Common Stock” sections) for additional information regarding other related party disclosures.

ACCRUED EXPENSES

Accrued expenses at June 30, 2023 and December 31, 2022 consist of the following (in thousands):

June 30, 2023 December 31, 2022

Accrued project liabilities $ 1,350 $ 1,585

Accrued expenses at September 30, 2023 and December 31, 2022 consist of the following (in thousands):

September 30, 2023 December 31, 2022

Property taxes $ 1,890 $ 1,195

Asset retirement obligations 697 697

Customer prepayments 667 588

Interest 1,707 483

Accrued Bonus 895 557

Customer prepayments 836 588

Accrued project liabilities 812 1,585

Asset retirement obligations 697 697

Dividend payable 600 593

Deferred compensation 377 818

Interest 482 483

Other taxes 476 —

Accrued professional fees 358 60

Accrued sales taxes 206 152

Accrued payroll 263 50

Accrued sales taxes 247 152

Accrued professional fees 224 60

Other accrued liabilities 1,030 1,278

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 June 30, 2023 and December 31, 2022 were as follows (in thousands):

June 30, 2023 December 31, 2022

Financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022 were as follows (in thousands):

September 30, 2023 December 31, 2022

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

18 unchanged sentences

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 unplatted 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.

The outstanding balances and maturity dates for short-term (including the current portion of long-term debt) and long-term debt as of June 30, 2023 and December 31, 2022 are as follows (in thousands):

June 30, 2023 December 31, 2022

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, 2023 and December 31, 2022 are as follows (in thousands):

September 30, 2023 December 31, 2022

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

8 unchanged sentences

Total debt $ 3,880 $ 103,258 $ 3,833 $ 104,945

Debt is measured at fair value on a recurring basis as of June 30, 2023 and December 31, 2022 as follows (in thousands):

June 30, 2023 December 31, 2022

Debt is measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022 as follows (in thousands):

September 30, 2023 December 31, 2022

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

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

As of June 30, 2023, the Company was in compliance with its financial debt covenants.

As of September 30, 2023, the Company was in compliance with its financial debt covenants.

Note Purchase Agreement

On October 26, 2023, the Company entered into a note purchase agreement with Jackson National Life Insurance Company pursuant to which the Company will, subject to customer closing conditions, issue an aggregate principal amount of $ 20,000,000 of 6.91 % Senior Secured Notes due on January 3, 2034 (the “Notes”).

The Company plans to use the proceeds from the Notes offering to refinance existing indebtedness, to support capital investments associated with growth and for general corporate purposes.

Revolving Credit Line

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On June 28, 2023, the Company and Northern Trust entered into a third amendment to the Northern Trust Loan Agreement, which, among other things, (i) further amended the scheduled maturity date for the revolving line of credit from July 1, 2024 to July 1, 2025 and (ii) added a quarterly facility fee equal to 0.35 % of the average daily unused amount of the revolving line of credit.

On October 26, 2023, the Company and Northern Trust entered into a fourth amendment to the Northern Trust Loan Agreement, which, among other things, further amended the terms and conditions set forth in the Loan Agreement to make certain conforming changes to reflect the issuance of the Notes and related matters.

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 1.25 .

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 ratio drops to 1.20 .

As of June 30, 2023, the Company was in compliance with its financial debt covenants.

As of June 30, 2023 and December 31, 2022, the outstanding borrowings on this credit line were $ 6.8 million and $ 0 , respectively.

There were approximately $ 6,000 and $ 9,812 unamortized debt issuance costs as of June 30, 2023 and December 31, 2022, respectively.

As of September 30, 2023, the Company was in compliance with its financial debt covenants.

As of September 30, 2023 and December 31, 2022, the outstanding borrowings on this credit line were approximately $ 15,000 and $ 0 , respectively.

There were approximately $ 4,000 and $ 9,812 unamortized debt issuance costs as of September 30, 2023 and December 31, 2022, respectively.

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

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

ASU 2022-06 is effective immediately for all companies.

ASU 2022-06 was effective immediately for all companies.

The Company continues to evaluate the impact of ASC 848.

At June 30, 2023, the remaining aggregate annual maturities of debt obligations are as follows (in thousands):

At September 30, 2023, the remaining aggregate annual maturities of debt obligations are as follows (in thousands):

2023 (remaining period) $ 1,917

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Total $ 107,137

For the three months ended June 30, 2023, the Company recorded tax expense of $ 0.7 million calculated on pre-tax income of $ 2.5 million.

For the three months ended June 30, 2022, tax expense of $ 0.5 million was calculated on pre-tax income of $ 2.0 million, which was offset by approximately $ 0.7 million from the reversal of the regulatory liability related to Rate Decision No.

78622 (refer to Note 2 — “Regulatory Decision and Related Accounting and Policy Changes” for additional information) resulting in a net tax benefit of $ 0.2 million.

For the six months ended June 30, 2023, the Company recorded tax expense of $ 1.6 million calculated on pre-tax income of $ 5.8 million.

For the six months ended June 30, 2022, the tax expense of $ 0.2 million was calculated on pre-tax income of $ 3.2 million, which was partially offset by approximately $ 0.7 million from the reversal of the regulatory liability related to Rate Decision No.

78622 as described above.

For the three months ended September 30, 2023, the Company recorded tax expense of $ 0.9 million as compared to $ 0.6 million for the three months ended September 30, 2022.

The $ 0.3 million increase in tax expense was primarily driven by the increase in pre-tax income for the three months ended September 30, 2023.

For the nine months ended September 30, 2023, the Company recorded tax expense of $ 2.5 million as compared to $ 0.8 million for the nine months ended September 30, 2022.

The $ 1.7 million increase in tax expense was primarily driven by the increase in pre-tax income for the nine months ended September 30, 2023, partially offset by a tax benefit of approximately $ 0.7 million from the reversal of the regulatory liability related to Rate Decision No.

78622 (refer to Note 2 - “Regulatory Decision and Related Accounting and Policy Changes” for additional information) for the nine months ended September 30, 2022.

DEFERRED COMPENSATION AWARDS

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As of August 2021, these options were fully expensed.

As of June 30, 2023, 127,454 options have been exercised and 64,625 options have been forfeited with 268,321 options outstanding.

As of September 30, 2023, 128,454 options have been exercised and 69,225 options have been forfeited with 267,321 options outstanding.

2019 stock option grant

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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 $ 29,000 and $ 45,000 was recorded for the three months ended June 30, 2023 and 2022, respectively, and $ 72,000 and $ 90,000 was recorded for the six months ended June 30, 2023 and 2022, respectively.

As of June 30, 2023, 42,217 options have been exercised and 28,782 options have been forfeited with 179,001 options outstanding.

Stock-based compensation expense of $ 20,000 and $ 45,000 was recorded for the three months ended September 30, 2023 and 2022, respectively, and $ 92,000 and $ 135,000 was recorded for the nine months ended September 30, 2023 and 2022, respectively.

As of September 30, 2023, 42,217 options have been exercised and 30,520 options have been forfeited with 177,263 options outstanding.

Phantom stock/Restricted stock units compensation

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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 June 30, 2023, along with the amounts paid to holders of the phantom stock units (“PSUs”) and/or restricted stock units (“RSUs”) for the years ended June 30, 2023 and 2022 (in thousands, except unit amounts):

Amounts Paid For the Three Months Ended June 30, Amounts Paid For the Six Months Ended June 30,

The following table details total awards granted and the number of units outstanding as of September 30, 2023, 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, 2023 and 2022 (in thousands, except unit amounts):

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

Grant Date Units Granted Units Outstanding 2023 2022 2023 2022

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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 June 30, 2023 and amounts paid during the three and six months ended June 30, 2023 and 2022 (in thousands, except unit and per unit amounts):

Amounts Paid For the Three Months Ended June 30, Amounts Paid For the Six Months Ended June 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 September 30, 2023 and amounts paid during the three and nine months ended September 30, 2023 and 2022 (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,

Recipients Grant Date Units Granted Exercise Price Units Outstanding 2023 2022 2023 2022

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(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.

(2) The exercise price was determined to be the fair market value of one share of GWR Global Water Resources Corp.

stock on the grant date of February 11, 2015.

(3) The exercise price was determined to be the fair market value of one share of GWRI stock on the grant date of August 10, 2017.

(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 June 30, 2023 and 2022, the Company recorded approximately $ 0.1 million and $ 0.1 million of compensation expense related to the PSUs/RSUs and SARs, respectively.

For the three months ended September 30, 2023 and 2022, the Company recorded approximately $ 0.0 million and $ 0.1 million of negative compensation expense related to the PSUs/RSUs and SARs, respectively.

For the nine months ended September 30, 2023 and 2022, the Company recorded approximately $ 0.0 million and $ 0.2 million of negative 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 June 30, 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):

Based on GWRI’s closing share price on September 29, 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):

2023 (remaining period)

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 months ended June 30, 2023, no RSAs were issued.

For the three and six months ended June 30, 2023, the Company recorded approximately $ 0.3 million and $ 0.5 million of compensation expense related to the grant and partial vesting of RSAs, respectively.

During the three and six months ended June 30, 2022, no RSAs were issued.

The Company recorded approximately $ 0.3 million and $ 0.7 million of compensation expense related to the grant and partial vesting of RSAs for the three and six months ended ended June 30, 2022, respectively..

During the three and nine months ended September 30, 2023, 6,000 RSAs were issued.

For the three and nine months ended September 30, 2023, the Company recorded approximately $ 0.2 million and $ 0.7 million of compensation expense related to the grant and partial vesting of RSAs, respectively.

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

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

SUPPLEMENTAL CASH FLOW INFORMATION

The following is supplemental cash flow information for the six months ended June 30, 2023 and 2022 (in thousands):

For the Six Months Ended June 30,

The following is supplemental cash flow information for the nine months ended September 30, 2023 and 2022 (in thousands):

For the Nine Months Ended September 30,

Supplemental cash flow information:

Cash paid for interest $ 127 $ 6

Cash paid for interest - net of amounts capitalized

$ 2,343 $ 2,072

Cash paid for income taxes

$ 276 $ 1,402

Non-cash financing and investing activities:

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

Finance lease additions

Acquisition of Farmers Water Company

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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.

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 in the Company’s Condensed Consolidated Statements of Operations.

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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 June 30, 2023, no meters have been installed and no accounts have been established in any of the three growth premium areas.

As of September 30, 2023, no meters have been installed and no accounts have been established in any of the three growth premium areas.

Contingencies

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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