What changed in this filing

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Item 1. Financial Statements

2024-05-09 compared with 2023-11-09 · 271 added, 288 removed, 485 unchanged (54% of the section changed)

3 unchanged sentences

(in thousands, except share and per share amounts)

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

PROPERTY, PLANT AND EQUIPMENT:

15 unchanged sentences

Intangible assets, net 8,842 8,841

Regulatory asset 2,984 3,169

Regulatory assets 2,888 2,898

Restricted cash 2,217 1,676

Right-of -use asset 1,706 1,891

Right-of-use assets 1,657 1,741

Other noncurrent assets 79 74

14 unchanged sentences

Deferred revenue - ICFA 19,768 19,656

Regulatory liability 6,094 6,371

Regulatory liabilities 6,075 6,076

Advances in aid of construction 112,723 111,529

1 unchanged sentence

Deferred income tax liabilities, net 8,516 8,284

Acquisition liability 3,080 1,773

Acquisition liabilities 3,027 3,048

Other noncurrent liabilities 9,459 8,230

4 unchanged sentences

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

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.

24,498,195 and 24,492,918 shares issued as of March 31, 2024 and December 31, 2023, respectively.

Treasury stock, 322,082 and 317,677 shares at March 31, 2024 and December 31, 2023, respectively.

Paid in capital 46,655 47,585

6 unchanged sentences

(in thousands, except share and per share amounts)

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

2023 2022 2023 2022

Three Months Ended March 31,

Water services $ 5,226 $ 4,839

9 unchanged sentences

OTHER INCOME (EXPENSE):

Interest income 238 5

Interest expense ( 1,566 ) ( 1,168 )

19 unchanged sentences

— — — — — ( 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 )

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

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

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 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, 2023 24,492,918 240 ( 317,677 ) ( 2 ) 47,585 797 48,620

1 unchanged sentence

— — — — ( 1,128 ) ( 691 ) ( 1,819 )

Stock compensation — — — — 299 — 299

Net income — — — — — 2,466 2,466

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

Dividend declared $ 0.07 per share

— — — — ( 55 ) ( 1,739 ) ( 1,794 )

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

Stock option exercise 5,277 — ( 4,405 ) — 198 — 198

Stock compensation — — — — ( 47 ) — ( 47 )

Net income — — — — — 691 691

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

BALANCE - March 31, 2024 24,498,195 240 ( 322,082 ) ( 2 ) 46,655 797 47,690

See accompanying notes to the condensed consolidated financial statements

2 unchanged sentences

(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 20 11

(Gain) Loss on disposal of fixed assets ( 83 ) ( 3 )

Loss (Gain) on disposal of fixed assets

Provision for credit losses 14 19

10 unchanged sentences

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

Other cash flows from investing activities — ( 24 )

Net cash used in investing activities ( 5,765 ) ( 12,786 )

2 unchanged sentences

Advances in aid of construction 372 202

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

Proceeds from stock option exercise 10 3

Payments for taxes related to net shares settlement of equity awards ( 367 ) —

Principal payments under finance lease ( 388 ) —

Line of credit borrowings, net 15 —

Principal payments under finance leases

( 51 ) ( 132 )

Line of credit borrowings

Line of credit repayments ( 2,315 ) ( 5,000 )

Loan borrowings 20,000 —

Loan repayments ( 11 ) —

Repayments of bond ( 1,917 ) ( 1,917 )

Proceeds from sale of stock 2,748 14,892

Debt issuance costs paid ( 370 ) —

Net cash provided by financing activities 15,806 1,791

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

INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH 18,109 ( 4,511 )

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — Beginning of period 4,763 7,562

2 unchanged sentences

Supplemental disclosure of cash flow information:

Nine Months Ended September 30,

Three Months Ended March 31,

Cash and cash equivalents $ 20,655 $ 1,907

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 September 30, 2023 and for the three and nine months ended September 30, 2023 and 2022 are unaudited.

(the “Company”, “GWRI”, “we”, “us”, or “our”) and related disclosures as of March 31, 2024 and for the three months ended March 31, 2024 and 2023 are unaudited.

The December 31, 2023 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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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 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 results of operations for the three months ended March 31, 2024 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”).

3 unchanged sentences

Corporate Transactions

Arizona Corporation Commission (“ACC”) Rate Case

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.

Further, it is possible that the ACC may determine to decrease future rates.

There can also be no assurance as to the timing of when an approved rate increase (if any) would go into effect.

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

78644 relating to the Company’s previous 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 Global Water-Turner Ranches Irrigation, Inc.

(“Turner Ranches”) utilities, which increase the rate base for such utilities and result in an increase in the annual collective revenue requirement;

(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.

Other Deferred Liability

The Company received $ 6.7 million in contributions to facilitate the construction of infrastructure in certain areas, which is included in other noncurrent liabilities.

As the infrastructure is constructed and placed into service, the corresponding amount will be transferred from the liability into advances in aid of construction during the refund period.

Private Placement Offering of 6.91 % Senior Secured Notes

On October 26, 2023, the Company entered into a note purchase agreement for the issuance of an aggregate principal amount of $ 20 million of 6.91 % Senior Secured Notes due on January 3, 2034.

Pursuant to the terms of the note purchase agreement, the Company issued the notes on January 3, 2024.

Private Placement Offering of Common Stock

2 unchanged sentences

One of the Company’s directors purchased an aggregate of 30,000 shares of common stock in the offering at the purchase price.

Public Offering of Common Stock

On August 1, 2022, the Company completed a public offering of 1,150,000 shares of common stock at a public offering price of $ 13.50 per share, which included 150,000 shares issued and sold to the underwriter following the exercise in full of its option to purchase additional shares of common stock.

The Company received net proceeds of approximately $ 14.9 million from the offering after deducting underwriting discounts and commissions and offering expenses paid by the Company.

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

Farmers Water Co.

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.

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

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

2 unchanged sentences

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 $ 0.7 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.

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 $ 0.8 million and $ 0.4 million for the three months ended March 31, 2024 and 2023, respectively, and has received an aggregate of $ 11.5 million in growth premiums to date.

The growth premiums are 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 September 30, Nine Months Ended September 30,

Three Months Ended March 31,

(In thousands)

9 unchanged sentences

(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.

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing operating performance.

In consideration of ASC 280— Segment Reporting the Company notes it is not organized around specific products and services, geographic regions, or regulatory environments.

The Company currently operates in one geographic region within the State of Arizona, wherein each operating utility operates within the same regulatory environment.

While the Company reports its revenue, disaggregated by service type, on the face of the Condensed Consolidated Statements of Operations, the Company does not manage the business based on any performance measure at the individual revenue stream level.

The Company does not have any customers that contribute more than 10% to the Company’s revenues or revenue streams.

Additionally, the Company notes that the CODM uses consolidated financial information to evaluate the Company’s performance, which is the same basis on which he communicates the Company’s results and performance to the Board of Directors.

It is upon this consolidated basis from which he bases all significant decisions regarding the allocation of the Company’s resources on a consolidated level.

Based on the information described above and in accordance with the applicable literature, management has concluded that the Company is currently organized and operated as one operating and reportable segment.

Recent Accounting Pronouncements

Recently Adopted Accounting Standards

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 entity that qualifies as a smaller reporting company, 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 did not have a material impact on its consolidated financial statements.

Future Adoption of Accounting Standards

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid.

ASU 2023-09 is effective for annual periods beginning after December 15, 2024, with early adoption permitted.

Company is assessing the timing and impact that adopting this new standard will have on its consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures that expands disclosures of significant segment expenses and includes new disclosures for entities with a single reportable segment.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The Company is assessing the timing and impact that adopting this new standard will have on its consolidated financial statements.

REGULATORY DECISION AND RELATED ACCOUNTING AND POLICY CHANGES

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 Accounting Standards Codification (“ASC 980”), Regulated Operations .

The Company’s regulated utilities and certain other balances are subject to regulation by the Arizona Corporation Commission (“ACC”) and meet the requirements for regulatory accounting found within Accounting Standards Codification (“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 the Company has done for all of the operating utilities and which are described below.

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

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

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.

Changes to the rates are made through formal rate applications with the ACC, which the Company has customarily done.

During the fourth quarter of 2023, the Company notified the ACC of its intention to file a rate case for Global Water-Farmers Water Company, Inc.

(“GW-Farmers”) during 2024.

The GW-Farmers rate case is anticipated to be based on a test year ended December 31, 2023 with updates for changes in post-test year plant.

The Company has begun stakeholder outreach for the rate case.

During the fourth quarter of 2023, the Company notified the ACC of its intention to file a rate case for Global Water-Santa Cruz Water Company, Inc.

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

(“GW-Palo Verde”) in 2025.

The GW-Santa Cruz and GW-Palo Verde rate case is anticipated to be based on a test year ending December 31, 2024 with updates for changes in post-test year plant.

The Company has begun stakeholder outreach for the rate case.

On July 3, 2023, the Company’s GW-Palo Verde and GW-Santa Cruz utilities 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 GW-Palo Verde’s and GW-Santa Cruz’s most recent rate order, until the plant is considered for recovery in the next GW-Palo Verde and GW-Santa Cruz rate case.

The Southwest Plant was substantially constructed prior to 2009 to provide water, wastewater, and recycled water utility services 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.

In July 2023, $ 27.5 million of construction costs 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.

In January 2024, the Company discovered that approximately $ 7.8 million of construction costs for the Southwest Plant had been prematurely included as “plant in service” for rate making purposes in 2007 and were reflected in the calculation of customer rates in Rate Decision No.

71878 (September 15, 2010).

Those costs were also included as “plant in service” in Rate Decision No.

74364 (February 26, 2014) and Rate Decision No.

78644 (July 27, 2022).

The Company disclosed this circumstance to the ACC on March 1, 2024 and on April 25, 2024, GW-Palo Verde filed an application with the ACC requesting a monthly bill credit for customers that would be in place until the conclusion of the next GW-Palo Verde rate case.

If approved as filed, the impact of the bill credit would reduce revenue earned subsequent to the order by approximately $ 570,000 annually.

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.

In addition, further action may be taken by the ACC during the next GW-Palo Verde rate case.

On June 27, 2023, seven of the Company’s 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.

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

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

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

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

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

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

(“GW-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 February 29, 2024, the Company entered into a settlement agreement with the ACC Utilities Division Staff regarding the rate case application, which was presented to an Administrative Law Judge on April 15, 2024.

The Administrative Law Judge issued a Recommended Opinion

and Order (“ROO”) on May 6, 2024, which is scheduled to be heard by the Commission at the June 11, 2024 open meeting.

The ROO recommends approval of the settlement agreement, which includes, among other things, a recommended collective annual revenue increase of approximately $ 351,000 , acquisition premiums for six of the Company’s utilities, a capital structure matching the Company’s previous rate of 55 % equity with a 9.6 % return on equity, consolidation of the seven utilities, and a depreciation expense accounting deferral for GW-Rincon.

There can be no assurance that the ACC will approve the settlement agreement and the ACC could take other actions as a result of the rate case.

Further, it is possible that the ACC may determine to decrease future rates.

18 unchanged sentences

(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;

(ii) acquisition premiums relating to the Company’s acquisitions of its GW-Red Rock and Global Water - Turner Ranches Irrigation, Inc.

(“GW-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;

5 unchanged sentences

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.

78644, the Private Letter Ruling was provided to the ACC and no further action will be taken by the ACC.

Certain accounting implications related to Rate Decision No.

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

• 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.

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

The premiums are to be amortized over 25 years.

1 unchanged sentence

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

Infrastructure Coordination and Financing Agreements

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.

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 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 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.

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.

Regulatory assets and liabilities are the result of operating in a regulated environment in which the ACC establishes 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.

4 unchanged sentences

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

Recovery Period September 30, 2023 December 31, 2022

Recovery Period March 31, 2024 December 31, 2023

Regulatory Assets

5 unchanged sentences

25 years 1,261 1,269

Other regulatory assets 85 4

Total regulatory assets $ 2,888 $ 2,898

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(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 September 30, 2023 was approximately $ 0.5 million.

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

Amortization will begin once the Company receives a decision on its rate case filed in June 2023 that would approve the acquisition premium to be included in customer rates.

The acquisition premium balance as of March 31, 2024 was approximately $ 0.5 million.

Rate Decision No.

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

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

The acquisition premium balance as of March 31, 2024 was approximately $ 0.7 million.

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

When funds are received related to the acquired ICFA, a portion of these funds reduce the acquired ICFA regulatory liability and partially offset 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.

The adjustment was incorporated into rates in accordance with the rate decision.

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 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.

Unregulated revenues are primarily related to the revenues recognized on a portion of ICFA funds received.

ICFAs are agreements with developers and homebuilders where the Company, which owns 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.

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.

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This obligation persists regardless of connection growth.

As these arrangements are with developers and not with the end water or wastewater customer, revenue recognition coincides with the completion of the Company’s 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.

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

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.

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

Payments for ICFAs are usually received in advance.

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.

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.

Also pursuant to Rate Decision No.

74364, as payments are received, 70% of the payment must be recorded as a HUF liability until the HUF liability is fully funded, with the remaining amount initially recorded to deferred revenue until earned.

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.

ICFA revenue is recognized when the Company completes the performance obligations under the agreement.

Following its issuance in February 2014, Rate Decision No.

74364 prohibits the Company from entering into any new ICFAs.

The Company accounts for the portion of ICFA funds allocated to the HUF liability 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 are restricted and segregated in a separate bank account and used for 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.

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

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

The Company believes that services provided within these agreements are not distinct in the context of the contract because they are highly interdependent with its 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 regulated utilities have the necessary capacity in place within their 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 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 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,

December 31, 2023 Balance Payments Allocated to Deferred Revenue

Revenue Recognized

March 31, 2024 Balance

Deferred Revenue - ICFA

$ 19,656 $ 112 $ — $ 19,768

Disaggregated Revenues

For the three months ended March 31, 2024 and 2023, disaggregated revenues from contracts with customers by major source and customer class are as follows (in thousands):

Three Months Ended March 31,

REGULATED REVENUE

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ICFA revenues — 2,268

Rental revenues — — — 5

TOTAL UNREGULATED REVENUE — 2,268

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

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

CONTRACT ASSETS

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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 $ 19.7 million and $ 21.0 million at September 30, 2023 and December 31, 2022, respectively.

Contracted revenue expected to be recognized in future periods was approximately $ 19.8 million and $ 19.7 million at March 31, 2024 and December 31, 2023, 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.

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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.

In January 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.

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.

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.

During August 2023, the Company entered into a new ten-year and nine-month office lease agreement with a commencement date of June 1, 2024.

The rent expense will be $ 5,200 for each full calendar month after a period of abated rent, with a 3 % rent escalation commencing in March 2026 and annually thereafter.

Tenant improvement payments are incorporated into the lease at an additional month payment of $ 1,840 with escalations following the same schedule as the base rent.

Rent expense arising from operating leases totaled approximately $ 99,000 and $ 93,000 for the three months ended March 31, 2024 and 2023, 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 September 30, 2023 and December 31, 2022 consist of the following (in thousands):

September 30, 2023 December 31, 2022

ROU assets at March 31, 2024 and December 31, 2023 consist of the following (in thousands):

March 31, 2024 December 31, 2023

Financing Lease $ 560 $ 561

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Total $ 1,657 $ 1,741

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

September 30, 2023 December 31, 2022

Lease liabilities at March 31, 2024 and December 31, 2023 consist of the following (in thousands):

March 31, 2024 December 31, 2023

Financing Lease $ 606 $ 623

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Total $ 1,844 $ 1,923

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

At March 31, 2024, the remaining aggregate annual minimum lease payments are as follows (in thousands):

Finance Lease Obligations Operating Lease Obligations

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PROPERTY, PLANT AND EQUIPMENT

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

Depreciable property, plant and equipment at March 31, 2024 and December 31, 2023 consist of the following (in thousands):

March 31, 2024 December 31, 2023

Equipment $ 61,252 $ 60,536

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ACCOUNTS RECEIVABLE

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

September 30, 2023 December 31, 2022

Accounts receivable as of March 31, 2024 and December 31, 2023 consist of the following (in thousands):

March 31, 2024 December 31, 2023

Billed receivables $ 2,618 $ 2,967

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GOODWILL AND INTANGIBLE ASSETS

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.

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

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

The goodwill balance was $ 10.8 million at March 31, 2024 and is related to the GW-Turner Ranches, GW-Red Rock, GW-Mirabell, GW-Francesca, GW-Tortolita, GW-Lyn Lee, GW-Las Quintas Serenas, GW-Rincon, Twin Hawks Utility, Inc., and GW-Farmers acquisitions.

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

September 30, 2023 December 31, 2022

As of March 31, 2024 and December 31, 2023, intangible assets consisted of the following (in thousands):

March 31, 2024 December 31, 2023

Amount Accumulated

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

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.

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

Franchise contract rights are agreements with Pima and Pinal counties for GW-Red Rock and Pima county for GW-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 the 2005 acquisition of Sonoran assets are amortized when cash is received in proportion to the amount of total cash expected to be received under the underlying agreements.

Acquired ICFAs and Sonoran contract rights relate to acquired rights under certain ICFAs through the 2004 acquisition of GW-Santa Cruz and GW-Palo Verde and the 2005 acquisition of Sonoran assets, respectively, which 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 $ 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.

There was no amortization recorded for these balances during the three months ended March 31, 2024 and 2023.

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 $ 0.3 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.

Medical claims paid to the plan were approximately $ 0.2 million for the three months ended March 31, 2024 and $ 0.1 million for the three months ended March 31, 2023.

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

ACCRUED EXPENSES

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

Accrued expenses at March 31, 2024 and December 31, 2023 consist of the following (in thousands):

March 31, 2024 December 31, 2023

Interest $ 2,018 $ 480

Accrued Bonus 895 557

Property taxes 1,887 1,242

Customer prepayments 799 883

Accrued project liabilities 795 1,001

Asset retirement obligations 697 697

Dividend payable 606 606

Deferred compensation 377 818

Accrued payroll 263 50

Accrued sales taxes 247 152

Accrued professional fees 387 39

Accrued purchase orders 356 200

Accrued bonus 333 602

Other accrued liabilities 1,746 2,076

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

September 30, 2023 December 31, 2022

Financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023 were as follows (in thousands):

March 31, 2024 December 31, 2023

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

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857 — — 857 — 854 — 854

Acquisition Liability (3)

Contingent Consideration (3)

— — 2,092 2,092 — — 2,113 2,113

Total $ 2,218 $ — $ 2,092 $ 4,310 $ 823 $ 854 $ 2,113 $ 3,790

(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 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) 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.

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

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

(3) As part of the GW-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.

The fair value of the acquisition liability was calculated using a discounted cash flow technique which utilized unobservable inputs developed using the Company’s estimates and assumptions.

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

In addition, as part of the Farmers acquisition, the Company is required to pay the seller a growth premium equal to $ 1,000 (not in thousands) 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 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 September 30, 2023 and December 31, 2022 are as follows (in thousands):

September 30, 2023 December 31, 2022

In addition, as part of the GW-Farmers acquisition, the Company is required to pay the seller a growth premium equal to $ 1,000 (not in thousands) 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 (i) 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 (ii) ten years after the date of closing if a new account (as previously described) has not been established.

The fair value of the acquisition liability was calculated using a discounted cash flow technique which utilized unobservable inputs developed using the Company’s estimates and assumptions.

Significant inputs used in the fair value calculation are as follows:

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 March 31, 2024 and December 31, 2023 are as follows (in thousands):

March 31, 2024 December 31, 2023

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

BONDS AND NOTES PAYABLE -

4.380 % Series A 2016, maturing June 2028

NOTES PAYABLE -

4.38 % Senior Secured Notes, Series A, maturing June 2028

$ — 28,750 $ — $ 28,750

4.580 % Series B 2016, maturing June 2036

4.58 % Senior Secured Notes, Series B, maturing June 2036

3,833 72,833 3,833 72,833

6.91 % Senior Secured Notes, maturing January 2034

3,833 121,583 3,833 101,583

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Total debt $ 3,881 $ 120,978 $ 3,880 $ 101,341

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

Debt is measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023 as follows (in thousands):

March 31, 2024 December 31, 2023

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

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Senior Secured Notes

On June 24, 2016, the Company issued two series of senior secured notes with an aggregate total principal balance of $ 115.0 million at a blended interest rate of 4.55 %.

Series A carries a principal balance of $ 28.8 million and bears an interest rate of 4.38 % over a twelve-year term, with the principal payment due on June 15, 2028.

Series B carries a principal balance of $ 78.6 million and bears an interest rate of 4.58 % over a 20 -year term.

Series B was interest only for the first five years, with $ 1.9 million principal payments paid semiannually thereafter beginning December 2021.

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.

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.

On June 24, 2016, the Company issued two series of senior secured notes with a total principal balance of $ 115.0 million at a blended interest rate of 4.55 %.

Series A carries a principal balance of $ 28.8 million and bears an interest rate of 4.38 % over a twelve-year term, with the principal payment due on June 15, 2028 (the “Series A Notes”).

Series B carries a principal balance of $ 76.7 million and bears an interest rate of 4.58 % over a 20 -year term, with the principal payment due on June 15, 2036 (the “Series B Notes”).

The Series B Notes were interest only for the first five years , with $ 1.9 million principal payments paid semiannually in June and December thereafter beginning December 2021.

The Series A Notes and the Series B 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.

Consolidated EBITDA is calculated as net income plus depreciation and amortization, taxes, interest and other non-cash charges net of non-cash income.

Consolidated debt service is calculated as interest expense, principal payments, and dividend or stock repurchases.

The senior secured notes also contain a provision limiting the payment of dividends if the Company falls below a debt service ratio of 1.25 .

The Series A Notes and the Series B Notes also contain a provision limiting the payment of dividends if the Company falls below a debt service ratio of 1.25 .

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

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, 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.

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

As of March 31, 2024, the Company was in compliance with its financial debt covenants relating to the Series A Notes and the Series B Notes.

Additionally, on October 26, 2023, the Company entered into a note purchase agreement for the issuance of an aggregate principal amount of $ 20 million of 6.91 % Senior Secured Notes due on January 3, 2034 (the “ 6.91 % Notes” and collectively with the Series A Notes and the Series B Notes, the “Senior Secured Notes”).

Pursuant to the terms of the 6.91 % Note purchase agreement, the Company issued the 6.91 % Notes on January 3, 2024.

The 6.91 % Notes accrue interest at 6.91 % per annum from the date of issuance, payable semi-annually on January 3 and July 3 of each year, beginning on July 3, 2024, with a balloon payment due on January 3, 2034.

The 6.91 % 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.

Consolidated EBITDA is calculated as net income plus depreciation and amortization, taxes, interest and other non-cash charges net of non-cash income.

Consolidated debt service is calculated as interest expense, principal payments, and dividend or stock repurchases.

The 6.91 % Notes also contain a provision limiting the payment of dividends if the Company falls below a debt service coverage ratio of 1.20 for any fiscal quarter ended on or before June 15, 2024 and 1.25 for any fiscal quarter ended during the period from and after June 16, 2024.

As of March 31, 2024, the Company was in compliance with its financial debt covenants relating to 6.91 % Notes.

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.

The Senior Secured Notes also have certain restrictive covenants that limit, among other things, the Company’s ability to:

create liens and other encumbrances;

incur additional indebtedness;

merge, liquidate or consolidate with another entity;

dispose of or transfer assets;

make distributions or other restricted payments;

engage in certain affiliate transactions;

and change the nature of the business.

Revolving Credit Line

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

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 had no unused line fee.

On April 30, 2021, the Company and Northern Trust 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.

On July 26, 2022, the Company and Northern Trust entered into a second amendment 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).

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.

On April 30, 2020, the Company entered into an agreement with The Northern Trust Company, an Illinois banking corporation (“Northern Trust”), which was initially for a two-year revolving line of credit up to $ 10.0 million with a 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 had no unused line fee.

The Company and Northern Trust have subsequently amended the credit facility agreement on multiple occasions (as amended, the “Northern Trust Loan Agreement”) to, among other things, (i) extend the scheduled maturity date to July 1, 2025;

(ii) increase the maximum principal amount available for borrowing to $ 15.0 million;

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

and (iv) add a quarterly facility fee equal to 0.35 % of the average daily unused amount of the revolving line of credit.

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 ratio drops to 1.20 .

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):

Scope was issued (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, 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 was effective immediately for all companies.

The Company continues to evaluate the impact of ASC 848.

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

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

Additionally, the Northern Trust Loan Agreement contains certain restrictive covenants that limit, among other things, the Company’s ability to:

create liens and other encumbrances;

incur additional indebtedness;

merge, liquidate or consolidate with another entity;

dispose of or transfer assets;

make distributions or other restricted payments (including dividends);

engage in certain affiliate transactions;

and change the nature of the business.

The foregoing covenants are subject to various qualifications and limitations as set forth in the Northern Trust Loan Agreement.

Pursuant to the Northern Trust Loan Agreement, the revolving credit facility is subject to certain customary events of default after which the revolving credit facility could be declared due and payable if not cured within the grace period or, in certain circumstances, could be declared due and payable immediately.

As of March 31, 2024, the Company was in compliance with its financial debt covenants under the Northern Trust Loan Agreement.

As of March 31, 2024, the Company had no outstanding borrowings under this credit line.

As of December 31, 2023, the outstanding borrowings on this credit line were approximately $ 2.3 million.

There were approximately $ 16,000 and $ 25,000 unamortized debt issuance costs as of March 31, 2024 and December 31, 2023, respectively.

At March 31, 2024, the remaining aggregate annual maturities of debt obligations are as follows (in thousands):

2024 (remaining period) $ 3,869

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Subtotal 125,635

amount representing interest —

amount representing unamortized discount and debt issuance costs 776

Total $ 124,859

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.

For the three months ended March 31, 2024, tax expense of $ 0.3 million was recorded on pre-tax income of $ 0.9 million, compared to tax expense of $ 0.9 million recorded on pre-tax income of $ 3.3 million for the three months ended March 31, 2023.

The income tax provision was computed 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, 2024 primarily due to a decrease of approximately $ 2.4 million in pre-tax income for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

DEFERRED COMPENSATION AWARDS

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As of August 2021, these options were fully expensed.

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

As of March 31, 2024, 84,671 options have been exercised and 115,708 options have been forfeited with 264,621 options outstanding.

2019 stock option grant

1 unchanged sentence

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 vested 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 % having vested 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 $ 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

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

As of August 2023, these options were fully expensed.

Stock-based compensation expense of $ 43,000 was recorded for the three months ended March 31, 2023.

As of March 31, 2024, 13,257 options have been exercised and 105,757 options have been forfeited with 130,986 options outstanding.

Restricted stock units

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 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,

The following table details total awards granted and the number of units outstanding as of March 31, 2024, along with the amounts paid to holders of the restricted stock units (“RSUs”) for the three months ended March 31, 2024 and 2023 (in thousands, except unit amounts):

Amounts Paid For the Three Months Ended March 31,

Grant Date Units Granted Units Outstanding 2024 2023

Q1 2020 22,481 — — 24

Q1 2020 22,481 — — 25 — 86

27,403 — 28 30

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30,366 19,399 32 —

30,962 30,962 — —

Total 133,474 57,473 $ 83 $ 79

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2020 Omnibus Incentive Plan, effective May 7, 2020, long-term incentive awards are no longer granted in the form of PSUs and are granted as RSUs instead.

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, 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,

Stock appreciation rights

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, 2024 and amounts paid during the three months ended March 31, 2024 and 2023 (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 2024 2023

3 unchanged sentences

Q1 2018 33,000 $ 8.99 8,250 — —

Members of Management (1)(4)

Q1 2018 33,000 $ 8.99 8,250 — — — —

Total 332,000 20,750 $ — $ 165

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

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

(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.

(3) 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, 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.

For the three months ended March 31, 2024, the Company recorded approximately $ 0.1 million of negative compensation expense related to the RSUs and SARs.

No compensation expense was recorded for the three months ended March 31, 2023.

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 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):

Based on GWRI’s closing share price on March 28, 2024 (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):

2024 (remaining period)

Restricted stock compensation

Restricted stock awards

On May 7, 2020, the Company’s stockholders approved the Global Water Resources, Inc.

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RSAs vest over two to three years , beginning on the date of the grant.

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, 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.

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

The following table details the RSA units granted during the three months ended March 31, 2024 and 2023, as well as the compensation expense related to the grant and partial vesting of RSAs for the three months ended March 31, 2024 and 2023 (in thousands, except share amounts):

For The Three Months Ended March 31,

Compensation expense

SUPPLEMENTAL CASH FLOW INFORMATION

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,

The following is supplemental cash flow information for the three months ended March 31, 2024 and 2023 (in thousands):

For the Three Months Ended March 31,

Supplemental cash flow information:

Cash paid for interest - net of amounts capitalized

$ 2,343 $ 2,072

Cash paid for income taxes

$ 276 $ 1,402

Cash paid for interest

Non-cash financing and investing activities:

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Acquisition of Farmers Water Company

On February 1, 2023, the Company acquired all of the equity of Farmers, an operator of a water utility with service area in Pima County, Arizona, for a total consideration of $ 7.6 million consisting of $ 6.2 million in cash plus a growth premium estimated at $ 1.4 million.

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

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.

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The obligation period of the growth premium commences on the closing date of the acquisition and ends (i) 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 (ii) ten years after the date of closing if a new account (as described above) has not been established.

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

The assumptions and estimates used in determining the acquisition liability related to the growth premium are consistent with previous acquisitions.

As of March 31, 2024, the remaining liability was $ 1.3 million.

The purchase price allocation of the net assets acquired in the transaction is as follows as of the acquisition date (in thousands):

Net assets acquired:

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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 in the Company’s Condensed Consolidated Statements of Operations.

COMMITMENTS AND CONTINGENCIES

1 unchanged sentence

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.

On October 16, 2018, the Company completed the acquisition of GW-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 September 30, 2023, no meters have been installed and no accounts have been established in any of the three growth premium areas.

As of March 31, 2024, no meters have been installed and no accounts have been established in any of the three growth premium areas.

Contingencies

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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.

SUBSEQUENT EVENTS

The Company has evaluated subsequent events through May 8, 2024, 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:

Global Water - 2024 Acquisition A, Inc.

(“GW-Acquisition”), a wholly owned subsidiary of the Company, entered into an asset purchase agreement with the City of Tucson effective April 25, 2024, pursuant to which GW-Acquisition will acquire seven public water systems from the City of Tucson serving approximately 2,200 water service connections in an all-cash transaction for a purchase price of $ 8.4 million.

The public water systems are located in and around Pima County.

The transaction remains subject to customary closing conditions and approval by the ACC.

The estimated rate base of the seven water systems is approximately $ 7.8 million.

On April 30, 2024, the Company’s GW-Rincon utility entered into a loan agreement with the Water Infrastructure Finance Authority of Arizona for a principal amount of $ 2.4 million to improve the utility’s infrastructure, of which $ 0.7 million is forgivable.

The loan is due on April 1, 2044 and bears an interest rate of 4.911 %, with monthly payments beginning on November 1, 2024.

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