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Item 7. Management’s Discussion and Analysis

2025-03-05 compared with 2024-03-07 · 213 added, 311 removed, 125 unchanged (81% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following management’s discussion and analysis of Global Water Resources, Inc.’s (the “Company”, “GWRI”, “we”, or “us”) financial condition and results of operations (“MD&A”) relate to the year ended December 31, 2023 and should be read together with the consolidated financial statements and accompanying notes included in Part II, Item 8 of this report.

GWRI is a water resource management company that owns, operates, and manages twenty-nine water, wastewater, and recycled water systems in strategically located communities, principally in metropolitan Phoenix and Tucson, Arizona.

The Company seeks to deploy an integrated approach, referred to as “Total Water Management.” Total Water Management is a comprehensive approach to water utility management that reduces demand on scarce non-renewable water sources and costly renewable water supplies, in a manner that ensures sustainability and greatly benefits communities both environmentally and economically.

The following management’s discussion and analysis of Global Water Resources, Inc.’s financial condition and results of operations (“MD&A”) relate to the year ended December 31, 2024 and should be read together with the consolidated financial statements and accompanying notes included in Part II, Item 8 of this report.

GWRI is a water resource management company that owns, operates, and manages thirty-two water, wastewater, and recycled water public utility systems in strategically located communities, principally in metropolitan Phoenix and Tucson, Arizona.

We seek to deploy an integrated approach, referred to as “Total Water Management.” Total Water Management is a comprehensive approach to water utility management that reduces demand on scarce non-renewable water sources and costly renewable water supplies, in a manner that ensures sustainability and greatly benefits communities both environmentally and economically.

This approach employs a series of principles and practices that can be tailored to each community:

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• Use of advanced technology and data;

• Employing respected subject matter experts and retaining thought and application leaders;

• Leading outreach and educational initiatives to ensure all stakeholders including customers, development partners, regulators, and utility staff are knowledgeable on the principles and practices of the Total Water Management approach;

• Employing respected subject matter experts and retaining thought leaders;

• Leading outreach and educational initiatives to ensure all stakeholders including customers, development partners, municipalities, regulators, and utility staff are knowledgeable on the principles and practices of the Total Water Management approach;

• Establishing partnerships with communities, developers, and industry stakeholders to gain support of the Total Water Management principles and practices.

Business Outlook

There was a trend of positive growth in new connections during 2022.

For 2023, growth continued at a moderate rate during the first half of the year with the second half exhibiting increases in the rate of connection growth.

We continue to experience an increasing rate of organic growth evidenced by our year over year organic increase in active connections (i.e., exclusive of acquisition related growth) of 4.4% as of December 31, 2024 as compared to 2.6% for the same period in 2023.

According to the most recent U.S.

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and had an estimated population of 5.1 million, an increase of 4.6% over the 4.8 million people reported in the 2020 Census.

Metropolitan Phoenix continues to grow due to its comparatively affordable housing, excellent weather, large and growing universities, a diverse employment base, and low taxes.

Metropolitan Phoenix continues to grow due to its favorable employment opportunities, excellent weather, large and growing universities, a diverse employment base, and low taxes.

The Employment and Population Statistics Department of the State of Arizona predicts that the Phoenix metropolitan area will have a population of 5.8 million people by 2030 and 6.5 million by 2040.

During the twelve months ended December 31, 2023, Arizona’s employment rate increased by 2.0%, ranking the state in the top twenty nationally for job growth.

Arizona’s job growth increased by 1.7% during 2024 as compared to the same period for the prior year, ranking the state in the top twenty nationally as of December 31, 2024.

Arizona is projected to add 478,000 jobs with an annual growth rate of 1.4% through 2032, exceeding the national average.

According to the state’s commerce authority, Arizona also received $50 billion in 2024r, including contributions from major industry players such as Taiwan Semiconductor, Intel and Procter & Gamble.

Management believes that Global Water is well-positioned to benefit from the growth expected in the Phoenix metropolitan area due to the availability of lots, existing infrastructure in place within the company’s service areas, and increased activity related to multi-family developments.

According to the W.P.

Carey School of Business Greater Phoenix Blue Chip Real Estate Consensus Panel (the “Greater Phoenix Blue Chip Panel”), the single-family housing market experienced a weakness in permits during 2022 and 2023, however, the outlook for single-family housing is improving.

The Greater Phoenix Blue Chip Panel anticipates single-family permit increases in 2024 due to the combination of the improvement shown in the second half of 2023 with the expectations of modestly declining mortgage rates in 2024.

During both 2022 and 2023, multi-family permits trended upwards adding stability to the market.

Phoenix is being recognized as the top market for manufacturing growth and was ranked number one out of the top 15 growth markets for largest projected job gains by global real estate firm Newmark Group.

Despite a general slowdown in housing for the Phoenix metropolitan area primarily due to inflation and increased interest rates, management believes that we are well-positioned to benefit from the growth expected in the Phoenix metropolitan area due to the availability of lots, existing infrastructure in place within our services areas, and increased activity related to multi-family developments.

Carey School of Business Greater Phoenix Blue Chip Real Estate Consensus Panel (the “Greater Phoenix Blue Chip Panel”), the single-family housing market in the Phoenix metropolitan area has experienced a weakness in permits since 2021;

however, the outlook for single-family housing is improving.

The Greater Phoenix Blue Chip Panel anticipates single-family permit increases in 2025.

During 2024, multi-family permits trended upwards.

Management believes that we are well-positioned to benefit from the growth expected in the Phoenix metropolitan area due to the availability of lots, existing infrastructure in place within our service areas, and increased activity related to multi-family developments.

Factors Affecting our Results of Operations

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Our financial condition and results of operations are influenced by a variety of industry-wide factors, including but not limited to:

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• economic and environmental utility regulation;

• economic environment;

• the need for infrastructure investment;

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• access to and quality of water supply.

The Company is subject to economic regulation by the state regulator, the ACC.

We are subject to economic regulation by the state regulator, the ACC.

federal and state governments also regulate environmental, health and safety, and water quality matters.

The Company continues to execute on the strategy to optimize and focus the Company in order to provide greater value to our customers and shareholders by aiming to deliver predictable financial results, making prudent capital investments, and focusing our efforts on earning an appropriate rate of return on our investments.

We continue to execute on our strategy to optimize and focus the Company in order to provide greater value to our customers and shareholders by aiming to deliver predictable financial results, making prudent capital investments, and focusing our efforts on earning an appropriate rate of return on our investments.

Population and Community Growth

Population and community growth in the metropolitan Phoenix area served by our utilities have a direct impact on our earnings.

An increase or decrease in our active service connections will affect our revenues and variable expenses in a corresponding manner.

As of December 31, 2023, active service connections increased 5,521, or 9.8%, to 61,791 compared to 56,270 active service connections as of December 31, 2022, primarily due to the acquisition of Farmers Water Co.

(“Farmers”) and organic growth in our service areas.

Approximately 89.3% of the 61,791 active service connections are serviced by our Global Water - Santa Cruz Water Company, Inc.

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

(“Palo Verde”) utilities as of December 31, 2023.

An increase or decrease in our active service connections will affect our revenue and variable expenses in a corresponding manner.

As of December 31, 2024, active service connections increased 2,729, or 4.4%, to 64,520 compared to 61,791 active service connections as of December 31, 2023, primarily due to organic growth in our service areas.

Approximately 89.6% of the 64,520 active service connections are serviced by our GW-Santa Cruz and GW-Palo Verde utilities as of December 31, 2024.

The graph below presents the historical change in active connections for our ongoing operations over the past five years.

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Recent Acquisition Activity

Asset Purchase Agreement with City of Tucson

Effective April 25, 2024, GW-Ocotillo, a wholly owned subsidiary of the Company, entered into an asset purchase agreement with the City of Tucson, pursuant to which GW-Ocotillo agreed to acquire seven isolated 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 isolated public water systems are located in and around Pima County.

The Company expects to complete the acquisition in the first half of 2025, subject to customary closing conditions.

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

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.

For additional information on the Company’s acquisition activity, refer to Note 2 – “Acquisitions” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report.

Economic and Environmental Utility Regulation

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The ACC uses a historical test year to evaluate whether the plant in service is used and useful, to assess whether costs were prudently incurred, and to set “just and reasonable” rates.

Rate base is typically the depreciated original cost of the plant in service (net of contributions in aid of construction (“CIAC”) and advances in aid of construction (“AIAC”) which are funds or property provided to a utility under the terms of a main extension agreement, the value of which may be refundable), that has been determined to have been “prudently invested” and “used and useful”, although the reconstruction cost of the utility plant may also be considered in determining the rate base.

Rate base is typically the depreciated original cost of the plant in service (net of CIAC and AIAC, which are funds or property provided to a utility under the terms of a main extension agreement, the value of which may be refundable), that has been determined to have been “prudently invested” and “used and useful”, although the reconstruction cost of the utility plant may also be considered in determining the rate base.

The ACC also decides on an applicable capital structure based on actual or hypothetical analyses.

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The overall revenue requirement for rate making purposes is established by multiplying the rate of return by the rate base and adding reasonably incurred operating expenses for the test year, depreciation, and any applicable pro forma adjustments.

On July 3, 2023, our Palo Verde and Santa Cruz utilities filed an application with the ACC for approval of an accounting order to defer and record as a regulatory asset both the depreciation expense recorded for the Company’s Southwest Plant and the carrying cost of that plant 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.

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 information to the ACC on March 1, 2024.

Although to date the ACC has not taken any action, the ACC could require the Company to reduce rates going forward or take other actions that would be unfavorable to the Company.

The final outcome and resolution of this matter cannot be predicted and the results, while not reasonably estimable at this time, could be material to the Company and its financial condition.

To ensure an optimal combination of access to water and water conservation balanced with a fair rate of return for investors, our water utility operating revenue is based on two components:

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For wastewater utilities, wastewater collection and treatment can be based on volumetric or fixed fees.

Our wastewater utility services are billed based solely on a fixed fee, determined by the size of the water meter installed.

Our wastewater service is billed based solely on a fixed fee, determined by the size of the water meter installed.

Recycled water is sold on a volumetric basis with no fixed fee component.

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We believe it is common industry practice to file for a rate increase every three to five years.

Refer to “—Rate Case Activity” below and Note 2 – “Regulatory Decision and Related Accounting and Policy Changes” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional information.

Refer to “—Rate Regulation Updates” below and Note 3 – “Regulatory Matters” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional information.

Additionally, our water and wastewater utility operations are subject to extensive regulation by U.S.

federal, state, and local regulatory agencies that enforce environmental, health, and safety requirements, which affect all of our regulated subsidiaries.

Environmental, health and safety, and water quality regulations are complex and change frequently, and they have tended to become more stringent over time.

Although it is difficult to project the ultimate costs of complying with pending or future requirements, we do not expect requirements under current regulations to have a material impact on our operations or financial condition, although it is possible new methods of treating drinking water may be required if additional regulations become effective in the future.

For example, on March 14, 2023, the U.S.

Environmental Protection Agency (“EPA”) announced the proposed National Primary Drinking Water Regulation (“NPDWR”) for the treatment of six per- and polyfluoroalkyl substances or compounds (“PFAS”).

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The NPDWR proposed maximum contaminant levels (“MCLs”) for PFAS in drinking water.

If finalized as proposed, the regulation will require public water systems, including those owned by GWRI, to monitor drinking water for these compounds.

It will also require public water systems to notify customers and treat drinking water to reduce the compounds if the MCL is exceeded.

The proposed NPDWR was issued for public comment and the EPA expects to finalize the regulation by early 2024.

Once the rule is finalized, water systems will be required to comply with the NPDWR after a specified implementation period, anticipated to be three years from the rule-adoption date.

The Company is currently reviewing the proposed regulation with our current treatment standards and expects that the regulation, once finalized, will result in changes to or addition of certain treatment processes that will require increased capital expenditures and water treatment and other operating costs.

As other newer or stricter standards are introduced in the future, they could also increase our operating expenses.

We generally expect to recover expenses associated with compliance for environmental and health and safety standards through rate increases, but this recovery may be affected by regulatory lag.

Environmental, health and safety, and water quality regulations are complex, change frequently, and have tended to become more stringent over time.

Although it is difficult to project the ultimate costs of complying with pending or future requirements, we do not expect requirements under current regulations to have a material impact on our

operations or financial condition, though it is possible new methods of treating drinking water may be required if additional regulations become effective in the future.

For example, on April 10, 2024, the EPA finalized the NPDWR, establishing legally enforceable MCLs for six PFAS in drinking water.

See “Business—Regulation—National Primary Drinking Water Regulation,” included in Part I, Item I of this report, for additional information.

We are committed to compliance with the NPDWR and are in process of complying with the first requirement of the rule mandating initial monitoring for all of our utilities.

The Company expects that compliance with the NPDWR will require increased capital expenditures for PFAS-contaminated water treatment and other operating costs.

If other newer or stricter standards are introduced in the future, they could also increase our operating expenses.

We generally expect to recover expenses associated with compliance for environmental and health and safety standards through rate increases, but this recovery may be affected by “regulatory lag”, that is, the delay between the utility’s test year and the issuance of a rate order approving new rates.

Capital expenditures and operating costs required as a result of water quality standards have been traditionally recognized by the ACC as appropriate for inclusion in establishing rates or in a separate surcharge.

In April 2024, the federal Judicial Panel on Multidistrict Litigation approved the consolidation of approximately 500 separate cases against multiple defendant manufacturers into a single multi-district civil class action lawsuit known as Aqueous Film-Forming Foams (“AFFF”) Products Liability Litigation MDL No.

2873 (the “AFFF MDL”).

The AFFF MDL was filed in the U.S.

District Court for the District of South Carolina (the “Court”) and is intended to resolve claims associated with PFAS contamination in water systems from the manufacture and widespread use of AFFF, which is believed to be a significant source of PFAS contamination in water systems.

AFFF containing PFAS (and until 2002, perfluorooctanoic acid, a related compound) was widely used in fire suppression systems, firefighting vehicles, and at fire training facilities nationwide.

The Company is in the class of plaintiffs in the AFFF MDL, and settlement talks continue to progress with several defendants.

Any settlement reached in the AFFF MDL will be subject to the final approval of the Court.

There can be no assurance as to the outcome of the AFFF MDL, including any decision or resolution thereof, timing, or the ultimate amounts, if any, involved.

Infrastructure Investment

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Production and Treatment Costs

Our water and wastewater services require significant production resources and therefore result in significant production costs.

Our water and wastewater service requires significant production resources and therefore results in significant production costs.

Although we are permitted to recover these costs through the rates we charge, regulatory lag can decrease our margins and earnings if production costs or other operating expenses increase significantly before we are able to recover them through increased rates.

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However, summer weather that is cooler or wetter than average generally suppresses customer water demand and can have a downward effect on our operating revenue and operating income.

Conversely, when weather conditions are extremely dry, our business may be affected by government-issued drought-related warnings and/or water usage restrictions that would artificially lower customer demand and reduce our operating revenue.

The limited geographic diversity of our service areas makes the results of our operations more sensitive to the effect of local weather extremes.

The second and third quarters of the year are generally those in which water services revenue and wastewater services revenues are highest.

Conversely, when weather conditions are extremely dry, our business may be affected by government-issued drought-

related warnings and/or water usage restrictions that would artificially lower customer demand and reduce our operating revenue.

The limited geographic diversity of our service areas makes the results of our operations more sensitive to the effect of extreme weather patterns.

The second and third quarters of the year are generally those in which water service revenue and wastewater service revenue are highest.

For additional information and risks associated with weather and seasonality, see “Risk Factors,” included in Part I, Item 1A of this report.

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In many areas of Arizona (including certain areas that we service), water supplies are limited and, in some cases, current usage rates exceed sustainable levels for certain water resources.

We currently rely predominantly (and are likely to continue to rely) on the pumping of groundwater and the generation and delivery of recycled water for non-potable uses to

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meet future demands in our service areas.

We currently rely predominantly on the pumping of groundwater and the generation and delivery of recycled water for non-potable uses to meet future demands in our service areas.

At present, groundwater (and recycled water derived from groundwater) is the primary water supply available to us.

In addition, regulatory restrictions on the use of groundwater and the development of groundwater wells, lack of available water rights, drought, overuse of local or regional sources of water, protection of threatened species or habitats, or other factors, including climate change, may limit the availability of ground or surface water.

Additionally, in the majority of the Phoenix Active Management Area, the Arizona Department of Water Resources (“ADWR”) has paused the issuance of new certificates of assured water supply based on groundwater and paused modifications of any designations of assured water supply for the increase in groundwater.

Additionally, in the majority of the Phoenix Active Management Area, the ADWR has paused the issuance of new certificates of assured water supply based on groundwater and paused modifications of any designations of assured water supply for the increase in groundwater.

Approximately 1.76% of the Company’s water connections are located within the Phoenix Active Management Area.

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For additional information and risks associated with the access to and quality of water supply, see “Risk Factors,” included in Part I, Item 1A of this report.

Rate Case Activity

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

Refer to Note 2 – “Regulatory Decision and Related Accounting and Policy Changes” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional information.

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

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 ACC Utilities Division Staff regarding the rate case application, which will be considered by an Administrative Law Judge and the ACC for approval.

The agreement includes, among other things, a recommended 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 an accounting deferral for 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.

Rate Regulation Updates

In December 2024, the ACC approved a policy statement allowing for Formula Rate Plans (“Formula Rates”) in future rate cases.

Formula Rates generally enable utilities to adjust their rates on a semi-regular basis–often annually–based on a pre-approved formula related to specific cost inputs.

The Company believes that Formula Rates benefit both customers and utilities by allowing for smaller, more predictable changes in rates for customers as well as minimizing the “regulatory lag” by allowing utilities to recover (or pass back to customers) costs more promptly and invest in infrastructure more efficiently.

Utilities with approved Formula Rates will be required to have a full rate case before the ACC at least every five years, unless an alternative schedule is established.

The Company is evaluating the impact of the Formula Rates policy on its future general rate cases with the ACC.

Like all of its rate case proceedings, there can be no assurance that the ACC will approve the Company’s requests for Formula Rates (if any) during the proceedings, and the ACC could take other actions as a result of a rate case or Formula Rate proposal.

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 involving 12 of the Company’s regulated utilities, which consisted of approximately 96% of the Company’s active service connections at the time of the rate case application filing.

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, as follows:

Incremental Cumulative

August 1, 2022 $ 1,457,462 $ 1,457,462

January 1, 2023 $ 675,814 $ 2,133,277

January 1, 2024 $ 98,585 $ 2,231,861

To the extent that the number of active service connections has increased and continues to increase from 2019 levels, the additional revenues may be greater than the amounts set forth above.

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

The ACC also approved:

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

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

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

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

Finally, Rate Decision No.

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

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(“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 was provided to the ACC and no further action will be taken by the ACC, as documented in Decision No.

During the fourth quarter 2023, the Company notified the ACC of its intention to file a rate case for Farmers during 2024 and for Santa Cruz and Palo Verde in 2025.

Corporate Transactions

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.

Refer to Note 11 - “Debts” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional details.

Private Placement Offering of Common Stock

On June 8, 2023, the Company entered into a securities purchase agreement for the issuance and sale by the Company of an aggregate of 230,000 shares of the Company’s common stock at a purchase price of $12.07 per share in an offering exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 promulgated thereunder.

The Company received gross proceeds of approximately $2.8 million from the offering.

Farmers Acquisition

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.

Refer to Note 15 - “Acquisitions” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional details.

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.

Stipulated Condemnation of the Operations and Assets of Valencia

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

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

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

Segment Reporting

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 in deciding how to allocate resources and in assessing operating performance.

In consideration of the Financial Accounting Standards Board’s Accounting Standards Codification 280, Segment Reporting , the Company is not organized around specific products and services, geographic regions, or regulatory

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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 revenue, disaggregated by service type, on the face of the statement 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 chief operating decision maker uses consolidated financial information to evaluate performance, which is the same basis on which he communicates results and performance to the Company’s 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.

Comparison of Results of Operations for the Year Ended December 31, 2023 and 2022

The following table summarizes results of operations for the year ended December 31, 2023 and 2022 (in thousands, except for share amounts):

For the Year Ended December 31,

Revenues $ 53,028 $ 44,728

In February 2025, the Company notified the ACC of its intention to file a rate case for its GW-Santa Cruz and GW-Palo Verde utilities in 2025.

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

The Company is in the process of preparing for the rate case and intends to request a net increase to its annual revenue requirement of $6.5 million, to be implemented with the first phase beginning in May 2026 and the second phase in January 2027.

For a full summary of the Company’s active rates for each of its regulated utilities, refer to “Business – Regulation – Arizona Regulatory Agencies – Rate Regulation” included in Part I, Item 1 of this report.

For a summary of the Company’s current regulatory activity, refer to Note 3 – “Regulatory Matters” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report.

Comparison of Results of Operations for the Years Ended December 31, 2024 and 2023

The Company is not organized around a specific product or service, geographic region, or regulatory environment.

Refer to Note 18 — “Business Segment Information” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional segment information.

Financial and operational data for the Company years ended December 31, 2024 and 2023 is summarized in the following table (in thousands, except for share amounts):

Year Ended Favorable (Unfavorable)

December 31, 2024 vs.

2024 2023 $ %

$ 52,692 $ 53,028 $ (336) (0.6) %

Operating expenses 43,328 40,742 (2,586) (6.3) %

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Diluted earnings per common share $ 0.24 $ 0.33 $ (0.09) (27.3) %

Revenues – The following table summarizes revenues for the year ended December 31, 2023 and 2022 (in thousands):

For the Year Ended December 31,

Water services $ 24,860 $ 20,885

Wastewater and recycled water services 25,382 23,843

Unregulated revenues 2,786 —

Total revenues $ 53,028 $ 44,728

Total revenues increased $8.3 million, or 18.6%, to $53.0 million for the year ended December 31, 2023 compared to $44.7 million for the year ended December 31, 2022.

The increase in revenue reflects elevated consumption during 2023 related to higher average temperatures and lower average precipitation, primarily during the peak usage months, ICFA revenue earned during 2023 that did not occur in the prior year, increased rates related to Rate Decision No.

78644, new connections associated with the acquisition of Farmers in February 2023, and organic connection growth.

Water Services – Water services revenue increased $4.0 million, or 19.0%, to $24.9 million for the year ended December 31, 2023 compared to $20.9 million for the year ended December 31, 2022.

The increase in water services revenue was primarily related to the weather conditions discussed above prompting higher consumption during high usage months, the acquisition of Farmers, an increase in rates related to Rate Decision No.

78644, and organic connection growth.

Water services revenue based on consumption increased $2.2 million, or 23.4%, to $11.4 million for the year ended December 31, 2023 compared to $9.2 million for the year ended December 31, 2022.

The increase was primarily driven by the weather conditions discussed above resulting in a 14.8% increase in consumption, the Farmers acquisition, an increase in rates related to Rate Decision No.

78644, and organic connection growth.

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Active water connections increased 15.1% to 34,370 as of December 31, 2023 from 29,855 as of December 31, 2022, primarily due to the Farmers acquisition and organic growth in our service areas.

Water consumption increased 14.8% to 4.0 billion gallons for the year ended December 31, 2023 compared to 3.5 billion for the year ended December 31, 2022.

The increase was primarily related to the considerable increase in consumption during the third quarter which we believe can be attributed to the higher temperatures and lower precipitation, primarily during high usage months, as compared to the same period in 2022.

Water services revenue associated with the basic service charge, excluding miscellaneous charges, increased $1.7 million, or 15.5%, to $12.8 million for the year ended December 31, 2023 compared to $11.1 million for the year ended December 31, 2022.

The increase was primarily due to the increase in active service connections largely from new connections associated with the acquisition of Farmers, as well as an increase in rates due to Rate Decision No.

Wastewater and Recycled Water Services – Wastewater and recycled water services revenue increased $1.6 million, or 6.5%, to $25.4 million for the year ended December 31, 2023 compared to $23.8 million for the year ended December 31, 2022.

The increase was primarily driven by higher wastewater services revenue of $1.4 million resulting from the 3.8% increase in active wastewater connections from 26,415 as of December 31, 2022 to 27,421 as of December 31, 2023, combined with an increase in rates due to Rate Decision No.

Recycled water services revenue, which is based on the number of gallons delivered and directly impacted by wastewater volume, increased by approximately 9.9% to $1.4 million for the year ended December 31, 2023 from $1.2 million for the year ended December 31, 2022.

The volume of recycled water delivered rose by 12.6% with 818 million gallons delivered for the year ended December 31, 2023 compared to 727 million gallons delivered for the year ended December 31, 2022.

In addition, the volume of wastewater processed increased 6.2% to 1.4 billion gallons for the year ended December 31, 2023 from 1.3 billion gallons for the year ended December 31, 2022.

Operating Expenses – The following table summarizes operating expenses for the year ended December 31, 2023 and 2022 (in thousands):

For the Year Ended December 31,

Operations and maintenance $ 12,669 $ 10,889

General and administrative 16,636 16,130

Revenue – Operating revenue is substantially derived from contracts with customers to provide regulated water, wastewater, and recycled water service based upon tariff rates approved by the ACC.

Regulated service revenue consists of amounts billed to customers based on approved fixed monthly fees and consumption based fees, as well as unbilled revenue, which is estimated revenue from the last meter reading date to the end of the accounting period utilizing historical customer data recorded.

Unregulated revenue represents revenue that is not subject to the ratemaking process of the ACC.

Unregulated revenue is primarily related to the revenue recognized on a portion of ICFA funds received.

Refer to Note 4 — “Revenue Recognition” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional information pertaining to how we earn and recognize revenue.

The following table summarizes revenue for the years ended December 31, 2024 and 2023 (in thousands):

Year Ended Favorable (Unfavorable)

December 31, 2024 vs.

2024 2023 $ %

Water service

Basic charge $ 13,668 $ 12,812 $ 856 6.7 %

Consumption 11,660 11,410 250 2.2 %

Other 736 638 98 15.4 %

Total water service 26,064 24,860 1,204 4.8 %

Wastewater and recycled water service

Basic 24,773 23,667 1,106 4.7 %

Consumption 1,500 1,365 135 9.9 %

Other 355 350 5 1.4 %

Total wastewater and recycled water service 26,628 25,382 1,246 4.9 %

Total regulated revenue 52,692 50,242 2,450 4.9 %

Unregulated revenue — 2,786 (2,786) (100.0) %

Total revenue $ 52,692 $ 53,028 $ (336) (0.6) %

Active water connections 35,799 34,370 1,429 4.2 %

Active wastewater connections 28,721 27,421 1,300 4.7 %

Total active connections 64,520 61,791 2,729 4.4 %

Consumption (in million gallons)

Water service 4,155 4,024 131 3.3 %

Recycled water 1,359 818 540 66.0 %

The increase in regulated revenue for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was primarily attributable to the organic growth in active water and wastewater connections, increased water and recycled water consumption and higher rates for GW-Saguaro, resulting from the GW-Saguaro general rate case, effective July 2024.

The increased consumption was predominantly driven by the increase in active connections.

Unregulated revenue for the year ended December 31, 2023 was related to ICFA revenue, which did not recur in the current year.

Operating Expenses – The following table summarizes operating expenses for the years ended December 31, 2024 and 2023 (in thousands):

Year Ended Favorable (Unfavorable)

December 31, 2024 vs.

2024 2023 $ %

Personnel costs - operations and maintenance $ 5,014 $ 4,411 $ (603) (13.7) %

Utilities, chemicals and repairs 3,927 3,767 (160) (4.2) %

Other operations and maintenance expenses 4,785 4,491 (294) (6.5) %

Total operations and maintenance expense 13,726 12,669 (1,057) (8.3) %

Personnel costs - general and administrative 9,173 8,684 (489) (5.6) %

Professional fees 1,687 2,018 331 16.4 %

Other general and administrative expenses 6,022 5,934 (88) (1.5) %

Total general and administrative expense 16,882 16,636 (246) (1.5) %

Depreciation and amortization 12,720 11,437 (1,283) (11.2) %

Total operating expenses $ 43,328 $ 40,742 $ (2,586) (6.3) %

Operations and Maintenance – Operations and maintenance costs, consisting of personnel costs, production costs (primarily chemicals and purchased electrical power), maintenance costs, and property tax, increased approximately $1.8 million, or 16.3%, to $12.7 million for the year ended December 31, 2023 compared to $10.9 million for the year ended December 31, 2022.

Total personnel expenses increased approximately $0.9 million, or 25.7%, to $4.4 million for the year ended December 31, 2023 compared to $3.5 million for the year ended December 31, 2022.

The increase was primarily attributable to the Farmers acquisition in February 2023, increased medical costs, an increase in headcount, and a cost of living adjustment that impacted five months of 2022 as compared to all months of 2023.

Utility power and related expenses increased $0.4 million to $2.7 million for the year ended December 31, 2023 compared to $2.3 million for the same period in 2022.

The additional power costs were attributable to increased pump usage related to escalated consumption and additional connections, from both the Farmers acquisition and organic growth.

Contract services increased $0.2 million to $1.6 million for the year ended December 31, 2023 from $1.4 million for the year ended December 31, 2022.

The increase was primarily due to increased costs for billing software related to the additional connections period over period, cloud storage services, and billing distribution services as a result of additional customers.

Chemicals, consumables and supplies increased $0.2 million to $0.7 million for the year ended December 31, 2023 from $0.5 million for the year ended December 31, 2022.

The increase is primarily attributable to higher consumption driving the need for more chemicals, consumables and supplies, increased prices as a result of inflation, and the Farmers acquisition.

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General and Administrative – General and administrative costs include the day-to-day expenses of office operations, personnel costs, legal and other professional fees, insurance, rent, and regulatory fees.

These costs increased $0.5 million, or 3.1%, to $16.6 million for the year ended December 31, 2023 compared to $16.1 million for the year ended December 31, 2022.

Personnel related costs increased $1.1 million, or 17.3%, to $7.5 million for the year ended December 31, 2023 compared to $6.4 million for the year ended December 31, 2022.

The increase was primarily related salary and wage increases as a result of increased personnel, higher medical expenses, and a cost of living adjustment.

Information technology expenses increased $0.2 million, or 25.0%, to $1.0 million for the year ended December 31, 2023 compared to $0.8 million for the year ended December 31, 2022.

The increase was substantially due to higher costs related to service agreements and software licenses.

Board compensation expense increased $0.2 million, or 41.1%, to $0.5 million for the year ended December 31, 2023 compared to $0.3 million for the year ended December 31, 2022.

The increase was primarily due to the change in our stock price during the year ended December 31, 2023 compared to the year ended December 31, 2022.

Regulatory expense decreased $0.3 million, or 76.7%, to $0.1 million for the year ended December 31, 2023 compared to $0.4 million for the year ended December 31, 2022.

The decrease was primarily attributable to expenses incurred related to the substantial rate case activity in 2022 that did not occur in 2023.

Professional fees expenses decreased $0.6 million, or 21.6%, to $2.0 million for the year ended December 31, 2023 compared to $2.6 million for the year ended December 31, 2022.

The decrease was primarily related to legal fees incurred for acquisition related matters during 2022 that did not occur in 2023.

Deferred compensation expense decreased $0.4 million, or 21.0%, to $1.2 million for the year ended December 31, 2023 compared to $1.6 million for the year ended December 31, 2022.

The decrease resulted primarily from vesting related expenses of restricted stock awards that occurred in 2022 and not in 2023 in addition to fully exhausted option expenses in August 2023, all partially offset by the change in the stock price impacting certain valuations during the year ended December 31, 2023 as compared to the year ended December 31, 2022.

Refer to Note 13 — “Deferred Compensation Awards” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional information.

Depreciation and amortization - Depreciation and amortization expense increased $1.5 million, or 15.6%, to $11.4 million for the year ended December 31, 2023, compared to $9.9 million for the year ended December 31, 2022.

The increase was primarily driven by increased depreciation due to the increase in fixed assets, $0.4 million of which was attributable to depreciation of the Southwest Plant in Maricopa, Arizona.

Approximately $0.2 million of the depreciation for the year ended December 31, 2023 was attributable to the Farmers acquisition.

Other Expense – Other expense totaled $1.4 million for both years ended December 31, 2023 and 2022.

The increase of $0.1 million in other expense was related to a $0.1 million decrease in income associated with Buckeye growth premiums as a result of fewer new meter connections in the area, an increase in interest expense of $0.1 million, and a $0.1 million increase in other expense, offset by an increase in the equity portion of allowance for funds used during construction of $0.3 million for the year ended December 31, 2023.

Income Tax Expense – Income tax expense of $2.9 million was recorded for the year ended December 31, 2023 compared to $0.9 million for the year ended December 31, 2022.

During the year ended December 31, 2022, the Company recorded a tax benefit of approximately $0.7 million from the reversal of the regulatory liability related to Rate Decision No.

Also contributing to the increase in income tax expense was higher pre-tax income for the year ended December 31, 2023.

Net Income – Net income totaled $8.0 million for the year ended December 31, 2023 compared to net income of $5.5 million for the year ended December 31, 2022.

The $2.5 million increase was primarily attributable to growth in operating revenue as a result of escalated consumption and increased rates related to Rate Decision No.

78644, the recognition of $2.8 million of ICFA related revenue, and operating revenue of $1.1 million resulting from the Farmers acquisition in February 2023, partially offset by an increase in operating expenses of approximately $1.8 million, higher depreciation expenses of $3.8 million, and increased tax expense of $1.9 million.

Outstanding Share Data

As of March 6, 2024, there were 24,175,241 shares of the Company’s common stock outstanding and stock-based awards outstanding to acquire an additional 425,884 shares of the Company’s common stock.

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Operations and Maintenance – Operations and maintenance expenses primarily consist of personnel costs, production costs (primarily chemicals and purchased electrical power), maintenance costs, and property tax.

The increase in personnel costs was primarily attributable to higher salary and wage costs of $0.3 million and increased medical costs of $0.3 million.

Higher utilities, chemicals and repairs were primarily the result of increased costs of power purchased to operate pumps and other related equipment.

The increase in other operations and maintenance expenses was primarily driven by higher phone, internet and IT services of $0.3 million.

General and Administrative – General and administrative expenses primarily consist of the day-to-day expenses of office operations, personnel costs, legal and other professional fees, insurance, rent, and regulatory fees.

Personnel costs included in general and administrative expenses increased as a result of higher salary and wages costs of $0.5 million, increased hiring and moving costs of $0.4 million and escalated medical costs of $0.1 million.

Partially offsetting these personnel costs was a $0.2 million decrease in all other personnel costs and a $0.2 million decrease in deferred compensation.

Refer to Note 15 — “Share-based Compensation” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional information.

The decrease in professional fees was primarily attributable to a $0.2 million decrease in acquisition related fees and a $0.2 million decrease in other legal fees, all of which was partially offset by a $0.1 million increase in audit and tax preparation fees.

Depreciation and amortization - The increase for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was substantially attributable to a 10.0% increase in depreciable fixed assets.

Other Expense – The increase in other expense was substantially attributable to a $0.3 million increase in interest expense, net of interest income, primarily due to the issuance of 6.91% Senior Secured Notes in January 2024 (the “6.91% Notes”), and losses on the disposal of assets resulting in $0.4 million of additional expense, which was partially offset by higher income associated with Buckeye growth premiums of $0.5 million that resulted from additional new meter connections in the area.

Refer to Note 19 — “Other, Net” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional information regarding the Buckeye growth premiums.

Income Tax Expense – The primary driver for the decrease in income tax expense was lower pre-tax income for the year ended December 31, 2024 as compared to the year ended December 31, 2023, primarily as a result of ICFA revenue recognized in 2023 that did not recur in 2024 as well as higher operating expenses.

Liquidity and Capital Resources

The Company’s capital resources are provided by internally generated cash flows from operations as well as debt and equity financing.

The Company’s capital resources are primarily provided by internally generated cash flows from operations, debt and equity financing and certain government grants.

External debt financing is provided primarily through the issuance of long-term debt or utilization of the Company’s $15.0 million Revolver.

Additionally, its regulated utility subsidiaries receive advances and contributions from customers, home builders, and real estate developers to partially fund construction necessary to extend service to new areas.

Significant sources of funds from historical financing activity included:

Sales of Equity Securities

The Company has historically completed multiple equity raises through sales of its common stock in both public and private offerings, including the recent transaction below.

The Company received gross proceeds of approximately $2.8 million from the offering.

Refer to Note 9 - “Equity” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional details.

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% Notes due on January 3, 2034.

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

Refer to Note 10 - “Debt” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional details.

WIFA Grant and Note

In December 2023, the Company’s GW-Farmers utility was awarded a $1.6 million grant from WIFA to replace manual read meters with advanced metering infrastructure smart meters.

For the year ended December 31, 2024, the Company received $0.8 million in award disbursements under the WIFA grant.

In April 2024, the Company’s Global Water - Rincon Water Company, Inc.

utility (now part of GW-Saguaro) entered into a loan agreement with WIFA for a 4.911% WIFA Note (the “WIFA Note”) in the aggregate principal amount of $2.4 million, maturing April 20244.

The Company intends to use the proceeds from the WIFA Note to improve the utility’s infrastructure, including enhancements to the fluoride treatment system and other projects.

A portion of the WIFA Note is forgivable, which the Company accounts for as CIAC.

For the year ended December 31, 2024, the Company received approximately $2.1 million in disbursements under the WIFA Note.

Refer to Note 1 - “Description of Business, Basis of Presentation, Significant Accounting Policies, and Recent Accounting Pronouncements” and Note 10 - “Debt” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional details on the WIFA grant and WIFA Note.

The Company maintains a revolving credit facility with Northern Trust pursuant to a loan agreement entered into between the parties (as amended, the “Northern Trust Loan Agreement”).

On July 1, 2024, the Company and Northern Trust entered into a fifth amendment to the Northern Trust Loan Agreement, which further amended the scheduled maturity date for the Revolver from July 1, 2025 to July 1, 2026.

Pursuant to the Northern Trust Loan Agreement, the maximum principal amount available for borrowing under the Revolver is $15.0 million with amounts outstanding bearing interest, payable monthly, at a rate equal to the Secured Overnight Financing Rate (SOFR) plus 2.00%.

As of December 31, 2024, the Company had no outstanding borrowings under the Revolver.

Refer to Note 10 - “Debt” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional details.

Senior Secured Notes

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 Notes carry a principal balance of $28.8 million and bear 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 $72.8 million and bear an interest rate of 4.58% over a 20-year term, with the principal payment due on June 15, 2036 (the “Series B Notes” and collectively with the Series A Notes and the 6.91% Notes, the “Senior Secured Notes”).

Refer to Note 10 - “Debt” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional details.

The Company uses capital resources primarily to:

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Such recovery will take place over an extended period of time because recovery through rate increases is subject to regulatory lag.

As of December 31, 2023, the Company has no notable near-term cash expenditures, other than the principal payments for its Series B senior secured notes in the amount of $1.9 million due in both June 2024 and December 2024.

While specific facts and circumstances could change, the Company believes that with the cash on hand and the ability to draw on its $15.0 million revolving line of credit, it will be able to generate sufficient cash flows to meet its operating cash flow requirements and capital expenditure plan, as well as remain in compliance with its debt covenants, for the next twelve months and beyond.

In March 2014, the Company initiated a dividend program to declare and pay a monthly dividend.

On November 30, 2024, the Company announced a monthly dividend increase from 0.02483 per share (0.29796 per share annually) to 0.02508 per share (0.30096 per share annually).

Although the Company expects that monthly dividends will be declared and paid for the foreseeable future, the declaration of any dividends is at the discretion of the Company’s board of directors and is subject to legal requirements and debt service ratio covenant requirements (refer to “—Senior Secured Notes” and “—Revolving Credit Line”).

As of December 31, 2024, the Company has no notable near-term cash expenditures, other than the anticipated acquisition of seven isolated public water systems from the City of Tucson for a purchase price of $8.4 million and the principal payments for its Series B Notes in the amount of $1.9 million due in both June 2025 and December 2025.

While specific facts and circumstances could change, the Company believes that with the cash on hand and the ability to draw on its $15.0 million Revolver, it will be able to generate sufficient cash flows to meet its operating cash flow requirements and capital maintenance needs, whilst remaining in compliance with its debt covenants for the next twelve months and beyond.

In addition, the Company may choose to raise additional funds from time to time through equity or debt financing agreements, which may or may not be needed for additional working capital, capital expenditures and/or strategic acquisitions for 2025 and beyond.

However, there are currently no commitments in place for future financing, and there can be no assurance that we will be able to obtain funds on commercially acceptable terms, if at all.

Additional issuances of equity or convertible debt securities will result in dilution to our stockholders.

The Company maintains a monthly dividend program.

On November 27, 2024, the Company announced a monthly dividend increase to $0.02533 per share ($0.30396 per share annually) from $0.02508 per share ($0.30096 per share annually).

Cash from Operating Activities

Cash flows provided by operating activities are used for operating needs and to meet capital expenditure requirements.

The Company’s future cash flows from operating activities will be affected by economic utility regulation, infrastructure investment, growth in service connections, customer usage of water, compliance with environmental health and safety standards, production costs, weather, and seasonality.

For the year ended December 31, 2023, net cash provided by operating activities totaled approximately $25.4 million compared to $23.3 million for the year ended December 31, 2022.

The $2.1 million increase in cash from operating activities was primarily driven by the improvement in net income and increased depreciation expense for the year ended December 31, 2023 compared to the year ended December 31, 2022, as well as an increase in current liabilities for 2023 as compared to the prior year.

All of which was partially offset by an overall decrease in noncurrent liabilities largely attributable to the reduction of deferred revenue - ICFA resulting from revenue recognition during 2023 that did not occur during 2022.

The Company’s future cash flows from operating activities will be affected by economic utility regulation, growth in service connections, customer usage of water, compliance with environmental health and safety standards, production costs, weather, and seasonality.

For the year ended December 31, 2024, net cash provided by operating activities totaled $21.8 million compared to $25.4 million for the year ended December 31, 2023.

The $3.6 million decrease in cash from operating activities was primarily driven by an increase other noncurrent liabilities for year ended December 31, 2024, as well as lower net income in the year ended December 31, 2024 compared to the year ended December 31, 2023.

Cash from Investing Activities

The net cash used in investing activities totaled approximately $32.5 million for the year ended December 31, 2024 compared to $28.6 million for the year ended December 31, 2023.

The $5.6 million decrease in cash used in investing activities was primarily driven by a decrease in capital expenditures of $11.7 million for the year ended December 31, 2023 compared to the year ended December 31, 2022, partially offset by the $6.2 million cash paid for the acquisition of Farmers (net of cash acquired) in 2023.

The $3.9 million increase in cash used in investing activities was primarily driven by an increase in capital expenditures of $10.0 million for the year ended December 31, 2024 compared to the year ended December 31, 2023, partially offset by the $6.2 million cash paid for the acquisition of GW-Farmers (net of cash acquired) in February 2023.

The Company continues to invest capital prudently in existing, core service areas where the Company is able to deploy the Total Water Management model as this includes any required maintenance capital expenditures and the construction of new water and wastewater treatment and delivery facilities.

The projected capital expenditures and other investments are subject to periodic review and revision to reflect changes in economic conditions and other factors.

As a result, the Company may adjust capital expenditures to correspond with any substantial changes in demand for housing in service areas.

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As a result, the Company may adjust capital expenditures to correspond with any substantial changes in demand for new development in its service areas.

Currently, the Company anticipates an elevated level of capital expenditures in 2025 relative to 2024.

Cash from Financing Activities

The net cash provided by financing activities totaled $0.4 million for the year ended December 31, 2023, a $4.6 million change, as compared to the $5.0 million in cash provided by financing activities for the year ended December 31, 2022.

This change was primarily driven by a decrease of $12.1 million in proceeds from the sale of stock and a $0.8 million decrease in advances in aid of construction, partially offset by an increase of $6.7 million in other contributions and a $2.3 million increase in line of credit borrowings, net of payments, for the year ended December 31, 2023.

Senior Secured Notes

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 $86.3 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 thereafter beginning December 2021.

The proceeds of the Series A Notes and the Series B Notes were primarily used to refinance the Company’s long-term tax exempt bonds, pursuant to an early redemption option at 103%, plus accrued interest, as a result of the Company’s U.S.

initial public offering of its common stock in May 2016.

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 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 December 31, 2023, the Company was in compliance with its financial debt covenants relating to the Series A Notes and the Series B Notes.

Additionally, on January 3, 2024, the Company issued $20.0 million aggregate principal amount 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”).

The 6.91% Notes will 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.

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.

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.

Debt issuance costs as of December 31, 2023 and December 31, 2022 were $0.4 million and $0.5 million, respectively.

Revolving Credit Line

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 an 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,

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(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.

Similar to the Senior Secured Notes, 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 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.

Refer to Note 11 — “Debt” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional information.

As of December 31, 2023, the Company was in compliance with its financial debt covenants under the Northern Trust Loan Agreement.

As of December 31, 2023, the Company had outstanding borrowings of approximately $2.3 million under the revolving line of credit with Northern Trust.

There were approximately $25,000 and $9,812 unamortized debt issuance costs as of December 31, 2023 and December 31, 2022, respectively.

Refer to Note 11 — “Debt” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional information.

Other Financing Activity

The Company received gross proceeds of approximately $2.8 million from the offering.

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.

The net cash provided by financing activities totaled $17.1 million for the year ended December 31, 2024, an $16.7 million increase, as compared to the $0.4 million in cash provided by financing activities for the year ended December 31, 2023.

This increase was primarily driven by the $20 million received from the senior secured notes issuance in January 2024 and $2.1 million borrowings under our 2024 WIFA loan in the third quarter of 2024, partially offset by $3.9 million of repayments on the Company’s revolving line of credit in the year ended December 31, 2024.

Insurance Coverage

The Company carries various property, casualty, and financial insurance policies with limits, deductibles, and exclusions consistent with industry standards.

However, insurance coverage may not be adequate or available to cover unanticipated losses or claims.

However, insurance coverage may not be adequate or available to cover unanticipated losses

The Company is self-insured to the extent that losses are within the policy deductible or exceed the amount of insurance maintained.

Such losses could have a material adverse effect on the Company’s short-term and long-term financial condition and the results of operations and cash flows.

Contractual Obligations

Debt Covenants

The Company’s Senior Secured Notes and Revolver (collectively, the “debt securities”) 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.

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

Further, the foregoing covenants are subject to various qualifications and limitations as set forth in each of the debt securities’ respective agreements.

The debt securities are subject to certain customary events of default after which they 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 December 31, 2024, the Company was in compliance with its financial debt covenants under the Senior Secured Notes and the Northern Trust Loan Agreement.

Contractual Obligations and Off-Balance Sheet Arrangements

In the course of normal business activities, the Company enters into a variety of contractual obligations and commitments.

Some result in direct obligations on the Company’s balance sheet while others are firm commitments or commitments based on uncertainties and undetermined execution times.

The following table summarizes the Company’s contractual cash obligations as of December 31, 2023 (in thousands):

Table of Con tents

Payments Due By Period

Total Less than 1 Year 2 - 3 Years 3 - 5 Years More than 5 Years

Long term debt obligations $ 125,221 $ 3,836 $ 7,682 $ 36,416 $ 77,287

Interest on long-term debt (1)

$ 50,199 5,406 11,691 10,359 22,743

Finance lease obligation $ 691 242 381 68 —

Interest on capital lease $ 65 29 32 4 —

Operating lease obligation $ 1,663 285 713 665 —

Interest on operating lease $ 90 42 47 1

$ 177,929 $ 9,840 $ 20,546 $ 47,513 $ 100,030

(1) Interest on the long-term debt is based on the fixed rates of the Company’s Series A Notes and the Series B Notes.

(2) In addition to these obligations, the Company pays annual refunds on AIAC over a specific period of time based on operating revenues generated from developer-installed infrastructure.

The refund amounts are considered an investment in infrastructure and eligible for inclusion in future rate base.

These refund amounts are not included in the above table because the refund amounts and timing are dependent upon several variables, including new customer connections, customer consumption levels, and future rate increases, which cannot be accurately estimated.

Portions of these refund amounts are payable annually over the next two decades, and amounts not paid by the contract expiration dates become nonrefundable and are transferred to CIAC.

Refer to Note 17 — “Commitments and Contingencies” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional details.

As of December 31, 2024 and 2023, the Company did not have any off-balance sheet arrangements.

Recent Accounting Pronouncements

A discussion of recently issued and recently issued but not yet adopted accounting pronouncements is included in Note 1 – “Description of Business, Basis of Presentation, Significant Accounting Policies, and Recent Accounting Pronouncements” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report and is incorporated herein by reference.

Critical Accounting Estimates

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Accordingly, changes in the estimates, assumptions, and other judgments applied to these accounting policies could have a significant impact on the Company’s financial condition and results of operations as reflected in its financial statements.

Accounting for Rate Regulation

Because the Company’s subsidiaries are regulated businesses, the Company is subject to the authoritative guidance for accounting for the effects of certain types of regulation.

Application of this guidance requires accounting for certain transactions in accordance with regulations adopted by the ACC.

Accounting for Rate-Regulated Subsidiaries

ASC Topic 980, Regulated Operations (“ASC 980”) provides that rate-regulated subsidiaries account for and report assets and liabilities consistent with the economic effect of the way in which regulators establish rates, if the rates established are designed to recover the costs of providing the regulated service and if the competitive environment makes it probable that such rates can be billed and collected.

As the Company’s subsidiaries are businesses regulated by the ACC, the Company is subject to ASC 980 for accounting for the effects of this regulation.

Utility companies defer costs and credits on the balance sheet as regulatory assets and liabilities when it is probable that those costs and credits will be recognized in the ratemaking process in a period different from the period in which they would have been reflected in income by an unregulated company.

These deferred regulatory assets and liabilities are then reflected in the income statement in the period in which the same amounts are reflected in the rates charged for service.

When the Company’s regulated subsidiaries file rate cases, their capital assets, operating costs and other matters are subject to review, and disallowances may occur, and the Company may be required to write-off related regulatory assets that are not specifically recoverable and determine if other assets might be impaired.

See Note 2 – “Regulatory Decision

and Related Accounting and Policy Changes” of the Notes to the Consolidated Financial Statements included in Part II,

Item 8 of this report for more information regarding the Company’s rate proceedings.

Management continually evaluates the anticipated recovery, settlement or refund of regulatory assets, liabilities, and revenues subject to refund and provides for allowances and/or reserves that it believes to be necessary.

In the event that management’s assessment as to the probability of the inclusion in the ratemaking process is incorrect, the associated regulatory asset or liability will be adjusted to reflect the change in assessment or the impact of regulatory approval of rates.

Table of Con tents

When the Company’s regulated subsidiaries file rate cases, their capital assets, operating costs and other matters are subject to review.

During review, the ACC could disallow recovery of certain costs, and the Company may be required to write off related regulatory assets that are not specifically recoverable.

See Note 3 – “Regulatory Matters” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for more information regarding the Company’s rate proceedings.

Management continually evaluates the anticipated recovery, settlement or refund of regulatory assets, liabilities, and revenue subject to refund and provides for allowances and/or reserves that it believes to be necessary.

event that management’s assessment as to the probability of the inclusion in the ratemaking process is incorrect, the associated regulatory asset or liability will be adjusted to reflect the change in assessment or the impact of regulatory approval of rates.

In the event that regulation significantly changes the opportunity for the Company to recover its costs in the future, all or a portion of its regulated operations may no longer meet the criteria for the application of ASC 980.

In such event, a write-down of all or a portion of the Company’s existing regulatory assets and liabilities could result.

If transition cost recovery is approved by the appropriate regulatory bodies that would meet the requirements under GAAP for continued accounting as regulatory assets and liabilities during such recovery period, the regulatory assets and liabilities would be reported at the recoverable amounts.

If the Company were unable to continue to apply the provisions of ASC 980, it would be required to apply the provisions of ASC 980-20, Discontinuation of Rate-Regulated Accounting .

In management’s opinion, the Company’s regulated subsidiaries will be subject to ASC 980 for the foreseeable future.

Estimation of income taxes includes an evaluation of the recoverability of deferred tax assets based on an assessment of the Company’s ability to utilize the underlying future tax deductions against future taxable income before they expire.

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Additionally, an evaluation of the recoverability of deferred tax gains is based on an assessment of the Company’s ability to fully utilize the deferred tax gain before it expires.

The Company’s assessment is based upon the ability to acquire qualifying properties.

The Company’s assessment is based upon its ability to acquire qualifying properties.

If the assessment of the Company’s ability to fully utilize the deferred tax gain changes, the Company would be required to recognize income tax expense in the period in which the deferred tax gain expires.

Acquisitions are accounted for as a business combination under ASC 805, “Business Combinations” and the purchase price is allocated to the acquired utility assets and liabilities based on the acquisition-date fair values.

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

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

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

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

Substantially all of the Company’s operations are subject to the rate-setting authority of the ACC and are accounted for pursuant to accounting guidance for regulated operations under ASC 980, “Regulated Operations.” As such, the fair value of the acquired assets and liabilities subject to these rate-setting provisions approximates the pre-acquisition carrying values and does not reflect any net valuation adjustments.

Substantially all of the Company’s operations are subject to the rate-setting authority of the ACC and are accounted for pursuant to accounting guidance for regulated operations under ASC 980.

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

In some acquisitions, the Company is required to pay the seller an amount for each new account established in the service area, up to an agreed upon aggregate amount, referred to as a growth premium.

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The Company accounts for the growth premium as additional consideration to the purchase, and the fair value of the growth premium liability is calculated using a discounted cash flow technique, which utilizes unobservable inputs developed by the Company using significant judgement in estimates and assumptions.

Significant inputs used in the fair value calculation are follows:

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.

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

Recent Accounting Pronouncements

A discussion of recently issued and recently issued but not yet adopted accounting pronouncements is included in Note 1 – “Basis of Presentation, Corporate Transactions, Significant Accounting Policies, and Recent Accounting Pronouncements - Recent Accounting Pronouncements” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report and is incorporated herein by reference.

Off Balance Sheet Arrangements

As of December 31, 2023 and 2022, the Company did not have any off-balance sheet arrangements.

Qualitative and Quantitative Disclosures About Market Risk

Not applicable.

Table of Con tents

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-K

Item 7. Management’s Discussion and Analysis