Global Water Resources, Inc. 10-K

ITEM 8. Financial Statements and Supplementary Data Index to Consolidated Financial Statements REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM [PCAOB ID: 34] 52 Consolidated Balance Sheets 54 Consolidated Statements of Operations 55 Consolidated Statements of Shareholders’ Equity 56 Consolidated Statements of Cash Flows 57 Notes to the Consolidated Financial Statements 58 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, SIGNIFICANT ACCOUNTING POLICIES, AND RECENT ACCOUNTING PRONOUNCEMENTS 58 2. ACQUISITIONS 63 3. REGULATORY MATTERS 64 4. REVENUE RECOGNITION 66 5. EARNINGS PER SHARE 69 6. UTILITY PLANT 69 7. TAXES, PREPAID EXPENSES AND OTHER CURRENT ASSETS 70 8. GOODWILL AND INTANGIBLE ASSETS 70 9. EQUITY 71 10. DEBT 72 11. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES 74 12. LEASES 74 13. FAIR VALUE 76 14. INCOME TAXES 76 15. SHARE-BASED COMPENSATION 78 16. TRANSACTIONS WITH RELATED PARTIES 81 17. COMMITMENTS AND CONTINGENCIES 81 18. BUSINESS SEGMENT INFORMATION 82 19. OTHER, NET 84 20. SUPPLEMENTAL CASH FLOW INFORMATION 84 -51- Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM [PCAOB ID: 34 ] To the shareholders and the Board of Directors of Global Water Resources, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Global Water Resources, Inc. and subsidiaries (the "Company") as of December 31, 2024 and 2023, the related consolidated statements of operations, shareholders' equity, and cash flows, for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Regulatory Matters – Impact of Rate Regulation on the Financial Statements — Refer to Note 2 to the financial statements Critical Audit Matter Description The Company’s regulated utilities are subject to rate regulation by the Arizona Corporation Commission (the “ACC”). The ACC has jurisdiction with respect to the rates charged to water and wastewater service customers in Arizona. Management has determined it meets the requirements under accounting principles generally accepted in the United States of America to prepare its financial statements applying the specialized rules to account for the effects of cost-based rate regulation. Accounting for the economic effects of rate regulation has a pervasive effect on the financial statements. The ACC establishes rates designed to permit the recovery of the cost of service and a return on investment. Decisions to be made by the ACC in the future will impact the accounting for regulated operations, including decisions about the amount of allowable costs and return on invested capital included in rates and any refunds that may be required. While the Company has indicated it expects to recover costs from customers through regulated rates, there is a risk that the ACC will not approve (1) full recovery of the costs of providing utility service, or (2) full recovery of all amounts invested in the utility business and a reasonable return on that investment. -52- Table of Contents We identified the impact of rate regulation as a critical audit matter due to the significant judgments that underlie the Company’s regulatory account balances and disclosures and the high degree of subjectivity involved in assessing the impact of future regulatory orders on the financial statements. Management judgments include assessing the likelihood of (1) recovery in future rates of incurred costs, and (2) a refund to customers. Given that management’s accounting judgments are based on assumptions about the outcome of decisions by the ACC, auditing these judgments required specialized knowledge of accounting for rate regulation and the rate setting process due to its inherent complexities. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the uncertainty of future decisions by the ACC included the following, among others: • We read relevant regulatory orders and settlements issued by the ACC for the Company and other public utilities in Arizona, regulatory statutes, procedural memorandums, filings made by interveners and utilities, and other publicly available information to assess the likelihood of recovery in future rates or a future reduction in rates based on precedents of the ACC’s treatment of similar costs under similar circumstances. We evaluated the external information and compared such information to management’s regulatory asset and liability balances for completeness. • We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments. /s/ DELOITTE & TOUCHE LLP Tempe, Arizona March 5, 2025 We have served as the Company's auditor since 2003. -53- Table of Contents GLOBAL WATER RESOURCES, INC. Consolidated Balance Sheets (in thousands, except share and per share amounts) December 31, 2024 December 31, 2023 ASSETS UTILITY PLANT: Utility plant $ 512,993 $ 465,688 Less accumulated depreciation ( 153,614 ) ( 142,367 ) Net utility plant 359,379 323,321 CURRENT ASSETS: Cash and cash equivalents 9,047 3,087 Accounts receivable, net of allowance for credit losses of $ 163 and $ 122 , respectively 3,233 3,388 Unbilled revenue 3,109 2,755 Taxes, prepaid expenses and other current assets 4,080 2,494 Total current assets 19,469 11,724 OTHER ASSETS: Goodwill 9,486 10,820 Intangible assets, net 8,427 8,841 Regulatory assets 4,032 2,898 Restricted cash 2,109 1,676 Right-of-use assets 2,157 1,741 Other noncurrent assets 78 74 Total other assets 26,289 26,050 TOTAL ASSETS $ 405,137 $ 361,095 CAPITALIZATION AND LIABILITIES CAPITALIZATION Common stock, $ 0.01 par value, 60,000,000 shares authorized; 24,570,994 and 24,492,918 shares issued as of December 31, 2024 and December 31, 2023, respectively. $ 240 $ 240 Treasury stock, 344,978 and 317,677 shares at December 31, 2024 and December 31, 2023, respectively. ( 2 ) ( 2 ) Additional paid-in capital 47,366 47,585 Retained earnings — 797 Total shareholders’ equity 47,604 48,620 Long-term debt, net 118,518 101,341 Total Capitalization 166,122 149,961 CURRENT LIABILITIES: Accounts payable 2,051 1,027 Customer and meter deposits 1,609 1,628 Long-term debt, current portion 3,926 3,880 Leases, current portion 871 553 Accrued expenses and other current liabilities 13,801 7,129 Total current liabilities 22,258 14,217 OTHER LIABILITIES: Line of credit — 2,315 Long-term lease liabilities 1,450 1,370 Deferred revenue - ICFA 21,517 19,656 Regulatory liabilities 5,386 6,076 Advances in aid of construction 126,467 111,529 Contributions in aid of construction, net 36,834 32,823 Deferred income tax liabilities, net 9,698 8,284 Other noncurrent liabilities 15,405 14,864 Total other liabilities 216,757 196,917 Commitments and contingencies (Refer to Note 17) TOTAL CAPITALIZATION AND LIABILITIES $ 405,137 $ 361,095 See accompanying notes to the consolidated financial statements -54- Table of Contents GLOBAL WATER RESOURCES, INC. Consolidated Statements of Operations (in thousands, except share and per share amounts) Years Ended December 31, 2024 2023 REVENUE: Water service $ 26,064 $ 24,860 Wastewater and recycled water service 26,628 25,382 Unregulated revenue — 2,786 Total revenue 52,692 53,028 OPERATING EXPENSES: Operations and maintenance 13,726 12,669 General and administrative 16,882 16,636 Depreciation and amortization 12,720 11,437 Total operating expenses 43,328 40,742 OPERATING INCOME 9,364 12,286 OTHER INCOME (EXPENSE): Interest income 946 52 Interest expense ( 6,098 ) ( 4,882 ) Other, net 3,650 3,398 Total other expense ( 1,502 ) ( 1,432 ) INCOME BEFORE INCOME TAXES 7,862 10,854 INCOME TAX EXPENSE ( 2,073 ) ( 2,872 ) NET INCOME $ 5,789 $ 7,982 Basic earnings per common share $ 0.24 $ 0.33 Diluted earnings per common share $ 0.24 $ 0.33 Dividends declared per common share $ 0.30 $ 0.30 Weighted average number of common shares used in the determination of: Basic 24,204,706 24,044,950 Diluted 24,303,340 24,129,542 See accompanying notes to the consolidated financial statements -55- Table of Contents GLOBAL WATER RESOURCES, INC. Consolidated Statements of Shareholders’ Equity (in thousands, except share and per share amounts) Common Stock Shares Common Stock Treasury Stock Shares Treasury Stock Additional Paid-in Capital Retained Earnings Total Equity BALANCE - December 31, 2022 24,095,139 $ 239 ( 224,093 ) $ ( 2 ) $ 44,157 $ — $ 44,394 Dividend declared $ 0.30 per share — — — — — ( 7,185 ) ( 7,185 ) Issuance of common stock 230,000 1 — — 2,727 — 2,728 Stock option exercise 167,779 — ( 93,584 ) — 239 — 239 Stock compensation — — — — 462 — 462 Net income — — — — — 7,982 7,982 BALANCE - December 31, 2023 24,492,918 240 ( 317,677 ) ( 2 ) 47,585 797 48,620 Dividend declared $ 0.30 per share — — — — ( 712 ) ( 6,586 ) ( 7,298 ) Stock option exercise 5,277 — ( 4,405 ) — 198 — 198 Stock compensation 72,799 — ( 22,896 ) — 295 — 295 Net income — — — — — 5,789 5,789 BALANCE - December 31, 2024 24,570,994 $ 240 ( 344,978 ) $ ( 2 ) $ 47,366 $ — $ 47,604 See accompanying notes to the consolidated financial statements -56- Table of Contents GLOBAL WATER RESOURCES, INC. Consolidated Statements of Cash Flows (in thousands) Years Ended December 31, 2024 2023 Cash Flows from Operating Activities: Net income $ 5,789 $ 7,982 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 12,720 11,437 Share-based compensation 1,029 1,325 Deferred income tax expense 1,473 2,394 (Gain) loss on disposal of fixed assets 309 ( 63 ) Right of use amortization 384 324 Other adjustments ( 767 ) 112 Changes in assets and liabilities Accounts receivable and other current assets ( 1,986 ) ( 994 ) Accounts payable and other current liabilities ( 915 ) ( 635 ) Other noncurrent assets 565 312 Other noncurrent liabilities 3,184 3,199 Net cash provided by operating activities 21,785 25,393 Cash Flows from Investing Activities: Capital expenditures ( 32,324 ) ( 22,312 ) Cash paid for acquisitions, net of cash acquired ( 150 ) ( 6,246 ) Other cash flows from investing activities ( 4 ) ( 40 ) Net cash used in investing activities ( 32,478 ) ( 28,598 ) Cash Flows from Financing Activities: Dividends paid ( 7,298 ) ( 7,185 ) Advances and contributions in aid of construction 10,627 1,510 Refunds of advances for construction ( 1,355 ) ( 1,171 ) Payments for taxes related to net shares settlement of equity awards ( 265 ) ( 373 ) Principal payments under finance lease ( 273 ) ( 525 ) Repayments of notes payable ( 3,923 ) ( 3,833 ) Line of credit borrowings — 2,315 Line of credit repayments ( 2,315 ) — Loan borrowings 22,357 260 Debt issuance costs paid ( 418 ) — Proceeds from sale of stock — 2,748 Other contributions — 6,700 Other financing activities ( 51 ) ( 40 ) Net cash provided by financing activities 17,086 406 Increase (Decrease) in cash, cash equivalents, and restricted cash 6,393 ( 2,799 ) Cash, cash equivalents, and restricted cash — Beginning of period 4,763 7,562 Cash, cash equivalents, and restricted cash — End of period $ 11,156 $ 4,763 See accompanying notes to the consolidated financial statements Supplemental disclosure of cash flow information: Year ended December 31, 2024 2023 Cash and cash equivalents $ 9,047 $ 3,087 Restricted cash 2,109 1,676 Total cash, cash equivalents, and restricted cash $ 11,156 $ 4,763 -57- Table of Contents GLOBAL WATER RESOURCES, INC. Notes to the Consolidated Financial Statements 1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, SIGNIFICANT ACCOUNTING POLICIES, AND RECENT ACCOUNTING PRONOUNCEMENTS Description of Business GWRI is a water resource management company that owns, operates, and manages thirty-two water, wastewater, and recycled water systems in strategically located communities, principally in metropolitan Phoenix and Tucson, Arizona. Serving more than 111,000 people in approximately 36,000 homes within the Company’s 409 square miles of ACC-designated service areas as of December 31, 2024, the Company provides water and wastewater utility service under the regulatory authority of the ACC. Approximately 89.6 % of the active service connections are customers of the Company’s GW-Santa Cruz and GW-Palo Verde utilities, which are located within a single service area. Basis of Presentation and Principles of Consolidation The Company’s consolidated financial statements have been prepared in accordance with GAAP and include the accounts of the Company and its subsidiaries. All intercompany account balances and transactions have been eliminated in consolidation. The Company prepares its financial statements in accordance with the rules and regulations of the SEC. The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Certain amounts from prior periods have been reclassified to conform to the current year presentation. The reclassification had no impact on the Company’s s results of operation, financial position or cash flows. Significant Accounting Policies Regulatory Assets and Liabilities 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 it is probable that such rates can be billed and collected. Certain expenses and credits subject to utility regulation or rate determination normally reflected in income are deferred on the Consolidated Balance Sheets and are later recognized in income as the related amounts are included in customer rates and recovered from or refunded to customers. The Company’s regulated utilities and certain other balances are subject to regulation by the ACC and are therefore subject to ASC Topic 980, Regulated Operations (“ASC 980”). The Company continually evaluates whether or not our operations are within the scope of ASC 980 and rate regulations. As part of that analysis, the Company evaluates probability of recovery for its regulatory assets. In management’s opinion, the Company’s regulated subsidiaries will be subject to regulatory accounting for the foreseeable future. Regulatory assets are amortized over the future periods that the costs are expected to be recovered. Final determination of whether a regulatory asset can be recovered is decided by the ACC in regulatory proceedings. If the Company determines that a portion of the regulatory assets is not recoverable in customer rates, the Company would be required to recognize the loss of the assets disallowed. If costs expected to be incurred in the future are currently being recovered through rates, the Company records those expected future costs as regulatory liabilities. For further discussion of regulatory assets and liabilities, see Note 3 – “Regulatory Matters.” Utility Plant Utility plant is stated at cost less accumulated depreciation provided on a straight-line basis (See Note 6 – “Utility Plant”). Depreciation rates for asset classes of utility plant are established by the ACC. The cost of additions, including betterments and replacements of units of utility fixed assets are charged to utility plant. When units of utility property are replaced, renewed, or retired, their disposal costs, less salvage proceeds, is charged to accumulated depreciation. -58- Table of Contents Depreciation of utility plant is computed based on the estimated useful lives as follows: Useful Lives Equipment 3 to 30 years Office buildings and other structures 30 years Transmission and distribution plant 10 to 50 years In addition to third party costs, direct personnel costs and indirect construction overhead costs may be capitalized. AFUDC incurred during the construction period is also capitalized as a component of the cost of the constructed assets, which represents the cost of debt and equity associated with construction activity. Expenditures for maintenance and repairs are charged to expense. Revenue Recognition—Water Service Water service revenue is recorded when service is rendered or water is delivered to customers. However, in addition to the monthly basic service charge, the determination and billing of water sales to individual customers is based on the reading of their meters, which occurs on a systematic basis throughout the month. At the end of each reporting period, amounts of water delivered to customers since the date of the last meter reading are estimated and the corresponding unbilled revenue is recorded. Water connection fees are the fees associated with the application process to set up a customer to receive utility service on an existing water meter. These fees are approved by the ACC through the regulatory process and are set based on the costs incurred to establish service including the application process, billing setup, initial meter reading, and service transfer. Because the amounts charged for water connection fees are set by the ACC and not negotiated in conjunction with the pricing of ongoing water service, the connection fees represent the culmination of a separate earnings process and are recognized when the service is provided. For both the years ended December 31, 2024 and 2023, the Company recognized $ 0.3 million in connection fees. Meter installation fees are the fees charged to developers or builders associated with installing new water meters. Certain fees for meters are regulated by the ACC and are refundable to the end customer over a period of time. Refundable meter installation fees are recorded as an AIAC liability upon receipt. Revenue Recognition—Wastewater and Recycled Water Service Wastewater and recycled water service revenue is generally recognized when service is rendered. Wastewater service is billed at a fixed monthly amount per connection, and recycled water service is billed monthly based on volumetric fees. Revenue Recognition—Unregulated Revenue Unregulated revenue represent revenue that is not subject to the ratemaking process of the ACC. Unregulated revenue is limited to revenue resulting from certain ICFAs. Refer to Note 4 – “Revenue Recognition - Unregulated Revenue” for additional information. Allowance for Credit Losses Provisions are made for doubtful accounts due to the inherent uncertainty around the collectability of accounts receivable. The allowance for credit losses is recorded as bad debt expense and is classified as general and administrative expense. The allowance for credit losses is determined considering the age of the receivable balance, type of customer (e.g., residential or commercial), payment history, as well as specific identification of any known or expected collectability issues (see Note 4 – “Revenue Recognition - Accounts Receivable and Allowance for Credit Losses”). ICFAs ICFAs are agreements with developers and homebuilders where the Company, which owns the operating utilities, provides service 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. Service provided within these agreements include coordination of construction service for water and wastewater treatment facilities as well as financing, arranging and coordinating the provision of utility service. In return, the developers and homebuilders pay the Company an agreed-upon amount per dwelling unit for the land legally described in the agreement or a portion thereof. Under ICFA agreements, the Company has a contractual obligation -59- Table of Contents to ensure physical capacity exists through its regulated utilities for the provision of water and wastewater utility service to the land when needed. This obligation persists regardless of connection growth. Fees for this service 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. The payments are non-refundable. The agreements are generally recorded against the land with the appropriate recorder’s office and must be assumed in the event of a sale or transfer of the land. The regional planning and coordination of the infrastructure in the various service areas has been an important part of the Company’s business model. Payments for ICFAs are usually received in advance. The ACC requires a HUF tariff to be established for all ICFAs that come due and are paid to the Company, which is a set amount per equivalent dwelling unit determined by the ACC based on the utility and meter size. 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. The ACC 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 CIAC once the associated utility plant is placed in service. 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 service provided within these agreements is not distinct in the context of the contract because it is highly interdependent with its regulated utilities’ ability to provide fitted capacity for water and wastewater service. The Company concluded that the goods and service provided under ICFA contracts constitute a single performance obligation. Cash and Cash Equivalents Cash and cash equivalents include all highly liquid investments in debt instruments with an original maturity of three months or less. Restricted Cash Restricted cash represents cash deposited relating to HUF tariffs, to be used towards future infrastructure costs, as well as funds set aside to settle asset retirement obligations. The following table summarizes the restricted cash balance as of December 31, 2024 and 2023 (in thousands): December 31, 2024 December 31, 2023 HUF funds $ 870 $ 822 Certificates of deposit 1,239 854 $ 2,109 $ 1,676 Income Taxes The Company utilizes the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company’s valuation allowance totaled zero as of December 31, 2024 and 2023 (see Note 14 – “Income Taxes”). -60- Table of Contents The Company evaluates uncertain tax positions using a two-step approach. Recognition (step one) occurs when it is concluded that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) determines the amount of benefit that more-likely-than-not will be realized upon settlement. Derecognition of a tax position that was previously recognized would occur when the Company subsequently determine that a tax position no longer meets the more-likely-than-not threshold of being sustained. The use of a valuation allowance as a substitute for derecognition of tax positions is prohibited, and to the extent that uncertain tax positions exist, expanded disclosures are provided. Goodwill Goodwill represents the excess purchase price over the fair value of net tangible and identifiable intangible assets acquired through acquisitions. Goodwill is not amortized, it is instead tested for impairment annually, or more often if circumstances indicate a possible impairment may exist. As required, the Company evaluates goodwill for impairment annually, and do so as of November 1 of each year, and at an interim date if indications of impairment exist. When testing goodwill for impairment, the Company may assess qualitative factors, including macroeconomic conditions, industry and market considerations, overall financial performance, and entity specific events to determine whether it is more likely than not that the fair value of an operating and reportable segment is less than its carrying amount. The Company utilizes internally developed discounted future cash flow models, third-party appraisals, or broker valuations to determine the fair value of the reporting unit. Under the discounted cash flow approach, the Company utilizes various assumptions requiring judgment, including projected future cash flows, discount rates, and capitalization rates. The estimated future cash flows are based on historical data, internal estimates, and external sources. The estimated fair value is then compared to the carrying value. If the carrying value is in excess of the fair value, an impairment charge is recorded to asset impairments within the Company’s consolidated statement of operations in the amount by which the reporting unit’s carrying value exceeds its fair value, limited to the carrying value of goodwill. Refer to Note 8 — “Goodwill and Intangible Assets” for additional information about goodwill. Intangible Assets Intangible assets not subject to amortization consist of certain permits expected to be renewable indefinitely, water rights, and certain service areas acquired in transactions which did not meet the definition of business combinations for accounting purposes, and are considered to have indefinite lives. Intangible assets with indefinite lives are not amortized but are tested for impairment annually, or more often if certain circumstances indicate a possible impairment may exist. Amortized intangible assets consist primarily of acquired ICFA and Sonoran contract rights. Refer to Note 3 – “Regulatory Matters” for additional information about ICFAs. Impairment of Long-Lived Assets Management evaluates the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. If an indicator of possible impairment exists, an undiscounted cash flow analysis would be prepared to determine whether there is an actual impairment. Measurement of the impairment loss is based on the fair value of the asset. Generally, fair value will be determined using appraisals or valuation techniques such as the present value of expected future cash flows. Debt Issuance Costs In connection with the issuance of certain of the Company’s long-term debt, the Company has incurred legal and other costs that are believed to be directly attributable to realizing the proceeds of the debt issued. These costs are netted against long-term debt and amortized as interest expense using the effective interest method over the term of the respective debt. Amortization of debt issuance costs and discounts were less than $ 0.1 million for both the years ended December 31, 2024 and 2023. AIAC and CIAC The Company has various agreements with developers, whereby funds, water line extensions, or wastewater line extensions are provided to the Company by the developers and are considered refundable AIAC. These AIAC are non-interest-bearing and are subject to refund to the developers through annual payments that are computed as a percentage of the total annual gross revenue earned from customers connected to utility service constructed under the agreement over a specified period (generally 22 years). The refundable AIAC have a carrying value of $ 127.9 million and $ 111.5 million as of December 31, 2024 and 2023, respectively. Upon the expiration of the agreements’ refunding period, the remaining balance of the AIAC becomes nonrefundable and at that time is considered CIAC. Additionally, the Company accounts for its HUF tariffs as a CIAC once the associated utility plant is placed in service. Non-cash transfers from HUF to CIAC were $ 3.9 million for the year ended December 31, 2024. CIAC are amortized as a reduction of depreciation expense over the estimated remaining life of the related -61- Table of Contents utility plant. For rate-making purposes, utility plant funded by AIAC or CIAC are excluded from rate base. There was no AIAC balance transferred to CIAC for the years ended December 31, 2024 or December 31, 2023. Fair Value of Financial Instruments ASC 820 establishes a fair value hierarchy that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The hierarchy consists of three levels, as follows: • Level 1 - Quoted market prices in active markets for identical assets or liabilities. • Level 2 - Inputs other than Level 1 that are either directly or indirectly observable. • Level 3 - Unobservable inputs developed using the Company’s estimates and assumptions, which reflect those that the Company believes market participants would use. The carrying values of cash equivalents, accounts receivables, and accounts payable approximate fair value due to the short-term maturities of these instruments. See Note 10 – “Debt” for information as to the fair value of long-term debt. Portions of these non-interest-bearing instruments are payable annually through 2048 and amounts not paid by the contract expiration dates become nonrefundable. Their relative fair values cannot be accurately estimated because future refund payments depend on several variables, including new customer connections, customer consumption levels, and future rate increases. However, the fair value of these amounts would be less than their carrying value due to the non-interest-bearing feature. Business Combinations Business combinations 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 (“ASC 820”), which allows for the characteristics of the acquired assets and liabilities to be considered, particularly restrictions on the use of the asset and liabilities. Regulation is considered both a restriction on the use of the assets and liabilities, as it relates to inclusion in rate base, and a fundamental input to measuring the fair value in a business combination. Substantially all the Company’s operations are subject to the rate-setting authority of the ACC and are accounted for pursuant to accounting guidance for regulated operations. The rate-setting and cost recovery provisions currently in place for the Company’s regulated operations provide revenue derived from costs, including a return on investment of assets and liabilities included in rate base. As such, the fair value of the Company’s assets and liabilities subject to these rate-setting provisions approximates the pre-acquisition carrying values and does not reflect any net valuation adjustments. Governmental Funding & Assistance Occasionally, the Company participates in various U.S. federal, state and local programs under which governmental funding is received to offset certain specified costs of the Company associated with water conservation efforts, the provision of utility service or facilities in designated locations (such as unserved or underserved rural areas), and the replacement and upgrading of outdated equipment with advanced metering infrastructure. In certain instances, our receipt of awarded governmental funds may be conditioned on the Company meeting specified progress and inspection milestones during construction of associated utility infrastructure projects. Certain programs are subject to audits of compliance with program commitments and, subject to the outcomes of those assessments, the Company may be required to reimburse the government entity for cash previously received, or, in some cases, pay a penalty. The Company evaluates each program and establishes a liability under the principles of ASC 450 if it is probable support payments will be recaptured or a penalty will be imposed. 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 to improve the utility’s infrastructure, including enhancements to the fluoride treatment system and other projects. A portion of the loan is forgivable, which the Company accounts for as CIAC. Refer to Note 10 - “Debt,” for additional information. 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. Disbursement of the award occurs through one or more reimbursement requests submitted by the Company for costs incurred and activities performed between July 6, 2022 and June 30. 2026. Award payments are accounted for as CIAC. For the year ended December 31, 2024, the Company received $ 0.9 million in award disbursements. The Company received no award disbursements in 2023. -62- Table of Contents Recent Accounting Pronouncements Recently Issued Accounting Pronouncements 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. The Company is currently evaluating the impacts this amendment will have on its income tax disclosures and intends to adopt the pronouncement for its Annual Report on Form 10-K for the year ending December 31, 2025. In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) . This pronouncement requires disaggregated disclosure of income statement expenses for public business entities. In January 2025, the FASB issued ASU 2025-01, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-30): Clarifying the Effective Date , which clarified the effective date of this standard. This standard requires disclosure in tabular format of disaggregation of relevant expense captions presented on the income statement by certain natural expense categories with certain related qualitative disclosures within the notes to the financial statements. The ASU does not change the expense captions an entity presents on the income statement. The standard is effective for fiscal years beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. The Company is currently evaluating the impacts this amendment will have on its required disclosures. Recently Adopted Accounting Pronouncements 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. The Company adopted this pronouncement and the related disclosures for the year ended December 31, 2024 and revised its segment reporting disclosures in Note 18 — “Business Segment Information” on a retrospective basis. 2. ACQUISITIONS 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. Acquisition of Farmers Water Company On February 1, 2023, the Company acquired all of the equity of Farmers Water Co., an operator of a water utility with service area in Pima County, Arizona, for a total consideration of $ 7.6 million consisting of $ 6.2 million in cash plus a growth premium estimated at $ 1.4 million. The acquisition added approximately 3,300 active water service connections and approximately 21.5 square miles of service area in Sahuarita, Arizona and the surrounding unincorporated area of Pima County at the time of acquisition. Under the terms of the purchase agreement, the Company is obligated to pay the seller a growth premium equal to $ 1,000 for each new account established in the service area, up to a total aggregate growth premium of $ 3.5 million. The obligation period of the growth premium commences on the closing date of the acquisition and ends (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. The assumptions and estimates used in determining the contingent consideration related to the growth premium are consistent with previous acquisitions. As of December 31, 2024, the remaining liability was $ 1.2 million. -63- Table of Contents 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: Cash $ 28 Accounts receivable 72 Utility plant (excluding CWIP) 10,386 CWIP 126 Prepaids 8 Intangibles (1) 7 Other taxes ( 35 ) Other accrued liabilities ( 55 ) Developer deposits ( 22 ) AIAC ( 1,481 ) CIAC ( 7,322 ) Total net assets assumed 1,712 Goodwill 5,863 Total purchase price $ 7,575 (1) Intangibles consist of franchise contract rights and organization costs. Refer to Note 8 — “Goodwill and Intangible Assets” for additional information regarding the intangibles. The goodwill reflects the value paid primarily for the long-term potential for connection growth as a result of the Company’s increased scale and diversity, opportunities for synergies, and an improved risk profile. 3 . REGULATORY MATTERS Regulatory Assets and Liabilities The Company’s regulatory assets and liabilities consist of the following (in thousands): Recovery Period December 31, 2024 December 31, 2023 Regulatory Assets Acquisition premiums 25 or 50 years $ 2,589 $ 1,269 Income taxes recoverable through future rates Various 1,326 1,404 Other regulatory assets Various 117 225 Total regulatory assets $ 4,032 $ 2,898 Regulatory Liabilities Income taxes payable through future rates $ 468 $ 488 Acquired ICFAs 4,243 4,896 Depreciation adjustment 675 692 Total regulatory liabilities $ 5,386 $ 6,076 Acquisition Premiums In Decision No. 79383 (June 20, 2024), the ACC authorized acquisition premiums for the following entities: GW- Francesca Water Company, Inc., GW- Las Quintas Serenas Water Company, Inc., GW- Lyn Lee Water Company, Inc., GW-Mirabell Water Company, Inc., GW-Rincon Water Company, Inc., and GW- Tortolita Water Company, Inc.. These entities were consolidated to form GW-Saguaro. The acquisition premiums approved for GW-Saguaro totaled approximately $ 1.8 million at the time of the decision. Decision No. 79383 also approved a 50 -year amortization period for recovery of the acquisition premiums beginning July 2024. Decision No. 78644, issued on July 27, 2022, approved acquisition premiums related to the acquisitions of the Company’s GW-Turner utility as well as those of Global Water – Red Rock Water Company, Inc. (now part of GW-Santa Cruz and GW-Palo -64- Table of Contents Verde). Amortization began in 2022 as the acquisition premiums were included in customer rates as approved in the decision and will continue over a 25 -year period. The acquisition premium balance relating to these utilities as of December 31, 2024 was approximately $ 0.7 million. Income Taxes Recoverable/Payable Through Future Rates The TCJA required the Company to re-measure all existing deferred income tax assets and liabilities to reflect the reduction in the federal tax rate. For the Company’s regulated entities, substantially all of the change in deferred income taxes is recorded as an offset to either a regulatory asset or liability because the impact of changes in the rates are expected to be recovered from or refunded to customers. Acquired ICFAs The ICFA regulatory liability, established in compliance with a 2014 settlement agreement with the ACC, relates to the offset of intangible assets related to ICFA contracts obtained in connection with the GW-Santa Cruz, GW-Palo Verde, and Sonoran acquisitions. When funds are received related to the acquired ICFA intangible asset, a portion of these funds reduce the acquired ICFA regulatory liability and partially offset the amortization expense recognition of the related intangible asset. The regulatory liability is classified as long term due to the long term nature of these arrangements and the uncertainty of the timing of receipt of funds to be received against the acquired ICFA intangible asset. Depreciation Decision No. 78644 approved an adjustment to update previously approved depreciation rates. The adjustment was incorporated into rates in accordance with the rate decision. Recent ACC Rulings and Activity 2024 GW-Farmers Rate Case On June 27, 2024, GW-Farmers filed a rate case application with the ACC for increased water rates based on a 2023 test year with updates for changes in post-test year plant through December 31, 2024. The application requests, among other things, a revenue increase of approximately $ 1.3 million phased-in over two steps and recovery of an acquisition premium related to the Farmers Water Co. acquisition. On January 10, 2025, GW-Farmers filed with the ACC a unanimous settlement agreement between GW-Farmers, RUCO and the Utilities Division Staff of the ACC. Among other elements, the unanimous settlement agreement calls for an increase in GW-Farmers’ annual revenue requirement of $ 1.1 million and a return on equity of 9.6 %, with rates to be phased-in over three periods, starting with 50 % of the increase effective on May 1, 2025, with subsequent 25 % portions of the increase effective November 1, 2025 and May 1, 2026. In addition to the rate increase, the agreement proposes a deferral of the recovery of an acquisition premium of approximately $ 3 million related to the Company’s acquisition of GW-Farmers, to be recovered in a future rate case. The unanimous settlement agreement is under advisement with the ALJ, and the Company anticipates a decision in the first half of 2025. Acquisition of Seven Systems from City of Tucson In Decision No. 79679 on January 22, 2025, the ACC approved GW-Ocotillo’s Application for a CC&N to provide water service to seven isolated public water systems currently receiving service from the City of Tucson. The Company expects to complete the acquisition of the seven isolated public water systems from the City of Tucson in the first half of 2025, subject to customary closing conditions. 2025 GW-Santa Cruz and GW-Palo Verde Rate Case 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 has begun stakeholder outreach for the rate case. Southwest Plant Accounting Order and Bill Credit 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 service for the area southwest of -65- Table of Contents 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. Since July 2023, construction costs of $ 25.0 million related to the water production plant and a portion of the wastewater processing plant were 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 Decision No. 71878 (September 15, 2010). Those costs were also included as “plant in service” in Decision No. 74364 (February 26, 2014) and 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. The ACC issued Decision No. 79424 on July 18, 2024 approving the bill credit with an effective date of August 1, 2024, which will reduce revenue earned subsequent to the order by approximately $ 570,000 annually. The bill credit will be in place until the conclusion of the next GW-Palo Verde rate case, which Decision No. 79424 requires GW-Palo Verde to file no later than December 31, 2025. The ACC may take further action during the next GW-Palo Verde rate case. Such action may include requiring the Company to reduce rates further going forward or taking other actions that would be unfavorable to the Company. Decision No. 79383 - Issued June 20, 2024 - GW-Saguaro Rate Case On June 20, 2024, the ACC issued Decision No. 79383 relating to each of the rate case applications filed by seven of the Company’s regulated utilities for increased water rates based on a 2022 test year. Decision No. 79383 approved, among other things, a collective annual revenue increase of approximately $ 351,000 . The approved rates will be phased-in over five periods with the first increase effective July 1, 2024. The subsequent four increases will be effective on January 1 of each subsequent year, with the majority of the revenue increase phased in by January 1, 2025. The ACC also approved: (i) the consolidation of water rates to one single rate for the seven utilities; (ii) acquisition premiums relating to the Company’s acquisitions of its GW-Mirabell, GW-Lyn Lee, GW-Francesca, GW-Tortolita, GW - Rincon, and GW-Las Quintas utilities, each located in Pima County, 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; (iv) a sustainable water surcharge, which will allow semiannual surcharges to be added to customer bills based on verified costs of new water resources; (v) a capital structure matching the Company’s previous rate case of 55 % equity with a 9.6 % return on equity; and (vi) a depreciation expense accounting deferral for GW - Rincon (now part of GW-Saguaro). 4. REVENUE RECOGNITION Regulated 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. The Company’s customers are the recipients of its utility service, and the tariff rates represent a contract with those customers, both of which meet their respective definitions under ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”) and create enforceable rights and obligations . 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. The measurement of sales to customers is generally based on the reading of their meters, which occurs on a systematic basis throughout the month. At the end of each month, the Company estimates consumption since the date of the last meter reading and a corresponding unbilled revenue is recognized. The unbilled revenue estimate is based upon the number of unbilled days that month and the average daily customer billing rate from the previous month (which fluctuates based upon customer usage). The Company applies the invoice practical expedient and recognizes revenue from contracts with customers in the amount for which the Company has a right to invoice. The Company has the right to invoice for the volume of consumption, service charge, and other authorized charges. -66- Table of Contents The Company satisfies its performance obligation to provide water, wastewater, and recycled water service over time as service is rendered. Regulated water and wastewater service may be terminated by the customers at will, and, as a result, no separate financing component is recognized for the Company’s collections from customers, which generally require payment within 15 days of billing. The Company applies judgment, based principally on historical payment experience, in estimating its customers’ ability to pay. Total revenue does not include sales tax as the Company considers itself a pass-through conduit for collecting and remitting sales taxes. Unregulated Revenue Unregulated revenue represents revenue that is not subject to the ratemaking process of the ACC and is primarily related to the revenue recognized on a portion of ICFA funds received. Under the terms of ASC 606, each ICFA is a contract, and the counterparty (typically a developer or homebuilder) to the ICFA is the Company’s customer. Revenue is recognized when (1) the Company has planned, coordinated, and financed the infrastructure as specified in the ICFA contract; (2) the Company has sufficient capacity in place within the infrastructure to provide water/wastewater services to the developer, and (3) based on the totality of the circumstances regarding the entitlement and development of the land, it is more likely than not that the landowner will move forward with construction of residential, commercial, or industrial development within the next twenty-four months. December 31, 2023 Balance Payments Allocated to Deferred Revenue Revenue Recognized December 31, 2024 Balance Deferred Revenue - ICFA $ 19,656 $ 1,861 $ — $ 21,517 December 31, 2022 Balance Payments Allocated to Deferred Revenue Revenue Recognized December 31, 2023 Balance Deferred Revenue - ICFA $ 20,974 $ 1,468 $ ( 2,786 ) $ 19,656 -67- Table of Contents Disaggregated Revenue For the years ended December 31, 2024 and 2023, disaggregated revenue from contracts with customers by major source and customer class are as follows (in thousands): Years Ended December 31, 2024 2023 REGULATED REVENUE Water Service Residential $ 18,612 $ 17,541 Irrigation 3,332 3,483 Commercial 1,551 1,540 Multi-family 320 — Construction 1,140 1,388 Other water revenue 1,109 908 Total water revenue 26,064 24,860 Wastewater and recycled water service Residential 23,404 22,423 Commercial 1,195 1,243 Multi-family 174 — Recycled water revenue 1,500 1,365 Other wastewater revenue 355 351 Total wastewater and recycled water revenue 26,628 25,382 TOTAL REGULATED REVENUE 52,692 50,242 UNREGULATED REVENUE ICFA revenue — 2,786 TOTAL UNREGULATED REVENUE — 2,786 TOTAL REVENUE $ 52,692 $ 53,028 Contract Balances The Company’s contract assets and liabilities consist of the following (in thousands): December 31, 2024 December 31, 2023 CONTRACT ASSETS Accounts receivable, net $ 3,233 $ 3,388 Total contract assets $ 3,233 $ 3,388 CONTRACT LIABILITIES Deferred revenue - ICFA $ 21,517 $ 19,656 Total contract liabilities $ 21,517 $ 19,656 Remaining Performance Obligations Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. 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. Due to the uncertainty of future events, the Company is unable to estimate when to expect recognition of deferred revenue - ICFA. -68- Table of Contents Accounts Receivable and Allowance for Credit Losses Accounts receivable as of December 31, 2024 and 2023 consist of the following (in thousands): December 31, 2024 December 31, 2023 Billed receivables $ 3,396 $ 3,510 Less provision for credit losses ( 163 ) ( 122 ) Accounts receivable, net $ 3,233 $ 3,388 The following table summarizes the allowance for credit loss activity for the years ended December 31, 2024 and 2023 (in thousands): December 31, 2024 December 31, 2023 Beginning of Period $ ( 122 ) $ ( 164 ) Credit Loss Expense ( 103 ) ( 76 ) Write Offs 90 124 Recoveries ( 28 ) ( 6 ) End of Period $ ( 163 ) $ ( 122 ) 5. EARNINGS PER SHARE Basic earnings per share (“EPS”) in each period of this report were calculated by dividing net income by the weighted-average number of shares during those periods. Diluted EPS includes additional weighted-average common stock equivalents (options and restricted stock awards), if dilutive. A reconciliation of the denominator used in Basic and Diluted EPS calculations is show in the following table: Years Ended December 31, (In thousands) 2024 2023 Basic weighted average common shares outstanding 24,205 24,045 Effect of dilutive securities: Option grants 78 75 Restricted stock awards 20 10 Total dilutive securities 98 85 Diluted weighted average common shares outstanding 24,303 24,130 Anti-dilutive shares excluded from earnings per diluted shares (1) — 91 (1) Shares were 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. Refer to Note 15 – “Share-based Compensation” for additional information regarding the option and restricted stock grants. 6. UTILITY PLANT Utility plant as of December 31, 2024 and 2023 consist of the following (in thousands): December 31, 2024 December 31, 2023 Transmission and distribution plant $ 321,075 $ 290,247 Equipment 67,917 60,536 Office buildings and other structures 67,313 64,084 Construction work-in-progress 54,388 48,147 Land 2,300 2,674 Total utility plant $ 512,993 $ 465,688 -69- Table of Contents Depreciation expense related to depreciable property was $ 12.0 million and $ 10.9 million for the years ended December 31, 2024 and 2023, respectively. 7. TAXES, PREPAID EXPENSES AND OTHER CURRENT ASSETS Taxes, prepaid expenses and other current assets as of December 31, 2024 and 2023 consist of the following (in thousands): December 31, 2024 December 31, 2023 ICFA receivable $ 1,871 $ — Buckeye growth premiums receivable 738 807 Prepaid expense 648 782 Prepaid insurance 533 454 Other current assets 290 451 Taxes, prepaid expenses and other current assets $ 4,080 $ 2,494 8. GOODWILL AND INTANGIBLE ASSETS Goodwill The Company’s goodwill is related to historical acquisitions. As of December 31, 2024, 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 a result of Decision No. 79383 issued by the ACC on June 20, 2024, the Company reclassified $ 1.3 million of goodwill to regulatory assets for certain impacted utilities to establish the approved $ 1.8 million of acquisition premiums net of the $ 0.5 million that was previously recorded for Global Water - Rincon Water Company, Inc (now part of GW-Saguaro). Refer to Note 3 – “Regulatory Matters” for additional information. As of December 31, 2024 and 2023, the goodwill balance consisted of the following (in thousands): 2024 2023 Beginning balance $ 10,820 $ 4,957 Acquisition activity — 5,863 Adjustments ( 1,334 ) — Ending balance $ 9,486 $ 10,820 -70- Table of Contents Intangible Assets As of December 31, 2024 and 2023, intangible assets consisted of the following (in thousands): December 31, 2024 December 31, 2023 Gross Amount Accumulated Amortization Net Amount Gross Amount Accumulated Amortization Net Amount INDEFINITE LIVED INTANGIBLE ASSETS: CP Water Certificate of Convenience & Necessity service area $ 1,532 $ — $ 1,532 $ 1,532 $ — $ 1,532 Franchise contract rights 657 — 657 139 — 139 Other Intangible Assets 176 — 176 176 — 176 Total indefinite lived intangible assets 2,365 — 2,365 1,847 — 1,847 DEFINITE LIVED INTANGIBLE ASSETS: Acquired ICFAs 17,978 ( 17,037 ) 941 17,978 ( 16,105 ) 1,873 Sonoran contract rights 7,406 ( 2,285 ) 5,121 7,406 ( 2,285 ) 5,121 Total definite lived intangible assets 25,384 ( 19,322 ) 6,062 25,384 ( 18,390 ) 6,994 Total intangible assets $ 27,749 $ ( 19,322 ) $ 8,427 $ 27,231 $ ( 18,390 ) $ 8,841 A CC&N is a permit issued by the ACC allowing a public service corporation to serve a specified area, and preventing other public service corporations from offering the same water and wastewater service within the specified area. The CP Water CC&N intangible asset was acquired through the acquisition of CP Water in 2006. This CC&N permit has no outstanding conditions that would require renewal. Franchise contract rights relate to the 2018 acquisition of Global Water Red Rock Water Company, Inc. (now part of GW-Saguaro) and the 2023 acquisition of GW-Farmers. Franchise contract rights are agreements with Pima and Pinal counties for GW-Saguaro and Pima county and the Town of Sahuarita 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 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 $ 0.9 million and $ 1.4 million of amortization recorded for these balances during the years ended December 31, 2024 and 2023, respectively. 9. EQUITY 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. One of the Company’s directors purchased an aggregate of 30,000 shares of common stock in the offering at the purchase price. -71- Table of Contents 10. DEBT The outstanding balances and maturity dates for short-term (including the current portion of long-term debt) and long-term debt as of December 31, 2024 and December 31, 2023 are as follows (in thousands): December 31, 2024 December 31, 2023 Short-term Long-term Short-term Long-term NOTES PAYABLE 4.38 % Senior Secured Notes, Series A, maturing June 2028 (“Series A Notes”) $ — 28,750 $ — $ 28,750 4.58 % Senior Secured Notes, Series B, maturing June 2036 (“Series B Notes”) 3,833 69,000 3,833 72,833 6.91 % Senior Secured Notes, maturing January 2034 (“6.91% Notes”) — 20,000 — — 4.911 % WIFA Note, maturing April 2044 (“4.911% WIFA Note”) 42 1,398 — — 3,875 119,148 3,833 101,583 OTHER Debt issuance costs — ( 764 ) — ( 426 ) Loan Payable 51 134 47 184 Total debt $ 3,926 $ 118,518 $ 3,880 $ 101,341 Debt is measured at fair value on a recurring basis as of December 31, 2024 and 2023 as follows (in thousands): December 31, 2024 December 31, 2023 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Long-term debt (1) — 118,702 — 118,702 — 100,746 — 100,746 (1) The fair value of debt was estimated based on interest rates considered available for instruments of similar terms and remaining maturities. WIFA Note On April 30, 2024, the Company’s Global Water - Rincon Water Company, Inc. utility (now part of GW-Saguaro) entered into a loan agreement with WIFA for the 4.911 % WIFA Note with a principal amount of $ 2.4 million to improve the utility’s infrastructure, of which $ 0.7 million is forgivable. The 4.911 % WIFA Note is due on April 1, 2044 and bears an interest rate of 4.911 %. Funding occurs through one or more draw requests submitted by the Company and the subsequent disbursement of principal by WIFA. As of December 31, 2024, the Company has received approximately $ 2.1 million in disbursements under this agreement. 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 %. The 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 B Notes carry 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 were interest only for the first five years , with $ 1.9 million principal payments paid semiannually in June and December thereafter beginning December 2021. 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. -72- Table of Contents Revolver The Company maintains a revolving credit facility with The Northern Trust Company, an Illinois banking corporation (“Northern Trust”), pursuant to a loan agreement entered into between the parties (as amended, the “Northern Trust Loan Agreement”). This Revolver, 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, has been amended as recently as July 1, 2024 to, among other things, extend the scheduled maturity date 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 %. Additionally, the Company pays a quarterly facility fee equal to 0.35 % of the average daily unused amount of the Revolver. As of December 31, 2024, the Company had no outstanding borrowings under the Revolver. As of December 31, 2023, the outstanding borrowings on the Revolver were approximately $ 2.3 million. There were less than $ 0.1 million of unamortized debt issuance costs as of both December 31, 2024 and 2023. Debt Covenants The Company’s Senior Secured Notes and Revolver (collectively, the “debt securities”) are collateralized by a security interest in the Company’s equity interest in its subsidiaries, including all payments representing profits and qualifying distributions. The debt securities 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. 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. At December 31, 2024, the remaining aggregate annual maturities of debt obligations are as follows (in thousands): Debt 2025 $ 3,930 2026 3,936 2027 3,942 2028 32,657 2029 3,889 Thereafter 74,854 Subtotal 123,208 Less: amount representing unamortized discount and debt issuance costs 764 Total $ 122,444 -73- Table of Contents 11. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities as of December 31, 2024 and 2023 consist of the following (in thousands): December 31, 2024 December 31, 2023 Accrued project liabilities $ 5,858 $ 858 Other taxes 1,648 1,438 AIAC refunds, current portion 1,431 — Interest 1,180 480 Accrued payroll 991 767 Dividend payable 614 606 Customer prepayments 556 883 Accrued license fees 353 343 Liability for share-based compensation arrangements 190 239 Other accrued liabilities 980 1,515 Total accrued expenses $ 13,801 $ 7,129 12. LEASES The Company measures the lease liability at the present value of future lease payments, excluding variable payments based on usage or performance, and calculates the present value using implicit rates. Leases with an initial term of twelve months or less are not recorded on the balance sheet. For the years ended December 31, 2024, the Company entered into twenty new vehicle finance leases with 48 -month terms and an aggregate total of approximate $ 0.8 million, all of which include a purchase option, and one new office lease with a 129 -month term that is classified as an operating lease. For the year ended December 31, 2023, the Company entered into five new vehicle finance leases with 48 -month terms and an aggregate total of approximately $ 0.2 million, all of which include a purchase option, and one new office equipment lease with a 60 -month term for approximately $ 21,000 . Rent expense arising from operating leases totaled approximately $ 403,000 and $ 394,000 for the years ended December 31, 2024 and 2023, respectively. The ROU assets 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 remaining lease payments. ROU assets at December 31, 2024 and 2023 consist of the following (in thousands): December 31, 2024 December 31, 2023 Finance leases $ 1,141 $ 561 Operating leases 1,016 1,180 Total $ 2,157 $ 1,741 Lease liabilities at December 31, 2024 and 2023 consist of the following (in thousands): December 31, 2024 December 31, 2023 Finance leases $ 1,136 $ 623 Operating leases 1,185 1,300 Total $ 2,321 $ 1,923 -74- Table of Contents Lease costs for the years ended December 31, 2024 and 2023 were as follows (in thousands): December 31, 2024 December 31, 2023 Finance lease cost Amortization of right-of-use assets $ 198 $ 84 Interest on lease liabilities 44 19 Total finance lease cost 242 103 Operating leases 377 374 Total lease cost $ 619 $ 477 On the consolidated statements of operations, amortization of right-of-use assets is included in Depreciation and amortization, interest on finance lease liabilities is included in Interest expense and operating leases are included in both Operations and maintenance and General and administrative expenses, depending on the primary use of the leased asset. Other pertinent information related to leases was as follows: December 31, 2024 December 31, 2023 Weighted average remaining lease term (years) Finance leases 3.1 3.2 Operating leases 3.1 5.1 Weighted average discount rate Finance leases 4.5 % 5.7 % Operating leases 4.0 % 3.5 % At December 31, 2024, the maturity analysis of lease liabilities is as follows (in thousands): Finance Lease Obligations Operating Lease Obligations 2025 $ 424 $ 238 2026 378 552 2027 282 217 2028 143 49 2029 — 46 Thereafter — 131 Subtotal 1,227 1,233 Less: Amount representing interest 91 48 Total $ 1,136 $ 1,185 -75- Table of Contents 13. FAIR VALUE Fair Value of Financial Instruments Financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2024 and 2023 were as follows (in thousands): December 31, 2024 December 31, 2023 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets: HUF funds - restricted cash $ 870 $ — $ — $ 870 $ 822 $ — $ — $ 822 Certificates of deposit - restricted 1,239 — — 1,239 — 854 — 854 Demand deposit — — — — 1 — — 1 Total $ 2,109 $ — $ — $ 2,109 $ 823 $ 854 $ — $ 1,677 Liabilities: Contingent consideration $ — $ — $ 1,942 $ 1,942 $ — $ — $ 2,113 $ 2,113 Total $ — $ — $ 1,942 $ 1,942 $ — $ — $ 2,113 $ 2,113 HUF Funds - restricted cash and Certificates 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. As part of the Global Water - Red Rock Water Company, Inc. (now part of GW-Saguaro) 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 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 contingent consideration 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 estimated fair value of the remaining liability was $ 0.7 million and $ 0.8 million as of December 31, 2024 and 2023, respectively. 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 contingent consideration 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 estimated fair value of the remaining liability was $ 1.2 million and $ 1.3 million as of December 31, 2024 and 2023, respectively. Contingent consideration is included within Other noncurrent liabilities on the consolidated balance sheets. Refer to Note 17 — “Commitments and Contingencies” for additional information about contingent consideration. 14 . INCOME TAXES Judgment and the use of estimates are required in developing the provision for income taxes and reporting of tax-related assets and liabilities. The interpretation of tax laws and associated regulations involves uncertainty as taxing authorities may interpret the laws differently. -76- Table of Contents Income Tax Expense The components of income tax expense for the years ended December 31, 2024 and 2023 were as follows (in thousands): Years Ended December 31, 2024 2023 Current income tax expense Federal $ 460 $ 478 State 140 — Total current 600 478 Deferred income tax expense Federal 1,294 1,965 State 179 429 Total deferred 1,473 2,394 Income tax expense $ 2,073 $ 2,872 Statutory Rate Reconciliation The following table represents a reconciliation of income tax expense at the statutory federal income tax rate to the actual income tax expense from continuing operations: Years Ended December 31, 2024 2023 Book income before taxes $ 7,862 $ 10,854 Computed federal tax expense (benefit) at statutory rate 1,651 21.0 % 2,274 21.0 % State income taxes - net of federal tax benefit 318 4.0 % 429 4.0 % Tax regulatory asset amortization 37 0.5 % 37 0.3 % Installment interest 26 0.3 % 39 0.4 % Equity compensation 25 0.3 % 98 0.9 % Other differences 16 0.3 % ( 5 ) ( 0.1 ) % Income tax expense $ 2,073 26.4 % $ 2,872 26.5 % -77- Table of Contents Components of Net Deferred Income Tax Liability The following table summarizes the Company’s temporary differences between book and tax accounting that give rise to the deferred tax assets and deferred tax liabilities, as of December 31, 2024 and 2023 (in thousands): December 31, 2024 December 31, 2023 Deferred tax assets Net operating loss carry forwards $ — $ 1,451 Balterra intangible asset acquisition 224 224 Deferred gain on ICFA funds received 5,352 4,889 AIAC 4,248 4,046 Other 1,353 1,286 Total deferred tax assets 11,177 11,896 Net deferred tax asset 11,177 11,896 Deferred tax liabilities Regulatory liability ( 214 ) ( 228 ) CP Water intangible asset acquisition ( 381 ) ( 381 ) ICFA intangible asset ( 452 ) ( 522 ) Utility plant ( 17,983 ) ( 17,398 ) Gain on condemnation of Valencia ( 184 ) ( 201 ) Other Liabilities ( 1,661 ) ( 1,450 ) Total deferred tax liabilities ( 20,875 ) ( 20,180 ) Net deferred tax liability $ ( 9,698 ) $ ( 8,284 ) As of December 31, 2024, the Company has no remaining net operating loss carry forwards and no uncertain tax positions. 15. SHARE-BASED COMPENSATION 2017 stock option grant In August 2017, GWRI’s board of directors granted stock options to acquire 465,000 shares of GWRI’s common stock to employees throughout the Company. The options were granted with an exercise price of $ 9.40 , the market price of the Company’s common shares on the NASDAQ Global Market at the close of business on August 10, 2017. The options are fully vested and expire 10 years from the grant date. As of August 2021, these options were fully expensed. As of December 31, 2024, 125,750 options have been exercised and 70,425 options have been forfeited with 268,825 options outstanding. 2019 stock option grant In August 2019, GWRI’s board of directors granted stock options to acquire 250,000 shares of GWRI’s common stock to employees throughout the Company. The options were granted with an exercise price of $ 11.26 , the market price of the Company’s common shares on the NASDAQ Global Market at the close of business on August 13, 2019. The options are fully vested and expire 10 years from the grant date. As of August 2023, these options were fully expensed. Stock-based compensation expense of $ 92,000 was recorded for the year ended December 31, 2023. As of December 31, 2024, 55,994 options have been exercised and 63,770 options have been forfeited with 130,236 options outstanding. -78- Table of Contents A summary of stock option activity is as follows (in thousands, except option prices and years): Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life Aggregate Intrinsic Value Options Outstanding at December 31, 2023 426 $ 10.10 4.4 $ 1,270.1 Granted — Exercised — Forfeited ( 27 ) 11.18 Cancelled — Options Outstanding at December 31, 2024 399 10.01 3.6 595.8 Options Vested at December 31, 2024 399 $ 10.01 3.6 $ 595.8 Phantom stock units and Restricted stock units Restricted stock units (“RSUs”) are granted in the first quarter based on the prior year’s performance and vest over a three-year period. The units vest ratably each month and the vested units are cash-settled quarterly based on the closing price of the Company’s common stock for the respective quarter. The following table details total units granted and outstanding as of December 31, 2024, along with the amounts paid to holders of the phantom stock units (“PSUs”) and/or RSUs for the years ended December 31, 2024 and 2023 (in thousands, except unit amounts): Years Ended December 31, Grant Date Units Granted Units Outstanding 2024 2023 Q1 2020 (1) 22,481 — $ — $ 24 Q1 2021 27,403 — — 106 Q1 2022 22,262 — 87 88 Q1 2023 30,366 9,481 117 86 Q1 2024 32,093 20,183 125 — Total 134,605 29,664 $ 329 $ 304 (1) Pursuant to the Global Water Resources, Inc. 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. The non-vested RSUs have a non-forfeitable right to dividend equivalents, with immaterial amounts paid in the years ended December 31, 2024 and 2023. The following table is a summary of the RSU award transactions for the year ended December 31, 2024 (in shares, except per unit amounts): Restricted Stock Units Weighted Average Award Date Fair Value per Unit ($) Non-vested at December 31, 2023 32,847 $ 12.35 Granted 32,093 13.06 Forfeited ( 901 ) 13.03 Vested ( 34,375 ) 12.30 Non-vested at December 31, 2024 29,664 $ 12.33 As these are liability awards, fluctuations in the Company’s stock price can lead to similar fluctuations in cumulative compensation expense (i.e., increases in stock price lead to additional compensation expense and decreases in stock price lead to reductions in compensation expense) in a given period. Based on GWRI’s closing share price on December 31, 2024 (the last trading date of the year), deferred compensation expense to be recognized over future periods is estimated for the years ending December 31 as follows (in thousands): -79- Table of Contents Restricted Stock Units 2025 $ 225 2026 116 Total $ 341 Stock appreciation rights Stock appreciation rights (“SARs”) were granted to certain members of management and are fully vested. The following table details the grant date, units granted, exercise price, outstanding units as of December 31, 2024 and amounts paid during the years ended December 31, 2024 and 2023 (in thousands, except unit and per unit amounts): Years Ended December 31, Grant Date Units Granted Exercise Price Units Outstanding 2024 2023 Q1 2015 (1) 299,000 $ 4.26 — $ 90 $ 399 Q3 2017 (2) 103,000 $ 9.40 — — 33 Q1 2018 (3) 33,000 $ 8.99 8,250 — — Total 435,000 8,250 $ 90 $ 432 (1) 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. (2) 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. Restricted stock awards On May 7, 2020, the Company’s stockholders approved the Global Water Resources, Inc. 2020 Omnibus Incentive Plan, which allows restricted stock awards as a form of compensation. A restricted stock award (“RSA”) represents the right to receive a share of the Company’s common stock. 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. The following table details the compensation expense related to the grant and partial vesting of previously granted RSAs for the years ended December 31, 2024 and 2023 (in thousands): Years Ended December 31, 2024 2023 Compensation expense $ 562 $ 972 The following table is a summary of the restricted stock award transactions for the year ended December 31, 2024 (in shares, except per unit amounts): Restricted Stock Awards Weighted Average Award Date Fair Value per Unit ($) Non-vested at December 31, 2023 98,350 $ 12.35 Granted 17,000 11.91 Forfeited ( 5,468 ) 16.25 Vested ( 59,047 ) 17.73 Non-vested at December 31, 2024 50,835 $ 14.04 -80- Table of Contents Non-employee director awards Non-employee director compensation is awarded on a quarterly basis, with one-half of the compensation awarded in the form of RSAs granted under the Global Water Resources, Inc. 2020 Omnibus Incentive Plan, effective May 7, 2020. The following table details the non-employee director compensation expense related to the grant and vesting of RSAs for the years ended December 31, 2024 and 2023 (in thousands): Years Ended December 31, 2024 2023 Non-employee director compensation expense $ 205 $ — The following table is a summary of the non-employee director restricted stock award transactions for the year ended December 31, 2024 (in shares, except per unit amounts): Restricted Stock Awards Weighted Average Award Date Fair Value per Unit ($) Non-vested at December 31, 2023 — $ — Granted 14,076 12.27 Forfeited — — Vested ( 14,076 ) 12.27 Non-vested at December 31, 2024 — $ — 16. 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 $ 1.6 million for the year ended December 31, 2024 and $ 1.0 million for the year ended December 31, 2023. Additionally, one of the Company’s directors purchased an aggregate of 30,000 shares of common stock at the purchase price of a private placement offering in 2023. Refer to Note 9 — “Equity,” for additional information. 17. COMMITMENTS AND CONTINGENCIES Commitments The Company has operating and finance leases for vehicles, office equipment, and office space. Refer to Note 12 – “Leases” for additional information. 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. Under the terms of the purchase agreement, the Company is obligated to pay the seller a growth premium for each new account established within the specified growth premium areas. As of December 31, 2024, the obligation period of the growth premium has not yet started. The estimated fair value of the remaining liability was $ 1.2 million and $ 1.3 million as of December 31, 2024 and 2023, respectively, and is included in Other noncurrent liabilities on the consolidated balance sheets. Refer to Note 2 — “Acquisitions” for additional information about the Farmers growth premium obligation. As part of the Global Water -Red Rock Water Company, Inc. (now part of GW-Saguaro) acquisition, the Company is obligated to pay to the seller a growth premium for each new account established within specified growth premium areas. During the year ended December 31, 2024, the Company revised the fair value of the estimated liability of the contingent consideration based on modified building plans from the landowners in the growth premium areas, which resulted in a net $ 0.1 million gain on remeasurement, which is included in Other, net on the consolidated statements of operations for the years ended December 31, 2024. As of December 31, 2024, no meters have been installed and no accounts have been established in any of the specified growth premium areas. The carrying value of the remaining liability was $ 0.7 million and $ 0.8 million as of December 31, 2024 and 2023, respectively, and is included in Other noncurrent liabilities on the consolidated balance sheets. -81- Table of Contents Refer to Note 13 — “Fair Value” for additional information about contingent consideration. The Company has previously received certain ICFA advances related to its CP Water utility, which the Company is obligated to repay in the form of specified future ICFA fee reductions when those ICFA fees are due. The liability was $ 0.9 million as of both December 31, 2024 and 2023 and is included in Accrued Expenses and Other Current Liabilities on the consolidated balance sheets. The Company has certain contractual obligations requiring payments at specified periods. The obligations include AIAC refunds, long-term debt, lease obligations and The following table summarizes the Company’s contractual cash obligations as of December 31, 2024 (in thousands): Payments Due By Period Total 2025 2026 2027 2028 2029 Thereafter AIAC refunds (1) $ 127,898 $ 1,431 $ 1,431 $ 1,431 $ 1,431 $ 1,431 $ 120,743 Long term debt 123,208 3,930 3,936 3,942 32,657 3,889 74,854 Interest payments on long-term debt (2) 44,793 5,933 5,758 5,582 4,777 3,972 18,771 Finance leases (3) 1,227 424 378 282 143 — — Operating leases (4) 1,733 494 564 234 69 71 301 Total $ 298,859 $ 12,212 $ 12,067 $ 11,471 $ 39,077 $ 9,363 $ 214,669 (1) The Company pays annual refunds on AIAC over a specific period of time based on operating revenue generated from developer-installed infrastructure. The refund amounts are considered an investment in infrastructure and eligible for inclusion in future rate base. The refund amounts and timing are dependent upon several variables, including new customer connections, customer consumption levels and future rate increases, which are difficult to accurately estimate. 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. (2) Interest on the long-term debt is based on the fixed rates of the Company’s Series A Notes, Series B Notes and 6.91 % Senior Secured Notes. (3) Finance lease payments are inclusive of interest payments totaling $ 0.1 million. (4) Operating lease payments are inclusive of interest payments totaling less than $ 0.1 million. The Company has entered into various purchase and service agreements whereby it is contractually obligated to make certain minimum payments in future periods. This includes purchase obligations for plant equipment, typically for water and wastewater treatment, with long lead times that require payments made over time. Contingencies From time to time, in the ordinary course of business, the Company may be subject to pending or threatened lawsuits in which claims for monetary damages are asserted. Management is not aware of any legal proceeding of which the ultimate resolution could materially affect the Company’s financial position, results of operations, or cash flows. 18. BUSINESS SEGMENT INFORMATION Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluate regularly by the CODM in deciding how to allocate resources and in assessing operating performance. At December 31, 2024, the Company is organized and operated as one operating and reportable segment as the Company is not organized around specific products and services, geographic regions, or regulatory environments. Further, the Company currently operates in one geographic region within the State of Arizona, wherein each operating utility operates within the same regulatory environment. 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. Refer to Note 4 — “Revenue Recognition” for additional information on the Company’s sources of revenue, and refer to the consolidated financial statements for measures of profit and loss, total assets, and capital expenditures of the Company. The Company’s CODM is the Chief Executive Officer. While the Company reports revenue disaggregated by service type on the face of its consolidated financial statements, the Company does not manage the business based on any performance measure at the individual revenue stream level. The CODM uses consolidated financial information, as outlined below, to evaluate performance against budget and peers and to make all significant decisions regarding the allocation of the Company’s resources, and communicate results and performance to the Company’s board of directors. -82- Table of Contents The CODM regularly reviews the results of the Company based on GAAP net income as well as non-GAAP measures, EBITDA and Adjusted EBITDA. The Company defines EBITDA as net income before interest, income taxes, depreciation, and amortization and Adjusted EBITDA as EBITDA excluding the gain or loss related to (i) nonrecurring events; (ii) option expense related to awards made to management; (iii) restricted stock expense related to awards made to employees and the board of directors; (iv) disposal of assets; and (v) ICFA revenue recognition, as applicable. Management believes that EBITDA, and Adjusted EBITDA are useful supplemental measures of our operating performance and provide our investors meaningful measures of overall corporate performance. EBITDA is also presented because management believes that it is frequently used by investment analysts, investors, and other interested parties as a measure of financial performance. Adjusted EBITDA is also presented because management believes that it provides our investors an additional measure of our recurring core business. A reconciliation of net income to EBITDA and Adjusted EBITDA for the years ended December 31, 2024 and 2023 is as follows (in thousands): Years Ended December 31, 2024 2023 Net Income 5,789 7,982 Income tax expense 2,073 2,872 Interest income ( 946 ) ( 52 ) Interest expense 6,098 4,882 Depreciation and amortization 12,720 11,437 EBITDA 25,734 27,121 ICFA revenue — ( 2,786 ) Management option expense — 92 Loss (gain) on disposal of fixed assets 308 ( 63 ) Restricted stock expense 767 972 Acquisition gain resulting from regulatory decision ( 37 ) — Gain on adjustment of contingent consideration liability ( 119 ) — EBITDA adjustments 919 ( 1,785 ) Adjusted EBITDA 26,653 25,336 The CODM reviews the following significant expense categories: Years Ended December 31, 2024 2023 Segment revenue 52,692 53,028 Segment expenses Personnel costs - operations and maintenance 5,014 4,411 Utilities, chemicals and repairs 3,927 3,767 Other operations and maintenance expenses 4,785 4,491 Personnel costs - general and administrative 9,173 8,684 Professional fees 1,687 2,018 Other general and administrative expenses 6,022 5,934 Depreciation and amortization 12,720 11,437 Total operating expenses 43,328 40,742 Operating income 9,364 12,286 Other Income (Expense) Buckeye growth premiums 2,916 2,424 Other segment income and expenses ( 4,418 ) ( 3,856 ) Total other expense ( 1,502 ) ( 1,432 ) Income tax expense ( 2,073 ) ( 2,872 ) Net Income 5,789 7,982 Other operations and maintenance and other general and administrative expenses include contract services, business development, board compensation, rent, insurance and taxes other than income taxes. Other segment income expenses include interest income, interest expense, AFUDC, and gains and losses on disposal of assets. The Company does not have any customers that contribute more than 10% to the Company’s revenue or revenue streams. -83- Table of Contents 19. OTHER, NET Other, net for the year ended December 31, 2024 and 2023 consists of the following (in thousands): Years Ended December 31, 2024 2023 Buckeye growth premiums $ 2,916 $ 2,424 Allowance for equity funds used during construction 892 981 Gain/(Loss) on Disposal of Assets ( 309 ) 63 Other 151 ( 70 ) Total Other, net $ 3,650 $ 3,398 Stipulated Condemnation of the Operations and Assets of Valencia 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 $ 2.9 million and $ 2.4 million for the years ended December 31, 2024 and 2023, respectively. An aggregate of $ 13.7 million in growth premiums have been received to date. The growth premiums are included in “Other, net” on the Company’s consolidated statements of operations. 20. SUPPLEMENTAL CASH FLOW INFORMATION The following is supplemental cash flow information for the years ended December 31, 2024 and 2023 (in thousands): Years Ended December 31, 2024 2023 Supplemental cash flow information: Cash paid for interest - net of amounts capitalized $ 5,176 $ 4,686 Cash paid for income taxes 107 706 Non-cash financing and investing activities: Capital expenditures included in accounts payable and accrued liabilities $ 7,201 $ 1,747 Utility Plant constructed by developers and conveyed 10,829 16,031 Business acquisition through issuance of contingent consideration payable — 1,330 Finance lease additions 818 240 Operating lease additions 136 18 Operating cash flows used for finance leases 44 19 Operating cash flows used for operating leases 264 241 Financing cash flows for finance leases 273 232 -84- Table of Contents ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.