Global Water Resources, Inc. (NASDAQ:GWRS) Q3 2025 Earnings Call Transcript

Global Water Resources, Inc. (NASDAQ:GWRS) Q3 2025 Earnings Call Transcript November 13, 2025

Operator: Greetings, ladies and gentlemen. Thank you for standing by. Welcome to the Global Water Resources, Inc. 2025 Third Quarter Conference Call. [Operator Instructions] I would like to remind everyone that this call is being recorded on November 13, 2025 at 1:00 p.m. Eastern Time. I would now like to turn the conference over to Kyle Upchurch, Controller. Please go ahead.

Kyle Upchurch: Thank you, operator, and welcome, everyone. Thank you for joining us on today’s call. Yesterday, we issued our 2025, third quarter financial results by press release, a copy of which is available on our website at gwresources.com. Speaking today, is Ron Fleming, President and Chief Executive Officer; Mike Liebman, Chief Financial Officer; and Chris Krygier, Chief Operating Officer. Ron will summarize the key operational events of the quarter Mike will review financial results for the third quarter, and Chris will review strategic initiatives in Arizona Corporation Commission activity. Ron, Mike and Chris will be available for questions at the end of the call. Before we begin, I would like to remind you that certain information presented today may include forward-looking statements.

Such statements reflect the company’s current expectations, estimates, projections and assumptions regarding future events. These forward-looking statements involve a number of assumptions, risks, uncertainties, estimates and other factors that could cause actual results to differ materially from those contained in the forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on any forward-looking statements, which reflect management’s views as of the date hereof and are not guarantees of future performance. For additional information regarding factors that may affect future results, please read the Risk Factors and MD&A sections of our periodic SEC filings. Additionally, certain non-GAAP measures may be included within today’s call.

For a reconciliation of those measures to the comparable GAAP measures, please see the tables included in yesterday’s earnings release, which is available on our website. I’ll now turn the call over to Ron.

Ron Fleming: Thank you, Kyle. Good morning, everyone, and thank you for joining us today. We are very pleased to report the results for the third quarter of 2025. First, before jumping to normal operating highlights, I’d like to start by attempting to capture the significance of numerous recent announcements that underpin our goal of long-term value creation and our ability to deliver strong total returns to our shareholders in the years and decades to come. In July, we closed the Tucson acquisition, which consisted of 7 separate public water systems, adding approximately 2,200 connections and approximately $7.7 million in rate base. At a multiple of only 1.05x that rate base. This is beyond an attractive price that is immediately accretive from a share price perspective, considering our peer group trades by our estimates between 1.5x to 2x rate base.

We expect the systems to generate around $1.5 million in annual revenue until such time we can consolidate these systems into the rest of our Saguaro rate division and ensure all of our utilities in Pima County are captured in a regional rate plan, earning their full authorized rate of return. Second, we recently announced that the Arizona Governor has signed meaningful water legislation known as Ag-to-Urban, which became law in the quarter. And we believe will result in many benefits that will be applicable for Global Water in our service areas, improving offer for sustainability, while creating a new ground water supply to support additional growth. Based on Global Water’s established service areas, created through buying and building utilities on the path of growth.

Our regional areas coincide with land that has considerable historic farming operations, just outside densely populated metro Phoenix. Thus, we believe the new law will drive even more growth to our service areas. Third, as announced in the quarter, full funding of the Highway 347 expansion connecting Interstate 10 and Metro Phoenix to the City of Maricopa was approved. As the stakeholders had already begun engineering on certain long-term elements of the 13-mile road widening project, it is estimated that the construction will begin as soon as fiscal year 2026. This project will go a long way to ensure the City of Maricopa will continue to be one of the fastest-growing communities in the country and meet its population projections of growing nearly 90% by 2040.

As evidence to this potential of the population projection on July 1, the U.S. Census Bureau released its population projections from 2024. In the city of Maricopa was once again in the top 10 of the fastest-growing large municipalities in the country coming in at #6. Even more telling was that population growth in 2024 was stronger than 2023. As the city realized 7.4% growth compared to 7.1% growth in the year prior. Below, I will discuss connection growth rates and permit growth rates that have begun to slow. But it is important to keep population growth in mind as this more closely correlates with consumption and revenue growth based on the amount of multifamily housing and commercial growth that is occurring. Beyond these long-term wins, we are also executing our capital investment and rate case strategies to drive near-term earnings growth.

Obviously, the initial staff report was unexpected and thus, we issued the related 8-K informing our shareholders as such, but the case has a long way to go, and we still expect a fair outcome in mid-2026. Chris will provide more details on the rate case later on the call. And finally, if you think about everything just mentioned from rate base accumulation to new rates to water and transportation that are 2 fundamental elements of economic development, you can see even more than ever, we have the foundation of sustainable growth for years and decades to come. Now I’ll provide a few operational highlights. Total active service connections increased 6.6% to 68,130 as of September 30, 2025, from the 12 months prior. In Q3, we achieved an annualized 3.3% total active service connection growth rate, excluding the recent acquisition of the 7 Tucson Water Systems.

Year-to-date, we’ve invested $49.6 million into infrastructure improvements in existing utilities to provide safe and reliable service. The majority of our planned investments in 2025 relate to the post-test year projects in the Santa Cruz Water Company and Palo Verde Utility Company. Our 2 largest utilities located in Pinal County, for inclusion in our already followed 2024 test year rate application. Now I want to discuss organic customer growth and what is going on in our core utilities further. The single-family drawing unit market ended 2024 with approximately 27,156 building permits issued in the Phoenix greater metropolitan statistical area. For Q3 2025, this market realized 4,724 building permits, representing a 29% decrease from Q3 of the prior year.

For Q3 2025 in the Maricopa market, it realized 164 building permits, representing a 20% decrease from the same period in 2024. So the 2025 permit continues to show a bit of a pullback from prior year, which is not surprising considering the uncertainty around tariffs and other macroeconomic drivers. We believe this is temporary and as these things continue to cool, there were very strong drivers for our normal growth rate to continue or even pick up. As I mentioned in our last earnings release, yes, by inflation and other cost drivers have caught up with us and are impacting our earnings growth. However, it’s important to recognize that 2024 was a test year for our largest utilities, whose last test year was 5 years ago in 2019. We need new rates to address the cost increases over that time period and the significant investments we have made.

Based on adjustments made to our current rate case application and rebuttal testimony, we now have an additional $4.3 million annual rate increase proposed under consideration at the ACC. I will now turn the call over to Mike for financial highlights.

Michael Liebman: Thanks, Ron. Hello, everyone. Total revenue for the third quarter of 2025 was $15.5 million, which was up $1.2 million or 8.4% compared to Q3 2024. Total revenue for the year-to-date period increased $2.8 million or 7% to $42.2 million. The increase in revenue for both periods was primarily attributable to the acquisition of 7 water systems from the city of Tucson in July 2025, organic growth in active water and wastewater connections and higher rates and our GW Farmers and GW Saguaro utilities compared to the same period last year. Operating expenses for Q3 2025 were $12.6 million compared to $10.3 million in Q3 of 2024. This is an increase of approximately $2.3 million or 21.9%. Operating expenses for the year-to-date period increased approximately $4 million or 12.8% to $35.4 million compared to the same period in 2024.

Notable changes in operating expenses included personnel costs increased by approximately $707,000 for Q3 and $971,000 for the year-to-date period. Both increases were primarily attributable to hiring additional employees for the newly acquired water systems, filling previously vacant positions and increased medical costs. Other O&M and G&A costs increased by approximately $711,000 for Q3 and $1.2 million for the year-to-date period. Both increases were primarily due to a storm event with heavy short duration precipitation as well as higher professional fees and increased costs with various service providers. In addition, year-to-date costs were higher related to municipality licensing type agreements. Depreciation and amortization increased $622,000 for Q3 and $1.3 million for the year-to-date period.

Both increases were substantially attributable to the additional depreciable fixed assets placed in service this year as a result of our increased capital investments and the commissioning of related projects. Now to discuss other income and expense. Other expense for Q3 2025 was $0.6 million compared to an immaterial other income in Q3 2024. Other expense for the year-to-date period was $1.4 million compared to $0.8 million for the same period in 2024. The increase in expense for both periods is primarily attributable to a decrease in interest income and lower income associated with Buckeye growth premiums. Net income for Q3 2025 was $1.7 million or $0.06 per diluted share as compared to $2.9 million or $0.12 per diluted share in Q3 2024. Net income for the year-to-date period was $3.9 million or $0.15 per diluted share as compared to $5.3 million or $0.22 per diluted share for the same period in 2024.

Lastly, I’ll discuss adjusted EBITDA, which adjusts for nonrecurring and noncash items such as onetime storm-related expenses and restricted stock expense. Adjusted EBITDA was $7.8 million in Q3 2025 compared to $8.2 million in Q3 2024. This is a decrease of $0.4 million or 5%. Year-to-date, adjusted EBITDA remained consistent at approximately $20.4 million. This concludes our update on the third quarter 2025 financial results. I’ll now pass the call to Chris to review our regulatory activity and strategic initiatives for the quarter.

Christopher Krygier: Thank you, Mike, and hello, everyone. First, as you heard earlier, in the quarter, we closed the Tucson acquisition. This deal has been years in the making and is finally across the finish line. We are now focused on the full integration activities. Moving on to the rate case front. As you have seen in our earnings release, 10-Q and other filings, we continue progressing on the Global Water Santa Cruz and Global Water Palo Verde rate cases. To provide some context, if this were a baseball game, I would describe us as in the middle innings of the process. Steps to come over the next few months include 2 more rounds of formal [ rebuttal ] testimony, a hearing before an administrative law drudge, legal briefs and then awaiting the judge’s recommendations.

Once the judge issues the recommendations after hearing the case, the commissioners consider that recommendation at an open meeting. We still expect to finish the rate case in mid-2026. As a refresher on our filing, our current rates are based on a 2019 test year and this rate case is a 2024 test year, meaning this is the first rate case for these utilities that captures the historic inflation we experienced. And this is the first rate case that reflects the significant capital program the utilities undertook in the last 5 years. Even with those challenges, we are currently supporting a reasonable proposed net revenue increase of $4.3 million, which results in a median bill increase of less than 10% to the typical residential water and wastewater customer.

We believe the facts of the case will result in a fair outcome, and we will continue to provide updates on future calls. This concludes the update on acquisitions and regulatory activity for the quarter. I’ll now pass the call back to Ron.

Ron Fleming: Thank you, Chris. To close today, I just wanted to express how proud I am of our team. We took on a lot this year, and there is still more to come. Despite many headwinds, we will continue to execute our growth plan, and we intend to remain at the forefront of the water management industry and advance our mission of achieving efficiency and consolidation. We truly believe that expanding our Total Water Management platform and applying our expertise throughout our regional service areas and to new utilities will be beneficial to all stakeholders involved. We appreciate your investment in us and support of the company as we grow Global Water to address support utility, water resource and economic development matters along the Arizona Sun corridor, allowing our communities to thrive. These highlights conclude our prepared remarks. Thank you. We are now available to answer any questions.

Q&A Session

Operator: [Operator Instructions] The first question comes from Gerry Sweeney with ROTH Capital.

Gerard Sweeney: Ron, Mike and Chris. I’m going to start with a quick question on the rate case. You say you — I think you anticipate still being completed by mid-2026. If memory serves correct, I think we were looking at completed and maybe some of the rates going into effect July 1. Is that still potentially the case as when you say that the case completed by July 1 or mid-2026?

Michael Liebman: Gerry, this is Mike. Yes. We — that timing puts us to where we expect the rates to change by the middle of the year. So July 1 in the back half of the year with the new rates in place.

Gerard Sweeney: Got it. I just want to make sure on that front. And then moving over to ag-to-urban. That’s interesting. Obviously, there’s a lot of water issues outside of your operating area. I know you have some really good aquifer and sourcing of water. But how would this whole program worked for you of some of that land around your operating areas from the farmland. Would you purchase those rights? Or would they lease the rights? Or is this more about driving economic development because there is additional water in the region.

Ron Fleming: Yes. Absolutely, Gerry. This is Ron. I will take that one. And you’re right, there’s a lot going on and always — really always has been with water in Arizona. The 7 basin states in Mexico continue to reward for the federal government to determine what the new plan on the Colorado River will look like. But as you mentioned, the good news for us is we don’t really rely upon that. In these new emerging areas that we serve, which is kind of the basis of the business plan all the way back over 20 years ago. These are kind of those new areas outside the densely populated metro Phoenix region. And historically, there has been a lot of agricultural activity in these areas. So we really are converting farms to rooftops.

And the good news is that rooftops use about 1/4 or even less of the amount of water to build the kind of master planned communities that they do in this area, as compared to farms. And then in our model, our total water management model, we even stretched that water supply further. So the way that it practically works is it’s kind of good news to your question. We don’t have to buy it. We don’t lease it. The land owner has the right to pump water under certain Arizona regulations historic groundwater pumping to pump those rights for farming activities. So the reason we were able to work with a lot of stakeholders and get the law put in place, as you see it as a net offer for benefit. So it’s kind of a win-win-win because the farming goes away and then we just convert a portion of those historic groundwater pumping rights to a new municipal water supply.

So it’s basically they’re pumping 5-acre foot per acre for farming we’re going to convert in Pinal County, 1 acre foot to that new water supply or 1.5 acre feet in Maricopa County. So it’s good for everybody, but it’s also very economical — the most economical water supply because we’re just converting, but already exists there at really no cost. And then it underpins your ability to use that supply for more houses and businesses. So just based on the strength of that law, but where we are specifically as a company, it’s very beneficial to us.

Gerard Sweeney: Got it. And the 347 corridor expansion, that’s a pretty big deal because I think doesn’t that reduce commute times improve transportation and just potentially drive more people towards Maricopa with, generally speaking, is probably more housing affordability. Is that what we should be thinking about on that front?

Ron Fleming: Yes, absolutely. I would say more than generally speaking, it’s — it is what is going to happen. So you’ve got to think about it this way. When we bought those utilities just over 20 years ago, there was 2,000 people in the city. And we’re talking about some of the census data earlier on this call, but we all know the census data lags. And so right now, the city’s own metrics have the city at 85,000 people. So that has happened off of this kind of 2 lane each direction highway, but it definitely resulted in a lot more traffic congestion and that’s ultimately why those stakeholders were able to get the federal government, the local stakeholders, state government to fund this project through like 12 different funding mechanisms.

They were able to bring it all together because the need is real and there. So just to add up a full another lane in each direction, most importantly, at overpasses to some of the complicated intersections that currently just have 4-way lights that keeps the traffic moving. And it really is going to create a freeway of like access into the City of Maricopa. It’s going to allow us to keep booming. So we’re pretty excited about it.

Operator: [Operator Instructions] The next question comes from Matvey Tayts with Freedom Finance.

Matvey Tayts: So my question is also about this regulations. So like the proposal by ACC, like 50% below what you proposed. Are there any kind of — where this huge difference comes from? Why it’s so big. So can you just elaborate a little bit on this?

Christopher Krygier: Yes, this is Chris. So part of it is what I’ll call we’re kind of still in the process. So we have a lot of, what’s called, post-test year plant. And the way the commission works with that is they don’t include it in their calculations until they see the projects completed, the invoices in and they’ve had a chance to review the invoices. So that’s part of it. And then obviously, they’re still back and forth asking for additional information related to other investments of our Southwest area and other projects. And so that’s why when we say we’re in the middle innings, we’re kind of still in the middle of the process working with the parties on it.

Matvey Tayts: Okay. And just an additional question. So in previous reports, you mentioned this number like $212.5 million for the expected rate base. And I couldn’t find it in the new quarterly report. So is it correct that I missed this number or it’s mentioned somewhere or you decided to be a little bit less strict in your numbers expectations?

Michael Liebman: Yes. This is Mike. That number that we gave you, it’s — and you can find it in the investor presentation on our website. And so it’s there and it talks about our 2024 number plus an expected post-test year plan number that we have. And so that number has actually — it’s come down a little bit from that $212 million, but materially — that’s still correct. And that’s a number — we just don’t report that stuff in our quarterly financials.

Matvey Tayts: So let me just check 1 thing. So in your recent quarterly report, there is no — this number, right?

Michael Liebman: That’s right.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Ron Fleming for any closing remarks.

Ron Fleming: All right. Thank you, operator. I just want to thank everybody for participating on the call and for your ongoing interest in Global Water. I appreciate it and look forward to speaking with you again.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.