Global Water (GWRS) Earnings Call Transcript

Image source: The Motley Fool.

DATE

Thursday, March 5, 2026 at 1 p.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — Ron L. Fleming
• Chief Financial Officer — Michael J. Liebman
• Chief Operating Officer — Christopher D. Krygier
• Corporate Secretary — Kyle Upchurch

TAKEAWAYS

• Rate-baseable asset growth -- Management reported rate-baseable assets increased by $70.0 million, or 59% across Santa Cruz Water Company and Palo Verde Utilities Company attributed to capital initiatives from 2024 and 2025.
• Capital investments -- The company invested $67.3 million in infrastructure improvements, including the recommissioning of the Southwest plant and acquisition of the City of Tucson water systems.
• Total active service connections -- Active service connections rose 6.3% to 68,577, including acquisitions; organic connections grew 3.2% year over year, excluding the Tucson acquisition.
• Permit activity -- Single-family building permits in the Phoenix Metro Area decreased by nearly 20% to 21,815, while Maricopa permits dropped 39% to 600 in 2025.
• Revenue -- Total revenue reached $55.8 million, up $3.1 million or 5.8%, primarily from the Tucson acquisition, organic connection growth, and higher rates in Farmers and Saguaro utilities.
• Operating expenses -- Operating expenses increased $5.3 million, or 12.2%, to $48.6 million, driven by elevated depreciation of $2.3 million, $2.0 million in higher operating and maintenance, and $1.0 million in greater G&A costs.
• Net income -- Net income fell to $3.0 million ($0.11 per diluted share) from $5.8 million ($0.24 per diluted share), a decline explicitly linked to increased expenses and one-time asset write-offs.
• Adjusted net income (non-GAAP) -- Adjusted net income totaled $3.9 million ($0.14 per diluted share), down from $6.3 million ($0.26 per diluted share).
• Adjusted EBITDA -- Adjusted EBITDA was $26.5 million, nearly flat, declining 0.7% from $26.7 million the prior year.
• Regulatory developments -- The Arizona Corporation Commission approved $1.1 million in new revenues for Global Water Farmers utility and the City of Tucson water systems acquisition.
• Pending rate review -- The company has filed for a $4.3 million revenue increase for Santa Cruz and Palo Verde utilities; the hearing is scheduled for August 2026.
• Legislation impact -- The "Ag to Urban" water law, effective 2025, is expected by management to support additional growth and aquifer sustainability in company service areas.

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

• CEO Fleming said, "these investments increased expenses across the board, including much larger depreciation, and a one-time asset write-off related to the Southwest plant, which all impact income and earnings per share."
• Management warned, "certain company expenses, such as medical cost, continue to grow at an unprecedented pace."
• Permit activity declined as the CEO noted, "In 2025, the Maricopa market realized 600 building permits, representing a 39% decrease from the same period in 2024."
• Regulatory lag was highlighted: "This regulatory lag is an unfortunate part of the historical test year environment here in Arizona, but it is necessary to make investments upfront and seek recovery thereafter."

SUMMARY

Management highlighted a record increase in rate-baseable assets and major infrastructure investments, particularly emphasizing assets placed into service but not yet reflected in revenue due to regulatory lag. The company is pursuing a $4.3 million revenue increase in its largest utilities, with the rate case hearing scheduled for later in 2026. A notable acquisition of the City of Tucson water systems contributed to both top-line revenue growth and increased expense levels over the year. The "Ag to Urban" legislation and full funding for the Highway 347 project were presented as material catalysts supporting sustained regional expansion. Despite top-line gains, the combination of elevated operating expenses, permit declines, and unique regulatory factors led to a pronounced reduction in net income.

• Management described the issues impacting the current rate case as "very unique," particularly relating to the recommissioning of Southwest plant assets, and affirmed "we certainly do not plan on replicating the situation again in future normal business operations or rate cases."
• The company started to implement AI in its call center "to provide better service to your customers" but reported caution about broader deployment due to "security considerations that we need to have in place."
• Regulatory scheduling was clarified, with the next administrative testimony due April 15, 2026, and the hearing set for August 2026.

INDUSTRY GLOSSARY

• Rate-baseable assets: Assets on which a regulated utility is permitted by the regulator to earn a specified rate of return through customer rates.
• Test year: The 12-month historical period used in regulatory filings to set rates, serving as the baseline for revenue and cost projections.
• Regulatory lag: The time delay between when a utility incurs costs or invests capital and when it is authorized to recover those costs through increased rates.
• Arizona Corporation Commission (ACC): The state regulatory agency overseeing public utilities in Arizona, including water and wastewater providers.

Full Conference Call Transcript

Kyle Upchurch: Thank you, operator, and welcome, everyone. Thank you for joining us on today's call. Yesterday, we issued our 2025 year-end financial results by press release, a copy of which is available on our website at gwresources.com. Speaking today we have Ron L. Fleming, President and Chief Executive Officer; Michael J. Liebman, Chief Financial Officer; and Christopher D. Krygier, Chief Operating Officer. Ron will summarize the key operational events of the year, Mike will review the financial results for year end, and Chris will review Arizona Corporation Commission activity. Ron, Mike, and Chris will be available for questions at the end of today's 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 will now turn the call over to Ron.

Ron L. Fleming: Thank you, Kyle. Good morning, everyone, and thank you for joining us today. We are pleased to report the results for year-end 2025. First, before jumping to normal operating highlights, I would like to get straight to the main points on 2025. This year included many large and successful initiatives that will materially grow rate base. In fact, including 2024 and 2025, the test year and post-test year for our Santa Cruz Water Company and Palo Verde Utilities Company rate case, we have increased the collective rate-baseable assets of our company by $70,000,000, or 59%. With respect to these initiatives, we have had a near-record year for capital investments that were critical to complete within 2025.

These investments span everything from recommissioning the previously mothballed water reclamation facility in Pinal County south of the City of Maricopa, which is part of the system we refer to as our Southwest plant, to our capital improvements to stay in front of our fast-growing communities and the acquisition of the City of Tucson water systems. All of these investments inure to long-term value creation and also benefit customers and communities we have the privilege to serve. However, these investments increased expenses across the board, including much larger depreciation, and a one-time asset write-off related to the Southwest plant, which all impact income and earnings per share.

This regulatory lag is an unfortunate part of the historical test year environment here in Arizona, but it is necessary to make investments upfront and seek recovery thereafter. Additionally, certain company expenses, such as medical cost, continue to grow at an unprecedented pace. As I have been saying for many quarters now, we need new rates to keep up with all the investment and inflation that has occurred in our utilities. Chris will discuss these rate cases and our regulatory activity later in the call. In the meantime, I want to make it clear, 2026 is about working hard to control expenses, and we have reduced the pace of capital investments.

Now, as a reminder of many other positive announcements from 2025 that underpin our goal of long-term value creation and our ability to deliver total returns to our shareholders in the years and decades to come. First, we announced that the Arizona governor signed meaningful water legislation known as Ag to Urban, which became law in 2025. We believe this will result in many benefits that will be applicable for Global Water Resources, Inc. in our service areas, improving aquifer sustainability while creating a new groundwater supply to support additional growth.

Based on Global Water Resources, Inc.'s established service areas created through buying and building utilities in the path of growth, our regional areas coincide with land that has considerable historical farming operations just outside densely populated Metro Phoenix. Thus, we believe the new law will drive even more growth to our service areas. Second, full funding of the Highway 347 expansion connecting Interstate 10 and Metro Phoenix to the City of Maricopa and the entire western part of Pinal County was approved in 2025. 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 in summer 2026.

This project should go a long way to ensure that the City of Maricopa continue to be one of the fastest-growing communities in the country, and it helps meet our population projections of growing nearly 90% by 2040. As evidence to potential of this population projection, on July 1, 2025, the U.S. Census Bureau released its population projections from 2024 data, and the City of Maricopa was once again in the top 10 of the fastest-growing large municipalities in the country, coming in at number six. Even more telling was that population growth in 2024 was even stronger than 2023, as the city realized 7.4% growth compared to 7.1%.

Below, I will discuss connection growth rates and permit growth rates that have begun to slow, but it is important to keep this population growth that I just discussed in mind, as it now more closely correlates with consumption and revenue growth based on the amount of multifamily housing and commercial growth that is occurring. Finally, if you think about everything just mentioned, from rate base accumulation to water and transportation that are the two fundamental elements of economic development, you can see that, even more than ever, we have the foundation of sustainable growth for the years and decades to come. Now I will provide a few operational highlights.

Total active service connections increased 6.3% to 68,577 at December 31, 2025, from the twelve months prior. In 2025, we achieved a 3.2% total active service connection growth rate excluding the recent acquisition of the seven Tucson water systems. And specifically, we invested $67,300,000 into infrastructure improvements in existing utilities to provide safe and reliable service. A majority of our investments in 2025 were post-test year projects in Santa Cruz Water Company and Palo Verde Utilities Company, our two largest utilities located in Pinal County, and are included in our already filed 2024 test year rate application. Now I want to discuss organic customer growth and what is going on in our core utilities even further.

The single-family dwelling unit market ended 2024 with approximately 27,156 building permits issued in the Phoenix Greater Metro Area. In 2025, this market realized 21,815 building permits, and this did represent a nearly 20% decrease off 2024. In 2025, the Maricopa market realized 600 building permits, representing a 39% decrease from the same period in 2024. The 2025 permit data showing a bit of a pullback from the prior year is not surprising considering the uncertainty in the market today. While new permit activity has slowed in 2025, growth in the Phoenix MSA, particularly in the City of Maricopa, is reflected in the company's 3.2% year-over-year organic increase in active connections.

We believe the decline in permits is temporary, especially considering that mortgage rates continue to drop, and we remain well positioned to benefit from the anticipated long-term growth of the Phoenix MSA. I will now turn the call over to Mike for financial highlights.

Michael J. Liebman: Thanks, Ron. Hello, everyone. Total revenue for 2025 was $55,800,000, which was up $3,100,000, or 5.8%, compared to 2024. The increase in revenue was primarily attributable to the City of Tucson acquisition in July 2025, organic growth in active water and wastewater connections, and higher rates in our Farmers and Saguaro utilities compared to 2024. Operating expenses for 2025 increased approximately $5,300,000, or 12.2%, to $48,600,000 compared to $43,300,000 in 2024. Notable changes in operating expenses included depreciation, amortization, and accretion expense increased $2,300,000 for the year.

The increase was 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, which are part of our current rate case. Operating and maintenance costs increased approximately $2,000,000 for the year. The increase was primarily driven by three things. First, personnel costs as a result of the Tucson acquisition, medical expenses, and filling a previously vacant position. Second, utilities, chemicals, and repairs due to higher purchased power, chemical costs, and water treatment expense associated with increased consumption and newly operational plant, and third, higher contract services.

G&A costs increased by approximately $1,000,000 in 2025, primarily driven by higher medical costs, increased professional fees largely from legal expenses associated with the Nikola bankruptcy, higher IT spending, increased insurance premiums, and elevated municipal licensing fees tied to revenue growth. Now to discuss other expense. Other expense for 2025 was $3,200,000 compared to $1,500,000 in 2024. The increase in expense is primarily attributable to a loss on asset disposals of $1,300,000 related to the recommissioning of our Southwest plant, and lower income associated with our Buckeye growth premiums. Net income for 2025 was $3,000,000, or $0.11 per diluted share, as compared to $5,800,000, or $0.24 per diluted share, in 2024.

Adjusted net income, a non-GAAP measure, was $3,900,000, or $0.14 per diluted share, in 2025, as compared to $6,300,000, or $0.26 per diluted share, in 2024. Lastly, I will discuss adjusted EBITDA, which adjusts for certain nonrecurring items, such as one-time storm-related expenses, and noncash items such as restricted stock expense and the loss on assets for our Southwest plant. For 2025, adjusted EBITDA decreased 0.7% to $26,500,000 from $26,700,000 in the prior year. This concludes our update on the year-end 2025 financial results. I will now pass the call to Chris to review our regulatory activity for the year.

Christopher D. Krygier: Thank you, Mike, and hello, everyone. We accomplished a number of constructive developments on the regulatory agenda this year. First, in January 2025, we secured ACC approval to acquire the seven public water utility systems from the City of Tucson, which we closed in July 2025. Second, in April 2025, the Arizona Corporation Commission approved approximately $1,100,000 of new revenues for our Global Water Farmers utility. Finally, we continue progressing on our Global Water Santa Cruz and Global Water Palo Verde rate reviews. As Ron mentioned, we are squarely focused on securing rate relief for our significant capital investments and rising expenses. Since we last spoke in November, we filed testimony supporting a proposed revenue increase of approximately $4,300,000.

Since that filing, the parties and the Administrative Law Judge revised the case schedule to include additional ACC Staff testimony being filed on April 15, 2026, and the hearing is now scheduled to begin in August 2026. We are continuing to dialogue with our regulatory stakeholders on the case, and we will keep you apprised of additional updates on future calls. This concludes the update on regulatory activity for the year. I will now pass the call back to Ron.

Ron L. Fleming: Thank you, Chris. To close today, I just wanted to express how proud I am of our team. We took on a lot in 2025 and successfully executed on many fronts. But while these efforts have prepared us for 2026 and beyond, we still have more work to do, and despite many headwinds, we will continue to execute our growth plan and remain at the forefront of the water management industry, advancing 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 and support of us as we grow Global Water Resources, Inc. to address important 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.

Operator: We will now begin the question-and-answer session. To ask a question, if you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed, and you would like to withdraw your question, please press star then 2. Again, press star then 1 to ask a question. At this time, we will pause momentarily to assemble our roster. The first question comes from Zach Leggett from Desmond Leggett Wealth. Please go ahead.

Zach Leggett: Great, thanks for taking the question. I just had two. First of all, on the rate case, just given how kind of frustrating this has been, I am curious if you guys have done an analysis and have looked at things that are within your control that you can do differently on future rate cases? So that is my first question. And then the second question is just related to AI, if there are any use cases you guys have identified that you can apply to the business and try to squeeze out some more operating efficiencies? Thank you.

Ron L. Fleming: Hi, Zach. I will go ahead and start on the rate case question and then Chris and Mike, feel free to jump in. I just want to make it clear that, to use your word, it has been a frustrating process. The primary element of this rate case is very unique, and it is the recommissioning of that Southwest plant assets. And for those of you that are new investors to the company, we invested in a new utility territory just south of the City of Maricopa prior to the Great Recession—really in the years 2005, 2006, 2007.

Ultimately, when 2008 hit, no customers showed up, and so we were not able to actually fully commission and bring those utilities online and move them into rates, which is clearly your normal process. Lots of things happened during the Great Recession—I am sure you can imagine—that took a long time to work through. But most recently, growth did return there, back around 2001. We started working with the developers there again. Growth has jumped from the City of Maricopa to this area, and it is growing actually pretty nicely now. But we had to recommission those assets and move them into rates.

And so, to be fair to the Commission, this is a unique situation that is not often dealt with, and we certainly do not plan on replicating the situation again in future normal business operations or rate cases.

Christopher D. Krygier: Zach, this is Chris. What I would add to that is that I absolutely agree on the uniqueness. I have been in the regulatory space for a long time in my career, and this is definitely one of the most unique situations that we have had to work through. But I will tell you, big picture, you are always looking and taking lessons learned from every rate case, and we have continued to do that. But I would also say we followed a pretty traditional playbook with something unique like this, meaning we have been talking to our regulatory stakeholders for a long time about it.

We have been talking to our communities about it, and really talking to customers about it. So we will continue all of those, but it is a unique issue. We will land it. We will get it there.

Ron L. Fleming: And then, happy to speak a little bit on the AI question as well. Ultimately, funny enough, we just got a presentation from our Vice Presidents of IT and Security yesterday on it. And ultimately, there are going to be lots of use cases in our industry. The most obvious one that people benefit from right off the jump is in your call center and your ability to provide better service to your customers and also, obviously on our end, make it more efficient. So that is something we have started to implement at a level.

But to take it outside of the call center and across our utility operations—because we are obviously very highly regulated and very highly automated—there are lots of security issues that we want to have in place before pushing it too far out into the organization. So those conversations are being had. We are not going faster primarily because of the security considerations that we need to have in place.

Zach Leggett: Makes sense. Appreciate the color there. And just a quick follow-up back on the rate case. If we get to the end of the year and it just does not go as you guys hope, do you have the ability to accelerate a refiling and take another crack at it? Or how does that process work?

Christopher D. Krygier: Zach, this is Chris again. We are looking at all of those options and giving thought as to what that would look like. We do not have anything to announce at the moment, but I would say we are evaluating all of those options and what would be the best course if we needed to pursue that.

Zach Leggett: Alright. Very good. Thanks, guys. Best of luck.

Ron L. Fleming: Yes, thank you. And I will make one more point on top of that. It kind of builds off my comment earlier in my planned remarks about having moved $70,000,000 of rate-baseable assets into service. That means it is into service, providing customers. So it is a matter in our view of when, not if, and we will have that determined through this rate case on the when. So thank you.

Operator: Seeing no further questions, I would like to turn the conference back over to Ron Fleming for any closing remarks.

Ron L. Fleming: Thank you, operator. Again, I just want to thank everybody for participating on the call and for your interest in Global Water Resources, Inc. We 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.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.