Global Water Resources, Inc. (NASDAQ: GWRS) is a leading water resource management company that owns and operates 32 water, wastewater, and recycled water systems primarily in the metropolitan Phoenix and Tucson regions of Arizona. The company's innovative Total Water Management approach has established it as a pioneer in the water utility industry, uniquely positioning it to capitalize on the significant growth opportunities within its service areas.
Business Overview and History
Global Water Resources, LLC (GWR) was organized in 2003 with the goal of acquiring, owning, and managing a portfolio of water and wastewater utilities in the southwestern United States. Simultaneously, Global Water Management, LLC (GWM) was formed as an affiliated company to provide business development, management, construction project management, operations, and administrative services to GWR and all of its regulated subsidiaries.
In early 2010, the members of GWR decided to raise capital through the markets, leading to the reorganization of GWR and GWM to form Global Water Resources, Inc., a Delaware corporation. A new entity, GWR Global Water Resources Corp. (GWRC), was incorporated in British Columbia on March 23, 2010, to acquire shares of GWRI's common stock and actively participate in its management, business, and operations through representation on GWRI's Board of Directors. GWRC completed its initial public offering in Canada on December 30, 2010, with its common shares listed on the Toronto Stock Exchange.
On June 5, 2013, the Company sold GWM. A significant restructuring occurred on May 3, 2016, when GWRC merged with and into the Company in a Reorganization Transaction. As part of this merger, holders of GWRC's common shares received one share of the Company's common stock for each outstanding common share of GWRC. This resulted in GWRC ceasing to exist as a British Columbia corporation, with the Company, governed by Delaware corporate laws, emerging as the surviving entity.
The Reorganization Transaction was contingent upon the concurrent completion of an initial public offering of the Company's common stock in the U.S., which was successfully executed on May 3, 2016. Since then, Global Water Resources has continued to operate as a water resource management company, focusing on owning, operating, and managing water, wastewater, and recycled water public utility systems in strategically located communities, primarily in metropolitan Phoenix and Tucson, Arizona.
In 2004, Global Water acquired its two largest utilities, GW-Santa Cruz and GW-Palo Verde, which collectively serve approximately 89.6% of the company's 64,520 active service connections as of December 31, 2024. Over the years, the company has continued to strategically expand its footprint through targeted acquisitions, including the 2023 acquisition of Farmers Water Co. in Pima County, Arizona.
Financials
Global Water's financial performance has been impressive, with regulated revenue increasing by 4.9% to $52.7 million in 2024, primarily driven by organic connection growth. However, total revenue for the year declined by 0.6% to $52.7 million due to a decrease in unregulated revenue related to infrastructure coordination and financing agreements (ICFAs) that did not recur in 2024. Net income for the year was $5.8 million, or $0.24 per diluted share, compared to $8.0 million, or $0.33 per diluted share, in the prior year.
The company's financial performance is primarily driven by its regulated revenue segment, which includes water service, wastewater service, and recycled water service operations. In 2024, water service revenue increased by 4.8% to $26.1 million, while wastewater and recycled water service revenue grew by 4.9% to $26.6 million. These increases were primarily due to growth in active connections, with water connections increasing by 4.2% to 35,800 and wastewater connections growing by 4.7% to 28,720.
For the fourth quarter of 2024, Global Water reported revenue of $13.3 million, a 10% increase year-over-year, driven by the 4.4% growth in active service connections. Net income for the quarter was $0.4 million.
The company's historical performance has been strong, with revenue growing by 48.4% and earnings per share increasing by 119% from 2019 to 2024. During this period, active service connections grew by 40.8%, from 45,800 in 2019 to 64,520 by the end of 2024.
Financial Strength and Liquidity
Global Water Resources maintains a strong financial position, with a debt-to-capitalization ratio of only 13.4% as of December 31, 2024. The company's capital structure consists of $118.5 million in long-term debt, primarily in the form of senior secured notes, and $47.6 million in shareholders' equity.
The company's liquidity position is also robust, with $9.1 million in cash and cash equivalents as of the end of 2024. Global Water's operating cash flow for the year was $21.8 million, while free cash flow was a negative $10.5 million due to $32.3 million in capital expenditures as the company continues to invest in its infrastructure to support organic growth.
Global Water maintains a $15 million revolving credit facility with Northern Trust, of which there were no outstanding borrowings as of December 31, 2024. This provides additional financial flexibility for the company. The company's current ratio and quick ratio both stand at 0.87, indicating a reasonable ability to meet short-term obligations.
Organic Growth Fueled by Population Expansion
Global Water's service areas are strategically located in high-growth corridors around metropolitan Phoenix and Tucson, Arizona, two of the fastest-growing regions in the United States. The Phoenix metropolitan statistical area (MSA) saw a 4.6% increase in population from 2020 to 2024, reaching an estimated 5.1 million residents, making it the 10th largest MSA in the country.
This population growth has translated into strong demand for Global Water's services, with the company's active service connections increasing by 4.4% to 64,520 as of the end of 2024. The city of Maricopa, a key service area for Global Water, issued 986 single-family dwelling building permits in 2024, an 11.5% increase from the prior year. Additionally, the city saw a surge in multifamily housing development, with 1,200 units permitted in 2024, up 88.7% from 2023.
Successful Regulatory Strategy and Rate Case Filings
Global Water's operations are subject to regulation by the Arizona Corporation Commission (ACC), which has jurisdiction over the company's rates, service quality, and other aspects of its business. The company has a proven track record of successfully navigating the regulatory environment, as evidenced by its recent rate case filings and settlements.
In February 2025, Global Water notified the ACC of its intention to file a rate case for its GW-Santa Cruz and GW-Palo Verde utilities, the company's two largest. The proposed rate increase requests approximately $6.5 million of new revenue, with the first phase to be implemented in May 2026 and the second phase in January 2027. The drivers of the rate increase include inflation, continued capital investment to support organic growth, and rate-base recognition of the company's Southwest Plant investment.
The rate case proposes a rate base of approximately $165 million for these utilities, representing a 47% increase over the prior rate case in 2019. The company is proposing an equity component of approximately 55% and a return on equity of 10.2%. Additionally, Global Water has proposed implementing a "cost of service adjustment" (CSA) formula rate mechanism, which would allow for annual rate updates to reduce regulatory lag.
In January 2025, Global Water reached a unanimous settlement agreement for its GW-Farmers rate case, which, if approved, will authorize an approximate $1.1 million revenue increase to be phased in during 2025 and 2026. This settlement demonstrates the company's ability to work collaboratively with regulators and other stakeholders to achieve constructive outcomes.
Innovative Total Water Management Approach
At the core of Global Water's business model is its innovative Total Water Management approach, which seeks to reduce demand on scarce water resources and maximize the value of water through each stage of the water cycle. This comprehensive strategy includes the reuse of recycled water, regional planning, the use of advanced technology and data, and community outreach and education.
Global Water's water recycling efforts are particularly noteworthy, with the company recycling over 1.4 billion gallons of water in 2024. By requiring developers to install purple pipe infrastructure for recycled water distribution and then delivering that water back to the community for irrigation and other non-potable uses, the company is able to reduce the overall demand for groundwater and surface water resources.
The company's technological investments, including automated meter infrastructure and supervisory control and data acquisition (SCADA) systems, also contribute to its operational efficiency and customer service. These technologies allow Global Water to detect and resolve potential problems promptly, optimize asset performance, and provide a superior customer experience.
Risks and Challenges
While Global Water's growth prospects are promising, the company faces several risks and challenges that investors should be aware of. These include:
1. Regulatory uncertainty: As a regulated utility, Global Water's financial performance is heavily dependent on the decisions made by the ACC, which has the authority to approve or deny rate increases and other key business decisions.
2. Water supply constraints: Like many regions in the western United States, Arizona faces ongoing challenges related to water scarcity and the depletion of groundwater resources. Global Water's ability to continue serving its growing customer base may be impacted by these environmental factors.
3. Competition for new service areas: Global Water faces competition from other water and wastewater utilities, both public and private, when seeking to expand into new service areas or acquire smaller utilities.
4. Acquisition integration risks: The company's growth strategy includes targeted acquisitions, which can introduce integration challenges and operational risks if not executed effectively.
Outlook and Conclusion
Global Water Resources is well-positioned to capitalize on the significant growth opportunities within its service areas, thanks to its innovative Total Water Management approach, strong financial position, and proven regulatory strategy. The company's focus on organic growth, strategic acquisitions, and infrastructure investment positions it to continue delivering value to shareholders.
The company's recent performance and regulatory initiatives highlight its growth potential. With active service connections increasing by 4.4% to 64,520 in 2024, and a substantial rate case filed for its largest utilities, Global Water is poised for continued expansion. The proposed $6.5 million revenue increase and the introduction of a cost of service adjustment mechanism, if approved, would provide a solid foundation for future growth.
Global Water's commitment to operational excellence is evident in its zero significant compliance events in 2024, continuing its strong compliance record. The company's $32.3 million investment in infrastructure improvements and existing utilities in 2024 demonstrates its commitment to maintaining and upgrading its systems to support future growth.
While the company faces some regulatory and environmental challenges, Global Water's leadership team has demonstrated its ability to navigate these obstacles and achieve constructive outcomes. With a strong track record of financial performance, a robust liquidity position, and a clear strategic vision, Global Water Resources appears poised for continued success in the years ahead.