Global Water Resources, Inc. (GWRS) is a leading water resource management company that owns and operates 32 systems providing water, wastewater, and recycled water services primarily in growth corridors around metropolitan Phoenix, Arizona. The company's mission is to bring the benefits of consolidation, regionalization, and environmental stewardship to the communities it serves, positioning it as a key player in addressing the state's water scarcity and infrastructure challenges.

Company Background and History

Established in 2003, Global Water Resources was founded with the goal of deploying an integrated approach to water utility management, known as Total Water Management (TWM). In 2004, the company acquired its first two water and wastewater utilities, GW-Santa Cruz and GW-Palo Verde, laying the foundation for its TWM approach. TWM involves owning and operating water, wastewater, and recycled water utilities within the same geographic area to maximize the beneficial use of recycled water.

Over the years, Global Water Resources has continued to grow through strategic acquisitions. In 2005, the company acquired Sonoran Utility Services, LLC, further expanding its operations. In 2006, Global Water acquired CP Water Company, adding a Certificate of Convenience and Necessity that allowed it to serve a specified area and prevent other utilities from offering the same services. In 2015, the company faced a challenge when it closed the stipulated condemnation to transfer the operations and assets of Valencia Water Company, Inc. to the City of Buckeye. However, Global Water successfully negotiated terms that included the City of Buckeye paying a growth premium for each new water meter installed within Valencia's prior service areas.

Market Position and Growth

As of September 30, 2024, the company served 63,889 active service connections, reflecting a 4.7% year-over-year increase. This organic growth has been supported by the positive population and economic trends in the Arizona Sun Corridor, where Global Water Resources' service areas are primarily located.

According to the most recent U.S. Census estimates, the Phoenix metropolitan statistical area (MSA) is the 10th largest in the country, with an estimated population of 5.1 million as of 2024 – a 4.6% increase over the 4.8 million people reported in the 2020 Census. The Employment and Population Statistics Department of the State of Arizona predicts the Phoenix metropolitan area will have a population of 5.8 million by 2030 and 6.5 million by 2040, underscoring the region's robust growth trajectory.

This population growth, combined with a thriving economy, has driven significant development activities in Global Water Resources' service areas. In the first nine months of 2024, single-family permits in the City of Maricopa increased by 13% compared to the same period in the prior year, while permits across the greater Phoenix MSA rose by 28%. The company has also seen a notable shift towards large-scale, high-density multifamily developments, with multifamily housing unit permits in Maricopa increasing by 281% year-over-year in the first nine months of 2024.

To support this growth, Global Water Resources has made substantial investments in its infrastructure. Over the first nine months of 2024, the company invested $19.2 million into infrastructure improvements and expansions of its existing utilities, ensuring safe and reliable service for its growing customer base.

Financials

Global Water Resources' financial performance has reflected its successful growth strategy, despite some challenges. For the fiscal year 2023, the company reported total revenues of $53.03 million, with a net income of $7.98 million. Operating cash flow for 2023 was $25.39 million, while free cash flow stood at $3.08 million.

For the nine months ended September 30, 2024, the company reported total revenues of $39.4 million, a 3.0% decrease from the same period in 2023. This decrease was primarily attributable to the recognition of $2.8 million in unregulated revenue related to infrastructure coordination and financing agreements (ICFAs) in the first nine months of 2023, which did not recur in 2024. Excluding the impact of this non-recurring ICFA revenue, the company's regulated revenue increased by 5.3% to $39.4 million, driven by organic connection growth.

Net income for the first nine months of 2024 was $5.3 million, or $0.22 per diluted share, compared to $6.8 million, or $0.28 per diluted share, in the same period of 2023. The decrease in net income was primarily due to the absence of the ICFA revenue recognized in 2023. Adjusted EBITDA, a non-GAAP metric that excludes the impact of certain non-recurring and non-cash items, increased by 4.5% to $20.4 million for the first nine months of 2024.

In the most recent quarter (Q3 2024), Global Water Resources reported revenue of $14.32 million, net income of $2.92 million, operating cash flow of $2.23 million, and free cash flow of -$4.74 million. Total revenue decreased 1.5% compared to Q3 2023, primarily due to the recognition of $0.5 million in unregulated ICFA revenue in Q3 2023 that did not recur. However, regulated revenue increased 2.2% primarily due to organic connection growth.

Operating expenses for Q3 2024 were $10.3 million, down $0.4 million or 3.3% compared to Q3 2023. This decrease was driven by lower depreciation and amortization as well as a decrease in operating and maintenance costs. Adjusted EBITDA for Q3 2024 was $8.2 million, up $0.6 million or 7.2% compared to Q3 2023.

Global Water Resources operates as a single integrated water resource management company, with its primary business activities and revenue sources being water service revenue, wastewater and recycled water service revenue, and unregulated revenue. Water service revenue increased 2.5% year-over-year to $19.39 million for the nine months ended September 30, 2024, driven by a 4.4% increase in active water connections. Wastewater and recycled water service revenue increased 5.8% year-over-year to $20.05 million for the same period, mainly due to a 5% increase in active wastewater connections.

Liquidity

Global Water Resources maintains a solid liquidity position. As of December 31, 2023, the company had a debt-to-equity ratio of 2.57. Cash and cash equivalents stood at $18.14 million as of September 30, 2023. The company also has access to a $15 million revolving credit line, with 100% availability as of September 30, 2023. The current ratio and quick ratio both stood at 1.63 as of September 30, 2023, indicating the company's ability to meet its short-term obligations.

Global Water Resources' growth has also been supported by its successful rate case management. In June 2024, the Arizona Corporation Commission (ACC) issued a favorable decision on the rate cases for seven of the company's regulated utilities in Pima County, approving a collective annual revenue increase of approximately $0.4 million. The approved rates are being phased in over five periods, with the majority of the increase to be effective by January 1, 2025.

Looking ahead, Global Water Resources has several other rate cases in the pipeline. In June 2024, the company filed a rate case application for its GW-Farmers utility, requesting a revenue increase of approximately $1.3 million to be phased in over two periods. Additionally, the company has announced its intent to file a rate case for its largest utilities in Pinal County in 2025, with 2024 serving as the test year.

Strategic Acquisitions and Expansion

Beyond organic growth and rate case management, Global Water Resources continues to evaluate strategic acquisition opportunities within the Arizona Sun Corridor. In April 2024, the company's wholly-owned subsidiary, GW-Acquisition, entered into an asset purchase agreement with the City of Tucson to acquire seven public water systems serving approximately 2,200 water service connections. This acquisition, which is subject to customary closing conditions and ACC approval, would expand the company's service area in Pima County.

Environmental Stewardship and Operational Excellence

Global Water Resources' success in navigating the water resource management landscape in Arizona is underpinned by its commitment to environmental stewardship and operational excellence. The company has been recognized for its effective implementation of Total Water Management, including its water recycling efforts, which have resulted in the beneficial reuse of over 17.0 billion gallons of water since 2004.

Furthermore, Global Water Resources maintains a strong compliance record, having gone over seven years without a significant compliance event as of September 30, 2024. This focus on public health and safety, combined with the company's strategic growth initiatives, positions Global Water Resources as a key player in addressing Arizona's water challenges and supporting the state's continued economic development.

Future Outlook

Looking ahead, Global Water Resources remains cautiously optimistic about its future prospects. While the company faces headwinds related to high inflation and other cost drivers, it is proactively addressing these challenges through its upcoming rate case filings. Moreover, the favorable population and economic trends in its service areas, along with its successful acquisition strategy and operational excellence, suggest that Global Water Resources is well-positioned to continue delivering value to its customers and shareholders in the years to come.

The company has experienced an increasing rate of organic growth, with active service connections increasing 4.7% year-over-year as of September 30, 2024. The Phoenix metropolitan area is expected to continue growing, with the state of Arizona projected to add 478,000 jobs with an annual growth rate of 1.4% through 2032. This growth trajectory, combined with continued industrial and commercial development in its service areas and the potential for new utility acquisitions and greenfield projects, provides a solid foundation for Global Water Resources' future expansion.

While Global Water Resources has not provided specific financial guidance for future periods, the company's management remains focused on capitalizing on growth opportunities and improving operational efficiency. The upcoming rate case for its two largest utilities, Global Water Santa Cruz and Global Water Palo Verde, expected to be filed in the first half of 2025, will be crucial in ensuring the company's financial performance aligns with its growth and investment needs.