Global Water Resources, Inc. 2026 Q2 Earnings Call

Please go ahead. Thank you, operator, and welcome, everyone.

Thank you for joining us on today's call. Yesterday, we issued our 2026 second 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 key operational events, Mike will review the financial results for the second quarter, and Chris will review 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 day 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.

Thank you, Kyle. Good morning, everyone, and thank you for joining us today. First, before jumping to our normal operating highlights, I would like to emphasize our focus on earnings growth. While many key metrics our business have experienced. Excuse me. We've experienced strong growth over the last five years. Our goal is to also achieve long-term earnings growth. We are committed to this objective, which we believe will allow us to enhance shareholder value. As we reported previously, in 2025, we had a near record year for capital investments that were critical to complete. This included the investment necessary to recommission our Southwest Plant water reclamation facility, which was originally constructed 20 years ago but was mothballed during the Great Recession.

Although these investments grow rate base considerably and ensure we can provide safe and reliable service to our customers and communities we have the privilege to serve, these investments increased certain operating expenses and, most notably, depreciation expense. Such expenses continue to adversely impact net income and EPS in the second quarter of 2026. This is an unfortunate yet necessary part of the historical test year environment here in Arizona. Additionally, certain company expenses, such as medical, 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 we have experienced in our utilities.

To this end, while it represents a diversion from our original rate application, the recently announced rate case settlement provides a clearer path to a notable rate increase for our largest water utility, Global Water - Santa Cruz Water Company, Inc., later this year. For Global Water - Palo Verde Utilities Company, Inc., while delayed, the delay deals with the primary difference of opinion on the timing of rate recovery as it relates to that historical Southwest Plant issue. Thus, the new schedule provides a clearer path to setting appropriate rates for our largest wastewater utility in 2028. Together, this will allow us to better realize recovery of inflationary expenses and return on and return of our plant investments, including the Southwest Plant, resulting in years of meaningful earnings growth ahead. Chris will discuss the rate case further and our planned rate case activity for other utilities later on the call.

In the meantime, 2026 is about working hard to control G&A expenses, which we achieved in Q2. In the years to come, we believe we can maintain solid revenue and earnings growth as we seek to obtain appropriate rate increases combined with our anticipated organic growth. Now I will provide a few operational highlights. Total active service connections increased 5.8% to 69,429 as of June 30, 2026, from the 12-month prior. In 2026, we achieved an annualized 2.6% total active service connection growth rate, excluding the acquisition of the seven Tucson Water systems. Specifically, we invested $6.6 million into infrastructure improvements in existing utilities in the second quarter of 2026 to provide safe and reliable service. Now, I want to discuss organic customer growth and what is going on in our core utilities further.

The single-family dwelling unit market ended 2025 with approximately 21,815 building permits issued in the Phoenix Greater Metro statistical area. In the second quarter of 2026, this market realized 5,653 building permits, representing a 4.7% decrease compared to the same period in 2025. Meanwhile, the Maricopa market realized 185 building permits, representing a 5.7% increase from the same period in 2025. While new permit activity across the Phoenix MSA has slowed in 2026, and particularly in the city of Maricopa, is reflected in the company's 2.7% year-over-year organic increase in active connections. We believe the decline in permits is temporary, as we remain well-positioned to benefit from the anticipated long-term growth of the Phoenix MSA and our specific area drivers, including job growth, affordability, improving transportation, including State Route 347 widening, and our large assured water supply. I will now turn the call over to Mark for financial highlights.

Thanks, Ron. Hello, everyone. Total revenue for the second quarter of 2026 was $17.8 million, which was up $3.5 million or 24.8% compared to Q2 2025. Total revenue for the year-to-date period increased $4.4 million or 16.3% to $31.1 million. The revenue increase in both periods was primarily attributable to unregulated revenue recognition of $2.1 million related to Infrastructure Coordination and Financing Agreements, also known as ICFAs, the acquisition of seven water systems from Tucson Water in July 2025, organic connection growth, increased consumption, and higher rates. A more fulsome explanation of ICFAs can be found in our most recent Form 10-K filing. However, just for some background, ICFAs are agreements we entered into with developers and home builders whereby Global Water provides services to plan, coordinate, and finance the water and wastewater infrastructure that would otherwise be required to be performed or subcontracted by the developer or home builder.

During the quarter, our Global Water - Hassayampa Utilities utility put its first wastewater plant into service, allowing us to recognize deferred revenue as we met all of our contractual obligations under the related ICFA agreement. Turning to regulated revenue, which excludes ICFA revenue, for Q2 was $15.7 million, which was up $1.4 million or 9.9% compared to Q2 2025. Regulated revenue for the year-to-date period increased $2.2 million or 8.4% to $28.9 million. Operating expenses for Q2 2026 increased approximately $1.7 million or 14.1% to $13.3 million, compared to $11.6 million in Q2 2025. Operating expenses for the year-to-date period increased approximately $3.3 million or 14.6% to $26.2 million compared to the same period in 2025. Notable changes in operating expenses included depreciation, amortization, and accretion increased $1.1 million for Q2 and $2 million for the year-to-date period.

The increase in both periods was substantially attributable to the additional depreciable utility plant placed in service last year as a result of our 2025 capital improvement plan and the commissioning of related projects. Operations and maintenance costs increased approximately $0.6 million for Q2 and $1.1 million for the year-to-date period. The increase in both expense periods was primarily driven by, one, rising medical expenses, two, higher purchase power tied to newly operational plant and increased consumption, and three, a loss on the disposal of utility plant. G&A costs remained relatively flat at $4.3 million in Q2 2026 compared to $4.4 million in Q2 2025. G&A costs for the year-to-date period increased $0.2 million to $8.8 million. To discuss other expense. Other expense for Q2 2026 was $0.8 million compared to $0.4 million in Q2 2025.

Other expense for the year-to-date period was $1.6 million, compared to $0.9 million in the same prior year period. The increase in both periods was primarily attributable to higher interest expense and lower interest income. Net income for Q2 of 2026 was $2.7 million, or $0.10 per diluted share, as compared to net income of $1.6 million or $0.06 per diluted share in Q2 2025. Net income for the year-to-date period was $2.4 million or $0.08 per diluted share, as compared to net income of $2.2 million or $0.08 per diluted share in the prior year period. Adjusted EBITDA adjusts for certain items such as the recognition of deferred ICFA revenue, the loss on disposal of utility plant, and restricted stock expense.

Adjusted EBITDA for Q2 of 2026 was $7.9 million, compared to $6.9 million in Q2 of 2025, an increase of $1 million or 15%. Adjusted EBITDA for the year-to-date period was $13.5 million, compared to $12.6 million in the prior year period, an increase of $0.9 million or 8%. Lastly, in light of recent events, I would like to share that Global Water Resources and its family of utility companies was not impacted by the recent cyber attacks against water and wastewater infrastructure across the U.S. This concludes our update on the second quarter 2026 financial results. I'll now pass the call to Chris to review our regulatory activity for the quarter.