Executive Summary / Key Takeaways

• Strategic Growth in a Water-Stressed Region: Global Water Resources (GWRS) is uniquely positioned to capitalize on Arizona's rapid population and industrial growth through its "Total Water Management" (TWM) strategy, which integrates water, wastewater, and recycled water services with advanced technology like smart meters.
• Accretive Acquisitions and Rate Case Momentum: Recent acquisitions, notably the Tucson water systems at an attractive 1.05x rate base, combined with successful and pending rate cases (e.g., $1.1 million annual increase for GW-Farmers, $6.5 million requested for GW-Santa Cruz/Palo Verde), are set to drive significant revenue and earnings growth.
• Innovative Regulatory Approach: The proposed "Cost of Service Adjustment" (CSA) or "Formula Rates" mechanism aims to reduce regulatory lag, allowing for more timely recovery of capital investments and operating costs, enhancing financial predictability.
• Robust Macro Tailwinds: Arizona's booming economy, substantial industrial investments (e.g., TSMC (TSM)'s $165 billion expansion), and new "Ag-to-Urban" water legislation provide strong long-term demand drivers for GWRS's services, particularly in its strategically located service areas.
• Solid Financial Foundation with Growth Investments: Despite a slight dip in Q2 2025 net income due to increased operating expenses and capital investments, GWRS maintains strong liquidity, supported by a recent $30.8 million equity raise and an expanded $20 million revolving credit facility, enabling continued infrastructure development.

The Arizona Sun Corridor's Water Steward

Global Water Resources, Inc. (GWRS), founded in 2003, operates as a pure-play water resource management company, owning and managing 39 public utility systems across metropolitan Phoenix and Tucson, Arizona. The company's core mission revolves around its proprietary "Total Water Management" (TWM) approach. This integrated strategy is designed to reduce demand on scarce non-renewable water sources, ensure long-term sustainability, and deliver environmental and economic benefits to the communities it serves.

Arizona's unique position as a rapidly growing, water-stressed region creates a distinct operating environment for GWRS. The Phoenix metropolitan statistical area (MSA) is the 10th largest in the U.S., with an estimated population of 5.2 million in 2024, reflecting a 7% increase since 2020. Projections anticipate further growth to 5.8 million by 2030 and 6.5 million by 2040. This demographic expansion, coupled with an unprecedented industrial manufacturing boom – exemplified by TSMC's planned $165 billion investment – underpins a robust demand for essential water and wastewater services.

Technological Edge: Total Water Management and Smart Infrastructure

GWRS's competitive advantage is deeply rooted in its Total Water Management (TWM) platform. This comprehensive approach encompasses the reuse of recycled water, regional planning, advanced technology, and strategic partnerships. Since 2004, the company has recycled over 17.4 billion gallons of water, demonstrating a tangible commitment to sustainability. This proactive water stewardship is critical in an arid region like Arizona, where water scarcity is a persistent concern.

A key technological differentiator within TWM is the deployment of Automated Meter Infrastructure (AMI), or smart meters. These systems enable wireless usage metering, providing granular data that enhances operational efficiencies and supports conservation efforts. Over 95% of GWRS's existing water connections are equipped with AMI, and the company plans to integrate this technology into recently acquired systems, such as those from Tucson Water. The tangible benefits of AMI include minimizing operational costs, maximizing efficiency in water delivery and billing, and enabling smart water management programs that promote real conservation through data-driven insights and inverted tier rate designs. This technological integration contributes to GWRS's strong compliance record, with nearly eight years without a significant compliance event. For investors, TWM and AMI create a robust competitive moat by optimizing resource utilization, reducing operational expenses, and fostering positive regulatory relationships, which can lead to more stable revenue streams and improved margins.

Strategic Expansion and Regulatory Prowess

GWRS's growth trajectory is a direct outcome of its strategic blueprint: organic connections, greenfield utilities, accretive acquisitions, and proactive rate cases. The period from 2019 to 2024 saw active connections surge by 40.8%, revenue by 48.4%, and EPS by an impressive 119%, even amidst global economic turbulence.

The company's expansion into Pima County, beginning in 2018, exemplifies its acquisition strategy. The recent acquisition of seven water systems from Tucson Water on July 8, 2025, for approximately $8.2 million, added 2,200 connections and $7.7 million in rate base. This deal was secured at an attractive multiple of 1.05x rate base, significantly below the estimated peer group average of 1.5x to 2x, making it immediately accretive. These acquired systems are geographically close to existing GWRS infrastructure, facilitating greater economies of scale and eventual consolidation into regional rate plans. The Diamond Bell system, part of this acquisition, alone offers 1,400 additional platted lots for future organic growth.

Regulatory engagement is another cornerstone of GWRS's strategy. The Arizona Corporation Commission (ACC) approved a $1.1 million annual revenue increase for the GW-Farmers utility, phased in starting May 1, 2025. This marks the second successful rate case settlement under the commission's new policy, underscoring GWRS's ability to acquire and improve utilities while securing appropriate rate relief. Furthermore, GWRS filed a general rate case application on March 5, 2025, for its two largest utilities, GW-Santa Cruz and GW-Palo Verde, which collectively represent nearly 90% of its active service connections. This application seeks a net annual revenue increase of approximately $6.5 million, with new rates proposed for May 2026 and January 2027. The request is driven by inflation, substantial capital investments, and rate base recognition of the Southwest Plant.

An innovative aspect of this rate case is the proposal for a "Cost of Service Adjustment" (CSA), a formula rates-like mechanism. If approved, the CSA would allow for annual rate adjustments based on updated costs and investments, significantly reducing regulatory lag and enhancing financial predictability for both the company and its customers. This proactive approach to rate management is a critical strategic response to the inflationary environment and ongoing capital needs.

Financial Performance Reflecting Growth and Investment

GWRS's financial performance in the second quarter and first half of 2025 reflects its ongoing growth and strategic investments. For Q2 2025, total revenue increased by 5.4% year-over-year to $14.2 million. This growth was primarily driven by a 3.8% increase in active service connections, increased water consumption (up 8.2%), and higher rates from recent rate case approvals. Wastewater and recycled water service revenue saw a modest 0.5% increase, partially offset by $0.2 million in bill credits related to the Southwest Plant.

Operating expenses for Q2 2025 rose by 8.5% to $11.6 million. This increase was largely due to a $321,000 rise in depreciation and amortization, reflecting a 16.5% increase in depreciable fixed assets from capital investments. Personnel costs also increased by $223,000, attributed to staffing for the Tucson acquisition and filling vacant positions. Net income for Q2 2025 was $1.6 million, or $0.06 per diluted share, compared to $1.7 million, or $0.07 per diluted share in Q2 2024. Adjusted EBITDA, a key measure of operational performance, grew by 2.1% to $6.9 million.

Year-to-date through June 30, 2025, total revenue increased by 6.3% to $26.7 million. Water service revenue grew by 12.2% to $13.35 million, while wastewater and recycled water service revenue increased by 0.9% to $13.35 million. Operating expenses for the six months increased by 8.4% to $22.8 million, driven by higher depreciation and amortization (up $715,000), and increased utilities, chemicals, and repairs (up $340,000) due to higher consumption and additional processing equipment. Net income for the six months was $2.2 million, or $0.08 per diluted share, compared to $2.4 million, or $0.10 per diluted share in the prior year. Adjusted EBITDA for the period was $12.6 million, up 3.2%.

The company's profitability margins remain robust, with a TTM gross profit margin of 67.06%, operating profit margin of 16.91%, and EBITDA margin of 50.12%. While net income saw a slight decrease, this is largely attributable to the timing of rate case approvals relative to ongoing capital investments and inflationary cost pressures, which the pending rate cases aim to address.

Liquidity and Capital Allocation

GWRS maintains a solid liquidity position to fund its ambitious growth plans. As of June 30, 2025, cash and cash equivalents stood at $10.22 million. The company successfully completed a public offering in March 2025, generating $30.8 million in net proceeds. This was complemented by an expanded revolving credit facility with Northern Trust (NTRS), increasing to $20 million and extended to May 2027, with no outstanding borrowings as of June 30, 2025.

Cash flow from operating activities for the six months ended June 30, 2025, was $8.8 million. Net cash used in investing activities increased significantly to $35.4 million, up $23.2 million year-over-year, reflecting elevated capital expenditures aligned with the company's 2025 capital improvement plan. These investments are prudently directed towards existing core service areas to expand rate base and support the TWM model. Net cash provided by financing activities totaled $27.8 million, primarily from the common stock issuance and increased advances and contributions in aid of construction. The company's monthly dividend program, currently at $0.03 per share ($0.30 annually), is supported by its cash flows and compliance with debt covenants.

Competitive Landscape and Market Positioning

In the regulated water utility sector, GWRS operates as a regional specialist, distinguishing itself from larger, more geographically diversified competitors such as American Water Works Company (AWK), Essential Utilities (WTRG), and SJW Group (SJW). While AWK and WTRG benefit from immense scale, broader footprints, and often superior financial resources for R&D and large-scale infrastructure, GWRS leverages its focused expertise in Arizona's unique environment.

GWRS's Total Water Management strategy and advanced AMI technology provide a distinct competitive edge, particularly in water-scarce regions. This integrated approach allows for superior operational efficiency and conservation, which can translate into more favorable regulatory outcomes and cost savings compared to less technologically advanced or integrated systems. The company's proven acquisition strategy, targeting smaller utilities at attractive valuations, allows it to expand its rate base and achieve economies of scale within its regional focus. This contrasts with larger players who might pursue broader, more expensive acquisitions.

However, GWRS's smaller scale and primary concentration in Arizona present vulnerabilities. It may face higher operating costs per customer compared to larger rivals and is more susceptible to regional economic or environmental factors. While direct quantitative comparisons with all competitors are challenging to ascertain, GWRS's TTM gross profit margin of 67.06% and EBITDA margin of 50.12% demonstrate solid operational efficiency within its niche. Its debt-to-equity ratio of 0.07 (TTM) is notably lower than AWK's 1.37, WTRG's 1.25, and SJW's 1.34, indicating a more conservative capital structure that could provide financial flexibility. The company's P/E ratio of 47.65 (TTM) suggests a premium valuation, which analysts attribute to its innovative TWM model, regulatory advantages, and exclusive Arizona focus.

Outlook and Growth Catalysts

Management remains highly optimistic about GWRS's long-term prospects, forecasting sustainable, above-average growth in connections, revenue, rate base, and earnings. This bullish outlook is supported by several powerful catalysts:

• Arizona's Unprecedented Growth: The City of Maricopa, a key service area, was the 6th fastest-growing large municipality in the U.S. in 2024, with 7.4% population growth. The median home sales price in Maricopa is nearly 30% lower than in Phoenix, continuing to attract residents.
• Industrial Boom: The industrial manufacturing boom in Arizona, highlighted by TSMC's massive investments, is driving demand for water services. GWRS's Inland Port Arizona service area, with its special industrial contract with Procter & Gamble (PG) and other potential large firms, is poised for significant utility additions.
• Ag-to-Urban Legislation: The Arizona Assured Water Supply Ag-to-Urban program, signed in June 2025, is expected to improve aquifer sustainability and create new groundwater supplies, supporting over 1 million new homes across eligible agricultural land in GWRS's service regions.
• Infrastructure Development: Full funding for the Highway 347 expansion, connecting I-10 to Maricopa, is expected to commence in fiscal year 2026. This $249 million project will further facilitate population and economic growth in a critical service area.
• Rate Case Momentum: The pending $6.5 million annual revenue increase for GW-Santa Cruz and GW-Palo Verde, coupled with the proposed Formula Rates mechanism, is expected to drive near-term earnings growth and enhance financial predictability by addressing inflationary pressures and capital recovery.

Conclusion

Global Water Resources stands as a compelling investment opportunity, uniquely positioned at the nexus of essential utility services and dynamic regional growth in Arizona. Its Total Water Management strategy, underpinned by advanced AMI technology, provides a sustainable and efficient approach to water resource management, a critical advantage in a water-stressed environment. The company's proven ability to execute accretive acquisitions and navigate the regulatory landscape, culminating in significant rate increases and innovative regulatory proposals like the Cost of Service Adjustment, demonstrates a clear path to enhanced financial performance.

While macroeconomic headwinds and the inherent regulatory lag present ongoing challenges, GWRS's strategic focus on high-growth corridors, coupled with the unprecedented population and industrial expansion in Arizona, provides a robust foundation for long-term value creation. The company's strong liquidity and commitment to capital investment further reinforce its capacity to capture these opportunities. For discerning investors, GWRS offers a defensive utility play with an above-average growth profile, driven by its integrated approach and strategic positioning within one of the nation's most dynamic economic landscapes.