Greetings, ladies and gentlemen. Thank you for standing by. Welcome to the Global Water Resources, Inc. 2024 Second Quarter Conference Call. [Operator Instructions] I would like to remind everyone that this call is being recorded on August 8, 2024 at 1:00 p.m. Eastern Time.

I would now like to turn the conference over to Joanne Ellsworth, Executive Vice President, Corporate Affairs. Please go ahead..

Welcome, everyone, and thank you for joining us on today’s call. Yesterday, we issued our 2024 second quarter financial results by press release, a copy of which is available on our website at www.gwresources.com.

Speaking today is Ron Fleming, President and Chief Executive Officer; Michael Liebman, Chief Financial Officer; and Christopher Krygier, Chief Operating Officer.

Ron will summarize the key operational events of the quarter, Mike will review the financial results for the second quarter, and Chris will review strategic initiatives and Arizona Corporation Commission activity for the quarter. Ron, Mike and Chris will be available to answer 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 date hereof and are not guarantees of future performance.

For additional information regarding factors that may affect future results, please read the sections regarding Risk Factor and Management’s Discussion and Analysis of Financial Conditions and Results of Operations, included within our latest Form 10-Q filed with the SEC. Such filings are available at www.sec.gov.

Certain non-GAAP measures may be included within today’s call. For a reconciliation of these measures to the comparable GAAP financial measures see the tables included in yesterday’s earnings release, which is also available on our website. I will now turn the call over to Ron..

organic, new service areas, acquisitions and the subsequent rate cases on all of that, you can see how Global Water is going to be able to grow earnings considerably in the years to come as we continue to advance our mission of growing and aggregating water and wastewater utilities so that the customers can realize the benefits of consolidation, regionalization and environmental stewardship in the face of this rapid growth, water scarcity, challenging regulations and aging infrastructure.

I will now turn the call over to Mike for financial highlights..

Thanks, Ron. Hello, everyone. Total revenue for the second quarter of 2024 was $13.5 million, which is up $500,000 or 3.9% compared to Q2 of 2023. The increase in revenue was primarily attributable to the 4.9% organic growth in our service areas, offset by lower consumption from construction and irrigation customers.

Operating expenses for Q2 2024 were $10.7 million compared to $10.0 million in Q2 of 2023. This is an increase of approximately $700,000 or 7.2%.

Notable changes in operating expenses include $291,000 increase and depreciation and amortization expense tied to our capital expenditure program, a portion of which is related to the activation of the Southwest plant in July 2023. Additionally, we amortized approximately $81,000 of intangible assets in Q2 2024 that didn’t occur in Q2 2023.

Increased operating and maintenance costs by $304,000, which is primarily attributable to increased repairs and maintenance costs, medical expenses, salaries and wages as well as higher utility and chemical expenses, which increase as we grow.

Increased general and administrative costs by $128,000, which was primarily attributable to increased salary and wages and hiring and moving expenses. These were partially offset by lower deferred compensation expense. Now to discuss other income and expense.

Other expense for Q2 2024 was $469,000, which was lower compared to the $540,000 of expense in Q2 2023. This reduction was driven by an increase in interest income, offset by higher interest expense tied to the $20 million note we executed at the beginning of the year.

Net income for Q2 2024 was $1.7 million or $0.07 per diluted share, which is consistent with Q2 2023. Now to talk about adjusted EBITDA, which adjusts for non-recurring items such as ICFA revenue as well as noncash items such as restricted stock expense. Adjusted EBITDA was $6.8 million in Q2 2024 and was $6.7 million in Q2 2023.

And lastly, as I mentioned on our previous earnings call, as part of our current Southwest plant depreciation deferral docket, we discovered that in 2007, $7.8 million of our Southwest plant infrastructure was prematurely included as plant and service for ratemaking purposes.

As a result, these costs were inadvertently included in rates as part of our 2010 rate order as well as our 2014 and 2022 rate orders. We met with the Arizona Corporation Commission staff on March 1 to bring this to their attention.

And then we subsequently filed an application with the Arizona Corporation Commission on April 25, requesting a customer bill credit that would reduce our monthly revenues by approximately $47,000.

The ACC issued decision 79424 on July 18, 2024, approving the bill credit with an effective date of August 1, 2024, which will reduce revenue earned subsequent to the order by approximately $570,000 a year.

The bill credit will be in place until the conclusion of the next Global Water, Palo Verde rate case, which decision 79424 requires Global Water, Palo Verde to file no later than December 31, 2025.

While the exact outcome and resolution cannot be predicted and could be material, we believe the approval of this bill credit is a positive first step in resolving this issue amicably in a way that is fair to all of our stakeholders, including customers and shareholders. This concludes our update on the second quarter 2024 financial results.

I’ll now pass the call to Chris to review the remaining regulatory activity and strategic initiatives for the quarter..

Thank you, Mike. Hello, everyone. It has been a very busy quarter at the Arizona Corporation Commission since the last time we spoke. First, we received the final commission decision for the Global Water, Saguaro District rate case. The commission voted unanimously to approve the settlement agreement with minor modifications.

We started charging these new rates effective July 1st. We appreciate the hard work by the utility division staff and the commission on this case, especially since it was the first settlement agreement approved by the commission in a number of years.

Second, as we mentioned last quarter, we were actively underway preparing a rate case for the Global Water Farmers utility. On June 27, 2024, we filed that rate case with the commission, requesting a revenue increase of approximately $1.3 million.

On July 25, 2024, the ACC utilities division staff determined that our rate case met administrative sufficiency and the case is now following the typical process. The staff estimates filing their testimony in December 2024. As is always the case with rate case filings, we cannot guarantee what action the commission may or may not take.

Third, as previously discussed, and you heard Ron mention earlier, we are in a test year for Global Water, Santa Cruz, and Global Water, Palo Verde, our two largest utilities.

We continue our proactive customer outreach efforts and stakeholder outreach efforts to educate the community on the investments we are making to ensure we continue providing safe, reliable service and stay ahead of growth. We anticipate filing that case in the first half of 2025.

Finally, on May 10, 2024, we filed an application at the ACC, requesting approval of the Tucson acquisition, and that case is now processing as well. This concludes my update on strategic initiatives and regulatory activity for the quarter. I will now pass the call back to Ron..

Thank you, Chris. It remains clear we continue to achieve meaningful growth despite the headwinds. As we execute our growth plan, we intend to remain at the forefront of the water management industry, and advance 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 the stakeholders involved.

We appreciate your investment and support of us as we grow Global Water to address important utility, water resource and economic development matters along the Arizona Sun Corridor, allowing our communities to thrive. That highlight concludes our prepared remarks. Thank you. We are now available to answer your questions..

[Operator Instructions] Our first question comes from Gerry Sweeney with ROTH Capital. Please go ahead..

Hey. Good morning guys. Thanks for taking my call. I only had one real question, and wanted to see if you could discuss acquisition, acquisition pipeline and anything that’s happening in that space. Thanks..

Hey Gerry, this is Chris. Thanks for the question. Yes, right now, there are still opportunities out there. As you know, Arizona is highly fragmented. I think the commission number is still over 300 utilities is the number that they reference in the state. Right now, we are pretty focused on getting the Tucson acquisition approved at the commission.

We filed that earlier in the quarter. And then I think as we go through getting that closer to the finish line, integrating it, we will start to think about what the next steps in the process look for us in continuing that journey..

Got it. Did you give an indication of when you think the Tucson acquisition would be approved and closed? If you didn’t, do you have one? Thanks..

Yes. Good question. So, we are generally targeting either end of the year or early in the first quarter, sometime around then..

That’s it for me. Thanks guys and nice quarter..

Thanks Gerry..

[Operator Instructions] Seeing no further questions, I would like to now turn the call back over to Mr. Fleming. Sir, please go ahead..

Thank you, operator. Just want to thank everybody for participating on the call and for your ongoing support of Global Water. Thanks and we look forward to speaking with you again..

This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a great rest of your day..