Q2 2024 Global Water Resources Inc Earnings Call

August 8, 2024

Greetings, ladies and gentlemen. Thank you for standing by. Welcome to the Global Water Resources, Inc. 2024 second quarter conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session.

Operator: 2024 second quarter conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press star zero for operator assistance at any time. I would like to remind everyone that this call is being recorded on August 8th, 2024 at 1 p.m. Eastern Time. I would now like to turn the conference over to Joanne Ellsworth, Executive Vice President, Corporate Affairs. Please go ahead.

Operator: Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press star zero for operator assistance at any time.

Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press star zero for operator assistance at any time.

Operator: I would like to remind everyone that this call is being recorded on August 8th, 2024, at 1 p.m. Eastern Time.

I would like to remind everyone that this call is being recorded on August 8th, 2024 at 1 p.m. Eastern Time. I would now like to turn the conference over to Joanne Ellsworth, Executive Vice President, Corporate Affairs. Please go ahead.

Joanne Ellsworth: 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.

Joanne Ellsworth: 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 are Ron Fleming, President and Chief Executive Officer, Mike Liebman, Chief Financial Officer, and Chris 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.

Joanne Ellsworth: Yesterday, we issued our 2024 second quarter financial results by press release, a copy of which is available on our website at www.gwaresources.com.

Joanne Ellsworth: Speaking today is Ron Fleming, President and Chief Executive Officer; Mike Liebman, Chief Financial Officer; and Chris Krygier, Chief Operating Officer. Ron will summarize the key operational events of the quarter, Michael 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.

Speaker Change: Speaking today is Ron Fleming, President and Chief Executive Officer, Mike Liebman, Chief Financial Officer, and Chris Krygier, Chief Operating Officer.

Speaker Change: 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.

Joanne Ellsworth: 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 statement. Accordingly, investors are cautioned not to place undue reliance on any forward-looking statements, which reflect management's views as of the date you read this and are not guarantees of future performance.

Joanne Ellsworth: 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.

Speaker Change: 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.

Speaker Change: 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 you're of and are not guarantees of future performance.

Joanne Ellsworth: For additional information regarding factors that may affect future results, please read the sections regarding risk factors and management's discussion and analysis of financial conditions and results of operations included in our latest Form 10-Q filed with the SEC. Such filings are available at www.scc.gov. Certain non-GAAP measures may be included in today's call. For a reconciliation of these measures to the comparable GAAP financial measures, please 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.

Speaker Change: For additional information regarding factors that may affect future results, please read the sections regarding risk factors and management's discussion and analysis of financial conditions and results of operations included within our latest Form 10-Q filed with the SEC.

Speaker Change: Such filings are available at www.scc.gov.

Joanne Ellsworth: Certain non-GAAP measures may be included within today's call. For a reconciliation of these measures to the comfortable GAAP financial measures, please see the tables included in yesterday's earnings release, which is also available on our website.

Speaker Change: Certain non-GAAP measures may be included within today's call. For a reconciliation of these measures to the comparable GAAP financial measures, please 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.

Ron Fleming: I will now turn the call over to Ron. Thank you, Joanne. Good morning, everyone, and thank you for joining us today.

Ron Fleming: Good morning, everyone, and thank you for joining us today. We are very pleased to report the results for the second quarter of 2024. I will start with some operational highlights. Total active service connections increased 4.9% to 63,256 as of June 30th, 2024, from the 12 months prior. The 2024 annualized growth rate is 4.7%. While our organic growth rate remains strong in the face of higher interest rates, it's also important to highlight that our year-over-year regulated revenue growth rate continues to trend even higher, which is up 5.3%.

Ron Fleming: Good morning, everyone, and thank you for joining us today. We are very pleased to report the results for the second quarter of 2024. I will start with some operational highlights. Total active service connections increased 4.9% to 63,256 as of June 30th, 2024, from the 12 months prior. The 2024 annualized growth rate is 4.7%, while our organic growth rate remains strong in the face of higher interest rates. It's also important to highlight that our year-over-year regulated revenue growth rate continues to trend even higher, which is up 5.3 percent.

Ron Fleming: Thank you, Joanne. Good morning, everyone, and thank you for joining us today. We are very pleased to report the results for the second quarter of 2024. I will start with some operational highlights.

Ron Fleming: We are very pleased to report the results for the second quarter of 2024. I will start with some operational highlights. Total active service connections increased 4.9% to 63,256 as of June 30, 2024, from the 12 months prior. The 2024 annualized growth rate is 4.7%. While our organic growth rate remains strong in the face of higher interest rates, it's also important to highlight that our year-over-year regulated revenue growth rate continues to. Mike will provide the details on regulated revenue growth drivers. Year-to-date, we've invested 12.2 million into our infrastructure, improving our existing utilities to provide safe, reliable service.

Ron Fleming: Total active service connections increased 4.9% to 63,256 as of June 30th, 2024, from the 12 months prior.

Speaker Change: The 2024 annualized growth rate is 4.7%.

Speaker Change: While our organic growth rate remains strong in the face of higher interest rates, it's also important to highlight that our year-over-year regulated revenue growth rate continues to trend even higher, which is up 5.3%. Mike will provide the details on regulated revenue growth drivers.

Ron Fleming: Mike will provide the details on regulated revenue growth drivers. Year-to-date, we've invested $12.2 million in our infrastructure, improving our existing utilities to provide safe, reliable service. And finally, with public health and safety being our top mandate, we are very proud of our compliance record. For the quarter, we had zero significant compliance events, continuing our streak from 2023 and prior.

Mike Liebman: Year-to-date, we've invested $12.2 million into our infrastructure, improving our existing utilities to provide safe, reliable service.

Ron Fleming: And finally, with public health and safety being our top mandate, we are very proud of our compliance record. For the quarter, we had zero significant compliance events, continuing our streak from 2023 in prior. And in fact, this means it has been nearly seven years without a significant compliance event.

Speaker Change: And finally, with public health and safety being our top mandate, we are very proud of our compliance record.

Mike Liebman: For the quarter, we had zero significant compliance events, continuing our streak from 2023 and prior, and in fact, this means it has been nearly seven years without a significant compliance event.

Ron Fleming: And in fact, this means it has been nearly seven years without a significant compliance event. Now, I want to discuss organic customer growth and what is going on in our core utilities. The single-family dwelling unit market ended 2023 with approximately 22,582 building permits issued in the Phoenix Greater Metro Area. For the first half of this year, this market realized 14,433 building permits, representing a 43% increase from Q2 of 2020. In 2023, the City of Maricopa issued 888 single-family building permits for the first half of the year.

Ron Fleming: Now I want to discuss organic customer growth and what is going on in our core utilities. The single-family dwelling unit market in 2023, with approximately 22,582 building permits issued in the Phoenix Greater Metro area. For the first half of this year, this market realized 14,433 building permits, representing a 43% increase from Q2 of 2023. In 2023, the City of Maricopa issued 888 single-family dwelling permits. For the first half of the year, this market realized 559 building permits, representing a 43% increase from the first half of 2023. As you can see, the year-to-date Q2 2024 permit data was strong in both Metro Phoenix and the City of Maricopa.

Mike Liebman: Now I want to discuss organic customer growth and what is going on in our core utilities.

Speaker Change: The single-family dwelling unit market ended 2023 with approximately 22,582 building permits issued in the Phoenix greater metro area.

Speaker Change: For the first half of this year, this market realized 14,433 building permits, representing a 43% increase from Q2 of 2023.

Speaker Change: In 2023, the City of Maricopa issued 888 single-family dwelling building permits.

Ron Fleming: This market realized 559 building permits, representing a 43% increase from the first half of 2020. As you can see, the year-to-date Q2 2024 permit data was strong in both Metro Phoenix and the city of Maricopa. However, with interest rates inching back up because of the continued inflation fight, it is hard to anticipate the potential significance this will have on the housing market in the near term.

Speaker Change: For the first half of the year, this market realized 559 building permits, representing a 43% increase from the first half of 2023.

Speaker Change: As you can see, the year-to-date Q2 2024 permit data was strong in both Metro Phoenix and the City of Maricopa.

Ron Fleming: However, with interest rates inching back up because of the continued inflation fight, it is hard to anticipate the potential significance this will have on the housing market in the near term. However, there is a strong consensus that there remains a housing shortage in Metro Phoenix, and thus, over time, Metro Phoenix will retain an annual run rate approaching 30,000 housing units per year to keep pace with net immigration and the job growth. This demand must be met by a combination of single-family dwelling units and multi-family. On this note, as previously reported, there was a significant shift occurring in the City of Maricopa to large-scale high-density multi-family dwelling complexes, along with more commercial and retail businesses.

Speaker Change: However, with interest rates inching back up because of the continued inflation fight, it is hard to anticipate the potential significance this will have on the housing market in the near term.

Ron Fleming: However, there is strong consensus that there remains a housing shortage in Metro Phoenix and thus, over time, Metro Phoenix will retain an annual run rate approaching 30,000 housing units per year to keep pace with net immigration and job growth. This demand must be met by a combination of single-family dwelling units and multi-families. On this note, as previously reported, there is a significant shift occurring in the city of Maricopa to large-scale, high-density, multi-family dwelling complexes, along with more commercial and retail businesses.

Ron Fleming: However, there is strong consensus that there remains a housing shortage in Metro Phoenix and thus, over time, Metro Phoenix will retain an annual run rate approaching 30,000 housing units per year to keep pace with net immigration and job growth. This demand must be met by a combination of single-family dwelling units and multi-families. On this note, as previously reported, there is a significant shift occurring in the City of Maricopa to large-scale, high-density, multi-family dwelling complexes, along with more commercial and retail businesses.

Speaker Change: However, there is strong consensus that there remains a housing shortage in Metro Phoenix, and thus over time, Metro Phoenix will retain an annual run rate approaching 30,000 housing units per year to keep pace with net immigration and the job growth.

Speaker Change: This demand must be met by a combination of single-family dwelling units and multi-family.

Speaker Change: On this note, as previously reported, there is a significant shift occurring in the City of Maricopa to large-scale, high-density, multi-family dwelling complexes, along with more commercial and retail businesses.

Ron Fleming: We believe this shift will be notable and, at some level, supplant the reduction in single-family home growth. In fact, the year-to-date 2024 multi-family housing unit data was also strong in the City of Maricopa, with 1,176 units permitted compared to 315 units permitted in the first half of 2023. This represents an increase of 861 units permitted, or 273 percent.

Ron Fleming: We believe this shift will be notable and, at some level, supplant the reduction in single-family home growth. In fact, the year-to-date 2024 multifamily housing unit data was also strong in the City of Maricopa with 1,176 units permitted compared to 315 units permitted in the first half of 2023. This represents an increase of 861 units permitted, or 273%.

Ron Fleming: We believe this shift will be notable and, at some level, supplant the reduction in single-family home growth. In fact, the year-to-date 2024 multifamily housing unit data was also strong in the City of Maricopa, with 1,176 units permitted compared to 315 units permitted in the first half of 2023. This represents an increase of 861 units permitted, or 273%.

Speaker Change: We believe this shift will be notable and at some level supplant the reduction in single-family home growth.

Speaker Change: In fact, the year-to-date 2024 multifamily housing unit data was also strong in the City of Maricopa, with 1,176 units permitted compared to 315 units permitted in the first half of 2023.

Speaker Change: This represents an increase of 861 units permitted, or 273%.

Ron Fleming: Looking ahead, this is a record number of additional multi-family projects in some stage of development. The fact is, the booming economy and net immigration that Arizona continues to realize requires more and more places for people to live, work, and play. That is why large-scale multi-family housing, commercial, and recreational projects continue to accelerate at an extremely high pace in Metro Phoenix and in our service areas. Additionally, the industrial manufacturing boom also continues. Previously, 2022 was the single best year for Arizona all time from an industrial economic development investment perspective. And that was eclipsed in 2023 with 40.7 billion invested in the state just last year.

Ron Fleming: Looking ahead, this is a record number of additional multifamily projects in some stage of development. The fact is, the booming economy and net immigration that Arizona continues to enjoy requires more and more places for people to live, work, and play. That is why large-scale multifamily housing, commercial, and recreational projects continue to accelerate at an extremely high pace in Metro Phoenix and in our service areas. Additionally, the industrial manufacturing boom also continues.

Speaker Change: Looking ahead, this is a record number of additional multifamily projects in some stage of development.

Speaker Change: The fact is, the booming economy and net immigration that Arizona continues to realize requires more and more places for people to live, work, and play. That is why large-scale multifamily housing, commercial, and recreational projects continue to accelerate at an extremely high pace in Metro Phoenix and in our service areas.

Speaker Change: Additionally, the industrial manufacturing boom also continues.

Ron Fleming: Previously, 2022 was the single best year for Arizona all time from an industrial economic development investment perspective. And that was eclipsed in 2023 with $40.7 billion invested in the state just last year. There have been significant further announcements made in 2024, including additional planned expansions at TSMC and Intel, as the chip industry continues to explode here. Frankly, what continues to occur here in Arizona is unprecedented.

Ron Fleming: Previously, 2022 was the single best year for Arizona all time from an industrial economic development investment perspective, and that was eclipsed in 2023 with $40.7 billion invested in the state just last year. There have been significant further announcements made in 2024, including additional planned expansions at TSMC and Intel, as the chip industry continues to explode here. Frankly, what continues to occur here in Arizona is unprecedented.

Speaker Change: Previously 2022 was the single best year for Arizona all-time from an industrial economic development investment perspective and that was eclipsed in 2023 with 40.7 billion invested in the state just last year.

Ron Fleming: There has been significant further announcements made in 2024, including additional planned expansions at TSMC and Intel, as the chip industry continues to explode here. Frankly, what continues to occur here in Arizona is unprecedented. Because of these things, we remain bullish on the future potential of our inland port Arizona service area, where Nikola Motor Corps facility and Procter Gamble recently acquired land. Additionally, the city of Maricopa recently announced and gave a public presentation on a very large industrial complex they are preparing to bring to market right in the center of the city of Maricopa. Initial plans include over 1,200 acres of an industrial corridor with a smart rail park as it is adjacent to a double railroad.

Speaker Change: There has been significant further announcements made in 2024, including additional planned expansions at TSMC and Intel, as the chip industry continues to explode here.

Speaker Change: Frankly, what continues to occur here in Arizona is unprecedented. Because of these things, we remain bullish on the future potential of our Inland Port Arizona service area, where Nicola Motocorp facility and Procter & Gamble recently acquired land.

Ron Fleming: Because of these things, we remain bullish on the future potential of our Inland Port Arizona service area for a Nikola Motocorp facility, and Procter & Gamble recently acquired land. Additionally, the City of Maricopa recently announced and gave a public presentation on a very large industrial complex they are preparing to bring to market right in the center of the City of Maricopa. Initial plans include over 1,200 acres of an industrial corridor with a smart rail park as it is adjacent to a double railroad.

Ron Fleming: Because of these things, we remain bullish on the future potential of our Inland Port Arizona service area, where Nicola Motocorp and Procter Gamble recently acquired land. Additionally, the City of Maricopa recently announced and gave a public presentation on a very large industrial complex they are preparing to bring to market right in the center of the City of Maricopa. Initial plans include over 1,200 acres of an industrial corridor with a smart rail park as it is adjacent to a double railroad.

Speaker Change: Additionally, the City of Maricopa recently announced and gave a public presentation on a very large industrial complex they are preparing to bring to market right in the center of the City of Maricopa.

Speaker Change: Initial plans include over 1,200 acres of an industrial corridor with a smart rail park as it is adjacent to a double railroad.

Ron Fleming: Recently, the City ran a request for interest process on the land, and they had more interest than land available. Respondents included a half dozen large, reputable, existing businesses that are looking for large property in Arizona to relocate to. If you are interested in learning more, I recommend you visit the City of Maricopa's YouTube page and watch the video recording of Rick Horst's presentation to the City Council on July 16.

Ron Fleming: Recently, the city ran a request for interest process on the land, and they had more interest than land available. Respondents included a half dozen large, reputable, existing businesses that are looking for large property in Arizona to relocate to. If you're interested in learning more, I recommend you visit the City of Maricopa's YouTube page and watch the video recording of Rick Horst's presentation to the City Council on July 16th.

Speaker Change: Recently, the City ran a request for interest process on the land, and they had more interest than land available. Respondents included a half-dozen large, reputable, existing businesses that are looking for large property in Arizona to relocate to.

Ron Fleming: If you are interested in learning more, I recommend you visit the City of Maricopa's YouTube page and watch the video recording of Rick Horst's presentation to the City Council on July 16th. More information to come on this exciting project in the future.

Speaker Change: If you're interested in learning more, I recommend you visit the City of Maricopa's YouTube page and watch the video recording of Rick Horst's presentation to the City Council on July 16th.

Ron Fleming: More information to come on this exciting project in the future. Based on all of these trends, we believe that in the years to come, we will continue to see considerable large-scale commercial, multifamily, and industrial growth, in addition to the return of even stronger organic housing growth. As I mentioned in our earnings release, yes, high inflation and other cost drivers have caught up with us and impacted our earnings growth a bit so far this year.

Speaker Change: More information to come on this exciting project in the future.

Ron Fleming: Based on all of these trends, we believe that in the years to come, we will continue to see considerable large-scale commercial, multifamily, and industrial growth, in addition to the return of even stronger organic housing growth. As I mentioned in our earnings release, yes, high inflation and other cost drivers have caught up with us and impacted our earnings growth a bit so far this year. However, it is important to recognize that 2024 is a test year for our largest utilities, whose last test year was five years ago in 2019. We need new rates to address all the cost increases over that time period and the significant investments we have made.

Speaker Change: Based on all of these trends, we believe that in the years to come, we will continue to see considerable large-scale commercial, multifamily, and industrial growth, in addition to the return of even stronger organic housing growth.

Speaker Change: As I mentioned in our earnings release, yes, high inflation and other cost drivers have caught up with us and impacted our earnings growth a bit so far this year.

Ron Fleming: However, it's important to recognize that 2024 is a test year for our largest utilities, whose last test year was five years ago in 2019. We need new rates to address all the cost increases over that time period and the significant investments we have made. So while 2024 will be another solid year for global water... Putting all of these things together, and that means the four ways we grow, organically, 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 our customers can realize the benefits of consolidation, Water Scarcity, Challenging Regulations, and Aging Infrastructure. I will now turn the call over to Mike for financial highlights.

Ron Fleming: However, it's important to recognize that 2024 is a test year for our largest utilities, whose last test year was five years ago in 2019. We need new rates to address all the cost increases over that time period and the significant investments we have made. So while 2024 will be another solid year for global water, putting all of these things together, and that means the four ways we grow, organically, 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 our customers can realize the benefits of consolidation, Water Scarcity, Challenging Regulations, and Aging Infrastructure. I will now turn the call over to Mike for financial highlights.

Speaker Change: However, it's important to recognize that 2024 is a test year for our largest utilities, whose last test year was five years ago in 2019. We need new rates to address all the cost increases over that time period and the significant investments we have made.

Ron Fleming: While 2024 will be another solid year for Global Water, putting all of these things together, and that means the four ways we grow: 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.

Speaker Change: So 2024 will be another solid year for Global Water.

Speaker Change: Putting all of these things together, and that means the four ways we grow, 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.

Ron Fleming: As we continue to advance our mission of growing and aggregating water and wastewater utilities so that 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.

Speaker Change: As we continue to advance our mission of growing and aggregating water and wastewater utilities so that our customers can realize the benefits of consolidation, regionalization, and environmental stewardship in the face of this rapid growth.

Speaker Change: Water Scarcity, Challenging Regulations, and Aging Infrastructure. I will now turn the call over to Mike for financial highlights.

Michael Liebman: 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 achievable to the 4.9% organic growth in our service areas, offset by lower consumption from construction and irrigation customers.

Mike Liebman: Thanks, Ron. Hello, everyone.

Mike Liebman: 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 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 a $291,000 increase in 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.

Mike Liebman: Thanks, Ron. Hello, everyone.

Mike Liebman: 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.

Mike Liebman: 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.

Michael Liebman: 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 in 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 a charitable to increase repairs and maintenance costs, medical expenses, salaries and wages, as well as higher utility and chemical expenses, which increase as we grow.

Mike Liebman: Additionally, we amortized approximately $81,000 of intangible assets in Q2 2024 that didn't occur in Q2 2023. Additionally, we 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. They increased general and administrative costs by $128,000, which was primarily attributable to increased salary and wages and hiring and moving expenses.

Mike Liebman: Notable changes in operating expenses include a $291,000 increase in 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. We 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.

Mike Liebman: 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%.

Mike Liebman: Notable changes in operating expenses include $291,000 increase in 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.

Mike Liebman: Additionally, we amortized approximately $81,000 of intangible assets in Q2 2024 that didn't occur in Q2 2023.

Mike Liebman: 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.

Michael Liebman: Increased general administrative costs by 128,000, which was primarily a charitable to increase salary and wages and hiring and moving expenses. These were partially offset by lower deferred compensation expense.

Mike Liebman: Increased general and administrative costs by $128,000, which was primarily a charitable increase in salary and wages and hiring and moving expenses. These are partially offset by lower deferred compensation expenses. Now to discuss other income and expenses. 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.

Mike Liebman: 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.

Mike Liebman: These are partially offset by lower deferred compensation expenses. Now to discuss other income and expenses. 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.

Michael Liebman: 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.

Speaker Change: Now to discuss other income and expense.

Mike Liebman: Other expense for Q2 2024 was $469,000, which was lower compared to the $540,000 of expense in Q2 2023.

Mike Liebman: 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.

Michael Liebman: Net income for Q2 2024 was 1.7 million or 7 cents per diluted share, which is consistent with Q2 2023. Now to talk about adjusted EBITDA, which adjusts for non-returned items such as ICFA revenue, as well as non-cash items such as restricted stock expense. Adjusted EBITDA was 6.8 million in Q2 2024 and was 6.7 million in Q2 2023.

Mike Liebman: 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 non-cash 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 calls, 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 in service for rate making purposes.

Mike Liebman: 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 non-cash items, such as restricted stock expenses. 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 calls, 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 in service for rate making purposes.

Mike Liebman: Net income for Q2 2024 was $1.7 million or $0.07 per diluted share, which is consistent with Q2 2023.

Mike Liebman: Now to talk about adjusted EBITDA, which adjusts for non-returning items, such as ICFA revenue, as well as non-cash items, such as restricted stock expense.

Mike Liebman: Adjusted EBITDA was $6.8 million in Q2 2024 and was $6.7 million in Q2 2023.

Michael Liebman: And lastly, as I mentioned on our previous earnings calls, 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 1st to bring this to their attention, and then we subsequently filed an application with the Arizona Corporation Commission on April 25th requesting a customer bill credit that would reduce our monthly revenues by approximately $47,000.

Mike Liebman: And lastly, as I mentioned on our previous earnings calls, 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 rate making purposes.

Mike Liebman: 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 1st to bring this to their attention, and then we subsequently filed an application with the Arizona Corporation Commission on April 25th requesting a customer bill credit that would reduce our monthly revenues by approximately $47,000. The ACC issued Decision No.

Mike Liebman: 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 1st to bring this to their attention, and then we subsequently filed an application with the Arizona Corporation Commission on April 25th requesting a customer bill credit that would reduce our monthly revenues by approximately $47,000. The ACC issued Decision No.

Mike Liebman: 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.

Mike Liebman: We met with the Arizona Corporation Commission staff on March 1st to bring this to their attention and then we subsequently filed an application with the Arizona Corporation Commission on April 25th requesting a customer bill credit that would reduce our monthly revenues by approximately $47,000.

Michael Liebman: The ACC issued decision number 79424 on July 18th, 2024, approving the bill credit with an effective date of August 1st, 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 Pala Verde rate case, which Decision Number 79424 requires Global Water Pala Verde to file no later than December 31st, 2025. Well, 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.

Mike Liebman: 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 No. 79424 requires Global Water Palo Verde to file its petition 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.

Mike Liebman: The ACC issued decision number 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.

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

Mike Liebman: 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.

Michael Liebman: This concludes our update on the second quarter of 2024 financial results. On all, passed the call to Chris to review the remaining regulatory activity and strategic initiatives for the quarter.

Joanne Ellsworth: 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.

Chris Krygier: Thank you, Mike. Hello, everyone.

Christopher Krygier: 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 Swarrow 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.

Chris Krygier: Thank you, Mike. Hello, everyone. It has been a very busy quarter at the Arizona Corporation Commission since the last time we spoke.

Chris Krygier: 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 Raid Case. The commission voted unanimously to approve the settlement agreement with minor modification.

Chris Krygier: 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 break case. The commission voted unanimously to approve the settlement agreement with minor modification.

Chris Krygier: 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.

Chris Krygier: 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 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.

Chris Krygier: We started charging these new rates effective July 1st.

Chris Krygier: 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.

Christopher Krygier: 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 Utility Division staff determined that our rate case meant 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 filing, we cannot guarantee what action the Commission may or may not take.

Chris Krygier: 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.

Chris Krygier: 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 raid 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.

Mike Liebman: 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.

Mike Liebman: The staff estimates filing their testimony in December 2024.

Mike Liebman: As is always the case with rate case filings, we cannot guarantee what action the Commission may or may not take.

Christopher Krygier: Third, as previously discussed and you heard Ron mentioned earlier, we are in a test year for Global Water Santa Cruz and Global Water Paloverty, 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.

Ron Fleming: 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.

Chris Krygier: 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 pending as well. This concludes my update on strategic initiatives and regulatory activity for the quarter. I'll now pass the call back to Ron.

Mike Liebman: 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.

Mike Liebman: We anticipate filing that case in the first half of 2025.

Chris Krygier: 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.

Christopher Krygier: This concludes my update on strategic initiatives and regulatory activity for the quarter.

Mike Liebman: This concludes my update on strategic initiatives and regulatory activity for the quarter. I'll now pass the call back to Ron.

Ron Fleming: I'll 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 stakeholders involved. We appreciate your investment in 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.

Ron Fleming: It remains clear that 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 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're now available to answer your questions. We will now begin the quiz.

Ron Fleming: Thank you, Chris.

Ron Fleming: It remains clear we continue to achieve meaningful growth despite the headwinds.

Ron Fleming: 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.

Ron Fleming: We truly believe that expanding our total water management platform and applying our expertise throughout our regional service areas and to new utilities

Ron Fleming: will be beneficial to all stakeholders involved.

Ron Fleming: 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.

Ron Fleming: yeah

Speaker Change: That highlight concludes our prepared remarks. Thank you. We're now available to answer your questions.

Operator: We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Again, if you have a question, please press star then 1. Our first question comes from Jerry Sweeney with Roth Capital. Please go ahead.

Speaker Change: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.

Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2.

Operator: At this time, we will pause momentarily to assemble our roster. Again, if you have a question, please press star, then one.

Speaker Change: At this time, we will pause momentarily to assemble our roster.

Ron Fleming: Again, if you have a question, please press star then 1.

Operator: Our first question comes from Jerry Sweeney with Ross Capital. Please take a seat.

Operator: Our first question comes from Jerry Sweeney with Roth Capital. Please go ahead.

Jerry Sweeney: Hey, good morning, guys. Thanks for taking my call. I only have one real question, and I wanted to see if you could discuss acquisitions, the acquisition pipeline, anything that's happening in my space. Thank you.

Gerard Sweeney: Hey, good morning, guys. Thanks for taking my call. I only have one real question, and I wanted to see if you could discuss acquisitions, the acquisition pipeline, anything that's happening in my space. Thank you.

Jerry Sweeney: Hey, good morning, guys. Thanks for taking my call. I only have one real question. I wanted to see if you could discuss acquisition, acquisition pipeline.

Jerry Sweeney: You could discuss acquisition acquisition by flying on to anything that happened in that space. Thanks.

Speaker Change: anything that's popular in that space. Thanks.

Christopher Krygier: Hey Jerry, this is Chris. Thanks for the question. Yeah, 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, as 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'll start to think about what the next steps in the process look for us and continuing that journey.

Chris Krygier: Hey, Jerry. This is Chris.

Jerry Sweeney: Hey, Jerry. This is Chris. Thanks for the question.

Chris Krygier: Thanks for the question. Yeah, right now, there are still opportunities out there. As you know, Arizona is highly fragmented, and I think the commission number is still over 300 utilities. It is the number that they reference in the state. Right now, we're pretty focused on getting the Tucson acquisition approved by 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'll start to think about what the next steps in the process look like for us in continuing that journey.

Chris Krygier: Thanks for the question. Yeah, right now, there are still opportunities out there. As you know, Arizona is highly fragmented, and I think the commission number is still over 300 utilities. It's the number that they reference in the state. Right now, we're 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'll start to think about what the next steps in the process look like for us in continuing that journey.

Chris Krygier: Yeah, 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.

Chris Krygier: Gotcha. Did you give an indication of when you think the Tucson Acquisition would be approved and closed? If not, do you have one? Thanks.

Chris Krygier: Right now we're 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'll start to think about what the next steps in the process look for us in continuing that journey.

Christopher Krygier: Gotcha. 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. Yeah, good question. So we're generally targeting either end of the year or early in the first quarter, sometime around then.

Speaker Change: Gotcha. 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.

Chris Krygier: Yeah, good question. So we're generally targeting either the end of the year or early in the first quarter sometime around then.

Chris Krygier: Yeah, good question. So we're generally targeting either end of the year or early in the first quarter sometime around then.

Operator: are suspected from these plant tests in the next quarter.

Jerry Sweeney: That's it for me. Thanks, guys, and see you next quarter. Thanks, Eric.

Operator: Let's take a moment back. Let's go. Thanks, Jerry. Again, if you have a question, please press star, then one.

Speaker Change: are suspected from the attack in the last quarter.

Operator: Again, if you have a question, please press star then 1. If there are no further questions, I'd like to now turn the call back over to Mr. Fleming. Sir, please go ahead.

Harry: Thanks, Harry.

Speaker Change: Again, if you have a question, please press star then 1.

Ron Fleming: Seeing no further questions, I'd like to now turn the call back over to Mr. Fleming. Sir, please go ahead. Thank you, operator.

Speaker Change: Seeing no further questions, I'd like to now turn the call back over to Mr. Fleming. Sir, please go ahead.

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

Ron Fleming: Thank you, operator. I just want to thank everybody for participating in the call and for your ongoing support of Global Water.

Ron Fleming: Just want to thank everybody for participating on the call and for your ongoing supportive global water. Thanks, and we look forward to speaking with you again.

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

Operator: 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.

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

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

Operator: The Global Water Resources Inc. 2024 Second Quarter Conference Call At this time, all participants are no listen only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press star zero for operator assistance at any time. I would like to remind everyone that this call is being recorded on August 8th, 2024, at 1 p.m. Eastern Time.

Joanne Ellsworth: 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.

Joanne Ellsworth: Yesterday we issued our 2024 Second Quarter Financial Results by press release, a copy of which is available on our website at www.gwaresources.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 the key operational events of the quarter, Michael 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.

Joanne Ellsworth: 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 accostion 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.

Joanne Ellsworth: Certain non-GAP measures may be included within today's call. For a reconciliation of these measures to the comfortable GAP financial measures, please see the tables included in yesterday's earnings release, which is also available on our website.

Joanne Ellsworth: I will now turn the call over to Ron. Thank you, Joanne.

Ron Fleming: Good morning, everyone, and thank you for joining us today. We are very pleased to report the results for the second quarter of 2024. I will start with some operational highlights. Total active service connections increased 4.9% to 63,256 as June 30, 2024, from the 12 months prior. The 2024 annualized growth rate is 4.7%. While our organic growth rate remains strong in the face of higher interest rates, it's also important to highlight that our year-over-year regulated revenue growth rate continues to Mike will provide the details on regulated revenue growth drivers.

Ron Fleming: Year-to-date, we've invested 12.2 million into our infrastructure, improving our existing utilities to provide safe, reliable service. And finally, with public health and safety being our top mandate, we are very proud of our compliance record. For the quarter, we had zero significant compliance events, continuing our streak from 2023 in prior. And in fact, this means it has been nearly seven years without a significant compliance event.

Ron Fleming: Now I want to discuss organic customer growth and what is going on in our core utilities. The single-family dwelling unit market in 2023 with approximately 22,582 building permits issued in the Phoenix Greater Metro area. For the first half of this year, this market realized 14,433 building permits, representing a 43% increase from Q2 of 2023. In 2023, the City of Maricopa issued 888 single-family dwelling permits. For the first half of the year, this market realized 559 building permits, representing a 43% increase from the first half of 2023.

Ron Fleming: As you can see, the year-to-date Q2, 2024 permit data was strong in both Metro Phoenix and the City of Maricopa. However, with interest rates inching back up because of the continued inflation fight, it is hard to anticipate the potential significance this will have on the housing market in the near turn. However, there are strong consensus that there remains a housing shortage in Metro Phoenix, and thus over time, Metro Phoenix will retain an annual run rate approaching 30,000 housing units per year to keep pace with net immigration and the job growth.

Ron Fleming: This demand must be bet by a combination of single-family dwelling units and multi-family. On this note, as previously reported, there was a significant shift occurring in the City of Maricopa to large-scale high-density multi-family dwelling complexes, along with more commercial and retail businesses. We believe this shift will be notable and at some level supplant the reduction in single-family home growth. In fact, the year-to-date 2024 multi-family housing unit data was also strong in the City of Maricopa, with 1,176 units permitted compared to 315 units permitted in the first half of 2023.

Ron Fleming: This represents an increase of 861 units permitted or 273 percent. Looking ahead, this is a record number of additional multi-family projects in some stage of development. The fact is, the booming economy and net immigration that Arizona continues to realize requires more and more places for people to live, work and play. That is why large-scale multi-family housing, commercial and recreational projects continue to accelerate an extremely high pace in Metro Phoenix and in our service areas.

Ron Fleming: Additionally, the industrial manufacturing boom also continues. Previously, 2022 was the single best year for Arizona all time from an industrial economic development investment perspective. And that was eclipsed in 2023 with 40.7 billion invested in the state just last year. There has been significant further announcements made in 2024, including additional planned expansions at TSMC and Intel, as the chip industry continues to explode here. Frankly, what continues to occur here in Arizona is unprecedented.

Ron Fleming: Because of these things, we remain bullish on the future potential of our inland port Arizona service area, where Nikola Motor Corps facility and Procter Gamble recently acquired land. Additionally, the city of Maricopa recently announced and gave a public presentation on a very large industrial complex they are preparing to bring to market right in the center of the city of Maricopa. Initial plans include over 1,200 acres of an industrial corridor with a smart rail park as it is adjacent to a double rail road.

Ron Fleming: Recently, the city ran a request for interest process on the land, and they had more interest than land available. Respondents included a half dozen large reputable existing businesses that are looking for large property in Arizona to relocate to.

Ron Fleming: If you are interested in learning more, I recommend you visit the city of Maricopa's YouTube page and watch the video recording of Rick Horst's presentation to the city council on July 16th. More information to come on this exciting project in the future.

Ron Fleming: Based on all of these trends, we believe that in the years to come, we will continue to see considerable large-scale commercial, multifamily, and industrial growth in addition to the return of even stronger organic housing growth. As I mentioned in our earnings release, yes, high inflation and other cost drivers have caught up with us and impacted our earnings growth a bit so far this year. However, it is important to recognize that 2024 is a test year for our largest utilities whose last test year was five years ago in 2019.

Ron Fleming: We need new rates to address all the cost increases over that time period and the significant investments we have made. While 2024 will be another solid year for global water, putting all of these things together and that means the four ways we grow, 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.

Michael Liebman: I will now turn the call over to Mike for financial highlights. Thanks, Ron. Hello, everyone.

Michael Liebman: 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 achievable to the 4.9% organic growth in our service areas offset by lower consumption from construction and irrigation customers.

Michael Liebman: Increased operating and maintenance costs by 304,000, which is primarily a charitable to increase repairs and maintenance costs, medical expenses, salaries and wages, as well as higher utility and chemical expenses, which increase as we grow. Increased general administrative costs by 128,000, which was primarily a charitable to increase salary and wages and hiring and moving expenses. These were partially offset by lower deferred compensation expense.

Michael Liebman: 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.

Michael Liebman: Net income for Q2 2024 was 1.7 million or 7 cents per deluded share, which is consistent with Q2 2023. Now to talk about adjusted EBITDA, which adjusts for non-returned items such as ICFA revenue, as well as non-cash items such as restricted stock expense. Adjusted EBITDA was 6.8 million in Q2 2024 and was 6.7 million in Q2 2023.

Michael Liebman: And lastly, as I mentioned on our previous earnings calls, 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 rate making 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 1st to bring this to their attention, and then we subsequently filed an application with the Arizona Corporation Commission on April 25th requesting a customer bill credit that would reduce our monthly revenues by approximately $47,000.

Michael Liebman: The ACC issued decision number 79424 on July 18th, 2024, approving the bill credit with an effective date of August 1st, 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 Pala Verde rate case, which decision number 79424 requires Global Water Pala Verde to file no later than December 31st, 2025. Well, 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.

Michael Liebman: This concludes our update on the second quarter of 2024 financial results on all passed the call to Chris to review the remaining regulatory activity and strategic initiatives for the quarter. Thank you, Mike.

Christopher Krygier: 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 Swarrow 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.

Christopher Krygier: 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 Utility Division staff determined that our rate case meant 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 filing, we cannot guarantee what action the commission may or may not take.

Christopher Krygier: Third, as previously discussed and you heard Ron mentioned earlier, we are in a test year for Global Water Santa Cruz and Global Water Paloverty are 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.

Christopher Krygier: 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.

Ron Fleming: This concludes my update on strategic initiatives and regulatory activity for the quarter. I'll 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 stakeholders involved.

Ron Fleming: We appreciate your investment in 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.

Operator: We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys.

Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Again, if you have a question, please press star then one.

Jerry Sweeney: Our first question comes from Jerry Sweeney with Ross Capital.

Christopher Krygier: Please take a seat. You could discuss acquisition acquisition by flying on to anything that happened in that space. Thanks. Hey Jerry, this is Chris. Thanks for the question. Yeah, 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 as the number that they reference in the state. Right now we are pretty focused on getting the Tucson acquisition approved at the commission.

Christopher Krygier: 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'll start to think about what the next steps in the process look for us and continuing that journey. Gotcha. 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. Yeah, good question. So we're generally targeting either end of the year or early in the first quarter sometime around then. Let's take a moment back. Let's go. Thanks Jerry. Again, if you have a question, please press star then one.

Ron Fleming: Seeing no further questions, I'd like to now turn the call back over to Mr Fleming. Sir, please go ahead. Thank you operator.

Ron Fleming: Just want to thank everybody for participating on the call and for your ongoing supportive global water. Thanks and we look forward to speaking with you again.

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

Q2 2024 Global Water Resources Inc Earnings Call

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