Prepared remarks
Greetings, ladies and gentlemen. Thank you for standing by. Welcome to the Global Water Resources Inc. 2026 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. The company will take questions from covering sell-side analysts and institutional investors. Instructions will be provided at that time for you to queue up for questions. Please press 0 for operator assistance at any time. I would like to remind everyone that this call is being recorded on 08/13/2026 at 1:00 PM Eastern Time. I would now like to turn the conference over to Kyle Upchurch, Controller. Please go ahead.
Thank you, operator, and welcome, everyone. Thank you for joining us on today's call. Yesterday, we issued our 2026 second quarter financial results by press release, a copy of which is available on our website at gwresources.com. Speaking today are Ron L. Fleming, President and Chief Executive Officer; Mike Liebman, Chief Financial Officer; and Christopher D. Krygier, Chief Operating Officer. Ron will summarize key operational events, Mike will review the financial results for the second quarter, and Christopher will review Arizona Corporation Commission activity. Ron, Mike, and Christopher will be available for questions at the end of the call. Before we begin, I would like to remind you that certain information presented today may include forward-looking statements. Such statements reflect the company's current expectations, estimates, projections, and assumptions regarding future events. These forward-looking statements involve a number of assumptions, risks, uncertainties, estimates, and other factors that could cause actual results to differ materially from those contained in the forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on any forward-looking statements, which reflect management's views as of the date hereof and are not guarantees of future performance. For additional information regarding factors that may affect future results, please read the Risk Factors and MD&A sections of our periodic SEC filings. Additionally, certain non-GAAP measures may be included within today's call. For a reconciliation of those measures to the comparable GAAP measures, please see the tables included in yesterday's earnings release, which is available on our website. I will now turn the call over to Ron.
Thank you, Kyle. Good morning, everyone, and thank you for joining us today. First, before jumping to our normal operating highlights, I would like to emphasize our focus on earnings growth. While many key metrics in our business have experienced strong growth over the last five years, our goal is to also achieve long-term earnings growth. We are committed to this objective, which we believe will allow us to enhance shareholder value. As we reported previously, in 2025, we had a near-record year for capital investments that were critical to complete. This included the investment necessary to recommission our Southwest plant water reclamation facility, which was originally constructed 20 years ago but was mothballed during the Great Recession. Although these investments grow rate base considerably and ensure we can provide safe and reliable service to our customers and communities we have the privilege to serve, these investments increased certain operating expenses and, most notably, depreciation expense. Such expenses continue to adversely impact net income and earnings per share in the second quarter of 2026. This is an unfortunate yet necessary part of the historical test year environment here in Arizona. Additionally, certain company expenses, such as medical, continued to grow at an unprecedented pace. As I have been saying for many quarters now, we need new rates to keep up with all the investment and inflation that we have experienced in our utilities. To this end, while it represents a diversion from our original rate application, the recently announced rate case settlement provides a clearer path to a notable rate increase for our largest water utility, GW-Santa Cruz, later this year. For GW-Palo Verde, while delayed, the delay deals with the primary difference of opinion on the timing of rate recovery as it relates to that historical Southwest plant issue. Thus, the new schedule provides a clear path to setting appropriate rates for our largest wastewater utility in 2028. Together, this will allow us to better realize recovery of inflationary expenses and return on and of our plant investments, including the Southwest plant, resulting in years of meaningful earnings growth ahead. Christopher will discuss the rate case further and our plan for rate case activity for other utilities later on the call. In the meantime, 2026 is about working hard to control G&A expenses, which we achieved in Q2. In the years to come, we believe we can maintain solid revenue and earnings growth as we seek to obtain appropriate rate increases combined with our anticipated organic growth. Now I will provide a few operational highlights. Total active service connections increased 5.8% to 69.4 thousand as of 06/30/2026 from the 12 months prior. In 2026, we achieved an annualized 2.6% total active service connection growth rate excluding the acquisition of the seven Tucson water systems. Specifically, we invested $6.6 million into infrastructure improvements in existing utilities in the second quarter of 2026 to provide safe and reliable service. Now I want to discuss organic customer growth and what is going on in our core utilities further. The single-family dwelling unit market ended 2025 with approximately 21.8 thousand building permits issued in the Phoenix greater metropolitan statistical area. In the second quarter of 2026, this market realized 5.65 thousand building permits representing a 4.7% decrease compared to the same period in 2025. Meanwhile, the Maricopa market realized 185 building permits representing a 5.7% increase from the same period in 2025. While new permit activity across the Phoenix MSA has slowed in 2026, and particularly in the city of Maricopa, this is reflected in the company's 2.7% year-over-year organic increase in active connections. We believe the decline in permits is temporary. We remain well positioned to benefit from the anticipated long-term growth of the Phoenix MSA and our specific area drivers, including job growth, affordability, improving transportation, including State Route 347 widening, and our large assured water supply. I will now turn the call over to Mike for financial highlights.
Thanks, Ron. Hello, everyone. Total revenue for the second quarter of 2026 was $17.8 million, which was up $3.5 million or 24.8% compared to Q2 2025. Total revenue for the year-to-date period increased $4.4 million or 16.3% to $31.1 million. The revenue increase in both periods was primarily attributable to unregulated revenue recognition of $2.1 million related to infrastructure coordination and financing agreements, also known as ICFAs, the acquisition of seven water systems from Tucson Water in July 2025, organic connection growth, increased consumption, and higher rates. A more fulsome explanation of ICFAs can be found in our recent Form 10-K filing. However, just for some background, ICFAs are agreements we entered into with developers and homebuilders whereby Global Water provides services to plan, coordinate, and finance the water and wastewater infrastructure that would otherwise be required to be performed or subcontracted by the developer or homebuilder. During the quarter, our GW-Hassayampa utility put its first wastewater plant into service, allowing us to recognize deferred revenue as we met all of our contractual obligations under the related ICFA agreement. Now turning to regulated revenue, which excludes ICFA revenue: for Q2 it was $15.7 million, which was up $1.4 million or 9.9% compared to Q2 2025. Regulated revenue for the year-to-date period increased $2.2 million or 8.4% to $28.9 million. Operating expenses for Q2 2026 increased approximately $1.7 million or 14.1% to $13.3 million compared to $11.6 million in Q2 2025. Operating expenses for the year-to-date period increased $3.3 million or 14.6% to $26.2 million compared to the same period in 2025. Notable changes in operating expenses included depreciation and amortization, which increased $1.1 million for Q2 and $2 million for the year-to-date period. The increase in both periods was substantially attributable to the additional depreciable utility plant placed in service last year as a result of our 2025 capital improvement plan and the commissioning of related projects. Operations and maintenance costs increased approximately $600 thousand for Q2 and $1.1 million for the year-to-date period. The increase in both expense periods was primarily driven by: 1) rising medical expenses, 2) higher purchased power tied to newly operational plant and increased consumption, and 3) a loss on the disposal of utility plant. G&A costs remained relatively flat at $4.3 million in Q2 2026 compared to $4.4 million in Q2 2025. G&A costs for the year-to-date period increased $200 thousand to $8.8 million. Now to discuss other expense. Other expense for Q2 2026 was $800 thousand compared to $400 thousand in Q2 2025. Other expense for the year-to-date period was $1.6 million compared to $900 thousand in the same prior year period. The increase in both periods is primarily attributable to higher interest expense and lower interest income. Net income for Q2 of 2026 was $2.7 million or $0.10 per diluted share as compared to net income of $1.6 million or $0.06 per diluted share in Q2 2025. Net income for the year-to-date period was $2.4 million or $0.08 per diluted share as compared to net income of $2.2 million or $0.08 per diluted share in the prior year period. Adjusted EBITDA adjusts for certain items such as the recognition of deferred ICFA revenue, the loss on disposal of utility plant, and restricted stock expense. Adjusted EBITDA for Q2 of 2026 was $7.9 million compared to $6.9 million in Q2 of 2025, an increase of $1 million or 15%. Adjusted EBITDA for the year-to-date period was $13.5 million compared to $12.6 million in the prior year period, an increase of $900 thousand or 8%. Lastly, in light of recent events, I would like to share that Global Water Resources and its family of utility companies were not impacted by the recent cyber attacks against water and wastewater infrastructure across the United States. This concludes our update on the second quarter 2026 financial results. I will now pass the call to Christopher to review our regulatory activity for the quarter.
Thank you, Mike, and hello, everyone. We continue making progress in our GW-Santa Cruz rate review. As you saw in our press release, we concluded the hearing on the settlement agreement on August 3, 2026, and the case is now pending a recommended opinion and order from the administrative law judge. Once the recommendation is issued, it will appear at a Commission Open Meeting, which we estimate will happen later this year. Recall that the unanimous settlement agreement contemplates net increased revenues of approximately $1.9 million effective November 1, 2026. Turning to future rate filings, we have already started working on the rate reviews for four utilities, which we anticipate filing in the first half of 2027, including GW-Palo Verde and our three Pima County utilities: GW-Saguaro, GW-Farmers, and GW-Ocotillo. All four of those applications contemplate a 2026 test year with a 2027 post-test year, implying estimated new rates in 2028. In addition, we have started preliminary planning for our next GW-Santa Cruz rate review, tentatively scheduled to utilize a test year of 2027 to file in 2028 for estimated new rates in 2029. For all of these cases, we are notifying community stakeholders and the Arizona Corporation Commission staff on the importance of the investments being made and customer benefits. This concludes the update on regulatory activity for the quarter. I will now pass the call back to Ron.
Thank you, Christopher. Despite the headwinds, our work continues and growth is strong. What we do and how we do what we do matters to our communities. 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 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. These highlights conclude our prepared remarks. Thank you. We are now available to answer questions.
Questions and answers
Thank you. At this time, we will open the call for questions from covering sell-side analysts and institutional investors. Please press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Again, it is star then 1 to ask a question. At this time, we will pause momentarily to assemble our roster. The first question comes from Brandon Rogers with ROTH Capital. Please go ahead.
Hello. This is Brandon Rogers on for Jerry Sweeney. Thanks for taking my question.
Glad to do it. Good to hear from you. Thanks.
So first for me: there is considerable development going on in the Phoenix metro area, namely Intel, TMC, as well as the State Route 347 improvement project. How do you see this development potentially impacting the region and Global Water as a whole?
Yeah, Brandon. Hey. This is Mike. Happy to answer that question. So I think, as we have seen, permits have kind of steadied out or flattened out, and we are starting to see a slight upward trajectory as Ron mentioned in Q2 of this year. With the acceleration of the State Route 347 improvements and the projects you mentioned, we are optimistic that growth will continue from where we are right now. Additionally, we will point out that the Arizona Commerce Authority in fiscal year 2026, which ended in June, just put a report out last month where it was the biggest economic development year yet. There were about 26 thousand projected new jobs coming, and there was an investment of more than $109 billion in the community statewide. So those are both single-year records. That is a pretty significant development, not to mention the prior six years added another roughly $170 billion. So it is a pretty massive one year, and we are excited to see the prospects of what comes from that. Thanks. I appreciate that color.
And then another one I have is: your G&A was down slightly year over year as you continue bringing costs down. What should we think about as the run rate for G&A for the remainder of the year?
That is a great question, Brandon. I will take a first stab at that, and feel free to chime in. That is something we have actively been working on this year, and we have done a pretty good job, and our plan is to continue that run rate. To the extent that we can keep those as flat as possible, that is the goal. And so that is our plan.
Thank you.
And then just one more for me. Given the company's significant 2025 capital investments, what is the 2026–2027 capital expenditure outlook?
So this is Mike again, Brandon. We do not really give guidance, but what we have said is that 2025, because it was part of a post-test year, we made pretty significant investments. 2027 would definitely be lower than that—kind of somewhere around what historical norms have been. That is the direction we give, but we do not really give guidance, so that is about as much color as I can give you on that.
Okay. Thank you. I appreciate it.
Thank you. Again, if you have a question please press star then 1. The next question comes from Andrew McLaren with Viking Capital. Please go ahead.
Hi, guys. Thanks for taking my call. The first question I have is just in terms of the acquisition pipeline: how is that looking today versus, say, the last three to five years?
Yeah, thanks, Andrew. This is Christopher. It is something that is always on our radar. Obviously, we have had a pretty significant program over the past five years. Right now we are focused on integrating those acquisitions, filing for the necessary rate reviews, and that has been our focus—recovering the capital investments that we have been making in those utilities along with the rest of the company, as you have heard earlier. So that has been our primary focus going forward.
Okay. And then I just have one more. In terms of if additional capital is required, how are you evaluating equity versus potential debt at current share prices?
Yeah. This is Mike. That is a great question. We try to have a pretty smooth capital structure at a roughly 50% equity / 50% debt approach. The approach we take depends on where we are at, where the stock price is, where the capital markets are, and where debt rates are. All of that comes into the equation because we are obviously being mindful of the dilutive nature of equity capital to our shareholders. So we try to find that balance, but we start at that 50/50.
That is great. Thanks, guys. Appreciate it.
Thank you. Once again, if you have a question please press star then 1. The next question comes from Verik Kotnick with Divide Capital Partners. Please go ahead.
Hey guys. Thanks for taking the question.
Hey. Hi, Verik.
So maybe give me a little color on what you are seeing on the ground right now. Permits, absorption, new communities. I kind of want to get some timeline on the leading indicators, second-order effects, and where that starts to flow through to you guys.
Yeah, Verik. Happy to take that. This is Ron. As Mike mentioned, and as reflected in some of the numbers we talked about earlier, it has been slowing year over year for a while, but it kind of bottomed out a bit in 2025 and early 2026 in the high 2% range when talking about single-family permits. It did increase a little bit in our major territory here in 2026. Over the last three months, our actual organic growth rate ticked back up to 3.2%, so north of 3%, which we had not seen in a few years. Despite the macro environment, in our specific areas we think it is primarily driven by the economic development boom continuing in Phoenix and the fact that our areas have the best affordability in the Metro Phoenix market. We did firm through some of those headwinds. We think it is going to continue to pick up. Our development services team is as active as ever. Another thing I want to focus on is that we are also converting communities more from single-family homes to large multifamily apartment complexes. We have seen more activity on that front than we ever have over the last two years, and that continues as well. For the first time in our roughly 20-year history, top-line revenue growth diverges a little bit from meter connection growth because these big projects are coming in and these communities are filling in very nicely with commercial property as well. Regulated year-over-year revenue growth was 9.9%. Obviously, we acquired the Tucson systems, and there are other factors. But putting all the data together, we feel like we are in a pretty good spot. We think growth is going to actually accelerate. The other key piece besides water is transportation. I do not think I can say enough how important we think the State Route 347 widening is to our biggest service area. They are basically turning a highway into a freeway—15 miles of direct access to the Phoenix market—and yet our homes are 20% to 30% less than what it costs to be on the other side of that freeway system. So all things are coming together. That is how good we feel about it. And that is all before the rate cases that Chris walked you through earlier.
Right. So again, timing here: if a large employer announces a project, the second-order effects happen first—house formation, multifamily, widening of the highway. How long before you see things actually showing up in your numbers? What is that cycle like?
I think you are starting to see it based on the large overall market economic development numbers that we have been talking about for two years now. The announcements are made because those projects are ready to go; they build on an aggressive timeline, roughly two years, and they are employing people about a year out. The horizontal economic development piece from a housing perspective—breaking ground to getting finished lots ready—is usually about 18 months. Developers do that in parallel with the big projects. So it is really kind of a two- to three-year cycle. I think we are just now experiencing all the major stuff that has been announced and going on over the last two to three years. Over the next two to three years, it is going to accelerate because the numbers are going up.
Awesome. Appreciate the time. I will hop back in the queue.
You are welcome. All right.
At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Fleming. Sir, please go ahead.
All right. Thank you, operator. Just want to thank everybody for participating on the call today and for your ongoing interest in Global Water. We look forward to speaking with you again. Thank you.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.