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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management’s discussion and analysis of Global Water Resources, Inc.’s (the “Company”, “GWRI”, “we”, or “us”) financial condition and results of operations (“MD&A”) relate to the year ended December 31, 2023 and should be read together with the consolidated financial statements and accompanying notes included in Part II, Item 8 of this report.

Overview

GWRI is a water resource management company that owns, operates, and manages twenty-nine water, wastewater, and recycled water systems in strategically located communities, principally in metropolitan Phoenix and Tucson, Arizona. The Company seeks to deploy an integrated approach, referred to as “Total Water Management.” Total Water Management is a comprehensive approach to water utility management that reduces demand on scarce non-renewable water sources and costly renewable water supplies, in a manner that ensures sustainability and greatly benefits communities both environmentally and economically. This approach employs a series of principles and practices that can be tailored to each community:

•Reuse of recycled water, either directly or to non-potable uses, through aquifer recharge, or possibly direct potable reuse in the future;

•Regional planning;

•Use of advanced technology and data;

•Employing respected subject matter experts and retaining thought and application leaders;

•Leading outreach and educational initiatives to ensure all stakeholders including customers, development partners, regulators, and utility staff are knowledgeable on the principles and practices of the Total Water Management approach; and

•Establishing partnerships with communities, developers, and industry stakeholders to gain support of the Total Water Management principles and practices.

Business Outlook

There was a trend of positive growth in new connections during 2022. For 2023, growth continued at a moderate rate during the first half of the year with the second half exhibiting increases in the rate of connection growth. According to the most recent U.S. Census estimates, the Phoenix metropolitan statistical area (“MSA”) is the 11th largest MSA in the U.S. and had an estimated population of 5.0 million, an increase of 3.5% over the 4.8 million people reported in the 2020 Census. Metropolitan Phoenix continues to grow due to its comparatively affordable housing, excellent weather, large and growing universities, a diverse employment base, and low taxes. The Employment and Population Statistics Department of the State of Arizona predicts that the Phoenix metropolitan area will have a population of 5.8 million people by 2030 and 6.5 million by 2040. During the twelve months ended December 31, 2023, Arizona’s employment rate increased by 2.0%, ranking the state in the top twenty nationally for job growth.

According to the W.P. Carey School of Business Greater Phoenix Blue Chip Real Estate Consensus Panel (the “Greater Phoenix Blue Chip Panel”), the single-family housing market experienced a weakness in permits during 2022 and 2023, however, the outlook for single-family housing is improving. The Greater Phoenix Blue Chip Panel anticipates single-family permit increases in 2024 due to the combination of the improvement shown in the second half of 2023 with the expectations of modestly declining mortgage rates in 2024. During both 2022 and 2023, multi-family permits trended upwards adding stability to the market.

Phoenix is being recognized as the top market for manufacturing growth and was ranked number one out of the top 15 growth markets for largest projected job gains by global real estate firm Newmark Group.

Despite a general slowdown in housing for the Phoenix metropolitan area primarily due to inflation and increased interest rates, management believes that we are well-positioned to benefit from the growth expected in the Phoenix metropolitan area due to the availability of lots, existing infrastructure in place within our services areas, and increased activity related to multi-family developments.

Factors Affecting our Results of Operations

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Our financial condition and results of operations are influenced by a variety of industry-wide factors, including but not limited to:

•population and community growth;

•economic and environmental utility regulation;

•economic environment;

•the need for infrastructure investment;

•production and treatment costs;

•weather and seasonality; and

•access to and quality of water supply.

The Company is subject to economic regulation by the state regulator, the ACC. The U.S. federal and state governments also regulate environmental, health and safety, and water quality matters. The Company continues to execute on the strategy to optimize and focus the Company in order to provide greater value to our customers and shareholders by aiming to deliver predictable financial results, making prudent capital investments, and focusing our efforts on earning an appropriate rate of return on our investments.

Population and Community Growth

Population and community growth in the metropolitan Phoenix area served by our utilities have a direct impact on our earnings. An increase or decrease in our active service connections will affect our revenues and variable expenses in a corresponding manner. As of December 31, 2023, active service connections increased 5,521, or 9.8%, to 61,791 compared to 56,270 active service connections as of December 31, 2022, primarily due to the acquisition of Farmers Water Co. (“Farmers”) and organic growth in our service areas. Approximately 89.3% of the 61,791 active service connections are serviced by our Global Water - Santa Cruz Water Company, Inc. (“Santa Cruz”) and Global Water - Palo Verde Utilities Company, Inc. (“Palo Verde”) utilities as of December 31, 2023.

The graph below presents the historical change in active connections for our ongoing operations over the past five years.

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Economic and Environmental Utility Regulation

We are subject to extensive regulation of our rates by the ACC, which is charged with establishing rates based on the provision of reliable service at a reasonable cost while also providing an opportunity to earn a fair rate of return on rate base for investors of utilities. The ACC uses a historical test year to evaluate whether the plant in service is used and useful, to assess whether costs were prudently incurred, and to set “just and reasonable” rates. Rate base is typically the depreciated original cost of the plant in service (net of contributions in aid of construction (“CIAC”) and advances in aid of construction (“AIAC”) which are funds or property provided to a utility under the terms of a main extension agreement, the value of which may be refundable), that has been determined to have been “prudently invested” and “used and useful”, although the reconstruction cost of the utility plant may also be considered in determining the rate base. The ACC also decides on an applicable capital structure based on actual or hypothetical analyses. The ACC determines a “rate of return” on that rate base, which includes the approved capital structure and the actual cost of debt and a fair and reasonable cost of equity based on the ACC’s judgment. The overall revenue requirement for rate making purposes is established by multiplying the rate of return by the rate base and adding reasonably incurred operating expenses for the test year, depreciation, and any applicable pro forma adjustments.

On July 3, 2023, our Palo Verde and Santa Cruz utilities filed an application with the ACC for approval of an accounting order to defer and record as a regulatory asset both the depreciation expense recorded for the Company’s Southwest Plant and the carrying cost of that plant at the authorized rate of return set in Palo Verde’s and Santa Cruz’s most recent rate order, until the plant is considered for recovery in the utilities’ next rate case. In January 2024, the Company discovered that approximately $7.8 million of construction costs for the Southwest Plant had been prematurely included as “plant in service” for rate-making purposes in 2007 and were reflected in the calculation of customer rates in Rate Decision No. 71878 (September 15, 2010). Those costs were also included as “plant in service” in Rate Decision No. 74364 (February 26, 2014) and Rate Decision No. 78644 (July 27, 2022). The Company disclosed this information to the ACC on March 1, 2024. Although to date the ACC has not taken any action, the ACC could require the Company to reduce rates going forward or take other actions that would be unfavorable to the Company. The final outcome and resolution of this matter cannot be predicted and the results, while not reasonably estimable at this time, could be material to the Company and its financial condition.

To ensure an optimal combination of access to water and water conservation balanced with a fair rate of return for investors, our water utility operating revenue is based on two components: a fixed fee and a consumption or volumetric fee. For our water utilities, the fixed fee, or “basic service charge,” provides access to water for residential usage and has generally been set at a level to produce approximately 50% of total water revenue. The volumetric fee is based on the total volume of water supplied to a given customer after the minimum number of gallons, if any, covered by the basic service charge, multiplied by a price per gallon set by a tariff approved by the ACC. A discount to the volumetric rate applies for customers that use less than an amount specified by the ACC. For all investor-owned water utilities, the ACC has, as a policy matter, required the establishment of inverted tier conservation-oriented rates, meaning that the price of water increases as consumption increases. For wastewater utilities, wastewater collection, and treatment can be based on volumetric or fixed fees. Our wastewater utility services are billed based solely on a fixed fee, determined by the size of the water meter installed. Recycled water is sold on a volumetric basis with no fixed fee component.

We are required to file rate cases with the ACC to obtain approval for a change in rates. Rate cases and other rate-related proceedings can take a year or more to complete. As a result, there is frequently a delay, or regulatory lag, between the time of a capital investment or incurrence of an operating expense increase and when those costs are reflected in rates. We believe it is common industry practice to file for a rate increase every three to five years. Refer to “—Rate Case Activity” below and Note 2 – “Regulatory Decision and Related Accounting and Policy Changes” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional information.

Additionally, our water and wastewater utility operations are subject to extensive regulation by U.S. federal, state, and local regulatory agencies that enforce environmental, health, and safety requirements, which affect all of our regulated subsidiaries. Environmental, health and safety, and water quality regulations are complex and change frequently, and they have tended to become more stringent over time. Although it is difficult to project the ultimate costs of complying with pending or future requirements, we do not expect requirements under current regulations to have a material impact on our operations or financial condition, although it is possible new methods of treating drinking water may be required if additional regulations become effective in the future. For example, on March 14, 2023, the U.S. Environmental Protection Agency (“EPA”) announced the proposed National Primary Drinking Water Regulation (“NPDWR”) for the treatment of six per- and polyfluoroalkyl substances or compounds (“PFAS”).

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The NPDWR proposed maximum contaminant levels (“MCLs”) for PFAS in drinking water. If finalized as proposed, the regulation will require public water systems, including those owned by GWRI, to monitor drinking water for these compounds. It will also require public water systems to notify customers and treat drinking water to reduce the compounds if the MCL is exceeded. The proposed NPDWR was issued for public comment and the EPA expects to finalize the regulation by early 2024. Once the rule is finalized, water systems will be required to comply with the NPDWR after a specified implementation period, anticipated to be three years from the rule-adoption date. The Company is currently reviewing the proposed regulation with our current treatment standards and expects that the regulation, once finalized, will result in changes to or addition of certain treatment processes that will require increased capital expenditures and water treatment and other operating costs. As other newer or stricter standards are introduced in the future, they could also increase our operating expenses. We generally expect to recover expenses associated with compliance for environmental and health and safety standards through rate increases, but this recovery may be affected by regulatory lag.

Capital expenditures and operating costs required as a result of water quality standards have been traditionally recognized by the ACC as appropriate for inclusion in establishing rates or in a separate surcharge.

Infrastructure Investment

Capital expenditures for infrastructure investment are a component of the rate base on which our regulated utility subsidiaries are allowed to earn an equity rate of return. Capital expenditures for infrastructure provide a basis for earnings growth by expanding our “used and useful” rate base, which is a component of our permitted return on investment and revenue requirement. We are generally able to recover a rate of return on these capital expenditures (return on equity and debt), together with debt service and certain operating costs, through the rates we charge.

We have an established capital improvement plan to make targeted capital investments to repair and replace existing infrastructure as needed, address operating redundancy requirements, improve our overall financial performance and expand our infrastructure in areas where growth is occurring.

Production and Treatment Costs

Our water and wastewater services require significant production resources and therefore result in significant production costs. Although we are permitted to recover these costs through the rates we charge, regulatory lag can decrease our margins and earnings if production costs or other operating expenses increase significantly before we are able to recover them through increased rates. Our most significant costs include labor, chemicals used to treat water and wastewater, and power used to operate pumps and other equipment. Power and chemical costs can be volatile. However, we employ a variety of technologies and methodologies to minimize costs and maximize operational efficiencies.

Weather and Seasonality

Our ability to meet the existing and future water demands of our customers depends on an adequate supply of water. Drought, overuse of sources of water, the protection of threatened species or habitats, or other factors may limit the availability of ground and surface water.

Also, customer usage of water and recycled water is affected by weather conditions, particularly during the summer. Our water systems generally experience higher demand in the summer due to the warmer temperatures and increased usage by customers for irrigation and other outdoor uses. However, summer weather that is cooler or wetter than average generally suppresses customer water demand and can have a downward effect on our operating revenue and operating income. Conversely, when weather conditions are extremely dry, our business may be affected by government-issued drought-related warnings and/or water usage restrictions that would artificially lower customer demand and reduce our operating revenue.

The limited geographic diversity of our service areas makes the results of our operations more sensitive to the effect of local weather extremes. The second and third quarters of the year are generally those in which water services revenue and wastewater services revenues are highest. For additional information and risks associated with weather and seasonality, see “Risk Factors,” included in Part I, Item 1A of this report.

Access to and Quality of Water Supply

In many areas of Arizona (including certain areas that we service), water supplies are limited and, in some cases, current usage rates exceed sustainable levels for certain water resources. We currently rely predominantly (and are likely to continue to rely) on the pumping of groundwater and the generation and delivery of recycled water for non-potable uses to

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meet future demands in our service areas. At present, groundwater (and recycled water derived from groundwater) is the primary water supply available to us. In addition, regulatory restrictions on the use of groundwater and the development of groundwater wells, lack of available water rights, drought, overuse of local or regional sources of water, protection of threatened species or habitats, or other factors, including climate change, may limit the availability of ground or surface water. Additionally, in the majority of the Phoenix Active Management Area, the Arizona Department of Water Resources (“ADWR”) has paused the issuance of new certificates of assured water supply based on groundwater and paused modifications of any designations of assured water supply for the increase in groundwater. Approximately 1.76% of the Company’s water connections are located within the Phoenix Active Management Area. We believe that we have an adequate supply of water to service our current demand and growth for the foreseeable future in our service areas. For additional information and risks associated with the access to and quality of water supply, see “Risk Factors,” included in Part I, Item 1A of this report.

Rate Case Activity

On July 3, 2023, our Palo Verde and Santa Cruz Water utilities filed an application with the ACC for approval of an accounting order to defer and record as a regulatory asset the depreciation expense recorded for the Company’s Southwest Plant, plus the carrying cost at the authorized rate of return set in Palo Verde’s and Santa Cruz’s most recent rate order, until the plant is considered for recovery in the utilities’ next rate case. Refer to Note 2 – “Regulatory Decision and Related Accounting and Policy Changes” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional information.

On June 27, 2023, seven of the Company’s regulated utilities each filed a rate case application with the ACC for water rates based on a 2022 test year. In addition to a rate increase, the Company requested, among other things, the consolidation of water rates for certain of its utilities, including Mirabell, Lyn Lee, Francesca, Tortolita, Rincon, Las Quintas Serenas, and Red Rock, each located in Pima County. Of the Company’s utilities, these utilities filing rate applications make up approximately 3% of the Company’s active service connections. On February 29, 2024, the Company entered into a settlement agreement with ACC Utilities Division Staff regarding the rate case application, which will be considered by an Administrative Law Judge and the ACC for approval. The agreement includes, among other things, a recommended annual revenue increase of approximately $351,000, acquisition premiums for six of the Company’s utilities, a capital structure matching the Company’s previous rate of 55% equity with a 9.6% return on equity, consolidation of the seven utilities, and an accounting deferral for Rincon. There can be no assurance that the ACC will approve the settlement agreement and the ACC could take other actions as a result of the rate case. Further, it is possible that the ACC may determine to decrease future rates. There can also be no assurance as to the timing of when an approved rate increase (if any) would go into effect.

On July 27, 2022, the ACC issued Rate Decision No. 78644 relating to the Company’s previous rate case involving 12 of the Company’s regulated utilities, which consisted of approximately 96% of the Company’s active service connections at the time of the rate case application filing. Pursuant to Rate Decision No. 78644, the ACC approved, among other things, a collective annual revenue requirement increase of approximately $2.2 million (including the acquisition premiums discussed below) based on 2019 test year service connections, and phased-in over approximately two years, as follows:

Incremental Cumulative

To the extent that the number of active service connections has increased and continues to increase from 2019 levels, the additional revenues may be greater than the amounts set forth above. On the other hand, if active connections decrease or the Company experiences declining usage per customer, the Company may not realize all of the anticipated revenues.

The ACC also approved: (i) the consolidation of water and/or wastewater rates to create economies of scale that are beneficial to all customers when rates are consolidated; (ii) acquisition premiums relating to the Company’s acquisitions of its Red Rock and Turner Ranches utilities, which increase the rate base for such utilities and result in an increase in the annual collective revenue requirement included in the table above; (iii) the Company’s ability to annually adjust rates to flow through certain changes in tax expense, primarily related to income taxes, without the necessity of a rate case proceeding; and (iv) a sustainable water surcharge, which will allow semiannual surcharges to be added to customer bills based on verified costs of new water resources.

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(“IRC”) would violate the normalization provisions of Section 168(i)(9) of the IRC. The IRS accepted the request and issued its Private Letter Ruling, dated September 22, 2023. The Private Letter Ruling determined that the deferred taxes attributable to assets condemned in a transaction governed by Section 1033 of the IRC must be eliminated and failure to do so would violate the normalization provisions of Section 168(i)(9) of the IRC. As required by Rate Decision No. 78644, the Private Letter Ruling was provided to the ACC and no further action will be taken by the ACC, as documented in Decision No. 79258.

During the fourth quarter 2023, the Company notified the ACC of its intention to file a rate case for Farmers during 2024 and for Santa Cruz and Palo Verde in 2025.

Refer to Note 2 – “Regulatory Decision and Related Accounting and Policy Changes” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional information.

Corporate Transactions

Private Placement Offering of 6.91% Senior Secured Notes

On October 26, 2023, the Company entered into a note purchase agreement for the issuance of an aggregate principal amount of $20 million of 6.91% Senior Secured Notes due on January 3, 2034. Pursuant to the terms of the note purchase agreement, the Company issued the notes on January 3, 2024.

Refer to Note 11 - “Debts” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional details.

Private Placement Offering of Common Stock

On June 8, 2023, the Company entered into a securities purchase agreement for the issuance and sale by the Company of an aggregate of 230,000 shares of the Company’s common stock at a purchase price of $12.07 per share in an offering exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 promulgated thereunder. The Company received gross proceeds of approximately $2.8 million from the offering.

Farmers Acquisition

On February 1, 2023, the Company acquired all of the equity of Farmers, an operator of a water utility with service area in Pima County, Arizona. The acquisition added approximately 3,300 active water service connections and approximately 21.5 square miles of service area in Sahuarita, Arizona and the surrounding unincorporated area of Pima County at the time of the acquisition. Refer to Note 15 - “Acquisitions” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional details.

Public Offering of Common Stock

On August 1, 2022, the Company completed a public offering of 1,150,000 shares of common stock at a public offering price of $13.50 per share, which included 150,000 shares issued and sold to the underwriter following the exercise in full of its option to purchase additional shares of common stock. The Company received net proceeds of approximately $14.9 million from the offering after deducting underwriting discounts and commissions and offering expenses paid by the Company. Certain of the Company’s directors and/or their affiliates purchased an aggregate of 652,000 shares of common stock at the public offering price.

Stipulated Condemnation of the Operations and Assets of Valencia

On July 14, 2015, the Company closed the stipulated condemnation to transfer the operations and assets of Valencia to the City of Buckeye. Terms of the condemnation were agreed upon through a settlement agreement and stipulated final judgment of condemnation wherein the City of Buckeye acquired all the operations and assets of Valencia and assumed operation of the utility upon close. The City of Buckeye is obligated to pay the Company a growth premium equal to $3,000 for each new water meter installed within Valencia’s prior service areas in the City of Buckeye, for a 20-year period ending December 31, 2034, subject to a maximum payout of $45.0 million over the term of the agreement.

Segment Reporting

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing operating performance. In consideration of the Financial Accounting Standards Board’s Accounting Standards Codification 280, Segment Reporting, the Company is not organized around specific products and services, geographic regions, or regulatory

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environments. The Company currently operates in one geographic region within the State of Arizona, wherein each operating utility operates within the same regulatory environment.

While the Company reports revenue, disaggregated by service type, on the face of the statement of operations, the Company does not manage the business based on any performance measure at the individual revenue stream level. The Company does not have any customers that contribute more than 10% to the Company’s revenues or revenue streams. Additionally, the chief operating decision maker uses consolidated financial information to evaluate performance, which is the same basis on which he communicates results and performance to the Company’s board of directors. It is upon this consolidated basis from which he bases all significant decisions regarding the allocation of the Company’s resources on a consolidated level. Based on the information described above and in accordance with the applicable literature, management has concluded that the Company is currently organized and operated as one operating and reportable segment.

Comparison of Results of Operations for the Year Ended December 31, 2023 and 2022

The following table summarizes results of operations for the year ended December 31, 2023 and 2022 (in thousands, except for share amounts):

For the Year Ended December 31,

Basic earnings per common share $ 0.33 $ 0.24

Diluted earnings per common share $ 0.33 $ 0.24

Revenues – The following table summarizes revenues for the year ended December 31, 2023 and 2022 (in thousands):

For the Year Ended December 31,

Wastewater and recycled water services 25,382 23,843

Unregulated revenues 2,786 —

Total revenues increased $8.3 million, or 18.6%, to $53.0 million for the year ended December 31, 2023 compared to $44.7 million for the year ended December 31, 2022. The increase in revenue reflects elevated consumption during 2023 related to higher average temperatures and lower average precipitation, primarily during the peak usage months, ICFA revenue earned during 2023 that did not occur in the prior year, increased rates related to Rate Decision No. 78644, new connections associated with the acquisition of Farmers in February 2023, and organic connection growth.

Water Services – Water services revenue increased $4.0 million, or 19.0%, to $24.9 million for the year ended December 31, 2023 compared to $20.9 million for the year ended December 31, 2022. The increase in water services revenue was primarily related to the weather conditions discussed above prompting higher consumption during high usage months, the acquisition of Farmers, an increase in rates related to Rate Decision No. 78644, and organic connection growth.

Water services revenue based on consumption increased $2.2 million, or 23.4%, to $11.4 million for the year ended December 31, 2023 compared to $9.2 million for the year ended December 31, 2022. The increase was primarily driven by the weather conditions discussed above resulting in a 14.8% increase in consumption, the Farmers acquisition, an increase in rates related to Rate Decision No. 78644, and organic connection growth.

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Active water connections increased 15.1% to 34,370 as of December 31, 2023 from 29,855 as of December 31, 2022, primarily due to the Farmers acquisition and organic growth in our service areas.

Water consumption increased 14.8% to 4.0 billion gallons for the year ended December 31, 2023 compared to 3.5 billion for the year ended December 31, 2022. The increase was primarily related to the considerable increase in consumption during the third quarter which we believe can be attributed to the higher temperatures and lower precipitation, primarily during high usage months, as compared to the same period in 2022.

Water services revenue associated with the basic service charge, excluding miscellaneous charges, increased $1.7 million, or 15.5%, to $12.8 million for the year ended December 31, 2023 compared to $11.1 million for the year ended December 31, 2022. The increase was primarily due to the increase in active service connections largely from new connections associated with the acquisition of Farmers, as well as an increase in rates due to Rate Decision No. 78644.

Wastewater and Recycled Water Services – Wastewater and recycled water services revenue increased $1.6 million, or 6.5%, to $25.4 million for the year ended December 31, 2023 compared to $23.8 million for the year ended December 31, 2022. The increase was primarily driven by higher wastewater services revenue of $1.4 million resulting from the 3.8% increase in active wastewater connections from 26,415 as of December 31, 2022 to 27,421 as of December 31, 2023, combined with an increase in rates due to Rate Decision No. 78644.

Recycled water services revenue, which is based on the number of gallons delivered and directly impacted by wastewater volume, increased by approximately 9.9% to $1.4 million for the year ended December 31, 2023 from $1.2 million for the year ended December 31, 2022. The volume of recycled water delivered rose by 12.6% with 818 million gallons delivered for the year ended December 31, 2023 compared to 727 million gallons delivered for the year ended December 31, 2022. In addition, the volume of wastewater processed increased 6.2% to 1.4 billion gallons for the year ended December 31, 2023 from 1.3 billion gallons for the year ended December 31, 2022.

Operating Expenses – The following table summarizes operating expenses for the year ended December 31, 2023 and 2022 (in thousands):

For the Year Ended December 31,

Operations and Maintenance – Operations and maintenance costs, consisting of personnel costs, production costs (primarily chemicals and purchased electrical power), maintenance costs, and property tax, increased approximately $1.8 million, or 16.3%, to $12.7 million for the year ended December 31, 2023 compared to $10.9 million for the year ended December 31, 2022.

Total personnel expenses increased approximately $0.9 million, or 25.7%, to $4.4 million for the year ended December 31, 2023 compared to $3.5 million for the year ended December 31, 2022. The increase was primarily attributable to the Farmers acquisition in February 2023, increased medical costs, an increase in headcount, and a cost of living adjustment that impacted five months of 2022 as compared to all months of 2023.

Utility power and related expenses increased $0.4 million to $2.7 million for the year ended December 31, 2023 compared to $2.3 million for the same period in 2022. The additional power costs were attributable to increased pump usage related to escalated consumption and additional connections, from both the Farmers acquisition and organic growth.

Contract services increased $0.2 million to $1.6 million for the year ended December 31, 2023 from $1.4 million for the year ended December 31, 2022. The increase was primarily due to increased costs for billing software related to the additional connections period over period, cloud storage services, and billing distribution services as a result of additional customers.

Chemicals, consumables and supplies increased $0.2 million to $0.7 million for the year ended December 31, 2023 from $0.5 million for the year ended December 31, 2022. The increase is primarily attributable to higher consumption driving the need for more chemicals, consumables and supplies, increased prices as a result of inflation, and the Farmers acquisition.

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General and Administrative – General and administrative costs include the day-to-day expenses of office operations, personnel costs, legal and other professional fees, insurance, rent, and regulatory fees. These costs increased $0.5 million, or 3.1%, to $16.6 million for the year ended December 31, 2023 compared to $16.1 million for the year ended December 31, 2022.

Personnel related costs increased $1.1 million, or 17.3%, to $7.5 million for the year ended December 31, 2023 compared to $6.4 million for the year ended December 31, 2022. The increase was primarily related salary and wage increases as a result of increased personnel, higher medical expenses, and a cost of living adjustment.

Information technology expenses increased $0.2 million, or 25.0%, to $1.0 million for the year ended December 31, 2023 compared to $0.8 million for the year ended December 31, 2022. The increase was substantially due to higher costs related to service agreements and software licenses.

Board compensation expense increased $0.2 million, or 41.1%, to $0.5 million for the year ended December 31, 2023 compared to $0.3 million for the year ended December 31, 2022. The increase was primarily due to the change in our stock price during the year ended December 31, 2023 compared to the year ended December 31, 2022.

Regulatory expense decreased $0.3 million, or 76.7%, to $0.1 million for the year ended December 31, 2023 compared to $0.4 million for the year ended December 31, 2022. The decrease was primarily attributable to expenses incurred related to the substantial rate case activity in 2022 that did not occur in 2023.

Professional fees expenses decreased $0.6 million, or 21.6%, to $2.0 million for the year ended December 31, 2023 compared to $2.6 million for the year ended December 31, 2022. The decrease was primarily related to legal fees incurred for acquisition related matters during 2022 that did not occur in 2023.

Deferred compensation expense decreased $0.4 million, or 21.0%, to $1.2 million for the year ended December 31, 2023 compared to $1.6 million for the year ended December 31, 2022. The decrease resulted primarily from vesting related expenses of restricted stock awards that occurred in 2022 and not in 2023 in addition to fully exhausted option expenses in August 2023, all partially offset by the change in the stock price impacting certain valuations during the year ended December 31, 2023 as compared to the year ended December 31, 2022. Refer to Note 13 — “Deferred Compensation Awards” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional information.

Depreciation and amortization - Depreciation and amortization expense increased $1.5 million, or 15.6%, to $11.4 million for the year ended December 31, 2023, compared to $9.9 million for the year ended December 31, 2022. The increase was primarily driven by increased depreciation due to the increase in fixed assets, $0.4 million of which was attributable to depreciation of the Southwest Plant in Maricopa, Arizona. Approximately $0.2 million of the depreciation for the year ended December 31, 2023 was attributable to the Farmers acquisition.

Other Expense – Other expense totaled $1.4 million for both years ended December 31, 2023 and 2022. The increase of $0.1 million in other expense was related to a $0.1 million decrease in income associated with Buckeye growth premiums as a result of fewer new meter connections in the area, an increase in interest expense of $0.1 million, and a $0.1 million increase in other expense, offset by an increase in the equity portion of allowance for funds used during construction of $0.3 million for the year ended December 31, 2023.

Income Tax Expense – Income tax expense of $2.9 million was recorded for the year ended December 31, 2023 compared to $0.9 million for the year ended December 31, 2022. During the year ended December 31, 2022, the Company recorded a tax benefit of approximately $0.7 million from the reversal of the regulatory liability related to Rate Decision No. 78622. Also contributing to the increase in income tax expense was higher pre-tax income for the year ended December 31, 2023.

Net Income – Net income totaled $8.0 million for the year ended December 31, 2023 compared to net income of $5.5 million for the year ended December 31, 2022. The $2.5 million increase was primarily attributable to growth in operating revenue as a result of escalated consumption and increased rates related to Rate Decision No. 78644, the recognition of $2.8 million of ICFA related revenue, and operating revenue of $1.1 million resulting from the Farmers acquisition in February 2023, partially offset by an increase in operating expenses of approximately $1.8 million, higher depreciation expenses of $3.8 million, and increased tax expense of $1.9 million.

Outstanding Share Data

As of March 6, 2024, there were 24,175,241 shares of the Company’s common stock outstanding and stock-based awards outstanding to acquire an additional 425,884 shares of the Company’s common stock.

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Liquidity and Capital Resources

The Company’s capital resources are provided by internally generated cash flows from operations as well as debt and equity financing. Additionally, its regulated utility subsidiaries receive advances and contributions from customers, home builders, and real estate developers to partially fund construction necessary to extend service to new areas. The Company uses capital resources primarily to:

•fund operating costs;

•fund capital requirements, including construction expenditures;

•make debt and interest payments;

•fund acquisitions; and

•pay dividends.

The Company’s utility subsidiaries operate in rate-regulated environments in which the amount of new investment recovery may be limited. Such recovery will take place over an extended period of time because recovery through rate increases is subject to regulatory lag.

As of December 31, 2023, the Company has no notable near-term cash expenditures, other than the principal payments for its Series B senior secured notes in the amount of $1.9 million due in both June 2024 and December 2024. While specific facts and circumstances could change, the Company believes that with the cash on hand and the ability to draw on its $15.0 million revolving line of credit, it will be able to generate sufficient cash flows to meet its operating cash flow requirements and capital expenditure plan, as well as remain in compliance with its debt covenants, for the next twelve months and beyond.

In March 2014, the Company initiated a dividend program to declare and pay a monthly dividend. On November 30, 2024, the Company announced a monthly dividend increase from 0.02483 per share (0.29796 per share annually) to 0.02508 per share (0.30096 per share annually). Although the Company expects that monthly dividends will be declared and paid for the foreseeable future, the declaration of any dividends is at the discretion of the Company’s board of directors and is subject to legal requirements and debt service ratio covenant requirements (refer to “—Senior Secured Notes” and “—Revolving Credit Line”).

Cash from Operating Activities

Cash flows provided by operating activities are used for operating needs and to meet capital expenditure requirements. The Company’s future cash flows from operating activities will be affected by economic utility regulation, infrastructure investment, growth in service connections, customer usage of water, compliance with environmental health and safety standards, production costs, weather, and seasonality.

For the year ended December 31, 2023, net cash provided by operating activities totaled approximately $25.4 million compared to $23.3 million for the year ended December 31, 2022. The $2.1 million increase in cash from operating activities was primarily driven by the improvement in net income and increased depreciation expense for the year ended December 31, 2023 compared to the year ended December 31, 2022, as well as an increase in current liabilities for 2023 as compared to the prior year. All of which was partially offset by an overall decrease in noncurrent liabilities largely attributable to the reduction of deferred revenue - ICFA resulting from revenue recognition during 2023 that did not occur during 2022.

Cash from Investing Activities

The net cash used in investing activities totaled approximately $28.6 million for the year ended December 31, 2023 compared to $34.2 million for the year ended December 31, 2022. The $5.6 million decrease in cash used in investing activities was primarily driven by a decrease in capital expenditures of $11.7 million for the year ended December 31, 2023 compared to the year ended December 31, 2022, partially offset by the $6.2 million cash paid for the acquisition of Farmers (net of cash acquired) in 2023.

The Company continues to invest capital prudently in existing, core service areas where the Company is able to deploy the Total Water Management model as this includes any required maintenance capital expenditures and the construction of new water and wastewater treatment and delivery facilities. The projected capital expenditures and other investments are subject to periodic review and revision to reflect changes in economic conditions and other factors. As a result, the Company may adjust capital expenditures to correspond with any substantial changes in demand for housing in service areas.

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Cash from Financing Activities

The net cash provided by financing activities totaled $0.4 million for the year ended December 31, 2023, a $4.6 million change, as compared to the $5.0 million in cash provided by financing activities for the year ended December 31, 2022. This change was primarily driven by a decrease of $12.1 million in proceeds from the sale of stock and a $0.8 million decrease in advances in aid of construction, partially offset by an increase of $6.7 million in other contributions and a $2.3 million increase in line of credit borrowings, net of payments, for the year ended December 31, 2023.

Debt

Senior Secured Notes

On June 24, 2016, the Company issued two series of senior secured notes with a total principal balance of $115.0 million at a blended interest rate of 4.55%. Series A carriesa principal balance of $28.8 million and bears an interest rate of 4.38% over a twelve-year term, with the principal payment due on June 15, 2028 (the “Series A Notes”). Series B carries a principal balance of $86.3 million and bears an interest rate of 4.58% over a 20-year term, with the principal payment due on June 15, 2036 (the “Series B Notes”). The Series B Notes were interest only for the first five years, with $1.9 million principal payments paid semiannually thereafter beginning December 2021. The proceeds of the Series A Notes and the Series B Notes were primarily used to refinance the Company’s long-term tax exempt bonds, pursuant to an early redemption option at 103%, plus accrued interest, as a result of the Company’s U.S. initial public offering of its common stock in May 2016.

The Series A Notes and the Series B Notes require the Company to maintain a debt service coverage ratio of consolidated EBITDA to consolidated debt service of at least 1.10 to 1.00. Consolidated EBITDA is calculated as net income plus depreciation and amortization, taxes, interest, and other non-cash charges net of non-cash income. Consolidated debt service is calculated as interest expense, principal payments, and dividend or stock repurchases. The Series A Notes and the Series B Notes also contain a provision limiting the payment of dividends if the Company falls below a debt service ratio of 1.25. However, for the quarter ended June 30, 2021 through the quarter ending March 31, 2024, the debt service ratio drops to 1.20. The debt service ratio increases to 1.25 for any fiscal quarter during the period from and after June 30, 2024. As of December 31, 2023, the Company was in compliance with its financial debt covenants relating to the Series A Notes and the Series B Notes.

Additionally, on January 3, 2024, the Company issued $20.0 million aggregate principal amount of 6.91% Senior Secured Notes due on January 3, 2034 (the “6.91% Notes” and collectively with the Series A Notes and the Series B Notes, the “Senior Secured Notes”). The 6.91% Notes will accrue interest at 6.91% per annum from the date of issuance, payable semi-annually on January 3 and July 3 of each year, beginning on July 3, 2024, with a balloon payment due on January 3, 2034.

The 6.91% Notes require the Company to maintain a debt service coverage ratio of consolidated EBITDA to consolidated debt service of at least 1.10 to 1.00. The 6.91% Notes also contain a provision limiting the payment of dividends if the Company falls below a debt service coverage ratio of 1.20 for any fiscal quarter ended on or before June 15, 2024 and 1.25 for any fiscal quarter ended during the period from and after June 16, 2024.

The Senior Secured Notes are collateralized by a security interest in the Company’s equity interest in its subsidiaries, including all payments representing profits and qualifying distributions. The Senior Secured Notes also have certain restrictive covenants that limit, among other things, the Company’s ability to: create liens and other encumbrances; incur additional indebtedness; merge, liquidate or consolidate with another entity; dispose of or transfer assets; make distributions or other restricted payments; engage in certain affiliate transactions; and change the nature of the business.

Debt issuance costs as of December 31, 2023 and December 31, 2022 were $0.4 million and $0.5 million, respectively.

Revolving Credit Line

On April 30, 2020, the Company entered into an agreement with The Northern Trust, Company, an Illinois banking corporation (“Northern Trust”), which was initially for a two-year revolving line of credit up to $10.0 million with an maturity date of April 30, 2022. This credit facility, which may be used to refinance existing indebtedness, to acquire assets to use in and/or expand the Company’s business, and for general corporate purposes, initially bore an interest rate equal to the London Interbank Offered Rate (LIBOR) plus 2.00% and had no unused line fee.

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2025; (ii) increase the maximum principal amount available for borrowing to $15.0 million; (iii) replace the LIBOR interest rate provisions with provisions based on the Secured Overnight Financing Rate (SOFR); and (iv) add a quarterly facility fee equal to 0.35% of the average daily unused amount of the revolving line of credit.

Similar to the Senior Secured Notes, the Northern Trust Loan Agreement requires the Company to maintain a debt service coverage ratio of consolidated EBITDA to consolidated debt service of at least 1.10 to 1.00. The Northern Trust Loan Agreement also contains a provision limiting the payment of dividends if the Company falls below a debt service ratio of 1.25. However, for the quarter ended June 30, 2021 through the quarter ending March 31, 2024, the debt service ratio drops to 1.20. Additionally, the Northern Trust Loan Agreement contains certain restrictive covenants that limit, among other things, the Company’s ability to: create liens and other encumbrances; incur additional indebtedness; merge, liquidate or consolidate with another entity; dispose of or transfer assets; make distributions or other restricted payments (including dividends); engage in certain affiliate transactions; and change the nature of the business. The foregoing covenants are subject to various qualifications and limitations as set forth in the Northern Trust Loan Agreement. Pursuant to the Northern Trust Loan Agreement, the revolving credit facility is subject to certain customary events of default after which the revolving credit facility could be declared due and payable if not cured within the grace period or, in certain circumstances, could be declared due and payable immediately. Refer to Note 11 — “Debt” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional information. As of December 31, 2023, the Company was in compliance with its financial debt covenants under the Northern Trust Loan Agreement.

As of December 31, 2023, the Company had outstanding borrowings of approximately $2.3 million under the revolving line of credit with Northern Trust. There were approximately $25,000 and $9,812 unamortized debt issuance costs as of December 31, 2023 and December 31, 2022, respectively.

Refer to Note 11 — “Debt” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report for additional information.

Other Financing Activity

On June 8, 2023, the Company entered into a securities purchase agreement for the issuance and sale by the Company of an aggregate of 230,000 shares of the Company’s common stock at a purchase price of $12.07 per share in an offering exempt from registration pursuant to Section 4(a)(2) of the Securities Act and Rule 506 promulgated thereunder. The Company received gross proceeds of approximately $2.8 million from the offering.

Insurance Coverage

The Company carries various property, casualty, and financial insurance policies with limits, deductibles, and exclusions consistent with industry standards. However, insurance coverage may not be adequate or available to cover unanticipated losses or claims. The Company is self-insured to the extent that losses are within the policy deductible or exceed the amount of insurance maintained. Such losses could have a material adverse effect on the Company’s short-term and long-term financial condition and the results of operations and cash flows.

Contractual Obligations

In the course of normal business activities, the Company enters into a variety of contractual obligations and commitments. Some result in direct obligations on the Company’s balance sheet while others are firm commitments or commitments based on uncertainties and undetermined execution times.

The following table summarizes the Company’s contractual cash obligations as of December 31, 2023 (in thousands):

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Payments Due By Period

Total Less than 1 Year 2 - 3 Years 3 - 5 Years More than 5 Years

Interest on capital lease $ 65 29 32 4 —

Interest on operating lease $ 90 42 47 1

(1) Interest on the long-term debt is based on the fixed rates of the Company’s Series A Notes and the Series B Notes.

(2) In addition to these obligations, the Company pays annual refunds on AIAC over a specific period of time based on operating revenues generated from developer-installed infrastructure. The refund amounts are considered an investment in infrastructure and eligible for inclusion in future rate base. These refund amounts are not included in the above table because the refund amounts and timing are dependent upon several variables, including new customer connections, customer consumption levels, and future rate increases, which cannot be accurately estimated. Portions of these refund amounts are payable annually over the next two decades, and amounts not paid by the contract expiration dates become nonrefundable and are transferred to CIAC.

Critical Accounting Estimates

The application of critical accounting policies is particularly important to the Company’s financial condition and results of operations and provides a framework for management to make significant estimates, assumptions, and other judgments. Additionally, the Company’s financial condition, results of operations, and cash flow are impacted by the methods, assumptions, and estimates used in the application of critical accounting policies. Although management believes that these estimates, assumptions, and other judgments are appropriate, they relate to matters that are inherently uncertain and that may change in subsequent periods. Accordingly, changes in the estimates, assumptions, and other judgments applied to these accounting policies could have a significant impact on the Company’s financial condition and results of operations as reflected in its financial statements.

Accounting for Rate Regulation

Because the Company’s subsidiaries are regulated businesses, the Company is subject to the authoritative guidance for accounting for the effects of certain types of regulation. Application of this guidance requires accounting for certain transactions in accordance with regulations adopted by the ACC. Utility companies defer costs and credits on the balance sheet as regulatory assets and liabilities when it is probable that those costs and credits will be recognized in the ratemaking process in a period different from the period in which they would have been reflected in income by an unregulated company. These deferred regulatory assets and liabilities are then reflected in the income statement in the period in which the same amounts are reflected in the rates charged for service.

When the Company’s regulated subsidiaries file rate cases, their capital assets, operating costs and other matters are subject to review, and disallowances may occur, and the Company may be required to write-off related regulatory assets that are not specifically recoverable and determine if other assets might be impaired. See Note 2 – “Regulatory Decision

and Related Accounting and Policy Changes” of the Notes to the Consolidated Financial Statements included in Part II,

Item 8 of this report for more information regarding the Company’s rate proceedings. Management continually evaluates the anticipated recovery, settlement or refund of regulatory assets, liabilities, and revenues subject to refund and provides for allowances and/or reserves that it believes to be necessary. In the event that management’s assessment as to the probability of the inclusion in the ratemaking process is incorrect, the associated regulatory asset or liability will be adjusted to reflect the change in assessment or the impact of regulatory approval of rates.

Income Taxes

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Estimation of income taxes includes an evaluation of the recoverability of deferred tax assets based on an assessment of the Company’s ability to utilize the underlying future tax deductions against future taxable income before they expire. The Company’s assessment is based upon existing tax laws and estimates of future taxable income. If the assessment of the Company’s ability to utilize the underlying future tax deductions changes, the Company would be required to recognize fewer of the tax deductions as assets, which would increase the income tax expense in the period in which the determination is made. Additionally, an evaluation of the recoverability of deferred tax gains is based on an assessment of the Company’s ability to fully utilize the deferred tax gain before it expires. The Company’s assessment is based upon the ability to acquire qualifying properties. If the assessment of the Company’s ability to fully utilize the deferred tax gain changes, the Company would be required to recognize income tax expense in the period in which the deferred tax gain expires.

Acquisitions

Acquisitions are accounted for as a business combination under ASC 805, “Business Combinations” and the purchase price is allocated to the acquired utility assets and liabilities based on the acquisition-date fair values. Fair values are determined in accordance with ASC 820 “Fair Value Measurement,” which allows for the characteristics of the acquired assets and liabilities to be considered, particularly restrictions on the use of the asset and liabilities. Regulation is considered a restriction on the use of the assets and liabilities, as it relates to inclusion in rate base, and a fundamental input to measuring the fair value in a business combination. Substantially all of the Company’s operations are subject to the rate-setting authority of the ACC and are accounted for pursuant to accounting guidance for regulated operations under ASC 980, “Regulated Operations.” As such, the fair value of the acquired assets and liabilities subject to these rate-setting provisions approximates the pre-acquisition carrying values and does not reflect any net valuation adjustments.

In some acquisitions, the Company is required to pay the seller an amount for each new account established in the service area, up to an agreed upon aggregate amount, referred to as a growth premium. The obligation period of the growth premium varies and is based on the purchase agreement. The Company accounts for the growth premium as additional consideration to the purchase and the fair value of the growth premium liability is calculated using a discounted cash flow technique, which utilizes unobservable inputs developed by the Company using significant judgement in estimates and assumptions. Significant inputs used in the fair value calculation are follows: year of the first meter installation, total new accounts per year, years to complete full build out, and discount rate. While the Company uses the best available estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, such estimates are inherently uncertain and subject to refinement. Events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. Any adjustments subsequent to the conclusion of the acquisition’s measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, will be recorded in the Company’s Consolidated Statements of Operations.

Recent Accounting Pronouncements

A discussion of recently issued and recently issued but not yet adopted accounting pronouncements is included in Note 1 – “Basis of Presentation, Corporate Transactions, Significant Accounting Policies, and Recent Accounting Pronouncements - Recent Accounting Pronouncements” of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this report and is incorporated herein by reference.

Off Balance Sheet Arrangements

As of December 31, 2023 and 2022, the Company did not have any off-balance sheet arrangements.

Item 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

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ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) 58

Consolidated Balance Sheets as of December 31, 2023 and 2022 60

Notes to Consolidated Financial Statements 64

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Global Water Resources, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Global Water Resources, Inc. and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of operations, shareholders' equity, and cash flows, for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Regulatory Matters - Impact of Rate Regulation on the Financial Statements — Refer to Note 2 to the financial statements

Critical Audit Matter Description

The Company’s regulated utilities are subject to rate regulation by the Arizona Corporation Commission (the “ACC”). The ACC has jurisdiction with respect to the rates charged to water and wastewater service customers in Arizona. Management has determined it meets the requirements under accounting principles generally accepted in the United States of America to prepare its financial statements applying the specialized rules to account for the effects of cost-based rate regulation. Accounting for the economics effects of rate regulation has a pervasive effect on the financial statements.

The ACC establishes rates designed to permit the recovery of the cost of service and a return on investment. Decisions to be made by the ACC in the future will impact the accounting for regulated operations, including decisions about the amount of

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allowable costs and return on invested capital included in rates and any refunds that may be required. While the Company has indicated it expects to recover costs from customers through regulated rates, there is a risk that the ACC will not approve (1) full recovery of the costs of providing utility service, or (2) full recovery of all amounts invested in the utility business and a reasonable return on that investment.

We identified the impact of rate regulation as a critical audit matter due to the significant judgments that underlie the Company’s regulatory account balances and disclosures and the high degree of subjectivity involved in assessing the impact of future regulatory orders on the financial statements. Management judgments include assessing the likelihood of (1) recovery in future rates of incurred costs, and (2) a refund to customers. Given that management’s accounting judgments are based on assumptions about the outcome of decisions by the ACC, auditing these judgments required specialized knowledge of accounting for rate regulation and the rate setting process due to its inherent complexities.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the uncertainty of future decisions by the ACC included the following, among others:

•We read relevant regulatory orders and settlements issued by the ACC for the Company and other public utilities in Arizona, regulatory statutes, procedural memorandums, filings made by interveners and utilities, and other publicly available information to assess the likelihood of recovery in future rates or a future reduction in rates based on precedents of the ACC’s treatment of similar costs under similar circumstances. We evaluated the external information and compared such information to management’s regulatory asset and liability balances for completeness.

•We obtained supporting documentation from management, as appropriate, regarding the likelihood of recovery in future rates or of a future reduction in rates not yet addressed in a regulatory order.

•We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.

/s/ DELOITTE & TOUCHE LLP

Tempe, Arizona

March 6, 2024

We have served as the Company's auditor since 2003.

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GLOBAL WATER RESOURCES, INC.

CONSOLIDATED BALANCE SHEET

(in thousands, except share and per share amounts)

ASSETS

PROPERTY, PLANT AND EQUIPMENT:

CURRENT ASSETS:

Customer payments in-transit 543 462

Taxes, prepaid expenses and other current assets 2,494 2,439

OTHER ASSETS:

Other noncurrent assets 74 34

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:

Long-term debt, current portion 3,880 3,833

Leases, current portion 553 505

NONCURRENT LIABILITIES:

Line of credit 2,315 —

Contributions in aid of construction, net 36,409 26,404

Deferred income tax liabilities, net 8,284 5,949

Other noncurrent liabilities 8,230 755

Commitments and contingencies (Refer to Note 16)

SHAREHOLDERS’ EQUITY:

Retained earnings 797 —

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 361,095 $ 323,086

See accompanying notes to the consolidated financial statements

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GLOBAL WATER RESOURCES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

Year Ended December 31,

REVENUES:

Wastewater and recycled water services 25,382 23,843

Unregulated revenues 2,786 —

OPERATING EXPENSES:

OTHER INCOME (EXPENSE):

Interest income 52 65

Allowance for equity funds used during construction 981 723

Basic earnings per common share $ 0.33 $ 0.24

Diluted earnings per common share $ 0.33 $ 0.24

Dividends declared per common share $ 0.30 $ 0.30

Weighted average number of common shares used in the determination of:

See accompanying notes to the consolidated financial statements

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GLOBAL WATER RESOURCES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except share and per share amounts)

Stock compensation — — — — 629 — 629

Dividend declared $0.30 per share — — — — — (7,185) (7,185)

Stock compensation — — — — 462 — 462

See accompanying notes to the consolidated financial statements

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GLOBAL WATER RESOURCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Year Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

Right of use amortization 324 182

Amortization of deferred debt issuance costs and discounts 44 44

(Gain) Loss on disposal of fixed assets (63) 4

Provision for credit losses 68 103

Changes in assets and liabilities

Accounts receivable (702) (248)

Accounts payable and other current liabilities (635) (1,830)

Other noncurrent assets 312 387

Net cash provided by operating activities 25,393 23,336

CASH FLOWS FROM INVESTING ACTIVITIES:

Cash paid for acquisitions, net of cash acquired (6,246) (180)

Other cash flows from investing activities (40) (24)

Net cash used in investing activities (28,598) (34,188)

CASH FLOWS FROM FINANCING ACTIVITIES:

Advances in aid of construction 1,510 2,344

Refunds of advances for construction (1,171) (1,140)

Proceeds from stock option exercise 9 3

Payments for taxes related to net shares settlement of equity awards (373) (585)

Principal payments under finance lease (525) —

Line of credit borrowings, net 2,315 —

Loan borrowings 260 —

Payments of offering costs for sale of stock (20) —

Other contributions 6,700 —

Net cash provided by financing activities 406 4,971

INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH (2,799) (5,881)

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — Beginning of period 7,562 13,443

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH – End of period 4,763 7,562

See accompanying notes to the consolidated financial statements

Supplemental disclosure of cash flow information:

Year Ended December 31,

Cash and cash equivalents $ 3,087 $ 6,561

Total cash, cash equivalents, and restricted cash $ 4,763 $ 7,562

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GLOBAL WATER RESOURCES, INC.

Notes to the Consolidated Financial Statements

1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, CORPORATE TRANSACTIONS, SIGNIFICANT ACCOUNTING POLICIES, AND RECENT ACCOUNTING PRONOUNCEMENTS

Description of Business

Global Water Resources, Inc. (the “Company”, “GWRI”, “we”, “us”, or “our”) is a water resource management company that owns, operates, and manages twenty-nine water, wastewater, and recycled water systems in strategically located communities, principally in metropolitan Phoenix and Tucson, Arizona. Serving more than 82,000 people in approximately 32,000 homes within the Company’s 408 square miles of certificated service areas as of December 31, 2023, the Company provides water and wastewater utility services under the regulatory authority of the Arizona Corporation Commission (“ACC”). Approximately 89.3% of the active service connections are customers of the Company’s Global Water - Santa Cruz Water Company, Inc. (“Santa Cruz”) and Global Water - Palo Verde Utilities Company, Inc. (“Palo Verde”) utilities, which are located within a single service area.

Basis of Presentation and Principles of Consolidation

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its subsidiaries. All significant intercompany account balances and transactions have been eliminated in consolidation.

The Company prepares its financial statements in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

Corporate Transactions

Private Placement Offering of 6.91% Senior Secured Notes

Private Placement Offering of Common Stock

Public Offering of Common Stock

Farmers Acquisition

On February 1, 2023, the Company acquired all of the equity of Farmers Water Co. (“Farmers”), an operator of a water utility with service area in Pima County, Arizona. The acquisition added approximately 3,300 active water service connections and approximately 21.5 square miles of service area in Sahuarita, Arizona and the surrounding unincorporated area of Pima County at the time of the acquisition.

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Stipulated Condemnation of the Operations and Assets of Valencia Water Company, Inc.

On July 14, 2015, the Company closed the stipulated condemnation to transfer the operations and assets of Valencia Water Company, Inc. (“Valencia”) to the City of Buckeye. Terms of the condemnation were agreed upon through a settlement agreement and stipulated final judgment of condemnation wherein the City of Buckeye acquired all the operations and assets of Valencia and assumed operation of the utility upon close. The City of Buckeye is obligated to pay the Company a growth premium equal to $3,000 for each new water meter installed within Valencia’s prior service areas in the City of Buckeye, for a 20-year period ending December 31, 2034, subject to a maximum payout of $45.0 million over the term of the agreement. The Company received growth premiums of $2.4 million and $2.5 million for the years ended December 31, 2023 and 2022, respectively, and has received an aggregate of $10.7 million in growth premiums to date. The growth premiums are included in “Other, net” on the Consolidated Statements of Operations.

Significant Accounting Policies

Regulation

The Company’s regulated utilities and certain other balances are subject to regulation by the ACC and are therefore subject to Accounting Standards Codification Topic 980, Regulated Operations (“ASC 980”) (See Note 2 – “Regulatory Decision and Related Accounting and Policy Changes”).

Property, Plant and Equipment

Property, plant, and equipment is stated at cost less accumulated depreciation provided on a straight-line basis (See Note 5 – “Property, Plant and Equipment”).

Depreciation rates for asset classes of utility property, plant, and equipment are established by the ACC. The cost of additions, including betterments and replacements of units of utility fixed assets are charged to utility property, plant, and equipment. When units of utility property are replaced, renewed, or retired, their cost plus removal or disposal costs, less salvage proceeds, is charged to accumulated depreciation.

For non-utility property, plant, and equipment, depreciation is calculated by the straight-line method over the estimated useful lives of depreciable assets. Cost and accumulated depreciation for non-utility property, plant, and equipment retired or disposed of are removed from the accounts and any resulting gain or loss is included in earnings.

In addition to third party costs, direct personnel costs and indirect construction overhead costs may be capitalized. Interest incurred during the construction period is also capitalized as a component of the cost of the constructed assets, which represents the cost of debt and equity associated with construction activity. Expenditures for maintenance and repairs are charged to expense.

Revenue Recognition—Water Services

Water services revenues are recorded when service is rendered or water is delivered to customers. However, in addition to the monthly basic service charge, the determination and billing of water sales to individual customers is based on the reading of their meters, which occurs on a systematic basis throughout the month. At the end of each reporting period, amounts of water delivered to customers since the date of the last meter reading are estimated and the corresponding unbilled revenue is recorded.

Water connection fees are the fees associated with the application process to set up a customer to receive utility service on an existing water meter. These fees are approved by the ACC through the regulatory process and are set based on the costs incurred to establish services including the application process, billing setup, initial meter reading, and service transfer. Because the amounts charged for water connection fees are set by the ACC and not negotiated in conjunction with the pricing of ongoing water service, the connection fees represent the culmination of a separate earnings process and are recognized when the service is provided. For both the years ended December 31, 2023 and 2022, the Company recognized $0.3 million in connection fees.

Meter installation fees are the fees charged to developers or builders associated with installing new water meters. Certain fees for meters are regulated by the ACC, and are refundable to the end customer over a period of time. Refundable meter installation fees are recorded as a liability upon receipt.

Revenue Recognition—Wastewater and Recycled Water Services

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Wastewater and recycled water services revenues are generally recognized when service is rendered. Wastewater services are billed at a fixed monthly amount per connection, and recycled water services are billed monthly based on volumetric fees.

Revenue Recognition—Unregulated Revenues

Unregulated revenues represent those revenues that are not subject to the ratemaking process of the ACC. Unregulated revenues are limited to revenues resulting from certain infrastructure coordination and financing agreement arrangements (“ICFAs”). Refer to Note 3 – “Revenue Recognition - Unregulated Revenue” for additional information.

Allowance for Credit Losses

Provisions are made for doubtful accounts due to the inherent uncertainty around the collectability of accounts receivable. The allowance for credit losses is recorded as bad debt expense, and is classified as general and administrative expense. The allowance for credit losses is determined considering the age of the receivable balance, type of customer (e.g., residential or commercial), payment history, as well as specific identification of any known or expected collectability issues (see Note 6 – “Accounts Receivable”).

Cash and Cash Equivalents

Cash and cash equivalents include all highly liquid investments in debt instruments with an original maturity of three months or less.

Restricted Cash

Restricted cash represents cash deposited relating to hook-up fees (“HUF”) tariffs and asset retirement obligations.The following table summarizes the restricted cash balance as of December 31, 2023 and 2022 (in thousands):

Certificate of deposits 854 840

Income Taxes

The Company utilizes the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company’s valuation allowance totaled zero as of December 31, 2023 and 2022 (see Note 12 – “Income Taxes”).

The Company evaluates uncertain tax positions using a two-step approach. Recognition (step one) occurs when it is concluded that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) determines the amount of benefit that more-likely-than-not will be realized upon settlement. Derecognition of a tax position that was previously recognized would occur when the Company subsequently determine that a tax position no longer meets the more-likely-than-not threshold of being sustained. The use of a valuation allowance as a substitute for derecognition of tax positions is prohibited, and to the extent that uncertain tax positions exist, expanded disclosures are provided.

Basic and Diluted Earnings per Common Share

Basic earnings per share (“EPS”) in each period of this report were calculated by dividing net income by the weighted-average number of shares during those periods. Diluted EPS includes additional weighted-average common stock equivalents (options and restricted stock awards), if dilutive. Unless otherwise noted, the term “Earnings Per Share” refers to Basic EPS. A reconciliation of the denominator used in Basic and Diluted EPS calculations is show in the following

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table:

Year Ended December 31,

Basic weighted average common shares outstanding 24,045 23,173

Effect of dilutive securities:

Restricted stock awards 10 27

Total dilutive securities 85 159

Diluted weighted average common shares outstanding 24,130 23,332

Anti-dilutive shares excluded from earnings per diluted shares (1) 91 185

(1) Shares were excluded from the dilutive-effect calculation because the outstanding awards’ exercise prices were greater than the average market price of the Company’s common stock.

Refer to Note 13 – “Deferred Compensation Awards” for additional information regarding the option and restricted stock grants.

Goodwill

Goodwill represents the excess purchase price over the fair value of net tangible and identifiable intangible assets acquired through acquisitions. Goodwill is not amortized, it is instead tested for impairment annually, or more often if circumstances indicate a possible impairment may exist. As required, the Company evaluates goodwill for impairment annually, and do so as of November 1 of each year, and at an interim date if indications of impairment exist. When testing goodwill for impairment, the Company may assess qualitative factors, including macroeconomic conditions, industry and market considerations, overall financial performance, and entity specific events to determine whether it is more likely than not that the fair value of an operating and reportable segment is less than its carrying amount. The Company utilizes internally developed discounted future cash flow models, third-party appraisals, or broker valuations to determine the fair value of the reporting unit. Under the discounted cash flow approach, the Company utilizes various assumptions requiring judgment, including projected future cash flows, discount rates, and capitalization rates. The estimated future cash flows are based on historical data, internal estimates, and external sources. The estimated fair value is then compared to the carrying value. If the carrying value is in excess of the fair value, an impairment charge is recorded to asset impairments within the Company’s consolidated statement of operations in the amount by which the reporting unit’s carrying value exceeds its fair value, limited to the carrying value of goodwill. Refer to Note 7 — “Goodwill and Intangible Assets” for additional information about goodwill.

Intangible Assets

Intangible assets not subject to amortization consist of certain permits expected to be renewable indefinitely, water rights, and certain service areas acquired in transactions which did not meet the definition of business combinations for accounting purposes, and are considered to have indefinite lives. Intangible assets with indefinite lives are not amortized but are tested for impairment annually, or more often if certain circumstances indicate a possible impairment may exist. Amortized intangible assets consist primarily of acquired ICFA contract rights. Refer to Note 2 – “Regulatory Decision and Related Accounting and Policy Changes” for additional information about ICFAs.

Impairment of Long-Lived Assets

Management evaluates the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. If an indicator of possible impairment exists, an undiscounted cash flow analysis would be prepared to determine whether there is an actual impairment. Measurement of the impairment loss is based on the fair value of the asset. Generally, fair value will be determined using appraisals or valuation techniques such as the present value of expected future cash flows.

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Debt Issuance Costs

In connection with the issuance of certain of the Company’s long-term debt, the Company has incurred legal and other costs that are believed to be directly attributable to realizing the proceeds of the debt issued. These costs are netted against long-term debt and amortized as interest expense using the effective interest method over the term of the respective debt. Amortization of debt issuance costs and discounts totaled approximately $0.04 million for both the years ended December 31, 2023 and 2022.

Advances in Aid of Construction (“AIAC”) and Contributions in Aid of Construction (“CIAC”)

The Company has various agreements with developers, whereby funds, water line extensions, or wastewater line extensions are provided to the Company by the developers and are considered refundable AIAC. These AIAC are non-interest-bearing and are subject to refund to the developers through annual payments that are computed as a percentage of the total annual gross revenue earned from customers connected to utility services constructed under the agreement over a specified period. Upon the expiration of the agreements’ refunding period, the remaining balance of the AIAC becomes nonrefundable and at that time is considered CIAC. CIAC are amortized as a reduction of depreciation expense over the estimated remaining life of the related utility plant. For rate-making purposes, utility plant funded by AIAC or CIAC are excluded from rate base. There was no AIAC balance transferred to CIAC for the years ended December 31, 2023 or December 31, 2022.

Fair Value of Financial Instruments

The carrying values of cash equivalents, accounts receivables, and accounts payable approximate fair value due to the short-term maturities of these instruments. See Note 11 – “Debt” for information as to the fair value of long-term debt. The refundable AIAC have a carrying value of $111.5 million and $93.7 million as of December 31, 2023 and 2022, respectively. Portions of these non-interest-bearing instruments are payable annually through 2032 and amounts not paid by the contract expiration dates become nonrefundable. Their relative fair values cannot be accurately estimated because future refund payments depend on several variables, including new customer connections, customer consumption levels, and future rate increases. However, the fair value of these amounts would be less than their carrying value due to the non-interest-bearing feature.

Segments

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing operating performance. In consideration of ASC 280—Segment Reporting the Company notes it is not organized around specific products and services, geographic regions, or regulatory environments. The Company currently operates in one geographic region within the State of Arizona, wherein each operating utility operates within the same regulatory environment.

While the Company reports its revenue, disaggregated by service type, on the face of its Statements of Operations, the Company does not manage the business based on any performance measure at the individual revenue stream level. The Company does not have any customers that contribute more than 10% to the Company’s revenues or revenue streams. Additionally, the Company notes that the CODM uses consolidated financial information to evaluate the Company’s performance, which is the same basis on which he communicates the Company’s results and performance to the Board of Directors. It is upon this consolidated basis from which he bases all significant decisions regarding the allocation of the Company’s resources on a consolidated level. Based on the information described above and in accordance with the applicable literature, management has concluded that the Company is currently organized and operated as one operating and reportable segment.

Recent Accounting Pronouncements

Recently Adopted Accounting Standards

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changed the impairment model for certain financial assets that have a contractual right to receive cash, including trade and loan receivables. The new model required recognition based upon an estimation of expected credit losses rather than recognition of losses based on the probability of occurrence.

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The Company is a public business entity that qualifies as a smaller reporting company, and therefore ASU 2016-13 was effective for annual reporting periods beginning after December 15, 2022. The Company adopted the standard utilizing the modified retrospective method for its trade receivables and unbilled revenue on January 1, 2023. Based on the composition of the Company’s trade receivables and unbilled revenue, and expected future credit losses, the adoption of ASU 2016-13 did not have a material impact on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The guidance also simplifies the accounting for franchise taxes, transactions that result in a step-up in the tax basis of goodwill, and the effect of enacted changes in tax laws or rates in interim periods. The Company adopted ASU 2019-12 during the first quarter of 2021 prospectively and the adoption did not have a material impact to the Company’s Consolidated Financial Statements.

In October of 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. In a business combination, an acquirer generally recognizes assets acquired and liabilities assumed, including contract assets and contract liabilities, at their respective fair value on the acquisition date. ASU 2021-08 requires that in a business combination, an acquirer should recognize and measure contract assets acquired and contract liabilities assumed in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. The guidance provides certain practical expedients for acquirers when recognizing and measuring acquired contract assets and contract liabilities from revenue contracts with customers in a business combination. The guidance is effective for annual reporting periods beginning after December 15, 2022, including interim periods within those fiscal years. ASU 2021-08 should be applied prospectively for acquisitions occurring on or after the effective date of the amendments, and early adoption is permitted. The Company adopted ASU 2021-08 on January 1, 2023 prospectively and the adoption did not have a material impact to the Company’s Consolidated Financial Statements.

Future Adoption of Accounting Standards

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is assessing the impact that adopting this new standard will have on its consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures that expands disclosures of significant segment expenses and includes new disclosures for entities with a single reportable segment. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is assessing the impact that adopting this new standard will have on its consolidated financial statements.

2. REGULATORY DECISION AND RELATED ACCOUNTING AND POLICY CHANGES

The Company’s regulated utilities and certain other balances are subject to regulation by the ACC and meet the requirements for regulatory accounting found within Accounting Standards Codification (“ASC 980”), Regulated Operations.

In accordance with ASC 980, rates charged to utility customers are intended to recover the costs of the provision of service plus a reasonable return in the same period. Changes to the rates are made through formal rate applications with the ACC, which the Company has customarily done.

During the fourth quarter 2023, the Company notified the ACC of its intention to file a rate case for Farmers during 2024 and for Santa Cruz and Palo Verde in 2025.

On July 3, 2023, the Company’s Palo Verde and Santa Cruz utilities filed an application with the ACC for approval of an accounting order to defer and record as a regulatory asset the depreciation expense recorded for the Company’s Southwest Plant, plus the carrying cost at the authorized rate of return set in Palo Verde’s and Santa Cruz’s most recent rate order, until the plant is considered for recovery in the utilities’ next rate case. The Southwest Plant was substantially constructed prior to 2009 to provide water, wastewater, and recycled water utility services for the area southwest of the City of Maricopa. Due to the unprecedented collapse of the housing market during the Great Recession, the nearly completed plant remained idle for well over a decade. The total cost of the Southwest Plant was approximately $38.4 million. In July 2023, $27.5 million related to the water production plant and a portion of the wastewater processing plant was placed in service, with the remaining parts of the Southwest Plant to be placed in service once sufficient flows, provided by connection growth, are established. There can be no

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assurance, however, that the ACC will approve the application as submitted and the ACC could take other actions regarding the application.

In January 2024, the Company discovered that approximately $7.8 million of construction costs for the Southwest Plant had been prematurely included as “plant in service” for rate making purposes in 2007 and were reflected in the calculation of customer rates in Rate Decision No. 71878 (September 15, 2010). Those costs were also included as “plant in service” in Rate Decision No. 74364 (February 26, 2014) and Rate Decision No. 78644 (July 27, 2022). The Company disclosed this circumstance to the ACC on March 1, 2024. Although to date the ACC has not taken any action, the ACC could require the Company to reduce rates going forward or take other actions that would be unfavorable to the Company. The final outcome and resolution of this matter cannot be predicted and the results, while not reasonably estimable at this time, could be material to the Company and its financial condition.

On June 27, 2023, seven of the Company’s regulated utilities each filed a rate case application with the ACC for increased water rates based on a 2022 test year. In addition to a rate increase, the Company requested, among other things, the consolidation of water rates for certain of its utilities, including Global Water-Mirabell Water Company, Inc. (“Mirabell”), Global Water-Lyn Lee Water Company, Inc. (“Lyn Lee”), Global Water-Francesca Water Company, Inc. (“Francesca”), Global Water-Tortolita Water Company, Inc. (“Tortolita”), Global Water-Rincon Water Company, Inc. (“Rincon”), Global Water-Las Quintas Serenas Water Company, Inc. (“Las Quintas Serenas”), and Global Water-Red Rock Water Company, Inc. (“Red Rock”), each located in Pima County. Of the Company’s utilities, these utilities filing rate applications make up approximately 3% of the Company’s active service connections. On February 29, 2024, the Company entered into a settlement agreement with the ACC Utilities Division Staff regarding the rate case application, which will be considered by an Administrative Law Judge and the ACC for approval. The agreement includes, among other things, a recommended annual revenue increase of approximately $351,000, acquisition premiums for six of the Company’s utilities, a capital structure matching the Company’s previous rate of 55% equity with a 9.6% return on equity, consolidation of the seven utilities, and an accounting deferral for Rincon. There can be no assurance that the ACC will approve the settlement agreement and the ACC could take other actions as a result of the rate case. Further, it is possible that the ACC may determine to decrease future rates. There can also be no assurance as to the timing of when an approved rate increase (if any) would go into effect.

On July 27, 2022, the ACC issued Rate Decision No. 78644 relating to the Company’s previous rate case. Pursuant to Rate Decision No. 78644, the ACC approved, among other things, a collective annual revenue requirement increase of approximately $2.2 million (including the acquisition premiums discussed below) based on 2019 test year service connections, and phased-in over approximately two years, as follows:

Incremental Cumulative

Rate Decision No. 78644 also addressed the primary impacts of the Federal Tax Cuts and Jobs Act (the “TCJA”) on the Company, which includes the reduction of the federal income tax rate from 35 percent to 21 percent beginning on January 1, 2018. The TCJA required the Company to re-measure all existing deferred income tax assets and liabilities to reflect the reduction in the federal tax rate. For the Company’s regulated entities, substantially all of the change in deferred income taxes is recorded as an offset to either a regulatory asset or liability because the impact of changes in the rates are expected to be recovered from or refunded to customers. Rate Decision No. 78644 approved an adjustor mechanism for income taxes (as described below) that permits the Company to flow through potential changes to state and federal income tax rates as well as refund or collect funds related to TCJA.

The ACC also approved:

(i) the consolidation of water and/or wastewater rates to create economies of scale that are beneficial to all customers when rates are consolidated;

(ii) acquisition premiums relating to the Company’s acquisitions of its Red Rock and Turner Ranches utilities, which increase the rate base for such utilities and result in an increase in the annual collective revenue requirement included in the table above;

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(iii) the Company’s ability to annually adjust rates to flow through certain changes in tax expense, primarily related to income taxes, without the necessity of a rate case proceeding; and

(iv) a sustainable water surcharge, which will allow semiannual surcharges to be added to customer bills based on verified costs of new water resources.

Finally, Rate Decision No. 78644 required the Company to work with ACC staff and the Residential Utility Consumer Office to prepare a Private Letter Ruling request to the Internal Revenue Service (“IRS”) to clarify whether the failure to eliminate the deferred taxes attributable to assets condemned in a transaction governed by Section 1033 of the Internal Revenue Code (“IRC”) would violate the normalization provisions of Section 168(i)(9) of the IRC. The IRS accepted the request and issued its Private Letter Ruling, dated September 22, 2023. The Private Letter Ruling determined that the deferred taxes attributable to assets condemned in a transaction governed by Section 1033 of the IRC must be eliminated and failure to do so would violate the normalization provisions of Section 168(i)(9) of the IRC. As required by Rate Decision No. 78644, the Private Letter Ruling was provided to the ACC and no further action will be taken by the ACC, as documented in Decision No. 79258.

Certain accounting implications related to Rate Decision No. 78644 were recognized and recorded as of June 30, 2022, and are as follows:

•Reclassification of Red Rock Water, Red Rock Wastewater, and Turner Ranches acquisition premiums of approximately $0.8 million in the aggregate from goodwill to regulatory assets to be included in rate base. The premiums are to be amortized over 25 years.

•Reversal of the 2017 TCJA tax reform regulatory liability of approximately $0.8 million, which was recorded as a reduction to income tax expense for approximately $0.7 million, and as a reduction to interest expense for approximately $0.1 million.

•Write-off of approximately $0.3 million in capitalized rate case costs.

Regulatory Assets and Liabilities

Regulatory assets and liabilities are the result of operating in a regulated environment in which the ACC establishes rates that are designed to permit the recovery of the cost of service and a return on investment. The Company capitalizes and records regulatory assets for costs that would otherwise be charged to expense if it is probable that the incurred costs will be recovered in future rates. Regulatory assets are amortized over the future periods that the costs are expected to be recovered. Final determination of whether a regulatory asset can be recovered is decided by the ACC in regulatory proceedings. If the Company determines that a portion of the regulatory assets is not recoverable in customer rates, the Company would be required to recognize the loss of the assets disallowed.

If costs expected to be incurred in the future are currently being recovered through rates, the Company records those expected future costs as regulatory liabilities.

The Company’s regulatory assets and liabilities consist of the following (in thousands):

Regulatory Assets

Income taxes recoverable through future rates (1) Various $ 1,404 $ 1,482

Rate case expense surcharge(2) 2 years 221 467

Other regulatory assets 4 —

Regulatory Liabilities

Income taxes payable through future rates(1) $ 488 $ 508

Depreciation adjustment(5) 692 —

Total regulatory liabilities $ 6,076 $ 6,371

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(1) The TCJA required the Company to re-measure all existing deferred income tax assets and liabilities to reflect the reduction in the federal tax rate. For the Company’s regulated entities, substantially all of the change in deferred income taxes is recorded as an offset to either a regulatory asset or liability because the impact of changes in the rates are expected to be recovered from or refunded to customers.

(2) Rate Decision No. 78743, issued on October 24, 2022, approved approximately $0.5 million in rate case expenses to be recovered through a rate case expense surcharge over a two-year period.

(3) Rate Decision No. 78319, issued on December 3, 2021, approved an acquisition premium to be amortized over 25 years related to the acquisition of the Company’s Rincon utility. Amortization will begin once the Company receives a decision on its rate case filed in June 2023 that would approve the acquisition premium to be included in customer rates. The acquisition premium balance as of December 31, 2023 was approximately $0.5 million.

Rate Decision No. 78644, issued on July 27, 2022, approved acquisition premiums related to the acquisitions of the Company’s Turner Ranches and Red Rock utilities. Amortization began in 2022 as the acquisition premiums were included in customer rates as approved in the decision. The acquisition premium balance as of December 31, 2023 was approximately $0.8 million.

(4) The acquired ICFA regulatory liability relates to the offset of intangible assets related to ICFA contracts obtained in connection with the Santa Cruz, Palo Verde, and Sonoran Utility Services, LLC (“Sonoran”) acquisitions. When funds are received related to the acquired ICFA, a portion of these funds reduce the acquired ICFA regulatory liability and partially offset the amortization expense recognition of the related intangible asset.

(5) Rate Decision No. 78644, issued on July 27, 2022, approved an adjustment to update previously approved depreciation rates.

3. REVENUE RECOGNITION

Regulated Revenue

The Company’s operating revenues are primarily attributable to regulated services based upon tariff rates approved by the ACC. Regulated service revenues consist of amounts billed to customers based on approved fixed monthly fees and consumption fees, as well as unbilled revenues estimated from the last meter reading date to the end of the accounting period utilizing historical customer data recorded as accrued revenue. The measurement of sales to customers is generally based on the reading of their meters, which occurs on a systematic basis throughout the month. At the end of each month, the Company estimates consumption since the date of the last meter reading and a corresponding unbilled revenue is recognized. The unbilled revenue estimate is based upon the number of unbilled days that month and the average daily customer billing rate from the previous month (which fluctuates based upon customer usage). The Company applies the invoice practical expedient and recognizes revenue from contracts with customers in the amount for which the Company has a right to invoice. The Company has the right to invoice for the volume of consumption, service charge, and other authorized charges.

The Company satisfies its performance obligation to provide water, wastewater, and recycled water services over time as the services are rendered. Regulated services may be terminated by the customers at will, and, as a result, no separate financing component is recognized for the Company’s collections from customers, which generally require payment within 15 days of billing. The Company applies judgment, based principally on historical payment experience, in estimating its customers’ ability to pay.

Total revenues do not include sales tax as the Company considers itself a pass-through conduit for collecting and remitting sales taxes.

Unregulated Revenue

Unregulated revenues represent those revenues that are not subject to the ratemaking process of the ACC. For the year ended December 31, 2023, unregulated revenues primarily related to the revenues recognized on a portion of ICFA funds received.

ICFAs are agreements with developers and homebuilders where the Company, which owns the operating utilities, 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. Services provided within these agreements include coordination of construction services for water and wastewater treatment facilities as well as financing, arranging, and coordinating the provision of utility services. In return, the developers and homebuilders pay the Company an agreed-upon amount per dwelling unit for the land legally described in the agreement, or a portion thereof. Under ICFA agreements, the Company has a

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contractual obligation to ensure physical capacity exists through its regulated utilities for the provision of water and wastewater utility service to the land when needed. This obligation persists regardless of connection growth.

Fees for these services are typically a negotiated amount per equivalent dwelling unit for the land legally described in the agreement, or a portion thereof. Payments are generally due in installments, with a portion due upon signing of the agreement, a portion due upon completion of certain milestones, and the final payment due upon final plat approval or sale of the subdivision. The payments are non-refundable. The agreements are generally recorded against the land with the appropriate recorder’s office and must be assumed in the event of a sale or transfer of the land. The regional planning and coordination of the infrastructure in the various service areas has been an important part of the Company’s business model.

Payments for ICFAs are usually received in advance. Rate Decision No. 74364 requires a HUF tariff to be established for all ICFAs that come due and are paid subsequent to December 31, 2013, which is a set amount per equivalent dwelling unit determined by the ACC based on the utility and meter size. Also pursuant to Rate Decision No. 74364, as payments are received, 70% of the payment must be recorded as HUF liability until the HUF liability is fully funded, with the remaining amount initially recorded to deferred revenue until earned. The Company is responsible for assuring that the full HUF tariff, which is the set amount determined by the rate decision, is funded in the HUF liability, even if it results in recording less than 30% of the overall ICFA funds as deferred revenue. ICFA revenue is recorded when the Company completes the performance obligations under the agreement.

The Company accounts for the portion of ICFA funds allocated to the HUF liability as a contribution in aid of construction (“CIAC”). However, in accordance with the ACC directives, the CIAC is not deducted from rate base until the HUF funds are expended for utility plant. Such funds are restricted and segregated in a separate bank account and used for plant. For facilities required under a HUF or ICFA, the utilities must first use the HUF moneys received, after which, it may use debt or equity financing for the remainder of construction.

As these arrangements are with developers and not with the end water or wastewater customer, revenue recognition coincides with the completion of the Company’s performance obligations under the agreement with the developer and its regulated utilities’ ability to provide fitted capacity for water and wastewater service. The Company exercises judgment when estimating the number of equivalent dwelling units that its regulated utilities have capacity to serve. The Company believes that services provided within these agreements are not distinct in the context of the contract because they are highly interdependent with its regulated utilities’ ability to provide fitted capacity for water and wastewater services. The Company concluded that the goods and services provided under ICFA contracts constitute a single performance obligation.

Disaggregated Revenues

For the years ended December 31, 2023 and 2022, disaggregated revenues from contracts with customers by major source and customer class are as follows (in thousands):

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Year Ended December 31,

REGULATED REVENUE

Water Services

Wastewater and recycled water services

Other wastewater revenues 351 367

Total wastewater and recycled water revenues 25,382 23,843

UNREGULATED REVENUE

ICFA revenues 2,786 —

TOTAL UNREGULATED REVENUE 2,786 —

Contract Balances

The Company’s contract assets and liabilities consist of the following (in thousands):

CONTRACT ASSETS

Accounts receivable

Wastewater and recycled water services 1,379 1,124

CONTRACT LIABILITIES

Remaining Performance Obligations

Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Contracted revenue expected to be recognized in future periods was approximately $19.7 million and $21.0 million at December 31, 2023 and December 31, 2022, respectively. Deferred revenue - ICFA is recognized as revenue once the obligations specified within the applicable ICFA are met, including construction of sufficient operating capacity to serve the customers for which revenue was deferred. Due to the uncertainty of future events, the Company is unable to estimate when to expect recognition of deferred revenue - ICFA.

4. LEASES

The Company measures the lease liability at the present value of future lease payments, excluding variable payments based on usage or performance, and calculates the present value using implicit rates. Leases with an initial term of twelve months or less are not recorded on the balance sheet.

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During the year ended December 31, 2023, the Company entered into five new finance leases for vehicles with either 48 month terms, all of which include a purchase option, and one new office equipment lease with a 60 month term. During the year ended December 31, 2022, the Company entered into nine new finance leases for vehicles with either 48 or 60 month terms, all of which include a purchase option, and an office equipment lease with a 60 month term.

During August 2021, the Company entered into a new ten-year and nine-month office lease agreement with a commencement date of June 1, 2024. The rent expense will be $5,200 for each full calendar month after a period of abated rent, with escalating rent commencing in March 2026 and annual escalations annually thereafter. Tenant improvement payments are incorporated into the lease at an additional month payment of $1,840 with escalations following the same schedule as the base rent.

In December 2021, the Company entered into a new five-year corporate office lease agreement with a commencement date of May 1, 2022. The new monthly rent expense increased to $23,750 for each full calendar month commencing on May 1, 2022 through April 30, 2025 and will increase to $41,572 for each calendar month commencing on May 1, 2025 through April 30, 2027. On March 1, 2022 the Company amended the terms of the lease to incorporate construction of tenant improvements.

Rent expense arising from operating leases totaled approximately $394,000 and $319,000 for the years ended December 31, 2023 and 2022, respectively.

The right-of-use (“ROU”) asset recorded represents the Company’s right to use an underlying asset for the lease term and ROU lease liability represents the Company’s obligation to make lease payments arising from the lease. Lease ROU assets and liabilitiesare recognized at commencement date based on the present value of lease payments over the lease term.

ROU assets at December 31, 2023 and December 31, 2022 consist of the following (in thousands):

Lease liabilities at December 31, 2023 and December 31, 2022 consist of the following (in thousands):

At December 31, 2023, the remaining aggregate annual minimum lease payments are as follows (in thousands):

Finance Lease Obligations Operating Lease Obligations

Thereafter — —

Less: amount representing interest (68) (90)

5. PROPERTY, PLANT AND EQUIPMENT

Depreciable property, plant and equipment at December 31, 2023 and December 31, 2022 consist of the following (in thousands):

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Office buildings and other structures 64,084 54,647

Depreciation of property, plant and equipment is computed based on the estimated useful lives as follows:

Useful Lives

Equipment 3 to 30 years

Office buildings and other structures 30 years

Transmission and distribution plant 10 to 50 years

6. ACCOUNTS RECEIVABLE

Accounts receivable as of December 31, 2023 and December 31, 2022 consist of the following (in thousands):

Less provision for credit losses (122) (164)

The following table summarizes the allowance for credit loss activity as of and for the years ended December 31, 2023 and 2022 (in thousands).

Allowance for credit losses:

7. GOODWILL AND INTANGIBLE ASSETS

Goodwill

The goodwill balance was $10.8 million at December 31, 2023 and is related to the Turner, Red Rock, Mirabell, Francesca, Tortolita, Lyn Lee, Las Quintas Serenas, Rincon, Twin Hawks, and Farmers acquisitions. As of June 30, 2022, the Company reclassified approximately $0.8 million of goodwill to regulatory assets related to Red Rock Water, Red Rock Wastewater, and Turner Ranches acquisition premiums as a result of Rate Decision No. 78644 (refer to Note 2 - “Regulatory Decision and Related Accounting and Policy Changes” for additional information). The Farmers acquisition contributed approximately $6.0 million to the change in the goodwill balance (refer to Note 15 - “Acquisitions” for additional information). There were no indicators of impairment identified as a result of the Company’s review of events and circumstances related to its goodwill subsequent to the acquisitions. The Company recorded no goodwill impairment in 2023 and 2022.

As of December 31, 2023 and December 31, 2022, the goodwill balance consisted of the following (in thousands):

December 31, 2022 Balance Acquisition Activity December 31, 2023 Balance

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Intangible Assets

As of December 31, 2023 and December 31, 2022, intangible assets consisted of the following (in thousands):

INDEFINITE LIVED INTANGIBLE ASSETS:

DEFINITE LIVED INTANGIBLE ASSETS:

A Certificate of Convenience & Necessity (“CC&N”) is a permit issued by the ACC allowing a public service corporation to serve a specified area, and preventing other public service corporations from offering the same services within the specified area. The CP Water CC&N intangible asset was acquired through the acquisition of CP Water Company in 2006. This CC&N permit has no outstanding conditions that would require renewal.

Franchise contract rights and organizational costs relate to the 2018 acquisition of Red Rock and the 2023 acquisition of Farmers. Franchise contract rights are agreements with Pima and Pinal counties for Red Rock and Pima county for Farmers that allow the Company to place infrastructure in public right-of-way and permits expected to be renewable indefinitely. The organizational costs represent fees paid to federal or state governments for the privilege of incorporation and expenditures incident to organizing the corporation and preparing it to conduct business.

Acquired ICFAs and Sonoran contract rights relate to acquired rights under certain ICFAs through the 2004 acquisition of Santa Cruz and Palo Verde and the 2005 acquisition of Sonoran assets, respectively. The Acquired ICFAs and Sonoran contract rights are amortized when cash is received in proportion to the amount of total cash expected to be received under the underlying agreements. Due to the uncertainty of the timing of when cash will be received under ICFA agreements and contract rights, the Company cannot reliably estimate when the remaining intangible assets’ amortization will be recorded. Amortization in the amount of $1.4 million and $0.2 million was recorded for these balances for the years ended December 31, 2023 and 2022, respectively.

8. TRANSACTIONS WITH RELATED PARTIES

The Company provides medical benefits to employees through its participation in a pooled plan sponsored by an affiliate of a significant shareholder and director of the Company. Medical claims paid to the plan were approximately $1.0 million for the year ended December 31, 2023 and $0.9 million for the year ended December 31, 2022.

Refer to Note 1 — “Basis of Presentation, Corporate Transactions, Significant Accounting Policies, and Recent Accounting Pronouncements — Corporate Transactions” (specifically the “Public Offering of Common Stock” and “Private Placement Offering of Common Stock” sections) for additional information regarding other related party disclosures.

9. ACCRUED EXPENSES

Accrued expenses at December 31, 2023 and December 31, 2022 consist of the following (in thousands):

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Asset retirement obligations 697 697

Accrued purchase orders 200 515

10. FAIR VALUE

Fair Value of Financial Instruments

FASB ASC 820, Fair Value Measurement, establishes a fair value hierarchy that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The hierarchy consists of three levels, as follows:

•Level 1 - Quoted market prices in active markets for identical assets or liabilities.

•Level 2 - Inputs other than Level 1 that are either directly or indirectly observable.

•Level 3 - Unobservable inputs developed using the Company’s estimates and assumptions, which reflect those that the Company believes market participants would use.

Financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2023 and December 31, 2022 were as follows (in thousands):

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

Asset/Liability Type:

HUF Funds - restricted cash(1) $ 822 $ — $ — $ 822 $ 161 $ — $ — $ 161

(1) HUF Funds - restricted cash and Certificate of Deposit - Restricted are presented on the Restricted cash line item of the Company’s consolidated balance sheets and are valued at amortized cost, which approximates fair value. The increase was primarily driven by additional funds received in growth areas of several utilities.

(2) Demand Deposit is presented on the Cash and cash equivalents line item of the Company’s consolidated balance sheets and is valued at amortized cost, which approximates fair value.

(3) As part of the Red Rock acquisition, the Company is required to pay to the seller a growth premium equal to $750 (not in thousands) for each new account established within three specified growth premium areas, commencing in each area on the date of the first meter installation and ending on the earlier of ten years after such first installation date, or twenty years from the acquisition date. The fair value of the acquisition liability was calculated using a discounted cash flow technique which utilized unobservable inputs developed using the Company’s estimates and assumptions. Significant inputs used in the fair value calculation are as follows: year of the first meter installation, total new accounts per year, years to complete full build out, and discount rate.

In addition, as part of the Farmers acquisition, the Company is required to pay the seller a growth premium equal to $1,000 (not in thousands) for each new account established in the service area, up to a total aggregate growth premium of $3.5 million. The obligation period of the growth premium commences on

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the closing date of the acquisition and ends (i) ten years after the first new account for residential purposes is established on land that is, at the time of the closing date of the acquisition, undeveloped or unplatted and owned by the seller within the service area or (ii) ten years after the date of closing if a new account (as previously described) has not been established. The fair value of the acquisition liability was calculated using a discounted cash flow technique which utilized unobservable inputs developed using the Company’s estimates and assumptions. Significant inputs used in the fair value calculation are as follows: year of the first meter installation, total new accounts per year, years to complete full build out, and discount rate.

11. DEBT

The outstanding balances and maturity dates for short-term (including the current portion of long-term debt) and long-term debt as of December 31, 2023 and December 31, 2022 are as follows (in thousands):

Short-term Long-term Short-term Long-term

BONDS AND NOTES PAYABLE -

OTHER

Debt issuance costs — (426) — (472)

Debt is measured at fair value on a recurring basis as of December 31, 2023 and December 31, 2022 as follows (in thousands):

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

(3) The fair value of debt was estimated based on interest rates considered available for instruments of similar terms and remaining maturities.

Senior Secured Notes

The Series A Notes and the Series B Notes require the Company to maintain a debt service coverage ratio of consolidated EBITDA to consolidated debt service of at least 1.10 to 1.00. Consolidated EBITDA is calculated as net income plus depreciation and amortization, taxes, interest and other non-cash charges net of non-cash income. Consolidated debt service is calculated as interest expense, principal payments, and dividend or stock repurchases. The Series A Notes and the Series B Notes also contain a provision limiting the payment of dividends if the Company falls below a debt service ratio of 1.25. However, for the quarter ended June 30, 2021 through the quarter ending March 31, 2024, the debt service ratio drops to 1.20. The debt service ratio increases to 1.25 for any fiscal quarter during the period from and after June 30, 2024. As of December 31, 2023, the Company was in compliance with its financial debt covenants relating to the Series A Notes and the Series B Notes.

Additionally, on October 26, 2023, the Company entered into a note purchase agreement for the issuance of an aggregate principal amount of $20,000,000 of 6.91% Senior Secured Notes due on January 3, 2034 (the “6.91% Notes” and collectively with the Series A Notes and the Series B Notes, the “Senior Secured Notes”). Pursuant to the terms of the Note Purchase Agreement, the Company issued the Notes on January 3, 2024. The 6.91% Notes will accrue interest at 6.91% per annum from the date of issuance, payable semi-annually on January 3 and July 3 of each year, beginning on July 3, 2024, with a balloon payment due on January 3, 2034.

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Revolving Credit Line

On April 30, 2020, the Company entered into an agreement with The Northern Trust Company, and Illinois banking corporation (“Northern Trust”), which was initially for a two-year revolving line of credit up to $10.0 million with a maturity date of April 30, 2022. This credit facility, which may be used to refinance existing indebtedness, to acquire assets to use in and/or expand the Company’s business, and for general corporate purposes, initially bore an interest rate equal to the London Interbank Offered Rate (LIBOR) plus 2.00% and had no unused line fee.

The Company and Northern Trust have subsequently amended the credit facility agreement on multiple occasions (as amended, the “Northern Trust Loan Agreement”) to, among other things, (i) extend the scheduled maturity date to July 1, 2025; (ii) increase the maximum principal amount available for borrowing to $15.0 million; (iii) replaced the LIBOR interest rate provisions with provisions based on the Secured Overnight Financing Rate (SOFR); and (iv) add a quarterly facility fee equal to 0.35% of the average daily unused amount of the revolving line of credit.

The Northern Trust Loan Agreement requires the Company to maintain a debt service coverage ratio of consolidated EBITDA to consolidated debt service of at least 1.10 to 1.00. The Northern Trust Loan Agreement also contains a provision limiting the payment of dividends if the Company falls below a debt service ratio of 1.25. However, for the quarter ended June 30, 2021 through the quarter ending March 31, 2024, the debt service ratio drops to 1.20. Additionally, the Northern Trust Loan Agreement contains certain restrictive covenants that limit, among other things, the Company’s ability to: create liens and other encumbrances; incur additional indebtedness; merge, liquidate or consolidate with another entity; dispose of or transfer assets; make distributions or other restricted payments (including dividends); engage in certain affiliate transactions; and change the nature of the business. The foregoing covenants are subject to various qualifications and limitations as set forth in the Northern Trust Loan Agreement. Pursuant to the Northern Trust Loan Agreement, the revolving credit facility is subject to certain customary events of default after which the revolving credit facility could be declared due and payable if not cured within the grace period or, in certain circumstances, could be declared due and payable immediately. As of December 31, 2023, the Company was in compliance with its financial debt covenants under the Northern Trust Loan Agreement.

As of December 31, 2023 and December 31, 2022, the outstanding borrowings on this credit line were approximately $2.3 million and $0, respectively. There were approximately $25,000 and $9,812 unamortized debt issuance costs as of December 31, 2023 and December 31, 2022, respectively.

At December 31, 2023, the remaining aggregate annual maturities of debt obligations are as follows (in thousands):

GWRS US Equity

GWRS · 10-K · period ended 2023-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

GWRS US Equity☆

GWRS · 10-K · period ended 2023-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

GWRS US Equity