Global Water Resources, Inc. (GWRS)·Q3 2025 Earnings Summary

Executive Summary

• Q3 2025 revenue increased 8.4% year over year to $15.5M, driven by Tucson Water acquisitions, organic connection growth, and higher rates; diluted EPS was $0.06 versus $0.12 last year as depreciation and net interest rose with the capital program .
• Consensus expected $15.55M revenue and $0.085 EPS; revenue was essentially in-line while EPS was a significant miss at $0.06 as storm-related costs, higher medical/IT/insurance expenses, and reduced Buckeye growth premiums weighed on results (Consensus*) .
• Management advanced the Pinal County rate case (GW‑Santa Cruz/GW‑Palo Verde), filing rebuttal testimony supporting a requested net revenue increase of ~$4.3M and reaffirming an expected mid-2026 conclusion (with rates potentially effective around July 1) .
• Strategic catalysts: completion of Tucson Water deal (~$1.5M annual revenue), Arizona’s new “Ag‑to‑Urban” water program going into effect, and full funding of the SR‑347 expansion—all expected to bolster long-term growth in GWRS’ service areas .

What Went Well and What Went Wrong

What Went Well

• Tucson Water acquisition closed, adding ~2,200 connections at ~1.05x rate base and expected to generate ~$1.5M annual revenue; CEO highlighted consolidation and regional rate planning benefits in Southern Arizona .
• Top-line grew 8.4% YoY on acquisitions, organic connections, and new rates; active service connections rose 6.6% to 68,130, with water consumption steady at 1.3B gallons .
• Regulatory momentum: rebuttal testimony in current rate proceeding supports ~$4.3M net revenue increase; management reiterated mid‑2026 completion and described the process as in the “middle innings” .

What Went Wrong

• EPS compressed to $0.06 vs $0.12 last year due to higher depreciation and net interest from capital investments, plus lower Buckeye growth premiums amidst fewer new meter connections .
• Operating costs rose 21.9% YoY; storm-related expenses, medical cost increases, higher IT services and insurance, and legal fees tied to the Nikola bankruptcy drove O&M and G&A higher .
• Other income swung to a $0.6M expense (vs immaterial income last year), primarily from lower interest income and reduced Buckeye premiums, pressuring the bottom line .

Financial Results

Segment revenue breakdown (Q3):

Key operating KPIs:

Estimate comparison (Q3 2025):

Values retrieved from S&P Global.*

• Result vs consensus: Revenue essentially in-line; EPS missed by ~$0.025 (consensus $0.085 vs $0.06 actual). Drivers: higher D&A from capital plan, increased O&M/G&A (medical, IT, insurance), and lower Buckeye growth premiums .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “It is exciting to close the Tucson Water transaction… it solidifies our Southern Arizona plan allowing for future consolidation of operations and rates across a broad customer base.” — Ron Fleming, President & CEO .
• “Our recent rebuttal testimony was filed on November 6, supporting a requested net revenue increase of approximately $4.3 million… We still expect the case to conclude in the middle of 2026.” — Ron Fleming .
• “Ag‑to‑Urban… allows landowners who cease agricultural operations to convert their water rights for use in new development.” — Ron Fleming .
• “Total revenue for the third quarter of 2025 was $15.5 million… Operating expenses… increased approximately $2.3 million or 21.9%.” — Mike Liebman, CFO .
• “If this were a baseball game, I would describe us as in the middle innings… We still expect to finish the rate case in mid‑2026.” — Chris Krygier, COO .

Q&A Highlights

• Rate case timing: Management affirmed mid‑2026 completion with potential rate effectiveness around July 1 in the back half of the year .
• Ag‑to‑Urban mechanics: Rights convert from 5 acre‑feet per acre for farming to 1.0–1.5 acre‑feet municipal supply (Pinal/Maricopa), with no purchase/lease by GWRS; expected to be highly economical and growth‑supportive .
• SR‑347 impact: Additional lanes and overpasses to create freeway‑like access into Maricopa, improving congestion and supporting continued population growth .
• ACC staff proposal variance: Large difference partly due to post‑test year plant treatment and invoice review process; company continues providing data as process advances .
• Rate base expectations: Management referenced an investor presentation estimate that modestly declined from ~$212.5M but remains materially similar; not reported in quarterly financials .

Estimates Context

• Wall Street (S&P Global) consensus for Q3 2025: Revenue $15.55M* and Primary EPS $0.085* with two estimates; actual GAAP revenue $15.52M and diluted EPS $0.06. Revenue was in-line; EPS missed due to higher D&A from capital investments, elevated O&M/G&A (medical, IT, insurance), and reduced Buckeye growth premiums .
  Values retrieved from S&P Global.*

Where estimates may adjust:

• Lower EPS trajectory near term given cost inflation and storm-related expenses could prompt minor downward EPS revisions; rate case outcome remains the key swing factor for 2H 2026 and beyond .

Key Takeaways for Investors

• Q3 demonstrated solid top-line growth from acquisitions and rates, but earnings were pressured by cost inflation, storm expenses, and lower Buckeye premiums; monitoring cost normalization and Buckeye activity is key near term .
• The EPS miss vs consensus underscores the importance of rate relief; track the GW‑Santa Cruz/GW‑Palo Verde case milestones (surrebuttal Dec 1; hearing Dec 15; mid‑2026 conclusion) as the primary rerating catalyst .
• Structural tailwinds strengthened: Ag‑to‑Urban law and SR‑347 funding should support permitting, connection growth, and long-term demand in GWRS service areas .
• Tucson acquisition enhances Southern Arizona scale with ~$1.5M annual revenue expected and proximity-based efficiencies; integration and future consolidated rate planning could unlock returns .
• Dividend maintained at $0.02533/month, supported by recurring cash flows; watch capex cadence and financing mix as the capital program continues .
• For trading: near-term narrative hinges on rate case clarity and any cost abatement; medium-term thesis depends on regulatory outcomes, connection growth, and execution on consolidation and industrial/commercial opportunities (e.g., P&G contract, multifamily growth) .
• Risk checks: macro headwinds (tariffs/interest rates), regulatory timing/outcomes, and cost inflation remain watch items; management views permit weakness as temporary given strong population/job trends .