Global Water Resources, Inc. - Quarter Report: 2019 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

_____________________________________________________________

FORM 10-Q

_____________________________________________________________

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission File Number: 001-37756

______________________________________________________________

Global Water Resources, Inc.

(Exact Name of Registrant as Specified in its Charter)

______________________________________________________________



Delaware	90-0632193
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

21410 N. 19th Avenue #220, Phoenix, AZ	85027
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (480) 360-7775

_______________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.01 per share	GWRS	The NASDAQ Stock Market, LLC (NASDAQ Global Market)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☐	Accelerated filer	x
Non-accelerated filer	☐	Smaller reporting company	x
		Emerging growth company	x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes x No

As of August 5, 2019, the registrant had 21,536,834 shares of common stock, $0.01 par value per share, outstanding.

TABLE OF CONTENTS




PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Shareholders' Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	41
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults Upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	48
Signatures		49

-2-

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

GLOBAL WATER RESOURCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(Unaudited)



	June 30, 2019		December 31, 2018
ASSETS
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment	317,635		312,148
Less accumulated depreciation	(88,677	)	(85,093	)
Net property, plant and equipment	228,958		227,055
CURRENT ASSETS:
Cash and cash equivalents	11,285		12,756
Accounts receivable — net	1,624		1,488
Due from affiliates	510		406
Unbilled revenue	2,333		1,998
Prepaid expenses and other current assets	762		686
Total current assets	16,514		17,334
OTHER ASSETS:
Goodwill	3,559		2,639
Intangible assets — net	12,968		12,972
Regulatory asset	1,754		1,793
Deposits	128		128
Restricted cash	482		441
Equity method investment	—		79
Other noncurrent assets	23		20
Total other assets	18,914		18,072
TOTAL ASSETS	264,386		262,461
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	715		604
Accrued expenses	7,300		7,465
Customer and meter deposits	1,434		1,460
Long-term debt and capital leases — current portion	78		47
Total current liabilities	9,527		9,576
NONCURRENT LIABILITIES:
Long-term debt and capital leases	114,582		114,507
Deferred revenue - ICFA	17,365		17,358
Regulatory liability	8,974		8,851
Advances in aid of construction	68,712		67,684
Contributions in aid of construction — net	11,863		10,670
Deferred income tax liabilities — net	4,857		4,350
Acquisition liability	934		934
Other noncurrent liabilities	809		660
Total noncurrent liabilities	228,096		225,014
Total liabilities	237,623		234,590
Commitments and contingencies (Refer to Note 16)
SHAREHOLDERS' EQUITY:
Common stock, $0.01 par value, 60,000,000 shares authorized; 21,634,470 and 21,530,470 shares issued as of June 30, 2019 and December 31, 2018, respectively.	216		215
Treasury stock, 97,636 and 59,174 shares at June 30, 2019 and December 31, 2018, respectively.	(1	)	(1	)
Paid in capital	26,548		27,657
Retained earnings	—		—
Total shareholders' equity	26,763		27,871
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	264,386		262,461

See accompanying notes to the condensed consolidated financial statements

-3-

GLOBAL WATER RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
REVENUES:
Water services	$	4,243		$	3,916		$	7,381		$	7,031
Wastewater and recycled water services	4,862			4,518			9,431			8,815
Unregulated revenues	16			2,404			32			2,417
Total revenues	9,121			10,838			16,844			18,263

OPERATING EXPENSES:
Operations and maintenance	1,780			1,621			3,503			3,130
Operations and maintenance - related party	437			404			852			760
General and administrative	2,650			2,820			5,025			5,217
Depreciation	2,009			1,889			4,020			3,688
Total operating expenses	6,876			6,734			13,400			12,795
OPERATING INCOME	2,245			4,104			3,444			5,468

OTHER INCOME (EXPENSE):
Interest income	61			8			118			15
Interest expense	(1,343		)	(1,304		)	(2,703		)	(2,535		)
Other	82			154			1,150			477
Other - related party	89			60			116			58
Total other expense	(1,111		)	(1,082		)	(1,319		)	(1,985		)

INCOME BEFORE INCOME TAXES	1,134			3,022			2,125			3,483
INCOME TAX EXPENSE	(356		)	(766		)	(698		)	(907		)
NET INCOME	$	778		$	2,256		$	1,427		$	2,576

Basic earnings per common share	$	0.04		$	0.11		$	0.07		$	0.13
Diluted earnings per common share	$	0.04		$	0.11		$	0.07		$	0.13
Dividends declared per common share	$	0.07		$	0.07		$	0.14		$	0.14

Weighted average number of common shares used in the determination of:
Basic	21,520,461			19,640,295			21,496,014			19,635,805
Diluted	21,526,043			19,683,072			21,510,122			19,676,827

See accompanying notes to the condensed consolidated financial statements

-4-

GLOBAL WATER RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except share and per share amounts)

(Unaudited)



	Three and Six Months Ended June 30, 2018
	Common Stock Shares	Common Stock		Treasury Stock Shares		Treasury Stock		Paid-in Capital			Retained Earnings			Total Equity
BALANCE - December 31, 2017	19,631,266	$	196	—		$	—	$	14,288		$	376		$	14,860
Dividend declared $0.07 per share	—	—		—		—		(695		)	(696		)	(1,391		)
Stock compensation	—	—		—		—		98			—			98
Net income	—	—		—		—		—			320			320
BALANCE - March 31, 2018	19,631,266	$	196	—		$	—	$	13,691		$	—		$	13,887
Dividend declared $0.07 per share	—	—		—		—		—			(1,395		)	(1,395		)
Treasury Stock	—	—		(20,673	)	—		—			—			—
Stock option exercise	125,000	1		—		—		749			—			750
Stock compensation	—	—		—		—		90			—			90
Net income	—	—		—		—		—			2,256			2,256
BALANCE - June 30, 2018	19,756,266	$	197	(20,673	)	$	—	$	14,530		$	861		$	15,588



	Three and Six Months Ended June 30, 2019
	Common Stock Shares	Common Stock		Treasury Stock Shares		Treasury Stock			Paid-in Capital			Retained Earnings			Total Equity
BALANCE - December 31, 2018	21,530,470	$	215	(59,174	)	$	(1	)	$	27,657		$	—		$	27,871
Dividend declared $0.07 per share	—	—		—		—			(888		)	(649		)	(1,537		)
Treasury stock	—	—		—		—			—			—			—
Stock option exercise	—	—		—		—			—			—			—
Stock compensation	—	—		—		—			65			—			65
Net income	—	—		—		—			—			649			649
BALANCE - March 31, 2019	21,530,470	$	215	(59,174	)	$	(1	)	$	26,834		$	—		$	27,048
Dividend declared $0.07 per share	—	—		—		—			(764		)	(778		)	(1,542		)
Treasury stock	—	—		(38,462	)	—			—			—			—
Stock option exercise	104,000	1		—		—			412			—			413
Stock compensation	—	—		—		—			66			—			66
Net income	—	—		—		—			—			778			778
BALANCE - June 30, 2019	21,634,470	$	216	(97,636	)	$	(1	)	$	26,548		$	—		$	26,763

See accompanying notes to the condensed consolidated financial statements

-5-

GLOBAL WATER RESOURCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)



	Six Months Ended June 30,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,427		$	2,576
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred compensation	602			595
Depreciation	4,020			3,688
Amortization of deferred debt issuance costs and discounts	59			22
Loss on equity investment	79			160
Other gains	(2		)	(28		)
Provision for doubtful accounts receivable	18			(3		)
Deferred income tax expense	507			852
Changes in assets and liabilities
Accounts receivable	(154		)	(53		)
Other current assets	(515		)	(420		)
Accounts payable and other current liabilities	(558		)	(148		)
Other noncurrent assets	37			—
Other noncurrent liabilities	194			(1,942		)
Net cash provided by operating activities	5,714			5,299

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(4,858		)	(2,458		)
Cash paid for acquisitions, net of cash acquired	—			(2,620		)
Other cash flows from investing activities	2			64
Net cash used in investing activities	(4,856		)	(5,014		)

CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid	(3,078		)	(2,786		)
Advances in aid of construction	465			382
Proceeds from stock option exercise	413			750
Principal payments under capital lease	(29		)	(8		)
Refunds of advances for construction	(11		)	—
Loan borrowings	31			—
Loan repayments	(39		)	(7		)
Debt issuance costs paid	(40		)	(39		)
Net cash used in financing activities	(2,288		)	(1,708		)
DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	(1,430		)	(1,423		)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — Beginning of period	13,197			5,685
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH – End of period	$	11,767		$	4,262

See accompanying notes to the condensed consolidated financial statements

Supplemental disclosure of cash flow information:



	June 30, 2019		June 30, 2018
Cash and cash equivalents	$	11,285	$	3,778
Restricted Cash	482		484
Total cash, cash equivalents, and restricted cash	$	11,767	$	4,262

-6-

GLOBAL WATER RESOURCES, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

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

Basis of Presentation and Principles of Consolidation

The condensed consolidated financial statements of Global Water Resources, Inc. (the “Company”, “GWRI”, “we”, “us”, or “our”) and related disclosures as of June 30, 2019 and for the three and six months ended June 30, 2019 and 2018 are unaudited. The December 31, 2018 condensed consolidated balance sheet data was derived from the Company’s audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These financial statements follow the same accounting policies and methods of their application as the Company’s most recent annual consolidated financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2018. In our opinion, these financial statements include all normal and recurring adjustments necessary for the fair statement of the results for the interim period. The results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the full year, due to the seasonality of our business.

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 U.S. 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.

The Company qualifies as an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), under the rules and regulations of the SEC. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. The Company elected to take advantage of these provisions for up to five years or such earlier time that the Company is no longer an emerging growth company. The Company has elected to take advantage of some of the reduced disclosure obligations regarding financial statements. Also, as an emerging growth company the Company can elect to delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has chosen to take advantage of this extended accounting transition provision.

Corporate Transactions

Sale of certain MXA and WMA contracts

In September 2013, the Company sold its Wastewater Facilities Main Extension Agreements (“MXA”) and Offsite Water Management Agreements (“WMA") for the contemplated Loop 303 service area along with their related rights and obligations to EPCOR Water Arizona Inc. (“EPCOR”) (collectively the “Transfer of Project Agreement”, or “Loop 303 Contracts”). Pursuant to the Transfer of Project Agreement, EPCOR agreed to pay GWRI approximately $4.1 million over a multi-year period. The Company received the remaining $1.0 million of proceeds in March 2019 and recorded the amount in other income due to the completion of certain milestones between EPCOR and the developers/landowners.

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 $0.1 million and $0.2 million for the three months ended June 30, 2019 and 2018, respectively, and $0.1 million and $0.4 million for the six months ended June 30, 2019 and 2018, respectively.

-7-

Private Letter Ruling

On June 2, 2016, the Company received a Private Letter Ruling from the Internal Revenue Service ("IRS") that, for purposes of deferring the approximately $19.4 million gain realized from the condemnation of the operations and assets of Valencia, determined that the assets converted upon the condemnation of such assets could be replaced through certain reclamation facility improvements contemplated by the Company under Internal Revenue Code §1033 as property similar or related in service or use. In June 2016, the Company converted all operating subsidiaries from corporations to limited liability companies to take full advantage of the benefits of such ruling.

Pursuant to Internal Revenue Code §1033, the Company would have been able to defer the gain on condemnation through the end of 2017. On April 18, 2017, the Company filed a request for a one-year extension to defer the gain to the end of 2018, which the IRS approved on August 8, 2017. On August 28, 2018, the Company filed a request to further defer the gain to the end of 2019, which the IRS approved on October 12, 2018. Following the most recent Private Letter Ruling extension, the Company expects an increase in capital expenditures for 2019 compared to 2018 to fully defer the remaining tax liability of approximately $1.8 million as of June 30, 2019.

Acquisitions

Turner Ranches Water and Sanitation Company

On May 30, 2018, the Company acquired Turner Ranches Water and Sanitation Company ("Turner"), a non-potable irrigation water utility in Mesa, Arizona, for total consideration of approximately $2.8 million in cash. Refer to Note 7 — "Acquisitions" of the notes to the unaudited condensed consolidated financial statements for additional information regarding the Turner acquisition.

Red Rock Utilities

On October 16, 2018, the Company completed the acquisition of Red Rock Utilities ("Red Rock"), an operator of a water and a wastewater utility with service areas in the Pima and Pinal counties of Arizona, for a purchase price of $5.9 million. The acquisition added over 1,650 connections and approximately 9 square miles of service area. Refer to Note 7 — "Acquisitions" of the notes to the unaudited condensed consolidated financial statements for additional information regarding the Red Rock acquisition.

Common Stock Offering

On July 20, 2018, the Company completed a public offering of 1,720,000 shares of common stock at a public offering price of $9.25 per share, for gross proceeds of $15.9 million, which included 220,000 shares issued and sold pursuant to the underwriter's exercise in full of its option to purchase additional shares. The Company received net proceeds of approximately $14.6 million after deducting underwriting discounts and commissions and offering expenses payable by the Company, which collectively totaled $1.3 million.

Arizona Corporation Commission (the “ACC”) Tax Docket

The Company had regulatory assets of $1.8 million at both June 30, 2019 and December 31, 2018, and regulatory liabilities of $0.6 million at both June 30, 2019 and December 31, 2018 related to the Federal Tax Cuts and Jobs Act (the "TCJA") signed into law on December 22, 2017. Under ASC 740, Income Taxes, the tax effects of changes in tax laws must be recognized in the period in which the law is enacted. ASC 740 also requires deferred income tax assets and liabilities to be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled. Thus, at the date of enactment, the Company’s deferred income taxes were re-measured based upon the new 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.

On December 20, 2017, the ACC opened a docket to address the utility ratemaking implications of the TCJA. The ACC considered the impact for regulated utilities, as it was expected that certain effects of the TCJA add to rate base and others reduce rate base. Numerous companies, including our regulated utilities, filed comments with the ACC in January 2018. The ACC subsequently approved an order in February 2018 requiring Arizona utilities to apply regulatory accounting treatment, which includes the use of regulatory assets and regulatory liabilities, to address all impacts from the enactment of the TCJA.

-8-

approach for the reductions to match the phase-in of our revenue requirement under Rate Decision No. 74364 enacted in February 2014. In 2018, the aggregate annual reductions in revenue for our Santa Cruz, Palo Verde, Greater Tonopah, and Northern Scottsdale utilities was approximately $782,000. In 2021, the final year of the phase-in, the aggregate annual reductions in revenue for our Santa Cruz, Palo Verde, Tonopah, and Northern Scottsdale utilities will be approximately $1.1 million. The ACC also approved a carrying cost of 4.25% on regulatory liabilities resulting from the difference of the fully phased-in rates to be applied in 2021 versus the phased-in rates refunded in the years leading up to 2021 (i.e. 2018 through 2020).

Rate Decision No. 76901, however, did not address the impacts of the TCJA on accumulated deferred income taxes (“ADIT”), including excess ADIT (“EADIT”). The ACC requested the Company to submit a proposal by December 19, 2018 regarding the impact of the TCJA on its ADIT as of January 1, 2018, and the related EADIT amortization methods for both the plant-related (the protected element of EADIT) and the non-plant related (the unprotected portion of EADIT) assets, as appropriate. On December 19, 2018, the Company submitted the required filing and proposed that as part of a required July 1, 2019 filing, it would propose revised tariffs that incorporate the appropriate rate impacts. The Company made its filing proposing revised tariffs on June 14, 2019. ACC Staff reviewed the filing and requested that the Company defer tariff revisions until such revisions can be considered in the next rate case. ACC Staff also requested that the Company defer consideration of the regulatory assets and regulatory liabilities associated with 2018 EADIT amortization. On July 18, 2019, the Company made a filing proposing these items be deferred to the next rate case. Refer to " — Recent Rate Case Activity — ACC Rate Case" for additional information regarding the Company's next rate case.

Previously, the ACC Chairman noted that there may be some unintended consequences related to the tax treatment of contributions in aid of construction ("CIAC") and advances in aid of construction ("AIAC"), which are now taxable with the enactment of the TCJA. Following receipt of comments from various parties, including from us, and a recommendation from the ACC Staff, the ACC adopted an order in November 2018 relating to the funding for income taxes on CIACs and AIACs that provides for the following: 1) requires that under the hybrid sharing method, a contributor will pay a gross-up to the utility consisting of 55% of the income tax expense with the utility covering the remaining 45% of the income tax expense; 2) removes the full gross-up method option for Class A and B utilities and their affiliates (which includes all of our utilities); 3) ensures proper ratemaking treatment of a utility using the self-pay method; 4) clarifies that pass-through entities that are owned by a “C” corporation can recover tax expense according to methods allowed; and 5) requires Class A and B utilities to self-pay the taxes associated with hook-up fee contributions but permits using a portion of the hook-up fees to fund these taxes. The ACC amended the November order by issuing Decision No. 77084 on February 20, 2019 and Decision No. 77104 on February 28, 2019, which imposed additional limits on grossing up CIAC, which we do not believe will be material to us.

Recent Rate Case Activity

ACC Rate Case

On March 20, 2019, the Company filed a motion with the ACC to request an order for certain of our utilities to file a rate case. Thereafter, on April 26, 2019, the ACC issued Decision No. 77168, which requires all of our utilities to file a rate case no later than June 30, 2020, using the twelve months ending December 31, 2019 as the test year for the rate case. The outcome of the new rate case cannot be predicted, but we anticipate that new rates would not take effect before the second half of 2021. We are in the initial stages of evaluating and preparing for the rate case, but we anticipate requesting a moderate increase in rates. There is no guarantee that the ACC will approve a rate increase or whether the ACC will take any other actions as a result of the rate case, including a decision to decrease future rates.

-9-

Significant Accounting Policies

Basic and Diluted Earnings per Common Share

As of June 30, 2019, the Company had 390,796 options outstanding to acquire an equivalent number of shares of GWRI common stock. Although at June 30, 2019 there were no options outstanding from the 2016 option grant, included within the calculation of diluted earnings per share were 5,582 and 14,108 common share equivalents for the three and six months ended June 30, 2019, respectively. The 390,796 options outstanding from the 2017 option grant were not included for the three and six months ended June 30, 2019 dilutive earnings per share calculation, as to do would be antidilutive. Refer to Note 14 – “Deferred Compensation Awards” for additional information regarding the option grants.

As of June 30, 2018, the Company had 555,500 options outstanding to acquire an equivalent number of shares of GWRI common stock. The 150,000 options outstanding from the 2016 option grant equated to 42,777 and 41,022 common share equivalents for the three and six months ended June 30, 2018, respectively, which were included within the calculation of diluted earnings per share for the three and six months ended June 30, 2018. The 405,500 options outstanding from the 2017 option grant were not included for the three and six months ended June 30, 2018 dilutive earnings per share calculation, as to do would be antidilutive. Refer to Note 14 – “Deferred Compensation Awards” for additional information regarding the option grants.

Recent Accounting Pronouncements

Recently Adopted Accounting Standards

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09” or "ASC 606"), which completes the joint effort between the FASB and International Accounting Standards Board to converge the recognition of revenue between the two boards. The new standard affects any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets not included within other FASB standards. The guiding principal of the new standard is that an entity should recognize revenue in an amount that reflects the consideration to which an entity expects to be entitled for the delivery of goods and services. ASU 2014-09 may be adopted using either of two acceptable methods: (1) retrospective adoption to each prior period presented with the option to elect certain practical expedients; or (2) adoption with the cumulative effect recognized at the date of initial application and providing certain disclosures. To assess at which time revenue should be recognized, an entity should use the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation. Due to qualifying as an emerging growth company, the Company adopted ASC 606 on January 1, 2019. The Company concluded its evaluation of the new revenue standards and implemented it on January 1, 2019 using the modified retrospective method for all contracts. The reported results for the first and second quarters of 2019 reflect the application of ASC 606 guidance, while prior period amounts were not adjusted and continue to be reported in accordance with the accounting standard in effect for those periods. The adoption of ASC 606 had no significant impact on the timing of revenue recognition compared to previously reported results; however, enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenue and the related cash flows arising from contracts with customers were made. Refer to Note 3 — "Revenue Recognition" of the notes to the unaudited condensed consolidated financial statements for additional information.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force) (“ASU 2016-18”). ASU 2016-18 requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. Due to qualifying as an emerging growth company, the Company adopted ASU 2016-18 during the first quarter of 2019 and applied the standard retrospectively for all periods presented. Accordingly, for the six months ended June 30, 2018, the Company included restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts shown on the statement of cash flows and removed the change in restricted cash from the cash flows from investing activities. This change resulted in a decrease in net cash used in investing activities of $47,000 as of June 30, 2018.

Future Adoption of Accounting Standards

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 requires lessees to record a right-of-use asset and corresponding lease obligation for lease arrangements with a term of greater than twelve months. ASU 2016-02 requires additional disclosures about leasing arrangements and requires the use of the modified retrospective method, which will require adjustment to all comparative periods presented in the consolidated financial statements. Due to qualifying as an emerging growth company, the Company is required to adopt the ASU on January 1, 2020. In July 2018, the FASB issued ASU

-10-

2018-10, Codification Improvements to Topic 842 ("ASU 2018-10"). ASU 2018-10 improves various aspects within ASC 842, such as rate implicit in the lease, lessee's reassessment of lease classification, lease term and purchase option, as well as many other aspects of the guidance. The ASU is effective when the entity adopts ASC 842, which will be January 1, 2020 for the Company. The Company is currently assessing the impact that adopting this new standard will have on its consolidated financial statements.

In July 2018, the FASB issued ASU 2018-11, Leases Topic 842, Targeted Improvements ("ASU 2018-11"). ASU 2018-11 provides entities the option to elect not to recast the comparative periods presented when transitioning to ASC 842 and lessors may elect not to separate lease and non-lease components when certain conditions are met. The ASU is effective when the entity adopts ASC 842, which will be January 1, 2020 for the Company. The Company is currently assessing the impact that adopting this new standard will have on its consolidated financial statements but does not expect a material effect.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). ASU 2017-04 eliminates Step 2 from the impairment test which requires entities to determine the implied fair value of goodwill to measure if any impairment expense is necessary. Instead, entities will record impairment expenses based on the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Due to qualifying as an emerging growth company, the Company is required to adopt the ASU on January 1, 2022. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements.

In July 2018, the FASB issued ASU 2018-09, Codification Improvements ("ASU 2018-09"). ASU 2018-09 clarifies, corrects errors in, or makes minor improvements to the accounting standards codification. The effective date of the standard is dependent on the facts and circumstances of each amendment. Due to qualifying as an emerging growth company, the Company is required to adopt the ASU on January 1, 2020. Early adoption is permitted. The Company is currently assessing the impact that adopting this new standard will have on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820) ("ASU 2018-13"). ASU 2018-13 changes the fair value disclosure requirements including new, eliminated, and modified disclosure requirements of ASC 820. Specifically, the ASU requires the addition of disclosures for Level 3 fair value measurements with unrealized gains and losses included in other comprehensive income and disclosure of the range and weighted average used to develop significant unobservable inputs for Level 3 measurements. The ASU is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently assessing the impact that adopting this new standard will have on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (Topic 350) ("ASU 2018-15"). ASU 2018-15 amends ASC 350 to include in its scope implementation costs of a Cloud Computing Arrangement ("CCA") that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in a CCA that is considered a service contract. Due to qualifying as an emerging growth company, the Company is required to adopt the ASU on January 1, 2021. Early adoption is permitted, including adoption in any interim period. The Company is currently assessing the impact that adopting this new standard will have on its consolidated financial statements.

2. REGULATORY DECISION AND RELATED ACCOUNTING AND POLICY CHANGES

Our 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 980, Regulated Operations ("ASC 980").

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 we have done for all of our operating utilities as described below.

On July 9, 2012, we filed formal rate applications with the ACC to adjust the revenue requirements for seven utilities (Water Utility of Greater Tonopah, Valencia Water Company - Greater Buckeye Division, Water Utility of Northern Scottsdale, Global Water - Santa Cruz Water Company, Global Water - Palo Verde Utilities, Valencia Water Company, and Willow Valley Water Company) representing a collective rate increase of approximately 28% over 2011 revenue levels. In August 2013, the Company entered into a settlement agreement with ACC Staff, the Residential Utility Consumers Office, the City of Maricopa, and other parties to the rate case. The settlement required approval by the ACC’s Commissioners before it could take effect. In February 2014, the rate case proceedings were completed and the ACC issued Rate Decision No. 74364, effectively approving the settlement agreement. The rulings of the decision include, but are not limited to, the following:

-11-

•

For the Company’s utilities referenced above, adjusting for the condemnation of the operations and assets of Valencia and sale of Willow Valley Water Co., Inc. ("Willow Valley"), which occurred in 2015 and 2016, respectively, a collective revenue requirement increase of $3.6 million based on 2011 test year service connections, phased-in over time, with the first increase in January 2015 as follows (in thousands, not updated for the TCJA, refer to Note 1 — "Basis of Presentation, Corporate Transactions, Significant Accounting Policies, and Recent Accounting Pronouncements — Recent Rate Case Activity — ACC Tax Docket" of the notes to the unaudited condensed consolidated financial statements for further details):



	Incremental		Cumulative
2015	$	1,083	$	1,083
2016	887		1,970
2017	335		2,305
2018	335		2,640
2019	335		2,975
2020	335		3,310
2021	335		3,645

Whereas this phase-in of additional revenues was determined using a 2011 test year, to the extent that the number of active service connections increases from 2011 levels, the additional revenues may be greater than the amounts set forth above. On the other hand, if active connections decrease or we experience declining usage per customer, we may not realize all of the anticipated revenues.


•	Full reversal of the imputation of CIAC balances associated with funds previously received under infrastructure coordination and financing agreements ("ICFAs"), as required in the Company’s last rate case. The reversal restored rate base or future rate base and had a significant impact of restoring shareholder equity on the balance sheet.


•	The Company has agreed to not enter into any new ICFAs. Existing ICFAs will remain in place, but a portion of future payments to be received under the ICFAs will be considered as hook-up fees, which are accounted for as CIAC once expended on plant.


•	A 9.5% return on common equity was adopted.

The following provides additional discussion on accounting and policy changes resulting from Rate Decision No. 74364.

Infrastructure Coordination and Financing Agreements – ICFAs are agreements with developers and homebuilders whereby GWRI, the indirect parent of 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.

Under the ICFAs, GWRI has a contractual obligation to ensure physical capacity exists through its regulated utilities for water and wastewater to the landowner/developer when needed. This obligation persists regardless of connection growth. Fees for these services are typically a negotiated amount per equivalent dwelling unit for the specified development or portion of land. 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 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 GWRI’s business model.

In February 2014, the ACC issued Rate Decision No. 74364, and concluded ICFA funds already received would no longer be deemed CIAC for rate making purposes. ICFA funds already received or which had become due prior to the date of Rate Decision No. 74364 were recognized as revenue once the obligations specified in the ICFA were met. Rate Decision No. 74364 prescribes that of the ICFA funds which come due and are paid subsequent to December 31, 2013, 70% of the ICFA funds will be recorded in the associated utility subsidiary as a hook-up fee (“HUF”) liability, with the remaining 30% to be recorded as deferred revenue, which the Company accounts for in accordance with the Company's ICFA revenue recognition policy. A HUF tariff, specifying the dollar value of a HUF for each utility, was approved by the ACC as part of Rate Decision No. 74364. The Company is responsible for assuring the full HUF value is paid from ICFA proceeds, and recorded in its full amount, even if it results in recording less than 30% of the ICFA fee as deferred revenue.

-12-

The Company will account for the portion allocated to the HUF as a CIAC contribution. 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 will be segregated in a separate bank account and used for plant. A HUF liability will be established and will be amortized as a reduction of depreciation expense over the useful life of the related plant once the HUF funds are utilized for the construction of 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. The Company will record 30% of the funds received, up until the HUF liability is fully funded, as deferred revenue, which is to be recognized as revenue once the obligations specified within the ICFA are met, including construction of sufficient operating capacity to serve the customers for which revenue was deferred.

As of June 30, 2019 and December 31, 2018, ICFA deferred revenue recorded on the consolidated balance sheet totaled $17.4 million, which represents deferred revenue recorded for ICFA funds received on contracts that had become due prior to Rate Decision No. 74364. Refer to Note 3 — "Revenue Recognition" of the notes to the unaudited condensed consolidated financial statements for additional discussion regarding ICFA revenue.

Intangible assets / Regulatory liability – The Company previously recorded certain intangible assets related to ICFA contracts obtained in connection with our Santa Cruz, Palo Verde, and Sonoran acquisitions. The intangible assets represented the benefits to be received over time by virtue of having those contracts. Prior to January 1, 2010, the ICFA-related intangibles were amortized when ICFA funds were recognized as revenue. Effective January 1, 2010, in connection with the 2010 Regulatory Rate Decision, these assets became fully offset by a regulatory liability of $11.2 million since the imputation of ICFA funds as CIAC effectively resulted in the Company not being able to benefit (through rates) from the acquired ICFA contracts.

Effective January 1, 2010, the gross ICFAs intangibles began to be amortized when cash was received in proportion to the amount of total cash expected to be received under the underlying agreements. However, such amortization expense was offset by a corresponding reduction of the regulatory liability in the same amount.

As a result of Rate Decision No. 74364, the Company changed its policy around the ICFA related intangible assets. As discussed above, pursuant to Rate Decision No. 74364, approximately 70% of ICFA funds to be received in the future will be recorded as a HUF, until the HUF is fully funded at the Company’s applicable utility subsidiary. The remaining approximate 30% of future ICFA funds will be recorded at the parent company level and will be subject to the Company’s ICFA revenue recognition accounting policy. As the Company now expects to experience an economic benefit from the approximately 30% portion of future ICFA funds, 30% of the regulatory liability, or $3.4 million, was reversed in 2014. The remaining 70% of the regulatory liability, or $7.9 million, will continue to be recorded on the balance sheet.

Subsequent to Rate Decision No. 74364, the intangible assets will continue to amortize when the corresponding ICFA funds are received in proportion to the amount of total cash expected to be received under the underlying agreements. The recognition of amortization expense will be partially offset by a corresponding reduction of the regulatory liability.

The Company recorded regulatory liabilities in the amount of $9.0 million, of which $7.9 million relates to the offset of intangible assets related to ICFA contracts obtained in connection with our Santa Cruz, Palo Verde, and Sonoran acquisitions, and the remaining $1.1 million relates to the TCJA rate reduction mandated by the ACC pursuant to Rate Decision No. 76901.

-13-

3. REVENUE RECOGNITION

On January 1, 2019, the Company adopted ASC 606, using the modified retrospective approach. The Company identified its sources of revenue streams that fall within the scope of this guidance and applied the five-step model to all qualifying revenue streams to determine when to recognize revenue. The Company concluded that there is not a material change to how revenue was recognized before and after the adoption of ASC 606; therefore, no cumulative retained earnings adjustment was required.

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 and wastewater 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.

The Company has elected to apply the sales tax practical expedient, whereby qualifying excise and other taxes collected from customers and remitted to governmental authorities are not included in reported revenues.

Unregulated Revenue

Unregulated revenues represent those revenues that are not subject to the ratemaking process of the ACC. Unregulated revenues are limited to rental revenue and imputed revenues resulting from a portion of ICFA funds received. ICFAs are agreements with developers and homebuilders where the Company 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. In return, the developers and homebuilders pay the Company an agreed-upon amount per dwelling unit for the specified development or portion of land. In addition, under ICFA agreements, the Company has a contractual obligation to ensure physical capacity exists through its regulated utilities for water and wastewater to the developer when needed. This obligation persists regardless of connection growth.

The Company believes that these services are not distinct in the context of the contract because they are highly interdependent with the Company’s 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.

IFCA revenue is recognized at a point in time when the Company has the necessary capacity in place within its infrastructure to provide water/wastewater services to the developer. The Company exercises judgment when estimating the number of equivalent dwelling units that the Company has capacity to serve.

Disaggregated Revenues

For the three and six months ended June 30, 2019 and 2018, disaggregated revenues from contracts with customers by major source and customer class are as follows (in thousands):

-14-



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
REGULATED REVENUE
Water Services
Residential	$	2,968	$	2,722	$	5,501	$	5,221
Irrigation	843		843		1,132		1,089
Commercial	195		250		355		415
Construction	37		81		67		138
Other water revenues	200		20		326		168
Total water revenues	4,243		3,916		7,381		7,031
Wastewater and recycled water services
Residential	4,230		3,740		8,405		7,591
Commercial	227		206		449		403
Recycled water revenues	303		280		383		425
Other wastewater revenues	102		292		194		396
Total wastewater and recycled water revenues	4,862		4,518		9,431		8,815
TOTAL REGULATED REVENUE	9,105		8,434		16,812		15,846
UNREGULATED REVENUE
ICFA revenues	—		2,388		—		2,388
Rental revenues	16		16		32		29
TOTAL UNREGULATED REVENUE	16		2,404		32		2,417
TOTAL REVENUE	$	9,121	$	10,838	$	16,844	$	18,263

Contract Balances

Our contract assets and liabilities consist of the following (in thousands):



	June 30, 2019		December 31, 2018
CONTRACT ASSETS
Accounts receivable
Water services	$	938	$	795
Wastewater and recycled water services	820		838
Total contract assets¹	$	1,758	$	1,633
CONTRACT LIABILITIES
Deferred revenue - ICFA	$	17,365	$	17,358
Refund liability - regulated²	440		340
Total contract liabilities	$	17,805	$	17,698


(1)	The increase in accounts receivable was primarily due to normal timing differences between performance and customer payments.


(2)	The increase in refund liability is due to the phase-in approach approved in Rate Decision No. 76901. Refer to Note 1—"Basis of Presentation, Corporate Transactions, Significant Accounting Policies, and Recent Accounting Pronouncements — Corporate Transactions — ACC Tax Docket" of the notes to the unaudited condensed consolidated financial statements for further details.

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 $17.4 million at both June 30, 2019 and December 31, 2018. Deferred revenue 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.

-15-

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant, and equipment at June 30, 2019 and December 31, 2018 consist of the following (in thousands):



	June 30, 2019			December 31, 2018			Average Depreciation Life (in years)
Mains/lines/sewers	$	132,606		$	131,768		47
Plant	85,513			81,471			25
Equipment	35,060			37,392			10
Meters	13,673			13,606			12
Furniture, fixture and leasehold improvements	371			371			8
Computer and office equipment	690			639			5
Software	241			241			3
Land and land rights	931			897
Other	557			589
Construction work-in-process	47,993			45,174
Total property, plant and equipment	317,635			312,148
Less accumulated depreciation	(88,677		)	(85,093		)
Net property, plant and equipment	$	228,958		$	227,055

5. ACCOUNTS RECEIVABLE

Accounts receivable as of June 30, 2019 and December 31, 2018 consist of the following (in thousands):



	June 30, 2019			December 31, 2018
Billed receivables	$	1,757		$	1,633
Less allowance for doubtful accounts	(133		)	(145		)
Accounts receivable – net	$	1,624		$	1,488

6. EQUITY METHOD INVESTMENT

On June 5, 2013, the Company sold Global Water Management, LLC (“GWM”), a wholly-owned subsidiary of GWRI, that owned and operated the FATHOM Water Management Holdings, LLP ("FATHOM™") business. In connection with the sale of GWM, the Company made a $1.6 million investment in FATHOM™ (the "FATHOM™ investment”). This limited partnership investment is accounted for under the equity method due to the FATHOM™ investment being considered more than minor.

The carrying value of the FATHOM™ investment consisted of a balance of zero as of June 30, 2019 and $0.1 million as of December 31, 2018, and reflects our initial investment, the adjustments related to subsequent rounds of financing, and our proportionate share of FATHOM™'s cumulative earnings.

7. ACQUISITIONS

Acquisition of Turner

On May 30, 2018, the Company acquired all of the equity of Turner, a rate regulated non-potable irrigation water utility in Mesa, Arizona, for total consideration of $2.8 million. This acquisition is consistent with the Company's declared strategy of making accretive acquisitions. At the time of acquisition, Turner had 963 residential irrigation connections and approximately seven square miles of service area. The acquisition was accounted for as a business combination under ASC 805, "Business Combinations." The purchase price was allocated to the acquired utility assets and liabilities assumed based on the seller's book value at acquisition as the historical cost of these assets and liabilities will be the amounts that will continue to be reflected in customer rates.

-16-

Final purchase price allocation of the net assets acquired in the transaction is as follows (in thousands):



Net assets acquired:
Cash	$	176
Accounts receivable	121
Gross property, plant and equipment	4,495
Construction work-in-progress	92
Accumulated depreciation	(3,554		)
Accounts payable	(30		)
Accrued expenses	(49		)
Total net assets assumed	1,251
Goodwill	1,549
Total purchase price	$	2,800

The revenue and earnings recognized post acquisition and the pro forma effect of the business acquired are not material to the Company's financial position or results of operations.

Acquisition of Red Rock

On October 16, 2018, the Company acquired Red Rock, a rate-regulated operator of a water and a wastewater utility with service areas in the Pima and Pinal counties of Arizona, for total consideration of $5.9 million. This acquisition is consistent with the Company's declared strategy of making accretive acquisitions. The acquisition added over 1,650 connections and approximately nine square miles of service area.

The acquisition was accounted for as a business combination. The purchase price was allocated to the acquired utility assets and liabilities assumed based on the seller's book value at acquisition as the historical cost of these assets and liabilities will be the amounts that will continue to be reflected in customer rates. We are in the process of finalizing the purchase price allocation. Based on additional information obtained during the quarter ended June 30, 2019, the initial fair value of net assets decreased $0.9 million, with a corresponding increase to goodwill of $0.9 million.

A preliminary purchase price allocation of the net assets acquired in the transaction, reflecting additional information discussed above is as follows (in thousands):



Net assets acquired:
Accounts receivable	$	111
Gross property, plant and equipment	19,841
Construction work-in-progress	748
Accumulated depreciation	(6,084		)
Prepaids	12
Intangibles¹	196
Accounts payable	(26		)
Other taxes	(14		)
Other accrued liabilities	(47		)
Customer and meter deposits	(76		)
AIAC	(3,423		)
CIAC - Net	(7,397		)
Total net assets assumed	3,841
Goodwill	2,010
Total purchase price	$	5,851

¹Intangibles consist of franchise contract rights and organization costs. Refer to Note 8 — "Goodwill & Intangible Assets" of the notes to the unaudited condensed consolidated financial statements for additional discussion.

-17-

The revenue and earnings recognized post acquisition and the pro forma effect of the business acquired are not material to the Company's financial position or results of operations.

8. GOODWILL AND INTANGIBLE ASSETS

Goodwill

As of June 30, 2019, the goodwill balance of $3.6 million related to the Turner and Red Rock acquisitions. 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. Based on our annual impairment testing performed on November 1st, no impairment was recorded. Refer to Note 7 — "Acquisitions" of the notes to the unaudited condensed consolidated financial statements for additional discussion.

Intangible Assets

As of June 30, 2019 and December 31, 2018 intangible assets consisted of the following (in thousands):



	June 30, 2019							December 31, 2018
	Gross Amount		Accumulated Amortization			Net Amount		Gross Amount		Accumulated Amortization			Net Amount
INDEFINITE LIVED INTANGIBLE ASSETS:
CP Water Certificate of Convenience & Necessity service area	$	1,532	$	—		$	1,532	$	1,532	$	—		$	1,532
Intangible trademark	13		—			13		13		—			13
Franchise contract rights	129		—			129		134		—			134
Organization intangible	67		—			67		66		—			66
	1,741		—			1,741		1,745		—			1,745
DEFINITE LIVED INTANGIBLE ASSETS:
Acquired ICFAs	17,978		(12,154		)	5,824		17,978		(12,154		)	5,824
Sonoran contract rights	7,406		(2,003		)	5,403		7,406		(2,003		)	5,403
	25,384		(14,157		)	11,227		25,384		(14,157		)	11,227
Total intangible assets	$	27,125	$	(14,157	)	$	12,968	$	27,129	$	(14,157	)	$	12,972

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. CC&N permits are expected to be renewable indefinitely.

Franchise contract rights and organization intangible relate to our 2018 acquisition of Red Rock. Franchise contract rights are agreements with Pima and Pinal counties that allow the Company to place infrastructure in public right-of-way and permits expected to be renewable indefinitely. The organization intangible represents 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. Refer to Note 7 — "Acquisitions" of the notes to the unaudited condensed consolidated financial statements for additional discussion.

Acquired ICFAs and contract rights related to our 2005 acquisition of Sonoran Utility Services, LLC assets 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, we cannot reliably estimate when the remaining intangible assets' amortization will be recorded. No amortization was recorded for these balances for the three and six months ended June 30, 2019 and 2018.

9. TRANSACTIONS WITH RELATED PARTIES

The Company provides medical benefits to our employees through our participation in a pooled plan sponsored by an affiliate of a shareholder and director of the Company. Medical claims paid to the plan were approximately $0.1 million for each of the three months ended June 30, 2019 and 2018. Medical claims paid to the plan were approximately $0.2 million for each of the six months ended June 30, 2019 and 2018.

-18-

As GWM was previously owned by the Company, it has historically provided billing, customer service, and other support services for the Company’s regulated utilities pursuant to a services agreement with GWM whereby the Company has agreed to use the FATHOM™ platform for all of its regulated utility services through December 31, 2026. On November 17, 2016, the scope of services was expanded to include a meter replacement program of approximately $11.4 million, wherein the Company replaced a majority of its meter infrastructure. As of June 30, 2019, $11.1 million has been paid to GWM in connection with the meter exchange program, and $0.4 million remains to be paid to GWM pending completion pursuant to the terms of the services agreement. Amounts collected by GWM from the Company’s customers that GWM has not yet remitted to the Company are included within the “Due from affiliates” caption on the Company’s consolidated balance sheet. As of June 30, 2019 and December 31, 2018, the unremitted balance totaled $0.5 million and $0.4 million, respectively. Based on current service connections, annual fees to be paid to GWM for FATHOM™ services in 2019 are expected to be approximately $1.7 million at a rate of $6.43 per water account/month, which is subject to annual adjustments based on the terms of the agreement. For each of the three months ended June 30, 2019 and 2018, the Company incurred FATHOM™ service fees of approximately $0.4 million. For the six months ended June 30, 2019 and 2018, the Company incurred FATHOM™ service fees of approximately $0.9 million and $0.8 million, respectively.

The services agreement is automatically renewable for successive 10-year periods, unless notice of termination is given prior to any renewal period. The services agreement may be terminated by either party for default only and the termination of the services agreement will also result in the termination of the royalty payments (described below) payable to the Company. Pursuant to the purchase agreement for the sale of GWM, the Company is entitled to quarterly royalty payments based on a percentage of certain of GWM’s recurring revenues for a 10-year period, up to a maximum of $15.0 million, of which $2.2 million has been received over the five year period ended June 30, 2019. The Company made the election to record these quarterly royalty payments prospectively in income as the amounts are earned. Royalties recorded within other income totaled approximately $0.1 million for each of the three months ended June 30, 2019 and 2018, and $0.2 million for each of the six months ended June 30, 2019 and 2018.

10. ACCRUED EXPENSES

Accrued expenses at June 30, 2019 and December 31, 2018 consist of the following (in thousands):



	June 30, 2019		December 31, 2018
Deferred compensation	$	2,093	$	2,305
Property taxes	1,104		1,073
Meter replacement - related party	350		350
Interest	476		478
Dividend payable	514		512
Asset retirement obligation	555		555
Accrued Bonus	377		325
Other accrued liabilities	1,831		1,867
Total accrued expenses	$	7,300	$	7,465

11. FAIR VALUE

Fair Value of Financial Instruments

FASB ASC 820 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.

-19-

Financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2019 and December 31, 2018 were as follows (in thousands):



	June 30, 2019								December 31, 2018
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Asset/Liability Type:
HUF Funds - restricted cash⁽¹⁾	$	—	$	47	$	—	$	47	$	—	$	9	$	—	$	9
Certificate of Deposit⁽²⁾	3,000		—		—		3,000		3,000		—		—		3,000
Demand Deposit⁽²⁾	5,095		—		—		5,095		7,043		—		—		7,043
Certificate of Deposit - Restricted⁽¹⁾	—		434		—		434		—		432		—		432
Long-term debt⁽³⁾	—		115,342		—		115,342		—		107,860		—		107,860
Total	$	8,095	$	115,823	$	—	$	123,918	$	10,043	$	108,301	$	—	$	118,344

(1) HUF Funds - restricted cash and Certificate of Deposit - Restricted are presented on the Bond service fund and other restricted cash line item of the Company's consolidated balance sheets. They are valued at amortized cost, which approximates fair value.

(2) Certificate of Deposit and Demand Deposit are presented on the Cash and cash equivalents line item of the Company's consolidated balance sheets. They are valued at amortized cost, which approximates fair value. The Certificate of Deposit has no withdrawal restrictions or penalties.

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

12. DEBT

The outstanding balances and maturity dates for short-term (including the current portion of long-term debt) and long-term debt as of June 30, 2019 and December 31, 2018 are as follows (in thousands):



	June 30, 2019					December 31, 2018
	Short-term		Long-term			Short-term		Long-term
BONDS AND NOTES PAYABLE -
4.38% Series A 2016, maturing June 2028	$	—	$	28,750		$	—	$	28,750
4.58% Series B 2016, maturing June 2036	—		86,250			—		86,250
1.20% WIFA Loan, maturing October 2032	—		—			3		39
4.65% Harquahala Loan, maturing January 2021	5		6			5		9
4.60% WIFA Loan, maturing March 2037	1		15			1		12
	6		115,021			9		115,060
OTHER
Capital lease obligations	72		187			38		96
Debt issuance costs	—		(626		)	—		(649		)
Total debt	$	78	$	114,582		$	47	$	114,507

2016 Senior Secured Notes

On June 24, 2016, the Company issued two series of senior secured notes with an aggregate total principal balance of $115.0 million at a blended interest rate of 4.55%. Series A carries a 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. Series B carries a principal balance of $86.3 million and bears an interest rate of 4.58% over a 20-year term. Series B is interest only for the first five years, with $1.9 million principal payments paid semiannually thereafter. The proceeds of the senior secured notes were primarily used to refinance the previously outstanding long-term tax exempt bonds, which were subject to an early redemption option at 103%, plus accrued interest, as a result of our initial public offering in the United States. As part of the refinancing of the long-term debt, the Company paid a prepayment penalty of $3.2 million and wrote off the remaining $2.2 million in capitalized loan fees related to the tax exempt bonds, which were recorded as additional interest expense in the second quarter of 2016. 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. Debt issuance costs as of both June 30, 2019 and December 31, 2018 were $0.6 million.

-20-

The senior secured 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, 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 senior secured 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 ending June 30, 2021 through the quarter ending March 31, 2024, the ratio drops to 1.20. As of June 30, 2019, the Company was in compliance with its financial debt covenants.

Eagletail Loans

In May 2017, the Company acquired Eagletail Water Company ("Eagletail"). As part of the acquisition, the Company assumed two unsecured loans held by Eagletail. These loans are payable to the Water Infrastructure Finance Authority of Arizona ("WIFA") and Harquahala Valley Community Benefits Foundation ("Harquahala"). The WIFA loan bears an interest rate of 1.20% over a 20-year term, while the Harquahala loan bears an interest rate of 4.65% over a 15-year term. The Company paid off the WIFA loan in March 2019.

In 2017, the Company entered into a second loan payable to WIFA ("2017 WIFA"), and no borrowings were made until 2018. The 2017 WIFA loan bears an interest rate of 4.60% over a 20-year term. The original loan amount was approximately $175,000, of which approximately $157,000 was forgiven.

Revolving Credit Line

On April 20, 2018, the Company entered into an agreement with MidFirst Bank, a federally chartered savings association, for a two-year revolving line of credit up to $8.0 million, set to expire on April 30, 2020. The credit facility bears an interest rate of LIBOR plus 2.25%. As of June 30, 2019, the Company had no outstanding borrowings under this credit line. There were $95,000 unamortized debt issuance costs as of June 30, 2019 and $137,000 as of December 31, 2018. In April 2019, the Company signed an amendment which extends the maturity of the line of credit to April 30, 2022 and modifies the debt service coverage ratio to match the ratio required by the senior secured notes discussed above; all other terms remain unchanged. As of June 30, 2019, we had no outstanding borrowings under this credit line.

The revolving credit line 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 revolving credit line also contains a provision limiting the payment of dividends if the Company falls below a debt service ratio of 1.25. As of June 30, 2019, the Company was in compliance with its financial debt covenant.

At June 30, 2019, the remaining aggregate annual maturities of debt and minimum lease payments under capital lease obligations for the years ended December 31 are as follows (in thousands):



	Debt		Capital Lease Obligations
Remaining six months of 2019	$	3	$	36
2020	7		75
2021	1,920		80
2022	3,834		52
2023	3,834		17
Thereafter	105,430		—
Subtotal	115,028		260
Less: amount representing interest	—		(31		)
Total	$	115,028	$	229

13. INCOME TAXES

During the three months ended June 30, 2019, the Company recorded a tax expense of $0.4 million on pre-tax income of $1.1 million, compared to a tax expense of $0.8 million on pre-tax income of $3.0 million for the three months ended June 30, 2018. During the six months ended June 30, 2019, the Company recorded a tax expense of $0.7 million on pre-tax income of $2.1 million, compared to a tax expense of $0.9 million on pre-tax income of $3.5 million for the six months ended June 30, 2018. The income tax provision was computed based on the Company’s estimated effective tax rate and forecasted income expected for the full year, including the impact of any unusual, infrequent, or non-recurring items. Refer to Note 1 — "Basis of Presentation, Corporate Transactions, Significant Accounting Policies, and Recent Accounting Pronouncements" for further details.

-21-

14. DEFERRED COMPENSATION AWARDS

Stock-based compensation

Stock-based compensation related to option awards is measured based on the fair value of the award. The fair value of stock option awards is determined using a Black-Scholes option-pricing model. We recognize compensation expense associated with the options over the vesting period.

2016 stock option grant

No stock-based compensation expense was recorded for the three months ended June 30, 2019 and $24,000 was recorded for the three months ended June 30, 2018. No stock-based compensation was recorded for the six months ended June 30, 2019 and $68,000 was recorded for the six months ended June 30, 2018. As of June 30, 2019, 325,000 options have been exercised with none outstanding. Of the 325,000 options exercised, 125,000 shares were exercised utilizing a cashless exercise, which resulted in an increase in shares outstanding of 27,364 as well as 97,636 shares recorded to treasury stock. This resulted in non-cash financing activities of $0.4 million and $0.2 million, respectively, for the six months ended June 30, 2019 and 2018.

2017 stock option grant

Stock-based compensation expense of $66,000 and $67,000 was recorded for the three months ended June 30, 2019 and 2018, respectively, and $131,000 and $121,000 was recorded for the six months ended June 30, 2019 and 2018, respectively. As of June 30, 2019, 8,204 options have been exercised and 66,000 options have been forfeited with 390,796 outstanding.

Phantom stock compensation

The following table details total awards granted and the number of units outstanding as of June 30, 2019 along with the amounts paid to holders of the phantom stock units ("PSUs") for the three and six months ended June 30, 2019 and 2018 (in thousands, except unit amounts):



			Amounts Paid For the Three Months Ended June 30,				Amounts Paid For the Six Months Ended June 30,
Grant Date	Units Granted	Units Outstanding	2019		2018		2019		2018
Q1 2015	28,828	—	—		—		—		22
Q1 2016	34,830	—	—		26		29		53
Q1 2017	22,712	5,678	19		17		38		34
Q1 2018	30,907	18,029	25		23		52		23
Q1 2019	32,190	29,508	27		—		27		—
Total	149,467	53,215	$	71	$	66	$	146	$	132

Stock appreciation rights compensation

-22-

The following table details the recipients of the stock appreciation rights (“SARs”) awards, the grant date, units granted, exercise price, outstanding units as of June 30, 2019 and amounts paid during the three and six months ended June 30, 2019 and 2018 (in thousands, except unit and per unit amounts):



						Amounts Paid For the Three Months Ended June 30,				Amounts Paid For the Six Months Ended June 30,
Recipients	Grant Date	Units Granted	Exercise Price		Units Outstanding	2019		2018		2019		2018
Key Executive⁽¹⁾⁽³⁾	Q3 2013	100,000	$	1.59	—	$	—	$	—	$	—	$	166
Key Executive ⁽¹⁾⁽⁴⁾	Q4 2013	100,000	$	2.69	—	—		—		—		183
Members of Management ⁽¹⁾⁽⁵⁾	Q1 2015	299,000	$	4.26	178,000	—		—		—		—
Key Executives ⁽²⁾⁽⁶⁾	Q2 2015	300,000	$	5.13	123,000	447		—		447		—
Members of Management ⁽¹⁾⁽⁷⁾	Q3 2017	103,000	$	9.40	103,000	—		—		—		—
Members of Management ⁽¹⁾⁽⁸⁾	Q1 2018	33,000	$	8.99	33,000	—		—		—		—
Total		935,000			437,000	$	447	$	—	$	447	$	349


(1)	The SARs vest ratably over sixteen quarters from the grant date.


(2)	The SARs vest over sixteen quarters, vesting 20% per year for the first three years, with the remainder, 40%, vesting in year four.


(3)	The exercise price was determined by taking the weighted average GWR Global Water Resources Corp. ("GWRC") share price of the five days prior to the grant date of July 1, 2013.


(4)	The exercise price was determined by taking the weighted average GWRC share price of the 30 days prior to the grant date of November 14, 2013.


(5)	The exercise price was determined to be the fair market value of one share of GWRC stock on the grant date of February 11, 2015.


(6)	The exercise price was determined to be the fair market value of one share of GWRC stock on the grant date of May 8, 2015.


(7)	The exercise price was determined to be the fair market value of one share of GWRI stock on the grant date of August 10, 2017.


(8)	The exercise price was determined to be the fair market value of one share of GWRI stock on the grant date of March 12, 2018.

For the three months ended June 30, 2019 and 2018, the Company recorded approximately $0.3 million and $0.5 million of compensation expense related to the PSUs and SARs, respectively. For each of the six months ended June 30, 2019 and 2018, the Company recorded approximately $0.4 million of compensation expense related to the PSUs and SARs. Based on GWRI’s closing share price on June 28, 2019 (the last trading date of the quarter), deferred compensation expense to be recognized over future periods is estimated for the years ending December 31 as follows (in thousands):



	PSUs		SARs
Remaining six months of 2019	$	219	$	59
2020	215		78
2021	110		78
2022	—		31
2023	—		—
Total	$	544	$	246

15. SUPPLEMENTAL CASH FLOW INFORMATION

The following is supplemental cash flow information for the six months ended June 30, 2019 and 2018 (in thousands):



	For the Six Months Ended June 30,
	2019		2018
Supplemental cash flow information:
Cash paid for interest	$	2,616	$	2,609
Non-cash financing and investing activities:
Capital expenditures included in accounts payable and accrued liabilities	$	920	$	763
Contributions in aid of construction - loan forgiveness	$	31	$	—

-23-

16. COMMITMENTS AND CONTINGENCIES

Commitments

In September 2018, the Company amended the corporate office lease agreement to include the rental of additional office space for the period of September 1, 2018 through February 28, 2019. In January 2019, the lease agreement was amended to extend the term of the lease, with a commencement date of March 1, 2019 and termination date of May 31, 2022. As such, the Company's monthly rent expense increased to approximately $15,000. Rent expense arising from the operating leases totaled approximately $44,000 and $25,000 for the three months ended June 30, 2019 and 2018, respectively, and $89,000 and $49,000 for the six months ended June 30, 2019 and 2018, respectively.

Contingencies

From time to time, in the ordinary course of business, the Company may be subject to pending or threatened lawsuits in which claims for monetary damages are asserted. Management is not aware of any legal proceeding of which the ultimate resolution could materially affect our financial position, results of operations, or cash flows.

Item 2. 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 relates to the three and six months ended June 30, 2019 and should be read together with the condensed consolidated financial statements and accompanying notes included herein, as well as our audited annual financial statements and associated management’s discussion, which are available within our Annual Report on Form 10-K for the year ended December 31, 2018 available on our Company’s profile on the Securities and Exchange Commission (“SEC”) website, www.sec.gov.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements in this management’s discussion and analysis are forward-looking in nature and may constitute “forward-looking information” within the meaning of applicable securities laws. Often, but not always, forward-looking statements can be identified by the words “believes”, “anticipates”, “plans”, “expects”, “intends”, “projects”, “estimates”, “objective”, “goal”, “focus”, “aim”, “should”, “could”, “may”, and similar expressions. These forward-looking statements include future estimates described in “Business Outlook”, "Factors Affecting our Results of Operations", and “Liquidity and Capital Resources”. These forward-looking statements reflect management’s current expectations regarding GWRI’s future growth, results of operations, performance, and business prospects and opportunities, and other future events and speak only as of the date of this management’s discussion and analysis. Forward-looking statements should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not or the times at or by which such performance or results will be achieved. Investors are cautioned not to place undue reliance on forward-looking information. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to, the factors discussed under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC, as updated from time to time in our subsequent filings with the SEC. Although the forward-looking statements contained in this management’s discussion and analysis are based upon what management believes to be reasonable assumptions, investors cannot be assured that actual results will be consistent with these forward-looking statements, and the differences may be material. These forward-looking statements are made as of the date of this management’s discussion and analysis and GWRI assumes no obligation to update or revise them to reflect new events or circumstances, except as required by applicable law.

Overview

We are a water resource management company that owns, operates, and manages water, wastewater, and recycled water utilities in strategically located communities, principally in metropolitan Phoenix, Arizona. We seek to deploy our integrated approach, which we refer to as "Total Water Management," a term we use to mean managing the entire water cycle by owning and operating the water, wastewater, and recycled water utilities within the same geographic areas in order to both conserve water and maximize its total economic and social value. We use Total Water Management to promote sustainable communities in areas where we expect growth to outpace the existing potable water supply. Our model focuses on the broad issues of water supply and scarcity and applies principles of water conservation through water reclamation and reuse. Our basic premise is that the world's water supply is limited and yet can be stretched significantly through effective planning, the use of recycled water, and by providing individuals and communities resources that promote wise water usage practices.

-24-

Business Outlook

2018 and the first two quarters of 2019 continued the trend of positive growth in new connections. According to the 2010 U.S. Census Data, the Phoenix metropolitan statistical area (“MSA”) is the 14th largest MSA in the U.S. and had a population of 4.2 million, an increase of 29% over the 3.3 million people reported in the 2000 Census. Metropolitan Phoenix continues to grow due to its low-cost 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 4.9 million people by 2020 and 6.5 million by 2040. During the twelve months ended June 30, 2019, Arizona’s employment rate improved by 2.8%, ranking the state in the top three nationally for job growth.

Also, according to the W.P. Carey School of Business Greater Phoenix Blue Chip Real Estate Consensus Panel, most sectors of real estate are expected to experience improved growth with industrial and retail sectors also expected to experience improved occupancy rates. For Maricopa County and Pinal County combined, the Homebuilders Association of Central Arizona reported that single family housing permits grew 13% to 22,437 units in 2018.

The forecasts by the Greater Phoenix Blue Chip Real Estate Consensus Panel for 2019 and 2020 remain positive at approximately 24,000 and 25,000 single family dwelling permits, respectively. From there, we believe growth in the region could steadily return towards its normal historical rate of greater than 30,000 single family dwelling permits.

We believe that our utilities and service areas are directly in the anticipated path of growth primarily in the metropolitan Phoenix area. Market data indicates that our service areas currently incorporate a large portion of the final platted lots, partially finished lots, and finished lots in metropolitan Phoenix. Management believes that we are well-positioned to benefit from the near-term growth in metropolitan Phoenix due to the availability of lots and existing infrastructure in place within our services areas.

Factors Affecting our Results of Operations

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.

We are subject to economic regulation by the state regulator, the Arizona Corporation Commission (“ACC”). The U.S. federal and state governments also regulate environmental, health and safety, and water quality matters. We continue to execute on our 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. Our total service connections, including both active service connections and connections to vacant homes, increased 3,574 connections, or 8.6% (4.1% annualized growth), from a total of 41,631 as of June 30, 2018 to 45,205 as of June 30, 2019. This increase is due to positive growth in organic connections, as well as the addition of 1,780 connections from our acquisition of Red Rock Utilities ("Red Rock").

As of June 30, 2019, active service connections increased 3,637, or 8.9% (4.7% annualized growth), to 44,715 compared to 41,078 active service connections as of June 30, 2018. As with the increase in total service connections, the increase is due to growth in new organic connections, as well as the acquisition of Red Rock. Approximately 92.8% of the 44,715 active service connections are serviced by our Global Water - Santa Cruz Water Company, LLC (“Santa Cruz”) and Global Water - Palo Verde Utilities Company, LLC (“Palo Verde”) utilities as of June 30, 2019.

-25-

The graph below presents the historical change in active and total connections for our ongoing operations, adjusting for the July 2015 condemnation of the assets and operations of Valencia Water Company, Inc. ("Valencia") and the May 2016 sale of Willow Valley Water Co., Inc. ("Willow Valley").

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 “prudently” incurred operating expenses for the test year, depreciation, and any applicable pro forma adjustments.

-26-

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 50% of total 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 requires 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. In normal conditions, it would not be uncommon to see us file for a rate increase every three years based on year one being the test year, year two being the rate case filing year, and year three being the rate case award year. However, based on our settlement with the ACC in 2014 and extended new rate phase-in period, we have not initiated the next rate case on this timeline. On March 20, 2019, we filed a motion with the ACC to request an order for certain of our utilities to file a rate case. Thereafter, on April 26, 2019, the ACC issued Decision No. 77168, which requires all of our utilities to file a rate case no later than June 30, 2020, using the twelve months ending December 31, 2019 as the test year for the rate case. Refer to “—Rate Case Activity” for additional information.

Our water and wastewater operations are also subject to extensive United States federal, state, and local laws and regulations governing the protection of the environment, health and safety, the quality of the water we deliver to our customers, water allocation rights, and the manner in which we collect, treat, and discharge wastewater. We are also required to obtain various environmental permits from regulatory agencies for our operations. The ACC also sets conditions and standards for the water and wastewater services we deliver. We incur substantial costs associated with compliance with environmental, health and safety, and water quality regulation.

Environmental, health and safety, and water quality regulations are complex and change frequently, and they have tended to become more stringent over time. As newer or stricter standards are introduced, they could increase our operating expenses. We would 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.

Economic Environment

The growth of our customer base depends almost entirely on the success of developers in developing residential and commercial properties within our service areas. Real estate development is a cyclical industry and development in our service areas is contingent upon construction or acquisition of major public improvements, such as arterial streets, drainage facilities, telephone and electrical facilities, recreational facilities, street lighting, and local in-tract improvements (e.g., site grading). Many of these improvements are built by municipalities with public financing, and municipal resources and access to capital may not be sufficient to support development in areas of rapid population growth.

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 return. Capital expenditures for infrastructure provide a basis for earnings growth by expanding our “used and useful” rate base, which is a component of its 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 made significant capital investments in our territories within the last fifteen years, and because the infrastructure remains in the early stages of its useful life, we do not expect comparable capital investments to be required in the near term, either for growth or to maintain the existing infrastructure. Nevertheless, we have an established capital improvement plan to make targeted capital investments to repair and replace existing infrastructure as needed, address operating redundancy requirements, and improve our overall financial performance, by lowering expenses and increasing revenue. Additionally, to reduce our deferred tax liability of approximately $19.4 million resulting from the gain on the condemnation of the operations and assets of Valencia, we have substantially completed the planned investments within our capital improvement plan that we determined will qualify under the Internal Revenue Code §1033 re-investment criteria pursuant to a favorable Private Letter Ruling with the Internal Revenue Service (the "IRS"). Refer to “—Corporate Transactions—Private Letter Ruling” for additional information.

-27-

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. Additionally, with our Total Water Management approach, whereby we maximize the direct beneficial reuse of recycled water, we can realize significant treatment costs and power savings because smaller volumes of water are required for potable use. Many utilities require that all water be treated to potable standards irrespective of use. Total Water Management focuses on the right water for the right use. Potable water is needed for consumption and recycled water is acceptable for non-potable uses such as irrigation. Non-potable water does not need to be treated for commonly occurring and regulated constituents such as arsenic, or for other current or future human consumption health-based contaminants.

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. Accordingly, interim results should not be considered representative of the results of a full year.

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 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.

Rate Case Activity

On July 9, 2012, we filed rate applications with the ACC to adjust the revenue requirements for seven utilities. In August 2013, we entered into a settlement agreement with the ACC staff, the Residential Utility Consumers Office, the City of Maricopa, and other parties to the rate case. The settlement required approval by the ACC before it could take effect. In February 2014, the rate case proceedings were completed and the ACC issued Rate Decision No. 74364, approving the settlement agreement. The collective rate increase included a 9.5% return on common equity which contributed to a 15% increase over revenue in 2011.

For our utilities, adjusting for the condemnation of the operations and assets of Valencia and the sale of Willow Valley, the settlement provided for a collective aggregate revenue requirement increase of $3.6 million based on 2011 test year service connections, phased-in over time, with the first increase in January 2015 as follows (in thousands, not updated for the Federal Tax Cuts and Jobs Act (the "TCJA"), refer to "—Recent Events—ACC Tax Docket" for further details):



	Incremental		Cumulative
2015	$	1,083	$	1,083
2016	887		1,970
2017	335		2,305
2018	335		2,640
2019	335		2,975
2020	335		3,310
2021	335		3,645

-28-

On September 20, 2018, the ACC issued Rate Decision No. 76901, which set forth the reductions in revenue for our Santa Cruz, Palo Verde, Greater Tonopah and Northern Scottsdale utilities due to the TCJA. Rate Decision No. 76901 adopted the phase-in approach for the reductions to match the phase-in of our revenue requirement under Rate Decision No. 74364. Additionally, on April 26, 2019, the ACC issued Decision No. 77168, which requires all of our utilities to file a rate case no later than June 30, 2020, using the twelve months ending December 31, 2019 as the test year for the rate case. Refer to "— Recent Events — ACC Tax Docket" and "— Recent Events — ACC Rate Case" for additional information.

From 2003 to 2008, we entered into approximately 154 infrastructure coordination and financing agreements (“ICFAs”) with developers and landowners covering approximately 275 square miles. Under these agreements, we have a contractual obligation to the developers and landowners to ensure that amongst other things, physical capacity exists through our regulated utilities for water and wastewater to the landowner/developer when needed. We receive fees from the landowner/developer for undertaking these obligations that typically are a negotiated amount per planned equivalent dwelling unit for the specified development or parcel of land. Payments are generally due to us from the landowner/developer based on progress of the development, 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. Our investment can be considerable, as we may phase-in the construction of facilities in accordance with a regional master plan, as opposed to a single development.

Prior to January 1, 2010, we accounted for funds received under ICFAs as revenue once the obligations specified in the ICFA were met. As these arrangements are with developers and not with the end water or wastewater customer, the timing of revenue recognition coincided with the completion of our performance obligations under the agreement with the developer and with our ability to provide fitted capacity for water and wastewater service to the applicable development or parcel through our regulated subsidiaries.

The 2010 Regulatory Rate Decision No. 71878 established new rates for the recovery of reasonable costs incurred by the utilities and a return on invested capital. In determining the new annual revenue requirement, the ACC imputed a reduction to rate base for all amounts related to ICFA funds collected by us that the ACC deemed to be CIAC for rate making purposes. As a result of the decision by the ACC, we changed our accounting policy for the accounting of ICFA funds. Effective January 1, 2010, we recorded ICFA funds received as CIAC. Thereafter, the ICFA-related CIAC was amortized as a reduction of depreciation expense over the estimated depreciable life of the utility plant at the related utilities.

With the issuance of Rate Decision No. 74364, in February 2014, the ACC again changed how ICFA funds would be characterized and accounted for going forward. Most notably, the ACC changed the rate treatment of ICFA funds, and ICFA funds already received would no longer be deemed CIAC for rate making purposes. In conjunction with Rate Decision No. 74364, we eliminated the CIAC liability and reversed the associated regulatory liability brought about by the 2010 ruling. ICFA funds already received or which had become due prior to the date of Rate Decision No. 74364 were accounted for in accordance with our ICFA revenue recognition policy that had been in place prior to the 2010 Regulatory Rate Decision, wherein the funds received are recognized as revenue once the obligations specified in the ICFA were met. Rate Decision No. 74364 prescribes that of the ICFA funds which come due and are paid subsequent to December 31, 2013, 70% of the ICFA funds will be recorded in the associated utility subsidiary as a hook-up fee (“HUF”) liability, with the remaining 30% to be recorded as deferred revenue, until such time that the HUF tariff is fully funded, after which the remaining funds will be recorded as deferred revenue in accordance with our ICFA revenue recognition policy. A HUF tariff, specifying the dollar value of a HUF for each utility, was approved by the ACC as part of Rate Decision No. 74364. We are responsible for assuring the full HUF value is paid from ICFA proceeds, and recorded in its full amount by predetermined milestones in Rate Decision No. 74364, even if it results in recording more or less than 30% of the ICFA fee as deferred revenue.

We account for the portion of future payments received under these agreements allocated to HUF liability as CIAC. However, from the regulator’s perspective, HUFs do not impact rate base until the related funds are expended. These funds are segregated in a separate bank account and used to construct plant assets. The HUF liability is to be relieved once the funds are used for the construction of plant. For facilities required under a hook-up fee or ICFA, we must first use the HUF funds received, after which we may use debt or equity financing for the remainder of construction. The deferred revenue portion of these fees 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.

Pursuant to Rate Decision No. 74364, we have agreed not to enter into any new ICFAs, and instead will utilize HUF tariffs, which have become an acceptable industry practice in Arizona. As part of the settlement, a HUF tariff was established for each utility. Existing ICFAs will remain in place, with 70% of future ICFA payments to be recorded as HUFs until the HUF liability is fully

-29-

funded. The HUF liability is relieved as funds are expended to construct plant, at which time a corresponding amount is recorded to CIAC. The portion of ICFA proceeds not recorded as HUF will be recorded as revenue or deferred revenue, in accordance with our ICFA revenue recognition policy.

In addition to ICFAs, we have various line extension agreements with developers and builders, through which funds, water line extensions or wastewater line extensions are provided to us by the developers and are considered refundable advances for construction. These AIACs are subject to refund by us 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 is amortized as a reduction of depreciation expense over the estimated remaining life of the related utility plant. For rate-making purposes, a utility plant funded by AIAC and CIAC is excluded from rate base. The taxability of AIAC and CIAC was changed with the enactment of the TCJA. Previously, the majority of AIAC and CIAC that we collected were not taxable. However, with the enactment of the TCJA, they will be taxable going forward. On November 27, 2018, the ACC ruled that a utility may require that the contributor pay a gross-up to the utility consisting of 55% of the income tax expense with the utility covering the remaining 45% of the income tax expense. For more details regarding the ruling, refer to "—Recent Events — ACC Tax Docket."

Corporate Transactions

Debt Refinancing

With the completion of our initial public offering in the United States, the Company had the right to redeem all of its outstanding tax-exempt bonds at a price of 103% of the principal amount, plus interest accrued at the redemption date. Following completion of the U.S. IPO, the Company entered into a note purchase agreement (the “Note Purchase Agreement”) to issue two series of senior secured notes with total principal balance of $115.0 million. On June 24, 2016, the Company closed the Note Purchase Agreement transaction, which proceeds were primarily used to pay down the outstanding $106.7 million in tax-exempt bonds at 103%. For additional information, see “—Liquidity and Capital Resources—Senior Secured Notes.”

Stipulated Condemnation of the Operations and Assets of Valencia

On July 14, 2015, we 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 paid the Company $55.0 million at close, plus an additional $0.1 million in working capital adjustments. 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.

Private Letter Ruling

On June 2, 2016, we received a Private Letter Ruling from the IRS that, for purposes of deferring the approximately $19.4 million gain realized from the condemnation of the operations and assets of Valencia, determined that the assets converted upon the condemnation of such assets could be replaced through certain reclamation facility improvements contemplated by the Company under Internal Revenue Code §1033 as property similar or related in service or use. In June 2016, the Company converted all operating subsidiaries from corporations to limited liability companies to take full advantage of the benefits of such ruling.

Pursuant to Internal Revenue Code §1033, we would have been able to defer the gain on condemnation through the end of 2017. On April 18, 2017, the Company filed a request for a one-year extension to defer the gain to the end of 2018, which the IRS approved on August 8, 2017. On August 28, 2018, the Company filed a request to further defer the gain to the end of 2019, which the IRS approved on October 12, 2018. Following the most recent Private Letter Ruling extension, the Company expects an increase in capital expenditures for 2019 compared to 2018 to fully defer the remaining tax liability of approximately $1.8 million as of June 30, 2019.

Sale of Loop 303 Contracts

In September 2013, we entered into an agreement to sell certain wastewater facilities main extension agreements and offsite water management agreements for the contemplated Loop 303 service area, along with their related rights and obligations (which we refer to collectively as the “Loop 303 Contracts”), relating to the 7,000-acre territory within a portion of the western planning area of the City of Glendale, Arizona known as the “Loop 303 Corridor.” Pursuant to the agreement, we sold the Loop 303 Contracts to EPCOR for total proceeds of approximately $4.1 million ($3.1 million of which has been received as of December 31, 2018), which will be paid to us over a multi-year period. As part of the consideration, we agreed to complete certain engineering work

-30-

required in the offsite water management agreements, which we completed in 2013, thereby satisfying our remaining obligations relating to the Loop 303 Contracts. In April 2015, we received proceeds of approximately $0.3 million related to the sale of the Loop 303 Contracts. In March 2019, we received the remaining $1.0 million and recorded it as other income.

Recent Events

Line of Credit

On April 20, 2018, we entered into an agreement with MidFirst Bank, a federally chartered savings association, for a two-year revolving line of credit up to $8.0 million. The credit facility, which will be used for acquisitions and general corporate purposes, bears an interest rate of LIBOR plus 2.25%. In April 2019, we signed an amendment to the loan agreement which extends the maturity date from April 30, 2020 to April 30, 2022 and modifies the debt service coverage ratio to match the ratio required by the senior secured notes; all other terms remain unchanged. As of June 30, 2019, we had no outstanding borrowings under this credit line.

Acquisition of Turner Ranches Water and Sanitation Company

On May 30, 2018, we acquired Turner Ranches Water and Sanitation Company ("Turner"), a non-potable irrigation water utility located in Mesa, Arizona for a purchase price of $2.8 million. At the time of acquisition, Turner had 963 residential irrigation connections and approximately seven square miles of service area. We believe this acquisition is consistent with the Company's declared strategy of making accretive acquisitions.

ACC Tax Docket

On September 20, 2018, the ACC issued Rate Decision No. 76901, which set forth the reductions in revenue for our Santa Cruz, Palo Verde, Greater Tonopah, and Northern Scottsdale utilities due to the TCJA. Rate Decision No. 76901 adopted a phase-in approach for the reductions to match the phase-in of our revenue requirement under the Rate Decision No. 74364 enacted in February 2014. In 2018, the aggregate annual reductions in revenue for our Santa Cruz, Palo Verde, Greater Tonopah, and Northern Scottsdale utilities was approximately $782,000. In 2021, the final year of the phase-in, the aggregate annual reductions in revenue for our Santa Cruz, Palo Verde, Tonopah, and Northern Scottsdale utilities will be approximately $1.1 million. The ACC also approved a carrying cost of 4.25% on regulatory liabilities resulting from the difference of the fully phased-in rates to be applied in 2021 versus the phased-in rates refunded in 2018.

Rate Decision No. 76901, however, did not address the impacts of the TCJA on accumulated deferred income taxes (“ADIT”), including excess ADIT (“EADIT”). The ACC requested the Company to submit a proposal by December 19, 2018 regarding the impact of the TCJA on its ADIT as of January 1, 2018, and the related EADIT amortization methods for both the plant-related (the protected element of EADIT) and the non-plant related (the unprotected portion of EADIT) assets, as appropriate. On December 19, 2018, the Company submitted the required filing and proposed that as part of a required July 1, 2019 filing, it would propose revised tariffs that incorporate the appropriate rate impacts. The Company made its filing proposing revised tariffs on June 14, 2019. ACC Staff reviewed the filing and requested that the Company defer tariff revisions until such revisions can be considered in the next rate case. ACC Staff also requested that the Company defer consideration of the regulatory assets and regulatory liabilities associated with 2018 EADIT amortization. On July 18, 2019, the Company made a filing proposing these items be deferred to the next rate case. Refer to " — Recent Events — ACC Rate Case" for additional information regarding the Company's next rate case.

Previously, the ACC Chairman noted that there may be some unintended consequences related to the tax treatment of CIACs and AIACs, which are now taxable with the enactment of the TCJA. Following receipt of comments from various parties, including from us, and a recommendation from the ACC Staff, the ACC adopted an order in November 2018 relating to the funding for income taxes on CIACs and AIACs that provides for the following: 1) requires that under the hybrid sharing method, a contributor will pay a gross-up to the utility consisting of 55% of the income tax expense with the utility covering the remaining 45% of the income tax expense; 2) removes the full gross-up method option for Class A and B utilities and their affiliates (which includes all of our utilities); 3) ensures proper ratemaking treatment of a utility using the self-pay method; 4) clarifies that pass-through entities that are owned by a “C” corporation can recover tax expense according to methods allowed; and 5) requires Class A and B utilities to self-pay the taxes associated with hook-up fee contributions but permits using a portion of the hook-up fees to fund these taxes.

-31-

The ACC amended the November order by issuing Decision No. 77084 on February 20, 2019 and Decision No. 77104 on February 28, 2019, which imposed additional limits on grossing up CIAC, which we do not believe will be material to us.

ACC Rate Case

On March 20, 2019, we filed a motion with the ACC to request an order for certain of our utilities to file a rate case. Thereafter, on April 26, 2019, the ACC issued Decision No. 77168, which requires all of our utilities to file a rate case no later than June 30, 2020, using the twelve months ending December 31, 2019 as the test year for the rate case. The outcome of the new rate case cannot be predicted, but we anticipate that new rates would not take effect before the second half of 2021. We are in the initial stages of evaluating and preparing for the rate case, but we anticipate requesting a moderate increase in rates. There is no guarantee that the ACC will approve a rate increase or whether the ACC will take any other actions as a result of the rate case, including a decision to decrease future rates.

Common Stock Offering

On July 20, 2018, we completed a public offering of 1,720,000 shares of common stock at a public offering price of $9.25 per share, for gross proceeds of $15.9 million, which included 220,000 shares issued and sold pursuant to the underwriter's exercise in full of its option to purchase additional shares. We received net proceeds of approximately $14.6 million after deducting underwriting discounts and commissions and offering expenses payable by us, which collectively totaled $1.3 million.

Acquisition of Red Rock Utilities

On October 16, 2018, we completed the acquisition of Red Rock, an operator of a water and a wastewater utility with service areas in Pima and Pinal counties of Arizona, for a purchase price of $5.9 million. The acquisition added over 1,650 connections and approximately 9 square miles of service area. We believe this acquisition is consistent with the Company's declared strategy of making accretive acquisitions.

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, we are not organized around specific products and services, geographic regions, or regulatory environments. We currently operate in one geographic region within the State of Arizona, wherein each operating utility operates within the same regulatory environment.

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

-32-

Comparison of Results of Operations for the Three Months Ended June 30, 2019 and 2018

The following table summarizes our results of operations for the three months ended June 30, 2019 and 2018 (in thousands, except per share amounts):



	For the Three Months Ended June 30,
	2019			2018
Revenues	$	9,121		$	10,838
Operating expenses	6,876			6,734
Operating income	2,245			4,104
Total other expense	(1,111		)	(1,082		)
Income before income taxes	1,134			3,022
Income tax expense	(356		)	(766		)
Net income	$	778		$	2,256

Basic earnings per common share	$	0.04		$	0.11
Diluted earnings per common share	$	0.04		$	0.11

Revenues – The following table summarizes our revenues for the three months ended June 30, 2019 and 2018 (in thousands):



	For the Three Months Ended June 30,
	2019		2018
Water services	$	4,243	$	3,916
Wastewater and recycled water services	4,862		4,518
Unregulated revenues	16		2,404
Total revenues	$	9,121	$	10,838

Total revenues decreased $1.7 million, or 15.8%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018. This decrease was partially offset by the full year 2018 TCJA true-up of $189,000; removing the 2018 TCJA true-up, revenue decreased 17.3%. The decrease in revenue was driven by the $2.4 million of ICFA revenue recognized during the three months ended June 30, 2018, which resulted from additional capacity added to a wastewater plant. For the three months ended June 30, 2019, we did not recognize any ICFA revenue. Excluding the ICFA revenue recognized and removing the 2018 TCJA full year true-up, total revenues increased $0.5 million, or 5.6%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018. This increase reflects the 8.9% increase in active service connections, inclusive of the 4.3% increase due to the Red Rock acquisition, combined with the increase in rates related to Rate Decision No. 74364 in February 2014, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018. Partially offsetting this increase was a $0.2 million decrease in revenue due to the approved rate reduction pursuant to Rate Decision No. 76901 in September 2018 by the ACC resulting from the TCJA. Refer to "—Recent Events — ACC Tax Docket."

Water Services – Water services revenue increased $0.3 million, or 8.4%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018. The increase in water services revenues primarily related to the acquisitions of Turner and Red Rock along with growth in organic revenue. The increase was also driven by the full year TCJA true-up recorded during the three months ended June 30, 2018.

Water services revenue based on consumption decreased by $0.2 million, or 9.4%, to $2.0 million for the three months ended June 30, 2019 compared to $2.2 million for the three months ended June 30, 2018. This decrease was primarily driven by decreases in irrigation and commercial consumption for the three months ended June 30, 2019 compared to the three months ended June 30, 2018.

Active water connections increased 8.6% to 23,208 as of June 30, 2019 from 21,380 as of June 30, 2018, due to organic growth in our service areas (941 connections, or 4.4%) as well as the acquisition of Red Rock (887 connections, or 4.1%).

Water consumption increased 6.1% to 833 million gallons for the three months ended June 30, 2019 from 785 million gallons for the three months ended June 30, 2018. The increase in consumption was primarily related to the acquisitions of Turner and Red Rock. The increase due to acquisitions was partially offset by decreases in golf course and commercial consumption.

-33-

Water services revenue associated with the basic service charge, excluding miscellaneous charges, increased $0.2 million, or 7.6%, to $2.2 million for the three months ended June 30, 2019 compared to $2.0 million for the three months ended June 30, 2018. Of the $0.2 million increase, $0.1 million was due to the Turner and Red Rock acquisitions. The remaining increase related to increases in active service connections, combined with an increase in rates related to Rate Decision No. 74364.

Wastewater and Recycled Water Services – Wastewater and recycled water services revenue increased $0.3 million, or 7.6%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018. The increase in wastewater and recycled water services revenue was comprised of a $0.3 million increase in wastewater services revenue (inclusive of a $0.2 million increase due to Red Rock). The increase in wastewater services revenue reflects the increase in active wastewater connections, which increased 9.2% to 21,507 (inclusive of 875 connections due to the Red Rock acquisition) as of June 30, 2019 from 19,698 as of June 30, 2018, as well as the increase in rates related to Rate Decision No. 74364.

Recycled water services revenue, which is based on the number of gallons delivered, increased $14,000, or 4.8%, to $0.3 million for the three months ended June 30, 2019. The increase in recycled water services revenue was primarily related to the increase in rates related to Rate Decision No. 74364.

Operating Expenses – The following table summarizes our operating expenses for the three months ended June 30, 2019 and 2018 (in thousands):



	For the Three Months Ended June 30,
	2019		2018
Operations and maintenance	$	1,780	$	1,621
Operations and maintenance - related party	437		404
General and administrative	2,650		2,820
Depreciation	2,009		1,889
Total operating expenses	$	6,876	$	6,734

Operations and Maintenance – Operations and maintenance costs, consisting of personnel costs, production costs (primarily chemicals and purchased power), maintenance costs, and property tax, increased $0.2 million, or 9.8%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018.

Total personnel expenses increased $0.1 million, or 17.8%, to $0.5 million for the three months ended June 30, 2019 compared to $0.4 million for the three months ended June 30, 2018, primarily due to the Turner and Red Rock acquisitions.

Repairs and maintenance expenses increased $21,000, or 63.6%, to $54,000 for the three months ended June 30, 2019 compared to $33,000 for the three months ended June 30, 2018, primarily driven by lower expenses in 2018 due to new construction of additional capacity to a wastewater plant completed in 2018, combined with the Turner and Red Rock acquisitions.

Property tax expense increased $23,000, or 4.4%, remaining consistent at $0.5 million for the three months ended June 30, 2019 and June 30, 2018. Property taxes are calculated using a centrally valued property calculation, which derives property values based upon three-year historical revenues. As revenues increase, we expect that property taxes will increase. The increase is also partially due to the Turner and Red Rock acquisitions.

Contract services increased $24,000 to $0.1 million for the three months ended June 30, 2019 compared to less than $0.1 million for the three months ended June 30, 2018, primarily due to increases in landscaping and testing services, as well as due to the Red Rock acquisition.

Contract services - related parties expenses increased $33,000, or 8.2%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018. The increase is due to the monthly rate per account owed to Fathom, which increased to $6.43 on January 1, 2019 from $6.24. The increase was also partially driven by the acquisition of Red Rock.

General and Administrative – General and administrative costs include the day-to-day expenses of office operation, personnel costs, legal and other professional fees, insurance, rent, and regulatory fees. These costs decreased $0.2 million, or 6.0%, during the three months ended June 30, 2019 compared to the three months ended June 30, 2018.

Deferred compensation expense decreased $0.2 million to $0.3 million for the three months ended June 30, 2019, compared to $0.5 million for the three months ended June 30, 2018. The decrease was primarily related to the 2015 management SARs being fully expensed at December 31, 2018 and the 2015 executive SARs being fully expensed at March 31, 2019.

-34-

Professional fees decreased $0.1 million to $0.4 million for the three months ended June 30, 2019, compared to $0.5 million for the three months ended June 30, 2018. The decrease was primarily related to expenses associated with strategic initiatives and TCJA analysis performed during the three months ended June 30, 2018.

Personnel and related expenses increased $0.1 million to $0.9 million for the three months ended June 30, 2019, compared to $0.8 million for the three months ended June 30, 2018.The increase was primarily related to increases in salaries and bonus, coupled with increases in 401(k) and worker's compensation insurance expense, slightly offset by lower medical insurance expense for the three months ended June 30, 2019, compared to the three months ended June 30, 2018.

Depreciation - Depreciation expense increased $0.1 million to $2.0 million for the three months ended June 30, 2019, compared to $1.9 million for the three months ended June 30, 2018. The increase was primarily driven by the acquisition of Red Rock and Turner.

Income Tax Expense – Income tax expense decreased $0.4 million to $0.4 million for the three months ended June 30, 2019 compared to $0.8 million for the three months ended June 30, 2018. The decrease was driven by a decrease in pretax income.

Net Income – Net income totaled $0.8 million for the three months ended June 30, 2019 compared to net income of $2.3 million for the three months ended June 30, 2018. The $1.5 million decrease was primarily attributed to the $1.9 million decrease in operating income, which was driven by the $2.4 million decrease in operating revenues due to ICFA revenue recognized during the three months ended June 30, 2018, partially offset by decreases in general and administrative expenses.

Comparison of Results of Operations for the Six Months Ended June 30, 2019 and 2018

The following table summarizes our results of operations for the six months ended June 30, 2019 and 2018 (in thousands, except per share amounts):



	For the Six Months Ended June 30,
	2019			2018
Revenues	$	16,844		$	18,263
Operating expenses	13,400			12,795
Operating income	3,444			5,468
Total other expense	(1,319		)	(1,985		)
Income before income taxes	2,125			3,483
Income tax expense	(698		)	(907		)
Net income	$	1,427		$	2,576

Basic earnings per common share	$	0.07		$	0.13
Diluted earnings per common share	$	0.07		$	0.13

Revenues – The following table summarizes our revenues for the six months ended June 30, 2019 and 2018 (in thousands):



	For the Six Months Ended June 30,
	2019		2018
Water services	$	7,381	$	7,031
Wastewater and recycled water services	9,431		8,815
Unregulated revenues	32		2,417
Total revenues	$	16,844	$	18,263

Total revenues decreased $1.4 million, or 7.8%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The decrease was driven by the $2.4 million of ICFA revenue recognized during the six months ended June 30, 2018 which resulted from additional capacity added to a wastewater plant. For the six months ended June 30, 2019, we did not recognize any ICFA revenue. Excluding the ICFA revenue recognized, total revenues increased $1.0 million, or 6.1%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The increase in revenue reflects the 8.9% increase in active service connections, inclusive of the 4.3% increase due to the Red Rock acquisition, combined with the increase in rates related to Rate Decision No. 74364 in February 2014, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018.

-35-

Water Services – Water services revenue increased by $0.3 million, or 5.0%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The increase in water services revenues primarily related to the Turner and Red Rock acquisitions, partially offset by decreased consumption.

Water services revenue based on consumption decreased by $0.3 million, or 10.3%, to $2.9 million for the six months ended June 30, 2019 compared to $3.2 million for the six months ended June 30, 2018. This decrease was primarily driven by decreases in irrigation and residential consumption for the six months ended June 30, 2019 compared to the six months ended June 30, 2018.

Water consumption increased 4.3% to 1,247 million gallons for the six months ended June 30, 2019 from 1,196 million gallons for the six months ended June 30, 2018. The increase in consumption was primarily related to the acquisitions of Turner and Red Rock. The increase due to acquisitions was partially offset by decreases in golf course, residential, and construction consumption.

Water services revenue associated with the basic service charge, excluding miscellaneous charges, increased $0.3 million, or 8.2%, to $4.3 million for the six months ended June 30, 2019 compared to $4.0 million for the six months ended June 30, 2018. The increase was due to the Turner and Red Rock acquisitions, which, together, accounted for $0.2 million of the increase.

Wastewater and Recycled Water Services – Wastewater and recycled water services revenue increased $0.6 million, or 7.0%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The increase in wastewater and recycled water services revenue was comprised of a $0.7 million increase in wastewater services revenue (inclusive of a $0.4 million increase due to Red Rock) partially offset by a $0.1 million decrease in recycled water services revenue. The increase in wastewater services revenue reflects the increase in active wastewater connections, which increased 9.2% to 21,507 (inclusive of 875 connections due to the Red Rock acquisition) as of June 30, 2019 from 19,698 as of June 30, 2018, as well as the increase in rates related to Rate Decision No. 74364.

Recycled water services revenue, which is based on the number of gallons delivered, decreased $0.1 million, or 11.8%, to $0.4 million for the six months ended June 30, 2019. The decrease in recycled water services revenue was primarily related to the decrease in volume of recycled water delivered, which decreased 70 million gallons to 269 million gallons for the six months ended June 30, 2019 compared to 339 million gallons for the six months ended June 30, 2018.

Operating Expenses – The following table summarizes our operating expenses for the six months ended June 30, 2019 and 2018 (in thousands):



	For the Six Months Ended June 30,
	2019		2018
Operations and maintenance	$	3,503	$	3,130
Operations and maintenance - related party	852		760
General and administrative	5,025		5,217
Depreciation	4,020		3,688
Total operating expenses	$	13,400	$	12,795

Operations and Maintenance – Operations and maintenance costs, consisting of personnel costs, production costs (primarily chemicals and purchased power), maintenance costs, and property tax, increased $0.4 million, or 11.9%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018.

Total personnel expenses increased $0.1 million, or 15.6%, to $1.0 million for the six months ended June 30, 2019 compared to $0.8 million for the six months ended June 30, 2018, primarily due to the Turner and Red Rock acquisitions.

Repairs and maintenance expenses increased $65,000 to $139,000 for the six months ended June 30, 2019 compared to $74,000 for the six months ended June 30, 2018, primarily driven by lower expenses in 2018 due to new construction of additional capacity to a wastewater plant completed in 2018, combined with the Turner and Red Rock acquisitions.

Property tax expense increased $0.1 million, or 5.9%, to $1.1 million for the six months ended June 30, 2019 compared to $1.0 million for the six months ended June 30, 2018. Property taxes are calculated using a centrally valued property calculation, which derives property values based upon three-year historical revenues. As revenues increase, we expect that property taxes will increase. The increase is also partially due to the Turner and Red Rock acquisitions.

-36-

Contract services increased $61,000, or 81.3%, to $136,000 for the six months ended June 30, 2019 compared to $75,000 for the six months ended June 30, 2018, primarily due to the Red Rock acquisition coupled with increases in landscaping services.

Contract services - related parties expenses increased $0.1 million, or 12.1%, to $0.9 million for the three months ended June 30, 2019 compared to $0.8 million for the three months ended June 30, 2018. The increase is due to the monthly rate per account due to Fathom, which increased to $6.43 on January 1, 2019 from $6.24. The increase was also partially driven by the acquisition of Red Rock.

General and Administrative – General and administrative costs include the day-to-day expenses of office operation, personnel costs, legal and other professional fees, insurance, rent, and regulatory fees. These costs decreased $0.2 million, or 3.7%, during the six months ended June 30, 2019 compared to the six months ended June 30, 2018.

Professional fees decreased $0.3 million to $0.8 million for the six months ended June 30, 2019, compared to $1.1 million for the six months ended June 30, 2018. The decrease was primarily related to expenses associated with strategic initiatives and TCJA analysis performed during the six months ended June 30, 2018.

Personnel and related expenses increased $70,000, or 3.9%, remaining consistent at $1.8 million for the six months ended June 30, 2019 and 2018. The increase was primarily related to increases in salaries and bonus, coupled with increases in 401(k) and worker's compensation insurance expense, slightly offset by lower medical insurance expense for the six months ended June 30, 2019, compared to the six months ended June 30, 2018.

Depreciation - Depreciation expense increased $0.3 million, or 9.0%, to $4.0 million for the six months ended June 30, 2019, compared to $3.7 million for the six months ended June 30, 2018. The increase was primarily driven by the acquisition of Red Rock and Turner.

Other Expense – Other expense totaled $1.3 million for the six months ended June 30, 2019 compared to other expense of $2.0 million for the six months ended June 30, 2018. The decrease of $0.7 million in other expense was primarily attributed to the receipt of the remaining $1.0 million of proceeds in March 2019 relating to the Loop 303 Contracts, partially offset by a decrease in the Valencia earnout of $0.3 million. The Valencia earnout consists of $3,000 for each new water meter installed within Valencia Water Company’s prior service areas. This decrease was driven by slowed growth in our former service territory.

Other – related party income increased by $58,000, remaining consistent at $0.1 million for the six months ended June 30, 2019 and 2018. Other – related party income includes royalty income based upon a percentage of certain FATHOM™ recurring revenue combined with the equity method gains and losses associated with our equity method investment in FATHOM™. The increase in other – related party income was primarily driven by the equity method loss recorded on our investment in FATHOM™ of $0.1 million for the six months ended June 30, 2019 compared to a loss of $0.2 million for the six months ended June 30, 2018. Refer to Note 6 — “Equity Method Investment” of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for additional information. The decrease in Other – related party expense was slightly offset by a $22,000 decrease in royalty income for the six months ended June 30, 2019 compared to the six months ended June 30, 2018.

Income Tax Expense – Income tax expense decreased $0.2 million to $0.7 million for the six months ended June 30, 2019 compared to $0.9 million for the six months ended June 30, 2018. The decrease was driven by a decrease in pretax income.

Net Income – Net income totaled $1.4 million for the six months ended June 30, 2019 compared to net income of $2.6 million for the six months ended June 30, 2018. The $1.1 million decrease was primarily attributed to the $2.0 million decrease in operating income, partially offset by the $0.7 million decrease in total other expense for the six months ended June 30, 2019 compared to the six months ended June 30, 2018.

Outstanding Share Data

As of August 5, 2019, there were 21,536,834 shares of our common stock outstanding and options to acquire an additional 390,796 shares of our common stock outstanding.

Liquidity and Capital Resources

Our capital resources are provided by internally generated cash flows from operations as well as debt and equity financing. Additionally, our 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. We use our capital resources to:


•	fund operating costs;

-37-


•	fund capital requirements, including construction expenditures;


•	pay dividends;


•	fund acquisitions;


•	make debt and interest payments; and


•	invest in new and existing ventures.

Our 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 June 30, 2019, we have no notable near-term cash expenditures or debt obligations. While specific facts and circumstances could change, we believe that we have sufficient cash on hand, the ability to draw on the $8.0 million revolver, and will be able to generate sufficient cash flows to meet our operating cash flow requirements and capital expenditure plan as well as remain in compliance with our debt covenants for at least the next twelve months.

In March 2014, we initiated a dividend program to declare and pay a monthly dividend. On November 8, 2018, we announced a monthly dividend increase from $0.023625 per share ($0.2835 per share annually) to $0.023861 per share ($0.286332 per share annually). Although we expect monthly dividends will be declared and paid for the foreseeable future, the declaration of any dividends is at the discretion of our 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. Our 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 six months ended June 30, 2019, our net cash provided by operating activities totaled $5.7 million compared to $5.3 million for the six months ended June 30, 2018. The $0.4 million increase in cash from operating activities was primarily driven by the decrease in payments related to other non-current liabilities of $2.1 million and accounts payable of $0.4 million, partially offset by the decrease in net income of $1.1 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018.

Cash from Investing Activities

Our net cash used in investing activities totaled $4.9 million for the six months ended June 30, 2019 compared to $5.1 million for the six months ended June 30, 2018. The $0.2 million decrease in cash used in investing activities was primarily driven by a decrease in cash paid for acquisitions of $2.6 million, partially offset by an increase in capital expenditures of $2.4 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018.

We continue to invest capital prudently in our existing, core service areas where we are able to deploy our Total Water Management model as service connections grow. This includes any required maintenance capital expenditures and the construction of new water and wastewater treatment and delivery facilities. Following the most recent Private Letter Ruling extension, we expect an increase in capital expenditures for 2019 compared to 2018 to fully defer the remaining tax liability of approximately $1.8 million as of June 30, 2019 (refer to “—Corporate Transactions—Private Letter Ruling”). Our projected capital expenditures and other investments are subject to periodic review and revision to reflect changes in economic conditions and other factors.

Cash from Financing Activities

Our net cash used in financing activities totaled $2.3 million for the six months ended June 30, 2019, a $0.6 million increase as compared to the $1.7 million in cash used in financing activities for the six months ended June 30, 2018. This increase was primarily driven by a decrease of $0.3 million in proceeds from stock option exercises received for the six months ended June 30, 2019, compared to the six months ended June 30, 2018, coupled with an increase in dividends paid of $0.3 million.

Senior Secured Notes

On June 24, 2016, we 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 carries a principal balance of $28.8 million and bears an interest rate of 4.38% over a twelve-year term,

-38-

with the principal payment due on June 15, 2028. Series B carries a principal balance of $86.3 million and bears an interest rate of 4.58% over a 20-year term. Series B is interest only for the first five years, with $1.9 million principal payments paid semiannually thereafter. The proceeds of the senior secured notes were primarily used to refinance our long-term tax exempt bonds, pursuant to an early redemption option at 103%, plus accrued interest, as a result of the initial public offering of our common stock in May 2016.

Debt issuance costs as of both June 30, 2019 and December 31, 2018 were $0.6 million.

Revolving Credit Line

On April 20, 2018, the Company entered into a loan agreement ("Loan Agreement") with MidFirst Bank, a federally chartered savings association, on the terms and subject to conditions set forth in the Loan Agreement, for a revolving credit facility in the maximum principal amount of $8.0 million. The Company intends to use the borrowings for future acquisitions and general corporate purposes.

Borrowings under the Loan Agreement will bear interest at a rate equal to the London Interbank Offered Rate ("LIBOR") plus 2.25%. The original scheduled maturity date of April 30, 2020, subject to certain prepayment requirements upon a change of control, was extended in April 2019 to April 30, 2022.

The Loan Agreement contains a debt service coverage ratio financial maintenance covenant and 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 Loan Agreement. Pursuant to the Loan Agreement, the revolving credit facility will be subject to certain customary events of default after which the revolving credit facility may be declared due and payable if not cured within the grace period or, in certain circumstances, may be declared due and payable immediately. Refer to Note 12 — "Debt" of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for additional information. As of June 30, 2019, the Company was in compliance with its financial debt covenants.

As of June 30, 2019, the Company had no outstanding borrowings under this credit line. The Company incurred $40,000 debt issuance costs as of June 30, 2019 and $0.1 million as of December 31, 2018.

Insurance Coverage

We carry 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. We are 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 our short-term and long-term financial condition and the results of operations and cash flows.

Critical Accounting Policies, Judgments, and Estimates

The application of critical accounting policies is particularly important to our financial condition and results of operations and provides a framework for management to make significant estimates, assumptions, and other judgments. Additionally, our 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 our 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 our financial condition and results of operations as reflected in our financial statements.

There have been no significant changes to our critical accounting policies from those disclosed under “Managements’ Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies, Judgments, and Estimates” in our

-39-

most recent Annual Report on Form 10-K filed with the SEC on March 7, 2019 other than as disclosed below.

On January 1, 2019, the Company adopted Accounting Standards Codification 606, Revenue from Contracts with Customers, using the modified retrospective approach. The Company identified its sources of revenue streams that fall within the scope of this guidance and applied the five-step model to all qualifying revenue streams to determine when to recognize revenue. Refer to Note 3 — "Revenue Recognition" of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for additional information.

Off Balance Sheet Arrangements

As of June 30, 2019 and December 31, 2018, we did not have any off-balance sheet arrangements.

Contractual Obligations

The following table summarizes our contractual cash obligations as of June 30, 2019 (in thousands):



			Payments Due By Period
	Total		Less than 1 Year		1 - 3 Years		3 - 5 Years		More than 5 Years
Long term debt obligations	$	115,028	$	3	$	1,927	$	7,668	$	105,430
Interest on long-term debt ⁽²⁾	59,400		5,212		10,376		9,805		34,007
Capital lease obligations	260		36		155		69		—
Interest on capital lease	31		15		15		1		—
Operating lease obligations	623		164		428		31		—
FATHOM™ purchase obligations⁽³⁾	350		350		—		—		—
Total⁽¹⁾	$	175,692	$	5,780	$	12,901	$	17,574	$	139,437

(1)

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.


(2)	Interest on the long-term debt is based on the fixed rates of the Company’s senior secured notes.

(3)

The Company entered into an agreement with FATHOM™ to replace a majority of its meter infrastructure in 2016. This project was substantially completed in 2017. The final amount to be paid is pending completion pursuant to the terms of the agreement. Refer to Note 9 – “Transactions with Related Parties” of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for additional information.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk associated with changes in commodity prices, equity prices, and interest rates. The Company uses fixed-rate long-term debt to reduce the risk from interest rate fluctuations. Although the Company’s currently outstanding long-term debt is based on fixed rates, changes in interest rates could impact the fair market value of such long-term debt. As of June 30, 2019, the fair market value of the Company’s long-term debt was $115.3 million. For additional information about the Company’s long-term debt, refer to Note 12 — “Debt” of the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for additional information.

Other than interest-related risks, the Company believes the risks associated with price increases for chemicals, electricity, and other commodities are mitigated by the Company’s ability over the long-term to recover its costs through rate increases to its customers, though such recovery is subject to regulatory lag.

-40-

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Office and Chief Financial Officer, reviewed and evaluated our disclosure controls and procedures (as such term is defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Change in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as such term is defined under Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the fiscal quarter ended June 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

-41-

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the ordinary course of business, we may, from time to time, be subject to various pending and threatened lawsuits in which claims for monetary damages are asserted. To our knowledge, we are not involved in any legal proceeding which is expected to have a material effect on us.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018. There have been no material changes in our risk factors from those discussed in “Risk Factors” included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

a) Sales of Unregistered Securities

No unregistered securities were sold during the three months ended June 30, 2019.

b) Use of Proceeds

None.

c) Issuer Purchases of Equity Securities

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION


Item 5.02	Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

Global Water Resources, Inc. 2020 Omnibus Incentive Plan

On August 6, 2019, the Company’s Board of Directors (the “Board”) adopted, subject to approval by the Company’s shareholders, the Global Water Resources, Inc. 2020 Omnibus Incentive Plan (the “2020 Omnibus Plan”). The 2020 Omnibus Plan is designed to replace the Company’s existing equity plans, including the 2018 Stock Option Plan, the Deferred Phantom Unit Plan and the Phantom Stock Unit Plan. No further awards will be made under the Company’s existing plans following the date that the 2020 Omnibus Plan is approved by the shareholders. The existing plans will remain in effect until all awards granted under such plans have been exercised, forfeited or cancelled or have otherwise expired or terminated.

The material terms of the 2020 Omnibus Plan are as follows:

General

The 2020 Omnibus Plan is intended to promote the interests and long-term success of the Company and its shareholders by providing eligible participants the opportunity to earn equity awards aligned with the continued growth and success of the Company.

-42-

The 2020 Omnibus Plan provides that grants may be in any of the following forms:


•	Non-Qualified Stock Options


•	Incentive Stock Options


•	Stock Appreciation Rights


•	Restricted Stock


•	Restricted Stock Units


•	Stock Awards


•	Performance Shares


•	Performance Units


•	Non-Employee Director Retainer Awards

Subject to adjustment in certain circumstances, the total number of shares of common stock that will be reserved under the 2020 Omnibus Plan is 1,170,000 (which will include any shares of common stock that were authorized but unissued under the Global Water Resources, Inc. 2018 Stock Option Plan).

Solely for the purposes of calculating the number of shares of stock available for grant under the 2020 Omnibus Plan, the following share counting rules apply:


•	Each share of stock subject to options or stock appreciation rights will be counted against the shares of stock available for issuance as one share.


•	Each share of stock subject to an award other than options or stock appreciation rights will be counted against the shares of stock available for issuance as two shares.


•	If an award granted under the 2020 Omnibus Plan terminates, expires or lapses for any reason, the number of shares of stock subject to such award shall again become available for grant under the 2020 Omnibus Plan.


•	If an award is settled in cash, the shares of stock used to measure the value of the award, if any, will not reduce the number of shares of stock available for grant under the 2020 Omnibus Plan.


•	The exercise of stock-settled stock appreciation rights or broker-assisted “cashless” exercise of options shall reduce the number of shares of stock available for grant by the entire number of shares subject to the stock appreciation right or option.


•	Dividend equivalents paid in shares of stock will reduce the number of shares of stock available for grant by the number of shares of stock used to satisfy such dividend equivalent.


•	Shares of stock tendered or withheld to pay the exercise price of an option or to satisfy a tax withholding obligation arising in connection with an award will not again become shares of stock available for grant under the 2020 Omnibus Plan.


•	Shares of stock purchased on the open market with cash proceeds generated by the exercise of an option will not increase or replenish the number of shares of stock available for grant under the 2020 Omnibus Plan.

The Company may issue shares of common stock under the 2020 Omnibus Plan from authorized but unissued shares of stock or shares purchased on the open market or treasury stock not reserved for any other purpose.

The maximum aggregate number of shares of stock that may be granted pursuant to all grants under the 2020 Omnibus Plan during any calendar year is 500,000 (or the equivalent cash value) with respect to any one employee and 100,000 (or the equivalent cash value) with respect to any one non-employee director.

Administration

The 2020 Omnibus Plan will be administered and interpreted by the Compensation Committee of the Board (the “Committee”). The Committee has the authority to:


•	Interpret the 2020 Omnibus Plan and make all determinations necessary or advisable for the administration of the same;

-43-


•	Prescribe, amend and rescind rules and regulations relating to the 2020 Omnibus Plan;


•	Provide for conditions and assurances deemed necessary or advisable to protect the interests of the Company;


•	Determine the participants who are entitled to receive awards under the 2020 Omnibus Plan;


•	Determine the types of awards, the times when awards will be granted and the schedule for lapse of restrictions or limitations and accelerations or waivers thereof;


•	Determine the number of awards;


•	Determine the purchase price or exercise price, if any, and the period during which awards shall be exercisable; and


•	Establish the restrictions applicable to awards and the form of each award agreement.

Eligibility

All employees, directors and consultants of the Company are eligible to participate in the 2020 Omnibus Plan. Subject to the provisions of the 2020 Omnibus Plan, the Committee may select among all eligible participants those to whom awards shall be granted.

Types of Awards

Stock Options

The Committee may grant options intended to qualify as “incentive stock options” (“ISOs”) within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”) or “non-qualified stock options” (“NQSOs”) that are not intended to so qualify, or any combination of the same. Any participant may receive a grant of NQSOs. Only employees may receive a grant of ISOs.

The Committee will determine the exercise price per share for options on the grant date or on a date in the future when the Committee determines the options will be effective. No option will be granted at an exercise price that is less than the fair market value of one share of stock on the grant date. Special rules apply in the event ISOs are granted to an employee who holds more than ten percent of the total combined voting power of all classes of outstanding stock.

The Committee will determine the term of each option, which will not exceed ten years from the date of grant. However, if an ISO is granted to an employee who holds more than ten percent of the combined voting power of all classes of outstanding stock, the term of the ISO may not exceed five years from the date of grant.

Stock Appreciation Rights

The Committee may grant stock appreciation rights in its discretion. Such stock appreciation rights entitle a participant to receive in cash or in shares of stock an amount equal to the excess of the fair market value of a specified number of shares of stock on the date of exercise over an exercise price established by the Committee.

Stock appreciation rights may be granted in tandem with all or a portion of a related option (a “Tandem SAR”) or separately (a “Freestanding SAR”).

A Tandem SAR will be exercisable to the extent that the related option is exercisable and the exercise price of such a Tandem SAR will be the exercise price of the related option. At no time will a Tandem SAR be issued if the exercise price of its related option is less than 100 percent of the fair market value of the stock on the grant date.

A Freestanding SAR will be exercisable in accordance with such terms and conditions as may be determined by the Committee. The exercise price of a Freestanding SAR will not be less than 100 percent of the fair market value of the stock on the grant date. All Freestanding SARs will expire no later than ten years from the grant date.

-44-

Restricted Stock Units

The Committee may grant restricted stock units in its discretion. Such restricted stock units entitle a participant to receive a specified number of shares of stock, or its cash equivalent, subject to such restrictions as the Committee may impose. In addition, the Committee may grant the participant dividend equivalents or other distribution rights.

During the period of restriction, participants holding restricted stock units will have no voting rights with respect to the shares subject to such restricted stock units.

Unless otherwise provided pursuant to an award agreement or employment agreement, upon termination of employment, restricted stock units that are at such time subject to restrictions shall be forfeited.

Restricted Stock

The Committee may grant restricted stock in its discretion. Such restricted stock entitles a participant to receive a specified number of shares of stock subject to such restrictions as the Committee may impose.

During the period of restriction, unless otherwise provided for in an award agreement, participants holding restricted stock will have voting rights with respect to the shares subject to such restrictions.

Unless otherwise provided pursuant to an award agreement or employment agreement, upon termination of employment, restricted stock that is at such time subject to restrictions shall be forfeited.

Stock Awards

The Committee may grant stock awards in its discretion. Such stock awards entitle a participant to receive (or purchase at a price determined by the Committee) shares of stock free of any vesting restrictions.

Performance Shares

The Committee may grant performance shares in its discretion. Such performance shares may be subject to certain conditions or restrictions as determined by the Committee and as set out in any applicable award agreement. In addition, the Committee may also grant certain dividend equivalents.

Performance Share Units

The Committee may grant performance share units in its discretion. Such performance share units may be subject to certain conditions or restrictions as determined by the Committee and as set out in any applicable award agreement. In addition, the Committee may also grant certain dividend equivalents.

Non-Employee Director Retainer Awards

The Board may grant non-employee director retainer awards in its discretion. Such retainer awards may be payable in cash or awards and will be subject to such terms and conditions as set out in any applicable award agreement.

Change of Control

If a change of control occurs, the Committee shall have the authority and discretion, but not the obligation, to provide, in an award agreement or employment agreement or otherwise, that all or part of any outstanding awards shall become fully exercisable and all or part of the restrictions on such outstanding awards shall lapse. Any such action will be, where required, done in compliance with Section 409A of the Code.

Clawback

In an award agreement or employment agreement, the Committee may include provisions calling for the recapture or clawback of all or any portion of an award to the extent necessary to comply with Company policy or applicable law.

-45-

Amendment and Termination

The Board may terminate, amend or modify the 2020 Omnibus Plan at any time, subject to shareholder approval if such approval is required to comply with the Code, applicable law, or applicable stock exchange requirements.

If the 2020 Omnibus Plan is approved by shareholders, it will terminate ten (10) years from its effective date, unless terminated earlier by the Board or unless extended by the Board with the approval of shareholders.

New Employment Agreements

On August 6, 2019, the Company entered into new employment agreements (the “Agreements”) with each of Ron L. Fleming, the Company’s President and Chief Executive Officer, and Michael J. Liebman, the Company’s Senior Vice President, Secretary and Chief Financial Officer. The Agreements replace the Company’s existing employment agreements with each of Mr. Fleming and Mr. Liebman, effective August 7, 2019. Unless terminated earlier in accordance with its terms, each of the Agreements continues until August 31, 2023 and will automatically renew for one or more additional 12-month periods unless either the Company or the executive provides notice prior to the end of the then-current term.

The Agreements provide that, during each calendar year during the term of the Agreements, Mr. Fleming will receive an annual base salary of $350,000, and Mr. Liebman will receive an annual base salary of $280,000. The Board (or the Committee) may review the base salaries on an annual basis to determine whether any increases are appropriate.

In addition, Mr. Fleming and Mr. Liebman may be entitled to annual incentive compensation as determined (a) in the discretion of the Board (or its compensation committee) or (b) pursuant to any incentive compensation program adopted by the Company from time to time. For each calendar year, Mr. Fleming and Mr. Liebman will be eligible to receive up to 50% and 40%, respectively, of his base salary as incentive compensation in the form of a cash bonus. With respect to the performance period ending December 31, 2019, Mr. Fleming and Mr. Liebman will be eligible to receive up to 50% and 40%, respectively, of his base salary as incentive compensation in the form of phantom stock units as determined in accordance with the Global Water Resources, Inc. Phantom Stock Unit Plan (the “PSU Plan”). For performance periods beginning on and after January 1, 2020, subject to the Company’s shareholders approving the 2020 Omnibus Plan, in lieu of phantom stock units pursuant to the PSU Plan, Mr. Fleming and Mr. Liebman will be eligible to receive up to 50% and 40%, respectively, of his base salary in the form of restricted stock units or such other equity awards as may be issued pursuant to the 2020 Omnibus Plan. The actual number of restricted stock units or other equity will be based on the Executive satisfying the performance goals established by the Board (or its compensation committee) and calculated in accordance with the bonus payments for all employees.

Subject to the Company’s shareholders approving the 2020 Omnibus Plan, Mr. Fleming and Mr. Liebman are entitled to 81,120 and 66,370 shares of restricted stock (the “Restricted Shares”), respectively. If the 2020 Omnibus Plan is approved by the shareholders, the Restricted Shares shall have a grant date as of the date on which the 2020 Omnibus Plan is approved by the Company’s shareholders or such other later date as determined by the Committee (the “Initial Grant Date”). Such Restricted Shares shall vest in three substantially equal installments: one-third (1/3) of the Restricted Shares shall vest on the Initial Grant Date; one-third (1/3) of the Restricted Shares shall vest on the first anniversary of the Initial Grant Date; and one-third (1/3) of the Restricted Shares shall vest on the second anniversary of the Initial Grant Date. Notwithstanding the foregoing, no Restricted Shares shall be granted to the executives if (1) the Company’s shareholders fail to approve the 2020 Omnibus Plan or (2) the respective executive terminates employment with the Company for any reason prior to the Initial Grant Date. The grant of Restricted Shares shall be subject to the terms of the 2020 Omnibus Plan and the award agreement granting the Restricted Shares.

The Company will provide to Mr. Fleming and Mr. Liebman such fringe and other benefits as are regularly provided by the Company to members of its senior management team.

If either Mr. Fleming’s or Mr. Liebman’s employment is:

•

voluntarily terminated by the executive without Good Reason (as defined in the Agreements) or if the Company terminates the executive’s employment for Cause (as defined in the Agreements), then (i) the Company will be obligated to pay the executive’s then current base salary through the date of termination and any incentive compensation earned in previous years but not yet paid; and (ii) no incentive compensation shall be payable for the year in which the termination occurs. In addition, any unvested phantom stock units, stock appreciation rights, shares of restricted stock, or other equity-based awards shall be forfeited.


•	voluntarily terminated by the executive with Good Reason, or if the Company terminates the executive’s employment without Cause (including by providing notice of non-renewal), then (i) the Company will be

-46-

obligated to pay the executive’s then current base salary through the date of termination and any incentive compensation earned in previous years but not yet paid; (ii) no incentive compensation shall be payable for the year in which the termination occurs (except if the termination occurs during the last six months of the Company’s fiscal year, the executive may be entitled to certain pro rata payments); (iii) if the executive timely and properly elects continuation coverage under COBRA, the Company shall reimburse the executive for the COBRA premiums as specified in the Agreements; (iv) any equity or stock price-based awards (including phantom stock units, shares of restricted stock, restricted stock units, and stock appreciation rights) previously granted will become fully vested and exercisable and all restrictions on restricted awards will lapse; and (v) the Company will pay the executive an amount equal to the sum of (A) three (3) times the executive’s current base salary as of the date of termination, and (B) six (6) times the maximum cash bonus that the executive could have earned in the year of the date of termination.

If either Mr. Fleming or Mr. Liebman terminates his employment with the Company with Good Reason, or if the Company terminates the executive’s employment without Cause within 24 months following a Change of Control (as defined in the Agreements) of the Company, the executive will be entitled to a lump-sum cash payment equal to the sum of (i) three (3) times the executive’s current base salary as of the date of the Change of Control, and (ii) six (6) times the sum of the maximum cash bonus that the executive could have earned in the year of the Change of Control. In addition, any equity or stock price-based awards (including phantom stock units, shares of restricted stock, restricted stock units, and stock appreciation rights) previously granted to Mr. Fleming or Mr. Liebman will become fully vested and exercisable and all restrictions on restricted awards will lapse upon any Change of Control, regardless of whether the executive remains employed by the Company or its successor following the Change of Control. The Agreements also contain a “best-net” provision, which provides that if Internal Revenue Code Section 280G applies to the payments and such payments trigger an excise tax, then the payments may be reduced to an amount that will not trigger the excise tax, if such reduction would result in a greater amount paid to the executive.

The payments due on termination of employment and termination following a Change of Control are subject to the requirement that Mr. Fleming or Mr. Liebman, as the case may be, execute a release agreement in a form requested by the Company.

Under the Agreements, Mr. Fleming and Mr. Liebman have also agreed to post-employment undertakings regarding non-solicitation and non-competition for a period of one year thereafter.

The foregoing description of the 2020 Omnibus Plan and the Agreements is only a summary and is qualified in its entirety by reference to the full text of the 2020 Omnibus Plan and the Agreements, which are filed as Exhibits 10.1, 10.2 and 10.3 to this Form 10-Q and are incorporated by reference herein.

-47-

ITEM 6. EXHIBITS



Exhibit Number	Description of Exhibit	Method of Filing

2.1.1	Arrangement Agreement	Incorporated by reference to Exhibit 2.1 of the Company’s Registration Statement on Form S-1 (File No. 333-209025) filed January 19, 2016.

2.1.2	Plan of Arrangement	Incorporated by reference to Exhibit 2.1.2 of Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-209025) filed April 13, 2016.

3.1	Second Amended and Restated Certificate of Incorporation of Global Water Resources, Inc.	Incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed May 4, 2016.

3.2	Amended and Restated Bylaws of Global Water Resources, Inc.	Incorporated by reference to Exhibit 3.2 of the Company’s Form 8-K filed May 4, 2016.

10.1	Employment Agreement with Ron L. Fleming, dated August 6, 2019*	Filed herewith.

10.2	Employment Agreement with Michael J. Liebman, dated August 6, 2019*	Filed herewith.

10.3	Global Water Resources, Inc. 2020 Omnibus Incentive Plan*	Filed herewith.

31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer	Filed herewith.

31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer	Filed herewith.

32.1	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer	Furnished herewith.

101.INS	XBRL Instance Document	Filed herewith.

101.SCH	XBRL Taxonomy Extension Schema Document	Filed herewith.

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	Filed herewith.

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Filed herewith.

101.LAB	XBRL Taxonomy Extension Label Linkbase Document	Filed herewith.

101. PRE	XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith.


*	Management contract or compensatory plan or arrangement.

-48-

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		Global Water Resources, Inc.

Date:	August 7, 2019	By:	/s/ Michael J. Liebman
			Michael J. Liebman
			Chief Financial Officer and Corporate Secretary
			(Duly Authorized Officer and Principal Financial and Accounting Officer)

-49-