Greetings, ladies and gentlemen. Thank you for standing by. Welcome to the Global Water Resources, Inc. 2020 Third Quarter Conference Call. [Operator Instructions] I would like to remind everyone that this call is being recorded on November 6, 2020, at 1:00 P.M. Eastern Time. I would now like to turn the conference over to Heather Krupa, Vice President and Controller. Please go ahead.

Welcome, everyone, and thank you for joining us on today's call. Yesterday, we issued our 2020 third quarter financial results by press release, a copy of which is available on our website at www.gwresources.com. Speaking today is Ron Fleming, President and Chief Executive Officer; and Mike Liebman, Chief Financial Officer and Chris Krieger, Chief Strategy Officer. Mr. Fleming will summarize the key operational events of the quarter of the quarter. Mr. Liebman will review the financial results for the quarter. Mr. Krieger will review strategic initiatives and business development for the quarter. Mr. Fleming, Mr. Liebman and Mr. Krieger will be available for questions at the end of the call. Before we begin, I would like to remind you that certain information presented today may include forward-looking statements. Such statements reflect the company's current expectations, estimates, projections and assumptions regarding future events. These forward-looking statements involve a number of assumptions, risks, uncertainties, estimates and other factors that could cause actual results to differ materially from those contained in the forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on any forward-looking statements, which reflect management's views as of the date hereof and are not guarantees of future performance. For additional information regarding factors that may affect future results, please read the sections Risk Factors and Management's Discussion and Analysis of Financial Condition and Results of Operations, included within our latest Form 10-K filed with the SEC. Such filings are available at www.sec.gov. Certain non-GAAP measures may be included within today's call. For a reconciliation of these measures to the comparable GAAP financial measures, please see the tables included in yesterday's earnings release, which is available on our website. Unless otherwise stated, all amounts discussed are in U.S. dollars. I will now turn the call over to Mr. Ron Fleming.

Thank you, Heather. Good morning, everyone, and thank you for joining us today. We are very pleased to report the results for the third quarter of 2020. First and foremost, I always begin by discussing our top priority which is the health and safety of our employees and our customers. Considering the COVID-19 pandemic we are currently navigating it is appropriate to start here again. As an essential utility whose services are vital during a health pandemic, our company move quickly and early to implement all national, local and industry specific guidance to maximize social distancing, and other measures to protect the health and safety of our employees and customers and safeguard our operations. These measures continued to be modified as guidance in the situation on the ground changes. But generally all measures remain in place and have gone well. And we have not incurred any significant disruptions throughout 2020 resulting from a pandemic either operationally or financially. However, at this point, we cannot predict the impact it could have on operations and financial results going forward. In the event that customers have difficulty paying their utility bills due to COVID-19. We're ready to work with them to set up payment plans and offer other options. For example, we previously rolled out an expanded customer assistance program. We can report today that this assistance is being utilized and in 2020 alone through our program partners we have distributed over $100,000 to customers in need of help to pay their utility bill. In the meantime, we voluntarily have suspended disconnections for nonpayment and eliminated late fees. Moving back to our typical operational highlights, I'm very pleased to announce that in accordance with our top priority, we continue to perform at an extremely high level on employee safety and regulatory compliance on…

Thanks, Ron. Hello, everyone. Total revenue for the quarter was $10.8 million, which was up $815,000 or 8.2% compared to Q3 of 2019. This increase is primarily driven by the 5% organic connection growth, increased consumption in our approved rate increase. Tear to date through Q3 of 2020 revenue was $28.9 million compared to $26.8 million in 2019. This reflects an increase of $2.1 million or 7.8%. Similar to the quarter this increase is primarily driven by the organic connection growth, increase consumption and approved rate increase. Operating expenses in Q3 2020 were $7.9 million, compared to $7.4 million in 2019. This is an increase of $485,000 or 6.6%. Notable changes in operating expenses included increased operating and maintenance costs by 235,000 primarily driven by costs and increases revenue increases. Second increased depreciation and amortization expense by $355,000 primarily due to the increase in our fixed assets associated with our capital expenditure plan. And these increases thirdly, we're offset by reduced G&A expense of about $105,000. Year to date through Q3 of 2020 operating expenses were $22.5 million, compared to $20.8 million in 2019. This is an increase of $1.7 million or 8.1%. Now, to discuss other expense. Other expense for Q3 2020 was $1.26 million compared to $1.13 million in 2019. A $136,000 increase was primarily due to the elimination of the fathom royalty Year to date through Q3 of 2020 other expense was $4.3 million compared to $2.4 million in 2019. The $1.9 million increase was primarily due to the $1 million of other income received in Q1 of 2019 from the Loop 303 contract, in addition to the non-cash asset disposal of approximately $550,000 in Q2 of 2020, as well as the elimination of FATHOM royalty of $292,000. Turning to net income; Global Water had net income…

Thanks, Mike. Good morning, everyone. I will highlight three items for you before passing the call back to Ron. As you will recall, in the past, we discussed four different elements to our revenue growth story. First, natural organic customer growth within our existing utilities, which you heard Ron and Mike discuss earlier. Second, recurring rate case activity. Third, growth due to new service area establishment or expansion, and fourth acquisitions. My remarks will focus on the last three of those elements, recurring rate case activity, service area expansion and acquisitions. As it relates to revenue growth to our rate case activity. As Ron mentioned, we made our rate case filing on August 28 of this year. As filed the case proposes and approximately 13% rate increase, equivalent to approximately $4.6 million in additional revenue, with new rates to be effective through a phased in starting in January 1, 2022. Besides the increase in rates our filing contemplates elements of commission policy to incent further consolidation of small, troubled utilities in the state. We think these proposals are a meaningful opportunity to move the discussion forward on the issue, which is not only good for all stakeholders involved, including customers, the existing owners, and the regulator's themselves. It also creates further revenue growth opportunities for our company. As you'll recall, Global Water has a long track record of acquiring and approving utilities, and we see a great opportunity to improve the framework to make this an important change in Arizona. Procedurally, on September 25th of this year, we accomplished the first project milestone having our filing deemed sufficient by the Arizona corporation commission staff. This means the filing is administratively complete and can now proceed along its normal course. About a month later on October 23, we receive what is…

Thank you, Chris and thank you, Mike. It is clear, we were made well positioned to weather these uncertain times but with a strong balance sheet and discipline strategy. In fact, from an operational and financial perspective, we have never been stronger and we have more than ample liquidity and capital resources to pursue expansion through organic growth, acquisitions, and new projects both big and small. As we handle this high growth, we intend to remain at the forefront of the water management industry and advance our mission of achieving efficiency and consolidation. We truly believe that expanding our platform and applying our expertise throughout regional service areas into new utilities will be beneficial to all stakeholders involved. We appreciate your investment in and support of us as we grow Global Water to address important utility water resource and economic development issues in Arizona, and potentially beyond. These highlights conclude our prepared remarks. Thank you. We are now available to answer your questions.

[Operator Instructions] The first question comes from Gerry Sweeney from ROTH Capital. Please go ahead.

Good morning. A couple questions. Maybe I'll just start on the acquisition front. Notice the Mirabelle acquisition, Ron or Chris or Mike. Could you maybe give a little bit of qualitative description of maybe what the acquisition pipeline looks like, or at least what the market looks like in Arizona for acquisitions, whether it be like the number of potential candidates out there or size just so we can get a sense of maybe the size and scope of what you're looking at?

Yes, good morning, Jerry, this is Chris. So a couple of thoughts directly to your question. The first would be, generally speaking, the ACC website lists over 350 water and wastewater utilities in the state of Arizona, just to give you a directional sense of the opportunity set. And then from our perspective, we're looking at the whole range of those from things as small as Mirabelle, to much larger than that. I think, from our perspective, we see, well, something like Mirabelle per se won't, grab the headlines, if you start adding up and aggregating a lot of Mirabelle, it can be really meaningful for us and for the company, from a customer growth standpoint, but then also from a rate base and capital deployment standpoint, which is the business that we're in. So I think, significant opportunity set in Arizona, and can really make a meaningful difference in our company.

Got it. I'm assuming part of the attraction to the Mirabelle acquisition that it was very close to Red Rocks, and you're going to leverage some either existing infrastructure or at least people and it's pretty easy just to tuck in?

Yes, that's part of it for sure. Okay.

Got it. And then any comments on the ACC in particular, I believe there was an election for commissioners down there recently. Just was curious, an update and how that stands. And if there was potential impact on either policy or what have you with that regulatory agency?

Yes. Hey, Gerry this is Ronald, I'll start with that. You're right. There was an election. A lot is going on.

There are couple elections going on.

A Commissioner election in Arizona is one of the many things going on. So you are right. You know sitting here today the factual data that's available to us today has a candidate and a Tovar in the lead then candidate Leah Marquez Peterson in second, and then candidate Jim O'Connor in third. The two [ph] are Democrats, and the other two are Republic, Republican. And there are the reason I gave all three is there are three seats up for up for election. There are other candidates below them. But that looks like sitting here today who will probably take the seats. And so you know that would make the commission three republican to democratic to go with our current Commissioner Justin Olson and Commissioner Sandra Kennedy. So, I think that ultimately, we've worked really hard down at the Commission through our rate case, and all of our other communications campaigns within our communities to establish the company in a good place. And we don't think that what is going on at the commission or regardless of ultimately, who would have been elected through this cycle, will really impact or change what's going on in Arizona on the water regulatory front. So you know, then they those are the names, you can do your own research and develop what you think. But we feel good about the outcome, we think we would have felt good, regardless of ultimately who had been elected. And we're going to just keep doing the right things and do what we do. And you'll continue to build good relationships down there at the Corporation Commission.

Got it, as a point of reference. I know you guys are Maricopa County, I'm in Philadelphia County, probably the two most interesting counties in the country right now. So one other comment, question, I should say. Permit growth is something like track single family permits, through September 22%, October look like a year to date 22% that, I'm sorry, through September 22% and October, another big. Just not being in City, Maricopa and the surrounding area and not being able to travel, you know, can you maybe give a little bit of update what's going on there? Lots of growth, as you said earlier in your commentary, part of the strategy for Global Water was being in the path of growth and buying or building utilities. But you know, what has really developed in the last year, 18 to 24 months, it's maybe driving some of this growth, just from a qualitative perspective to?

Gerry, this is Mike. I'll take a stab at that and ask Ron and Chris to chime in. But I think, in light of what we're seeing, obviously a lot of developments happening. COVID potentially having implications there, the fact that there's a lot of lots available, Californians move into CNH, the high affordability of the bedroom communities and the growth areas outside of Phoenix, we think is putting Arizona and Phoenix and the City of Maricopa specifically on the map, and we're seeing the benefits of that. And so that was what we believe is driving that. And as you mentioned, it's through October, and we've seen the ramp up the last few months. That's what we're seeing that's continued; so it really puts us in a good place.

Okay. That's it for me. I appreciate it.

[Operator Instructions] The next question comes from [indiscernible]. Please go ahead.

Good morning, guys. And appreciate your report this morning and taking my call. My question is regard to what are the financial parameters for this acquisition Mirabelle [ph] in terms of revenues and what does it cost you to acquire a small project like that?

Yes, hey John, this is Mike. So the acquisition prices is something that we've disclosed, but it's a small transaction 60 customers. So it's not an overly material transaction, but it's kind of where it's at.

Okay. So these are these residential customers?

Yes.

Okay. Well, a question for me is, when we look at going out and consolidating an industry, which I've been involved in a handful of those different industries in rolling up medical equipment, dealers, etcetera. A lot of the success of those is based on how expensive it is to make those acquisitions and typically, public water companies suffer pretty high multiples. What do you find in 300 different listed companies that you indicated because in that list in Arizona, what do you expect full range of cost for doing transactions? And do you have a budget for that? Or do you have a strategy that suggests what you can afford to pay and make those financially attractive for future growth?

Yes, hey, John, this is Ron, like Mike mentioned, I mean, we're not disclosing deal specifics, but this is the way I would think about it. I mean, ultimately, it's just like almost any asset class across any industry, there's a range dependent upon the benefits to the buyer, and the meaning the consolidation benefits, and the quality of the asset. So the opportunity that we see in Arizona, and clearly exists in other locations, is that there's a need, and unmet demand for the consolidation of what we call troubled utilities. So clearly, if the big water companies want to sit around and exchange their assets back and forth to each other, then that would demand the type of market valuations and premiums that you're talking about. But that's not what we're talking about here. We're talking about Class C, D, and E now, doesn't mean we won't do some of the larger ones. And those will be based specifically on if we can get a financial structure in place that makes sense for us to the buyer, and then the seller, the deals just won't happen. But when you think about the opportunities on the smaller scale, which was the basis of your original question, C's DS, and E's aren't values like that. And so they are certainly cash flow to the owners, and that cash means something to them. And so there's a value to that but so you have to just get to a deal that works for them on the replacement of the cash flow that they're taken from the utilities. And obviously, there's risk there accident as they sell the regulatory asset that's got a high risk profile, just based on what we do. Verse, how that utility then looks inside of our consolidated utility. And when you look at it from those two paradigms, we believe, and have been no, we just announced the one in 2018. But we did three as a reminder, actually four as a reminder in 2018, and 2017. We have been able to get the deals done at a valuation that's very favorable and accretive to our shareholders, and we believe we can continue to do that. And that'll that's even on the just the acquisition cost. But then, as Chris mentioned, we get to invest to improve them, bring them up to our standards of quality and automation. And then ultimately, that's just more rate based investment that we get to put inside the rates that ultimately the customers pay. So, there is -- we try to get an immediate, valuation left or arbitrage against each deal by itself isn't going to make a step function increase in our stock today. But if we can do enough of them over time, that's the strategy. And we think we can do it. And we think there's a need, frankly, for us to do it.

Okay, so when you say you’re looking at these projects, or these utilities that are troubled, what kind of range of troubles do you find when you go with acquiring one of these? Are they operational troubles and they financial troubles?

This is Chris. Yes. So obviously, it's specific to each utility has their own unique back pattern, but troubled usually is relative to their size, because they either don't have the capital to raise to make the projects, the urge to complete the projects they need, to continue providing that safe, reliable service, or just operational challenges from how the system was set up when they bought it to and how they've been operating it. And so it can be a myriad of all of those things. And so, I guess from we think of it in trouble in that regard, but that's our expertise to come in and fix those issues and that's where we can provide that value to customers. And ultimately, that's part of the benefit we bring to the table. So things that those small utilities are difficult challenges for them that’s our wheelhouse in our bread and butter.

Okay, that's great. What about competition for these deals?

Yes, so for sure, there's competition out there, no doubt, but I think as Ron alluded to, we're going to find the right deals for us at the right price and right opportunity. And we've been successful at that. And thankfully, we there's a significant opportunity set in Arizona, so we don't have to do any that we don't think makes sense.

Okay. Are you looking at this point at anything outside Arizona?

So we've generally looked at opportunities outside the state, we haven't found anything that that's balanced all of those different elements that Ron was talking about. And so will, as I like to say, we'll keep our eyes above the proverbial state fence line. But if nothing ever happened in another state, we have so much opportunity here between our four different drivers of growth in the company that we don't have to do that most. We think it really makes sense.

Okay, good. Thank you.

[Operator Instructions] The next question comes from Greg [ph] from Morgan Stanley. Please go ahead.

Hi, I'm new to your company. So excuse me, if I ask some questions that have possibly been answered? Usually, when you make your acquisitions, are they usually for cash or equity?

Yes, Greg, this is Mike. So right now with the cash that we have on our balance sheet of north of $18 million, and the opportunity set on the smaller side, we have plenty of cash, and then we've got liquidity with the unused line of credit. So between those two, we're in a good place for some of the smaller deals and what Chris mentioned are our larger ones that we're looking at. And so dented [ph] or able to be successful in that regard, we would look to the capital markets from debt and equity side and help fulfill that acquisition. So on the smaller deals, cash and the bigger deals we'd look to for additional capital.

So the purpose of your $150 million registrations that's just a renewing an old one just to have a shelf registration that keeps gives you [ph]?

That's exactly right, Greg, with our three years was up this past August. And so then we just re-upped it for another $100 million.

Okay. So once again, I'm not from Arizona, but I'm hearing about housing starts and the growth and people migrating from California and other states to Arizona. But at the same time, I read articles about, the lack of water and the Colorado River, dropping and so the utilities that you have, they have a source of water from a Colorado river from wells that is sustainable, is that the assets that you buy? Or do you do you need? Or do you buy water from the state of Arizona? How does that work?

Greg, this is Ron, good to meet you. You know, so talking about water typically requires a long answer. But I'll try to keep it short here today. And we're open to follow up with you as necessary. So, so water is both a local issue and a regional issue, and a short term issue and a long term issue. And so those were those things start to kind of intersect with each other. So where are we at today? Today, Global Water primarily utilizes groundwater, but the wards we talked about earlier. And if you do research on us as a company, the way we manage water, wastewater, recycled water, and all of our conservation associated with that result in a really low per capita, or per home, water demand on the local groundwater resources that we rely upon. And so we're pretty proud of that, that really is our expertise and our competitive advantage to some respects and so were we on utilities today. And with the local water resource portfolios we put together, we don't have any issue in the foreseeable future. So, again, I could spend a lot more time on that and we can do that as necessary. But the growth we're talking about is fully supportable and sustainable with the water portfolios and the way we operate our utilities today. Long term, which is what's making the headlines. Sure, we're in our 20th year of drought, the Colorado River slowing less than ever. We just had the longest highest, longest hottest, driest summer of all time here in Arizona. The long term, the demand versus supply lines are going to intersect sooner than they otherwise would have. And thus that creates the headlines and all the activity at a local level, state level and even federal level about what are we going to do about that? So sure that has some implications on the states today. Primarily, what it means is we're losing what's called excess water supply for things like non-essential agricultural use. And things like that are a long way away from affecting what's called M&I municipal and industrial use in all of the economic development and growth that's occurring across our state. We're well positioned for that so it's that's kind of the good and bad of it, we actually, it's bad. We'd rather all have no long term water issues, but when you're good at dealing with that, and that's what we do, and is good for your business. All right, you're needed more, in our opinion, to help address that long term issue. And so that's the way I would answer that question and again, happy to connect with you separately if you want to dig into any of that further.

Okay. So the growth for new growth, I guess, you just described in Maricopa County and another County. I think just made some mention of that, to provide those Home Builders or industrial, you have enough water to satisfy whatever their needs are?

That's the way to think about it. That's exactly right. And, and for years to come, I'll just give you one data point for our largest utility and our largest area, that's incurring a lot of this growth. We are today, less than one third into our available water portfolio to both continue to meet current demand and allow for all this growth. So hopefully, that's a meaningful data point.

And that would be water coming from a well, or is that coming from the river? I think there are only two sources.

You got you got your local groundwater offer first, you've in state water supplies, and then you have out of state water supplies, which is basically the Colorado River. So yes, today, we rely primarily in our areas, because again, that was the and I know, we're just getting to know each other the original business model was to go to new emerging communities around metro Phoenix, consolidate the existing system there, overlay a regional plan, infuse our total water management strategy. And so I just say all that to say that, that that was the plan, because these new emerging areas will rely upon their historically large and high quality groundwater aquifers, because most of the existing large metro Phoenix suburbs and municipalities basically already controlled most of the available out of state and in state water supplies. Now, there's a market for those things; so I don't want to say at some point, we can't tap those other supplies we can, it just comes at a future cost. We don't need to do that today. Because there are the local or groundwater supply portfolios, I use the term portfolios. Generally, there are lots of things that go into that. Have positioned our utilities in a great place whereby we don't really have to worry about buying water supplies or the long term challenges I talked about earlier for a long time. So we're in a good place. Groundwater wells are high quality water. There, we called the Valley of the Sun for a reason the valley is where water has been coming down from Northern Arizona and northern Mexico, it flows together into central Arizona, which is the areas we're talking about and there's massive and large high quality groundwater aquifers. And we have the right to pump that under state statutes and rules.

Okay, all right. Thank you very much. Appreciate it.

The next question comes from [indiscernible]. Please go ahead.

Great, thanks for taking the questions. The first one you guys called out Eldorado holdings and with a pretty sizable development it looks great [ph]. Can you help me frame the magnitude and timing on what that means for you guys? How we should think about that is that potential business for you several years down the road or something maybe more imminent?

So we definitely think it's something more intimate in the midst of growing up in time there. So this is the way I would think about it. You know, the project, if you'll look up at location is right in the center in the heart of the city, Maricopa, which is our largest integrated utility. So that means we do both water, wastewater, and recycled water. And so the City of Maricopa is the permit growth I talked about earlier, or looks like we're on track this year to do more than any year then since prior to the Great Recession. And so I'll break it down in some data points for you. There's, north of 5000, finished, or partially finished blocks in the City of Maricopa today. And that sounds like a lot. And it is that's like, you know, 25% growth, to fulfill those that add 1500 lots per year, which is what this year's, growth rate is looking like it could be. That's only a couple years out, right, and the developers have to get locked into that pipeline in front of that, so they can sell them to home builders and keep that growth occurring. And so the project starting now, they didn't announce it for no reason. They're starting with phases as they do for projects that big. The first phase, I believe, is somewhere between 500 and around 500 lots, and then they'll just keep doing 500 lot phases from there, generally speaking. And so they're starting out, it's probably a two year project to do the horizontal improvements that are necessary, we will do ours right alongside them against right in the heart of the city. So it's not really that complicated for us. And they'll start putting those locks right on the back end of that pipeline I talked about earlier. So we'll probably be selling homes into that community in the next three years or so. But it just becomes part of the 5% ish organic growth that we're or seen in the city today. It just allows that growth to continue almost continuously, once you put that size of a project on the on the back end of it.

Great. And then not to beat a dead horse on the M&A front there's some good earlier. But mean, would you say the hurdles going forward? Or are more I guess, getting these potential sellers to be real sellers? Or are you finding sellers willing to sell and just not coming to terms that make sense for us as shareholders?

I would say there's, you know, there's probably a little bit of everybody in Category A and B. And so I think is, as this one shows, we've had some success. And as Ron alluded to, we had a few more recent in 2017, 2018. And so, but we feel good about going forward, what opportunities are out there.

All right, and then just kind of an oddball one. It seems some reports around the country where some utilities or there's some pilots to do like COVID testing via the wastewater stream. And I'm just curious if you guys been involved in anything like that, it seems like a fascinating way to maybe get some early alerts out there sort of disease spread, whether it's for COVID, or something like this down the road.

Yes, no, it is fascinating. And we're very happy to see our industry take such an important role in that issue. You know, we really do pride ourselves on being a leader in the in the industry, we do a lot on lots of different fronts that make that true from water reuse and use of technology and things like that. So, we definitely are interested in the topic, but the fact is, ultimately, the very large utilities in the space and that includes municipalities, and very large institutions and groups from like academia, got all over that early and a lot of them here in the metro Phoenix area, including ASU in the city of Tempe, which is where ASU is located. And so what we decided on that front was a lot is going to be learned rapidly. Let sit back, see what happens, learn best practices and to go implement those best practices verse, you know, try to create it ourselves at the scale that we have. So, we're monitoring what's going on. And I assume we assume at some level in the future, we will be involved as well, but we're not really on the research side of that at this point.

Thank you. This concludes the question-and-answer session. I would now like to turn the conference back over to Mr. Ron Fleming for any closing remarks.

All right, thank you, operator. I just like to thank everyone for participating in the call today and for your ongoing interest in Global Water Resources. We look forward to speaking with you again.

This is today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.