Q3 2019 Earnings Call

Greetings, ladies and gentlemen, thank you for standing by welcome to the global water resources, Inc. 20, Nike Inc. third quarter conference call.

This time, all participants are in English and only mode.

Following the presentation.

Conduct a question answer session.

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I would like to remind everyone that this call is being recorded on November 729 feet at one PM Eastern time.

No I'd like to turn the conference over to had their group Vice President Controller. Please go ahead.

Welcome everyone and thank you for joining us on today's call yesterday, we issued our 2019 third quarter financial results by press release, a copy of which is available on our website at www Dot GW resources Dot com.

Speaking today, as Ron Fleming, President and Chief Executive Officer, and Michael Leabman, Chief Financial Officer.

Mr funding will summarize the key events of the quarter, following which Mr. Lehman will review the financial results for the quarter.

Mr funding and Mr. Li men will be available for questions at the end up the call.

Before we begin I would like to remind you had certain information presented today may include forward looking statements.

Such statements reflect the Companys 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 Doe is contained in the forward looking statements.

Accordingly investors are cautioned not to place undue reliance on any forward looking statements, which reflects 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 section risk factor and management's discussion and analysis, a financial condition and results of operations included within our latest Form 10-K filed with the S. You see.

Such filings are available at Www dot actually see stocked up.

Certain non-GAAP measures may be included within today's call for a reconciliation of these measures to 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. dollar 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're very pleased to report the results for the third quarter of 2019.

Highlights include first and foremost in the quarter, we extended our employee safety and regulatory compliance non recordable incident streaks.

As our staff has now achieved over 813 consecutive days without a recordable safety accident.

Also what it's been 1309 days since our last compliance violation or over three and a half years.

These remarkable achievement showed the dedication and care of our employees as we deliver exceptional performance well financially and operationally.

Regulated revenue increased 10.5%.

Net income increased point, fourmillion to 1 million or five cents per share.

Adjusted EBITDA increased 15.8% to 4.8 million.

And active service connections increased by 3769 or 9.1%.

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The increase in active service connections was primarily due to organic growth.

Companies current service areas, coupled with the acquisition of Red rock.

We also announced agreements with the city of Coolidge and seen holdings to <unk> integrated utility solution.

To southern Coolidge's inland Port, Arizona, a large industrial complex, where the Nicola company has bought land to build their first millions square foot manufacturing facility.

And finally subsequent to quarter close the board approved a 1% increase to our dividend, which is paid monthly and this increase will be effective for the December dividend payout.

Further I wanted to highlight permit growth for 2018 single family drilling permits in Maricopa, but now counties were up to 22437 units or 13% over 2017.

The forecast remains strong with 2019 projected to see approximately 24000 single family residential permits followed by 25000 projected in 2020.

Importantly, the data for the city of Maricopa Submarket continues to be very strong.

As a reminder, in 2018 permit growth was up 18% over 2017 with 1022 permits issued.

This was the first time since the housing market collapse in 2008.

We realized over 1000 permit and a year.

To date in 2019. It appears Maricopa is on track to meet this mark again.

This multiyear trend supports our long stated position that is sustained growth continues metro Phoenix area, we will get a larger and larger market share of that homes based on the amount of law and infrastructure capacity that exists.

Before turning the call over to Mike to review third quarter and year to date financial performance in greater detail want to getting layout our primary objective.

Global water will continue to meet our primary mandates to provide safe reliable.

Sustainable service to our customers and partners well take a disciplined approach to grow at long term value creation through the following me.

Well work to grow earnings by driving topline revenue growth and creating operational efficiencies and managing controllable expenses.

We will make prudent capital investment a capital improvements as necessary.

And we'll work to expand our utility platform, the new Greenfield opportunities.

We will also pursuing accretive acquisitions with the consolidation benefit.

Accretive tuck ins such as this will complement the strong position and growth of a core regional assets and we are committed to continue to pursue similar opportunities both big and small.

Additionally, as proven by recent acquisition.

Lets consolidation can help improve our industry as a whole and provide many benefits to the customers and communities we have the privileged to serve.

I will now turn the call over to Mike.

Thank you Ron.

Hello, everyone.

Total revenue for the quarter was 9.9 million, which was up 943000 or 10.5% compared to Q3 of 2018.

This increase is primarily driven by the organic connection growth the acquisition connection growth from Red rock and approved rate increases.

Year to date through Q3 of 2018 total revenue was 26.8 million compared to 27.3 million through Q3 of 2018.

This reflects a decrease of 476000 or 1.7%.

This decrease is primarily driven by the ice USA revenue recognized in Q2 2018 that was not re occurring.

Excluding the ice USA revenue year to date revenue through Q3 of 2019 was up 1.9 million or 7.7% and this increase again is primarily driven by the organic connection growth acquisition connection growth from both Turner wrenches and Red rock as well as approved rate increases.

Operating expenses in Q3 of 29 team were 7.4 million compared to 6.9 million in Q3 2018.

This is an increase of 437000 or 6.3%.

Notable changes in operating expenses include.

Increased operating and maintenance costs by 155000. This increase was primarily driven by the additional costs associated with the Red Rock acquisition of 73000 as all the increase in property taxes in contract services, a 42000, which increase as revenue increases.

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And lastly increased depreciation and amortization expense by 150000, primarily due to amortization of intangible assets. It is always the acquisition of Red rock.

Year to date through Q3 of 2019 operating expenses were 20.8 million compared to 19.7 million. In 2018. This is an increase of 1 million or 5.3%.

Now to discuss other expense.

Other expense for Q3, Tony 19 was 1.1 million, which was slightly down 75000 compared to 2080.

Year to date through Q3 2019, other expense was 2.4 or 5 million compared to 3.19 million through Q3 2018.

The decrease was primarily due to the 1 million of other income received in Q1 of 2019 from the loop three or three contract.

Offset by a decrease in the Valencia earn out of 321000.

Turning to net income global water had net income in Q3 2019 of 1 million four or five cents per share. This is an increase of 414000 or 65.4%.

Lastly, adjusted EBITDA, which adjusts for nonrecurring events, such as I see a fate revenue loop three or three proceeds and also just for option expense in our equity investment in Fathom was 4.8 million in Q3 of 2019, which is up 652000 or 15.8%.

Compared to Q3 of 2018, adjusted EBITDA was up primarily due to the increase in organic growth as long as the acquisition growth from Red Rock and approved rate increases. This concludes our update on Q3 2019 results I'll now pass the call back to Ron.

Thank you Mike.

It is clear excluding one time revenue recognition event.

And revenue reductions caused by the federal tax reform and corporate rate reduction in the slowdown or a valencia earn out.

Both of which are beyond our control global waters topline and connection growth rates continued to be very strong.

As we handled as high growth, we intend to remain at the forefront of the water management industry and advance our mission of achieving efficiency he consolidation.

We truly believe that expanding our platform and applying our expertise throughout our regional service areas and two new utilities will be beneficial to all stakeholders involved.

We appreciate your investment in as a part of US as we grow global water to address important utility water resource and economic development issues in Arizona and potentially beyond.

That concludes our prepared remarks, thank you, Mike and I are now available to answer your question.

Thank you.

Well now begin to question answer session. The joined the question Q You May Press Star then one on your telephone keypad.

You will hear a tolling acknowledging your request if you're using these speakerphone. Please pick up your had said before passing any keys to withdraw your question <unk> breast Star then too.

We will pause for a moment this call is trying to Q.

The first question comes from Jerry Sweeney of Roth Capital. Please go ahead.

Good morning Heather.

For taking my call.

Hey, Gerry Jerry.

Couple of questions I want to start with a quote.

Could you maybe provide a little bit it tell us to maybe how big that opportunity could be or add or.

Revenue recognition.

Start to sort of kick in I suspect it so probably a couple of years off but.

Maybe a little bit additional detail.

Great.

Yeah, absolutely Gerry good question so.

So that's fair hit is a long ways off I mean as this goes now that we have license agreement with the city in a development agreement with that really the land developer for approximately 2000.

Acres in that area, we have to go through the Corporation Commission, a certificate of convenience and necessity process, which takes you don't eat the 12 months.

No I mean, obviously would need to construct the infrastructure.

And all that what happened kind of in parallel with some of the on site development things that need to occur. So you're you know you're you're typically.

Two years out from this point before your before you're providing service and bringing that revenue in the good news is unlike wears sometimes when you're starting like a new area.

Starts relatively small.

Just based on the scope and scale of this initial facility with they'd be Nicola company a million square foot manufacturing facility. You know there's a the there should be a nice stair step step function type revenue that comes in immediately when when that's all activated beyond that when you get that.

Type of project I was really a it's really seating and area and because of that we're already getting quite a bit of inquiries from properties. Both inside of that inland port, which has a lot more parcel. They can sell and it is doing well I think and looking to attract complimentary businesses to to the Nicola company So something.

I'll start taking shape. The route that two year period, really and then properties even around it things that that kind of gets constructed near these jobs centers. So you put it all together quite different than going starting a new home community residential community in the middle The desert. This thing has the potential we believe.

Steve and a three to five year period of being quite significant that's the way I would think about it.

Great that's helpful.

Maybe switching gears a little bit this might be for Mike a gene a cost I think we're running about 3.1 million in the quarter.

Q2, there about 2.7 million I I know, there's some components of the tougher.

Compensation that impacts some of that change, especially when there's a large step up in the stock price, which there was.

Is there way you could provide maybe.

A run rate on Gionee.

Some of that deferred comp so we've taken squared off a little bit just a pure operating side.

Yeah, Jerry I think that's it that's a good question it was up a little bit at the 3.1 this year and as you mentioned because of the stock price increase but I would say the 2.7. You know is a is a good number on a run rate basis any average barring any unforeseen continued increase in the stock price I think that's a that's a good assumption.

Okay Cool and then finally Valencia.

It was had a much faster run right a couple of years ago. It slowed down I I've been trying to attract permits a little bit <unk> and.

If my memory serves correct.

It looks like some of the permit activity.

It's picking up or remains strong.

It's it's a function.

What needs to occur for maybe that the pickup or is it new lots that.

Need new infrastructure that you can back then and some previous last name to be sold or any idea what.

How are we looking for lets it it's nice to have money maker.

I still had a bonus so just want to pay attention to it.

Yeah. Jerry this is Mike again, I would say yeah actually you know a lot of the lots that we had had where earning that earn out at the stronger price a lot of those lots have since been sold and so now the developers in the process of developing the horizontal element of that infrastructure.

Thats, what we believe me is the next step that needs to happen in so last we had talked to them. It was 12 to 18 months out before that was going to happen in so nothing in our view has changed from that it's not you know it is it coming it's just when it feels like you know that may be a little ways out but are still something that that that whirlpool come soon.

Great perfect. That's it for me and I appreciate it takes time.

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Once again, if you have a question. These press Star then one though.

This concludes the question answer session I would now I'd like to turn the conference back over to Mr., Ron Fleming for any closing remarks.

Thank you operator.

I would like to thank everyone for participating on our call today and for your continued interest in global water.

Thanks, then we look forward to speaking with you again bye.

This concludes todays conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

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