Q3 2019 Earnings Call
Good morning, Thank you for joining us today to discuss consolidated water company third quarter, ending September 30 of 29 team joining us today as the Chief Executive Officer of consolidated water Company, Rick Mctaggart, and the company's Chief Financial Officer, David says not following their remarks, well open the call to your questions.
Before we conclude today's call I'll provide some important cautious regarding.
The forward looking statements made by management on the call I like to remind everyone that today's call is being recorded and will be made available for telecom replay instructions in today's press release, which is available in the Investor relations of the company's website no I'll like to turn the call over to consolidated water company CEO Mr., Rick Mctaggart, Sir please.
Go ahead.
Thank you Chuck and good morning, everyone. Thanks for joining us today on the call.
As you saw from the earnings release, we issued earlier. This morning, we advanced our business in a number of areas in Q3.
However, our financial performance was not as good as the same quarter last year due to an unusual confluence of factors across our operating segment.
Revenue generated by our bulk water segment was lower due to new rates that came into effect earlier this year in Grand Cayman.
Under new long term operating and maintenance contracts that we won through competitive bidding processes.
We believe their books segment revenue and gross profit of now stabilized with the full impact to these new contracts reflected in our Q3 results.
Well manufacturing revenue was slightly lower in the quarter compared to the same quarter last year or project backlog has been growing. Therefore, we don't see Q3 is indicative of a trend in our manufacturing segment and we expect to report.
A year strong revenue growth and profitability for this segment has demonstrated by our year to date result.
For the nine month or the year, we achieved improvement across the board with total revenue up 7% gross profit up by 9% and net income.
By 18% compared to the first nine months of last year.
Q3, underscored the importance of further diversifying revenue by adding complimentary service and product offerings as well as expanding our geographic presence in customer base.
This effort began with the acquisition of Eric and 26 team.
We have sense strengthened our executive team and ericsson's capabilities with the addition of a new VP of manufacturing earlier this year, who is overseeing the expansion of our Eric's operations.
We recently acquired 51% PERC water Corporation, a water infrastructure provider, which has expanded our product offerings and presence in the U.S.
The synergistic acquisition also provides a platform to expand our core business of designing constructing an operating desalination plants into water short regions of the U.S.
Before I talk more about this acquisition and other operational highlights I'd like to turn the call over to David who will walk you through some of the financial highlights of the core.
Thanks, Rick Good morning, everyone, hopefully everyone's had a chance to read our press release, which came out earlier this morning.
For the third quarter of 2019, our revenue declined 12% to 15.9 million, which was driven primarily by decreases of 1.4 million in bulk water sales seven under 11000 services revenue.
181000 manufacturing revenue.
The decrease in Baltimore sales was due to the lower rates that came into effect in February for water supplied from the Red gate in north south plants as well as lower rates that came into effect in July for the north side Waterworks plant.
Under the recently obtained new contracts with the water authority came in for these facilities.
The decrease in services revenue was due to lower fees generated under the come on our management services agreement, where those CBTI.
And it's important to note that last year's revenues also included $710000 I'm a refurbished.
<unk> project.
We completed four affiliate in the British Virgin Islands, our manufacturing revenue was lower due do.
Slightly fewer active projects.
These decreases were partially offset by a marginal increase in retail revenue, which was due to an increase in a volume water sold by came at a war.
Our gross profit was 6.7 million for the third quarter compared to 7.1 day, yet in the year ago period with gross margin as a percentage of revenue improving from 39.5%.
42.2%.
Net income the third quarter could the gold shot stockholders was 1.7 million or 11 cents per basic and diluted share compared to 4.6 million or 30 cents per basic and diluted share your that quarter.
This decrease was primarily due to.
To last year's quarter, including a substantial nonrecurring income from a legal settlement was obtained by our equity Investees and the British Virgin Islands.
Revenue increased 7% over the same period last year to 51.2 million.
The increase was primarily driven by increases of 5.7 need and manufacturing of 1.1 billion at retail revenue.
[noise] manufacturing revenue increased due to an increase in orders in production activity.
Retail revenue improved due to a more than 2% increase enough volume to water sold by came under water well. This increase attributable to lower rainfall in 2019 as compared to 2018, we traditionally selmo water on Grand Cayman during the first half the calendar year well the number of distributors typically greater and local rainfall this last as compared to the back half of the year.
In 2019 reportedly <unk>.
Importantly stands for tourists numbers continue to exceed 2018.
Which was supported by the additional capacity at the recently expanded airport Grand Cayman. This indicates the 2020, maybe another record year for stay where visitors at our exclusive utility franchise area.
The growth in our retail revenue was also due to increased energy prices, which increased the energy pass the component.
Our retail revenue rates by 400000.
The increase in manufacturing and retail revenue for the first nine months was partially offset by decreases in services in bulk revenue.
The decrease in services revenue was due to lower fees generated under our management contract in the 200 and the $710000 in plant refurbishment fees for I see beyond that I mentioned earlier.
As for Q3, the nine month decrease some bolt where revenue was due to the lower rates to came into effect in February for water supply by the Red Gate, North south plants as well as lower rates to came into effect in July for the north side Waterworks plan.
Gross profit in the first nine months increased 9% 21.2 million.
Gross margin as percentage of revenue improving from 40.9% to 41.5% as compared to the first nine months of 2018.
Net income attributable to our stockholders for the nine months ended September 30, 32019 was 10.4 million or 69 cents per diluted share up 18% from the 8.8 billion or 58 cents per diluted share that we reported for the same period last year.
With respect to our cash position cash and cash equivalents totaled 42.0 million as of September Thirtyth 2019, as compared to 31.3 million as of December 31st 2018.
The increase in cash resulted primarily from net income we generated from operations. The cash we received from the sale of CW beliefs.
Our projected liquidity requirements for the remainder of the year include capital expenditures for our existing operations of around 500000 hours.
Approximately 600000 to be extended expended for NFC said 80, Arse development activities for our Mexico project.
And approximately 1.3 million for dividends payable.
Our liquidity requirements May also include future quarterly dividends as such dividends for declared by our board. It's important to note that our dividend payments amounted to approximately 3.8 million. So first nine months. So this year.
And this wraps up the financial results for the third quarter I'd like to turn the call back over direct now Rick. Thank you David.
As we work to expand our product and service offerings and geographic reach our mission remains focused on providing water services to areas in the world, where the supply of naturally occurring potable water is scarce and particularly where reverse osmosis technology is economically and environmentally feasible.
[noise] desalination is increasingly coming into play in many places around the world today, nearly 90 million cubic meters. A water is being produced daily by more than 18500 desalination plants and operation around the world. These plants are providing drinking water to more than three has.
Third million people according to the International Desalination Association.
And the global water desalination market is showing no signs of slowing.
It is expected to see steady expansion growing at a projected cagar of 9.5%, which means that will nearly double from current levels to reach 37.6 billion by 2026.
Several factors are driving this growth populations are booming in many water stressed regions of the world, including parts of the U.S. and especially in the South Western States.
In addition, drought is occurring in many regions that not long ago had ample supplies.
Advancements in technology or also playing a key rule, making desalination more energy and cost efficient.
Historically, we have focused on seawater desalination projects in the Caribbean region, where governmental and private customers long ago embraced the design build own operate project delivery model.
But increasingly the U.S. is providing opportunities for desalination as well as other types of water projects using this or similar project delivery models, especially in the south Western States.
This is true, California with the Pacific Coast line, providing access for extensive desalination opportunities.
In fact in California alone there are 11 desalination plants currently operating with 10 more being proposed.
Arizona, which is perpetually short on water and facing a Colorado River supply shortage is currently looking at ways to treat its estimated 600 million acre feet, a brackish water deposits using desalination.
Because its total dissolved solids content is lower than seawater brackish groundwater for desalination is often considered to be a more economical alternative.
Beyond producing potable water water management challenges are also creating a growing demand and opportunity for wastewater treatment and reuse projects.
For California, Arizona, Texas, and Florida alone would your states in which we are actively pursuing projects.
The anticipated cater for wastewater treatment facilities and operations several times larger than the corresponding category for water.
For these four states the Cagar for the next five years is projected to be 8% and the combined total available market for wastewater treatment facilities is expected to grow from 2 billion to over 3 billion.
Our acquisition of a controlling interest in pur water based in southern California represents a major step toward addressing this growth market and its many emerging opportunities.
We have been evaluating PERC water for some time and determined they are highly complementary and synergistic to our existing business and mission.
Similar to our existing approach perked provides our customers with the comprehensive solution for deploying or upgrading their water infrastructure.
They develop design and build state of the our facilities for both water and wastewater recycling then provide ongoing operational management services to keep these facilities operating at peak performance.
Since its inception and 1998 per quarter is completed and continues to support numerous water infrastructure projects, including new facilities facility upgrades short and long term operation services and asset management engagements.
For this they have won numerous industry awards, recognizing there in an innovative designs and highly efficient project delivery model.
In addition to several water and wastewater recycling projects currently underway per quarter provides us a platform to expand our core business of designing constructing an operating desalination plants into water short regions of the us.
PERC water is also complimentary to our ECS business, which fabricates water treatment equipment for a diverse number of industries involved in wastewater treatment infrastructure.
On the other hand consolidated waters.
Bring specialized capabilities greater access to capital and other important resources to per which will allow per to take better advantage of its fast growing markets.
Regarding our Rosarito, Mexico project, we had major positive developments earlier this year, including congressional authorization approval of a significant portion of the debt financing for the project and obtaining additional rights away for the aqueduct.
Certain steps remain to be completed by the state of Baja California government, where we can begin construction.
Most notably obtaining the revolving credit line required for the state's payment trust for the project.
The state's project activities have been delayed as of late in part due to the transition to a new recently elected administration.
However, we expect to state to re commence its project development efforts by the first quarter of next year and we're encouraged by the new Governors recent public comments communicating his support for the project.
In addition to Mexico as I've mentioned, there are many other water scares areas of the world that need solutions, especially as water stress continues to increase with the growth in populations urban expansion.
Good production.
Desalination doesnt fit every need, especially especially for landlocked areas and water planners typically strive to obtain a portfolio of water sources to saw water challenges for their communities.
And this light we believe that the diversification of our offerings with pur water provides a new leg to support our growth objectives.
Their advanced wastewater treatment and reuse expertise gives us another offering to support the growth and quality of life of local communities were desalination is not an option.
David mentioned, we continue to have ample liquidity on our balance sheet to explore explore these opportunities expand into new markets and diversify our revenue streams.
PERC water exemplifies the high quality opportunities, we continue to pursue to drive growth and enhance shareholder value.
Now with that I'd like to open the call up for questions Chuck.
Thank you well now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before passing the keys. If at any time. Your question has been addressed you would like to withdraw. Your question. Please press Star then to at this time, we'll pause momentarily to assemble roster.
And our first question will come from Jerry Sweeney of Roth Capital. Please go ahead, Sir Hey, Good morning African David Thanks for taking my call.
Good morning, Gerry on the park water side.
It's impossible to give us a little bit of maybe insight into either their backlog as well as typical project size and margins.
Thanks, along those lines and we have a little bit idea what to expect.
As you integrate the company.
Jerry This is David we disclosed their historical revenues in our.
Hi, K filing I think we also disclosed in the press release will put water other than that would sort of going to.
Not disclose anything else to we have actual results to report.
Sorry about that.
No problem.
Switching gears a little bit.
Bulk water side, obviously, you did mention if.
Lower fees in the quarter had some impact on the revenue, but any variance in the volumes or was this a pretty is sort of standard quarter that we could use for future reference.
Yeah, I think it's pretty standard Jerry I mean, the volume variations to don't have much impact on the revenues most of our.
Bulk sales around fixed fees.
We we could probably bump up sales by 10 or 15% would have just a small impact on the revenues. Okay. So that should be very steady on a go forward basis.
Anything on a seasonality front or.
It's just more bay.
A very steady on a full quarter basis.
Steady.
Okay Big issue you have seasonality is in our retail segment Teradata.
Okay, and then finally on the Eric side.
So I mean very solid quarter in terms of.
The margin profile.
Hi path.
Pass I'm not sure if he'll provide it but.
What drives the margin.
Currently if it.
Products specifics or a contract specifically and any insight into how we should look at that on a go forward basis.
I think the historical margins, we've generated from air XR around 30% Jerry somewhere around 30, 31% I think this quarter was up to 37% we had a couple of very profitable projects.
The growth of the margins up just for this quarter.
And I don't see anything that's going to change ericsson's historical margins and we certainly I don't think we'll be doing 37% of quarter going forward.
So I mean, I think they do around 30% nest, that's our expectations for the business. Okay got it right yep, Okay I'll jump back in line. Thanks for taking my questions.
Sure.
Again, if you have a question. Please press Star then one our next question will come from John Bair of ascend wealth Advisors. Please go ahead Sir.
Thank you good morning, gentlemen.
Hey, John bowling good.
I imagine that you've been working closely with the Bahamian authorities regarding the damage in the rebuild efforts after.
Okay. Dorian so I was wondering if you could provide us with.
Any insight as to their expectations on.
Impact on any tourist travel and how that might affect your revenues as well as the local.
Situation with inhabitant the locals usage and.
Secondly, do you foresee.
That's.
This rebuild effort might cause delays further delays and normal with collecting on account receivables from a from them.
Yes, so from the.
From.
Your question about the impact certainly in the areas that we we have plans. There was there was no impact by the hurricane or very little impact.
Dorian hit.
The Northern Islands and.
Our main operations are located on new Providence, which is where Nassau is located so.
A lot of the displaced people from these northern islands.
Our our in Nassau now and various.
Facilities housing facilities, there temporary housing that sort of thing.
I mean I just.
It's all over the the TV I mean, Bahamas has been doing a tremendous amount of advertising indicating that.
The resorts in new provenance or were on on affected by the hurricane and really trying to get the word out that places like Paradise Island in bottom our open for business.
The there was no damage there so.
It was very much limited to.
Grand Bahama and.
Because islands.
And those places or a mass I mean from the standpoint of how it impacts the Bahamas revenues and budget I mean, I don't have that information other than what I see in the news and what the the finance Minister has been saying in the papers and that sort of thing which is available for you look at so.
Okay.
Our business is running smoothly there there's been no issues.
That's good to hear.
The cash balance if you had on hand.
The end of September is that not of the 4.1 million that was.
Use to.
The the park deal.
No that.
Thats not.
To close that closed.
We closed out in October territory, our fourth handle it.
Okay and then.
Looks like you have a similar structure with that as you did with the era.
Acquisition.
I don't recall the terms there are the timeframe I guess not so much the terms.
Is there anything.
Upcoming potentially that Eric's will become a 100%.
Have a 100%.
Subsidiary of consolidated order.
Well, if you'll remember the terms of the Rx acquisition.
We had mutual options, we gave our Tom dotting the right to put the stock on us after three years via the remaining 49%.
We have the right to call. The other 49% after three years and that option period is now in effect I mean, we went through the three year period right now either party can pull the trigger so it's possible that topic come to us and ask us to by the company or the other 49%.
Literally at any time as possible for us to do the same thing with them, let's have to see how it plays out I think the purpose of the put call option is for one day, a stone hundred percent of the company.
Does that open ended.
Is that an okay that doesnt expire notes is always enough and in effect. So you figure at some point and one of those options will be exercise.
Right, Okay very good.
Alright, that's all I've got thank you.
Thanks, John .
Again, if you have a question. Please press Star then one.
Yeah.
Who is our question and answer session I would like to turn the conference back over to Mr. Mctaggart for any closing remarks.
Yes, Thanks Chuck.
Thanks, everybody for joining us on the call. This morning, and we look forward to speaking with you again in March for our year end results.
Bye bye.
Thank you, ladies and gentlemen, now before we conclude today's call I would like to provide the company self safe Harbor statements that include importing cautions regarding regarding forward looking statements made during today's call.
Information that we have provided in this conference call include statements that may constitute forward looking statements easily containing the words believe estimate project intend expect.
Well or similar expressions. These statements are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Forward looking statements inherently involve risks and uncertainties that can cause actual results to differ materially from the forward looking statements.
Factors that would cause or contribute just two such differences include but are not limited to continued acceptance of the company's products and services and the marketplace changes in his relationships with governments other jurisdictions in which it operates the outcome of its negotiations what they came in government regarding a new retail license agreements.
Its ability to complete the problem project.
Under development, and Baja California, Mexico, the future financial performance of of its subsidiary that manufacturers water treatment related systems and products and provides design engineering management operating and other services applicable to commercial.
Your next level and industrial water production.
The collection of its delinquent accounts receivable and the Bahamas, its ability to integrate and profitable.
Operate recently acquired subsidiary Park Water Corporation and various other risks as detailed in the company's periodic report filings with the securities and exchange commissions.
For more information about risks and uncertainties associated with a combination business. Please refer to the management's discussion and analysis of financial conditions results of operations and risk factors and sections of the company's is easy filings, including but not limited to its annual report on Form 10-K , and quarterly reports on form 10.
Q copies of which may be obtained by contacting the company Secretary of the company's executive offices or from the investors SEC filings page of the company's website, except as otherwise required by law. The company undertakes no obligation to update or revise public public publicly in any forward looking statements.
Whether as a result of new information future events or otherwise before we in today's call I would like to remind everyone that this call will be available for replay starting this evening and running through November 19th please refer to the companies for please refer to todays earnings release for dial in replay instructions available via the company's website at www.
Dot CW C O dot com. Thank you for joining US today. This concludes the conference call you may now disconnect.