Q4 2019 Earnings Call

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Greetings, ladies and gentlemen.

Thank you a standing by welcome to the global water resource It incorporated 2019, Yeah and conference call.

At this time, all participants are in listen only mode.

Following the presentation, we will conduct a question on profession.

Destructions will be provided at that time feed a cure for questions.

Anyone have any difficulty hearing the conference. Please press star zero operating systems.

I like to remind everyone that this call is being recorded on March <unk> 2020 at one PM Eastern time.

I would now like to kind of a conference or the two other krupa Vice President controller. Please go ahead.

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

Speaking today, it's 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 result for the year ended December 31st 29 team.

Mr Flemming and Mr. Li men, who 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 Companys current expectations.

<unk> 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 fear out there.

And are not guarantees of future performance.

For additional information regarding factors that may affect future rebel.

Please read the section risk factors and management's discussion and analysis, a financial condition and results of operations included within our latest form 10-K filed with the FCC.

Such filings are available at Www Dot SCC Dot Gov.

Certain non-GAAP measures maybe included within today's call for a reconciliation of these measures to comparable GAAP financial measures.

They 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 year in 2019.

2019, with another wonderful year for our company and there are many highlights worth mentioning.

The first I want to thank all of our employees partners and shareholders for their efforts and support that together produced these results.

Foremost the health and safety of our employees and our customers is our top priority.

Throughout 2019, and even through today, we extended our employee safety and regulatory compliance non recordable incident streaks.

As our staff has now achieved over 950 consecutive days without a recordable safety accident.

Also it has been 1437 days since our last significant compliance violation or nearly four years.

These streaks continue while we also managed rapid expansion and customer growth.

Total active connections increased 4.9% to 45823 at December 31st 2019.

Regulated revenue increased 7.3% to 35.5 million and adjusted EBITDA increased approximately 700000 or nearly 5%.

We increased our dividend in the year 2.2892 cents per share on an annualized basis.

We received an extension from the internal revenue service to defer the remaining gain realized from the condemnation of our operations and assets of Valencia water company in 2015.

Any extension goes through the end of 2020.

We are partnered with the city of Coolidge and Safe holdings to bring an integrated utility solution to southern Coolidge and inland Port Arizona.

We appointed David was so to the company is board of directors, adding exceptional senior level experience in water and utility policy.

At the end of the year, we brought customer service and building operations in house, including all related technologies, allowing the company to provide a greater focus and control over our utility back office and our customers experience.

As well support its plans for growth and expansion.

We extended the availability of the company's 8 million revolving line of credit by an additional two years, which now goes through April Thirtyth 2022.

And the full amount remains available to date on that line.

And subsequent to year end in January 2020, we raised net proceeds of approximately 11 point Sixmillion and an equity offering to fund our growth and acquisitions and provide funds for working capital in general corporate purposes.

These achievements are the dedication in care of our employees as we deliver exceptional performance both financially and operationally.

I want to now highlight permit growth for 28 team single family dwelling permits and Maricopa and pay now counties were up to 22437 units or 13% over the prior year.

In 2019, we realize that another 14% increase as permits grew to 25127.

It's projected that 2020, we'll see an increase to 26000 permits.

Specifically the city America Copa Submarket continues to be strong.

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

2019 finished with 989 permits resulting in a two year average of over 1000 permits per year.

This multiyear trend supports our long stated position that a sustained growth continues in and around Metro Phoenix, We will get a larger and larger market share of new homes based on the amount of lot and infrastructure capacity that exists.

Before turning the call over to Mike to review the year in financial performance in greater detail I want to again lay out our primary objective.

Global water will continue to meet our primary mandates to provide safe reliable and sustainable service to our customers and partners, while taking a disciplined approach to growth and long term value creation.

Well do it through the following means.

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

We will make prudent capital improvement to the necessary, ensuring we have appropriate capacity and redundancy to be would reliable utility partners.

We will expand our utility platform via new Greenfield opportunities.

And finally, we will pursue accretive acquisitions with consolidation benefits.

Accretive tuck in such as this will complement the strong position and growth of our core regional assets and we're committed to continue to pursue similar opportunities both big and small.

Additionally, as proven by our recent acquisitions the consolidation can help improve our industry as a whole and provide many benefits to the customers and communities we have the privileged to serve.

Well now turn the call over to Mike.

Thank you Ron.

Hello, everyone [laughter] total revenue for the year was 35.5 million, which is flat compared to 2018.

This same year over year revenue is primarily driven by the I see a fee revenue recognized in Q2 of 2018 that was nonrecurring in 2019.

Moving this I see affiliate revenue 2019 revenue was actually up 2.4 million or 7.3% and this increase is primarily driven by the 4.9% organic connection growth.

Acquisition connection growth from both Turner, wrenches, and Red rock as well as approved rate increases.

Operating expenses in 2019 were 28.5 million compared to 26.2 million in 2018.

This is an increase of 2.3 million or 8.6%.

Notable changes in operating expenses include.

Increased depreciation and amortization expense of 884000, primarily due to the acquisitions of Turner ranches in Red rock as well as increases in our fixed assets associated with our capital expenditures plan.

Additionally, we had increased operating and maintenance cost by 686000. This increase was primarily driven by the additional cost associated with the Turner wrenches and Red rock acquisitions, a 476000 as well as an increase in contract services from related parties.

78000, and an increase in maintenance expense 69000.

Lastly, we had an increase in DNA expense by 694000, which can be attributed to the increase in personnel expense of 433000, an increase in deferred compensation of 219000.

Now to discuss other expense.

Other expense for 2019 was 3.6 million compared to 4.4 million in 2018.

809000 improvement was primarily due to the 1 million of other income received in Q1 of 2019 on the loop Creo three contract offset by a decrease in the valency earn out of 240000.

Turning to net income Goldwater had net income of 2.2 million or 10 cents per share.

Adjusted EBITDA, which adjusts for nonrecurring events, such as I see if they revenue loop Creo three upload proceeds and also just for options expense and our equity investment in five of them was 16.4 million in 2019, which is up 700000 or 4.5 per cent compared to 2018.

Adjusted EBITDA was up primarily due to the increases in organic growth as all the acquisition growth from Turner wrenches and Red rock.

This concludes our update on 2019 results I'll now pass the call back to Ron.

Thank you Mike.

It is clear.

Excluding one time and revenue recognition events from I see a phase.

Well the waters top line and connection growth rates continued to be very strong.

As we handled 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 our regional service areas and two new utilities will be beneficial to all stakeholders involved.

We appreciate your investment in support of US as we grow global water to address important utility water resource and <unk> economic development issues in Arizona and potentially be on.

These highlights conclude our prepared remarks, thank you and Mike and I are now available to answer your questions.

We will now begin to question all its assessment.

To join the question can you give me a press Star then one on a telephone keypad.

<unk> acknowledging your request.

If you're using a speakerphone please pick up your handset before pressing any keys.

To withdraw your question. Please press Star then too.

We will pause for a moment as quotas join the queue.

The next question comes from.

Jerry Sweeney from Roth capital.

Good morning, Heather Ron and Mike.

Hi, Jerry.

Just a couple quick questions.

I was just wanted to start on that.

Side, Obviously America.

Well connections.

Well give a little update just <unk>.

Flush.

How do we look at that how does that sort of develop emerge over the next couple of years.

Yeah, Yeah, no we always like to talk about growth Terry Thank you.

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Yeah, I look at me before switch just to the due to the to the Coolidge and Nicola project, you're talking about I mean, like Arizona has the most inbound transports right now than any other state.

Maricopa County has added more jobs than any other county in the country and so and this is this is you know absolute values not percentages.

So Arizona is doing very well and really for the first time this long sustained recovery and the way our governor has got about it in our communities here, we've really seen industrial and manufacturing and.

Health care and lots of other sectors really come in strong and be thriving in it. So it's it's not as much just construction bases, what it's been historically.

And so we feel really good about about what states.

At at that leads us to the Nicola project, because and these larger kind of industrial parks that are starting to pop up around metro Phoenix is because of that greater jobs climate Anda Anda and the cost to develop these types of projects and the cost of labor. It all those things. So we think this is just the beginning of these types of.

Projects.

So specifically I'm just I think it was just yesterday or the day before you can look it up Nicola had a press release and announced a merger with a company that's publicly traded on NASDAQ.

And what they basically said was it was I'm, there's lots of strategic benefits to the partnership of the merger, but basically this capital partner is going to finance the rest of their plans to really.

Get Nicola going on the not just on the innovative design and really the creating a whole new industry, but but the actual now let's get to manufacturing our first products. So so based on the information in that article.

They want to start be rolling some things off out of their new plant in the next 24 to 36 months or less so they've gotten to the point there now ready to go fast so Nicola will be the because we say that in the seed for that new area in Coolidge, because it's it's about a five minute or sorry, five mile separation from the industrial Park.

From the existing city of Coolidge.

But we expect <unk> not a lot we can share today, but we expect that went back type of project going into an industrial park with a lot of other capacity. It will bring all of the other tight kind of industrial and commercial projects that located next to a facility like that so so weve you know for us it's the normal butane.

The regulated process will put us see CNN in place all get all the construction permitting Don will build it and I will turn it on provide service. That's 24 to 36 months from today, but after that we do think that area could grow quite nicely.

Got it that's really helpful.

Valencia.

Trajectory for a little bit slowed down.

Hello.

Uh huh.

Any thoughts on how that development.

How that is developing on a go forward basis, specifically as you talked about just people to Arizona.

Yeah. Jerry this is Mike I'm, good question and and while we did see some accelerated growth in a you know a few years back. This year 2019, we had about 321000.

And we're not expecting any significant increase over that in 2020, just based on what development activities happening specifically in the areas, where our former service area was so that's kind of the apart for the course and you know well we do over the long term because it's a 20 earn out period expect something longer term later on down the road in the near term future.

We're just not expecting.

Okay. That's helpful. Finally, obviously you talked about.

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Got a lot of the surface infrastructure in house.

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Just update how that integration.

Just a.

It's got a quick update.

Thanks.

Yeah absolutely.

Frankly, it almost kind of got any better.

Now the way it developed is not ideal for any company to have to move that fast on something so significant we generally say if you're going to replace some of your back office systems. It's a it's a six month process, let alone replacing all of your back office systems, a you know and IR team effectively.

We did it in 60 days.

And <unk> and look the reason we were able to do that is maybe it's a little bit different than your common municipality or maybe some another private utilities.

We really understand the technology that they use obviously you know the history.

Long relations with with what file them and the people on the technology choices and so we basically just.

Because we like the technology package that had been created we just went direct to those vendors and if you think about it we were really just removing a integrator between offsetting those technology softwares and the people that sit in the seats that operate that those those software's for whatever function.

Being provided we hired a very capable people that were doing this for file them being called located in Phoenix that was a benefit we know the people that were here in and.

They closed doors and we took their best people by the way to kind of look at it. So so very happy with the people. We got we're very happy to have a direct relationships with these technology vendors now and we think it actually provides us more flexibility in more opportunity moving forward. It wasn't planned but we definitely.

Turning into eliminate or sitting here today pretty happy with it no no no major issues and unexpected coming at us.

Okay, Great I appreciate the update.

Congratulations.

Well.

We appreciate it.

Yeah. Thanks Terry.

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

The next question comes from John John from Trailhead asset management.

Good morning, and congratulations on a good year in 19, we hope things continue in 2020 Oh.

Pretty well covered the questions I had.

Are there.

Yeah, Yeah, Yeah John.

Yeah, I wondered if you could tell me what what does this mean with regard to the value of the original investment that we're still on the books for Fathom is that.

The approval gone.

No.

Yeah, Yeah. John This is Mike Yeah, actually you know Weve recorded had written that down on our balance sheet to zero back in April of 2019, but you are you're correct. The way that we're thinking about that going forward the value is zero.

Okay.

All right so sad to say.

I will cover is doing okay. So that didn't work out better.

Yes, you have anything else in terms of color you can give us on what's going on with some of those small water utilities around.

You're not going towards their in Arizona, and whether you have look beyond Arizona and.

Any possible ways of doing acquisitions outside of the.

General area that you're in.

Yes. So you know the way we've talked about in the path is we're really only just two years into.

Being back in the acquisition game, we wanted to get the company back to certain point before we did that and so.

And our kind of our first.

Initiative to go out and and talk to the utilities that we thought it made sense to consolidate into globally. We had some success as you know we acquired for utilities now approximately over those two years.

Turned out to be different great acquisitions. So now we're expanding out and we're talking to them or nothing we can really announced today, but we certainly intend to keep that part of our.

Growth.

Portfolio moving forward, even though we have great organic growth that we've got new projects in their entirety like this.

Industrial Park, with Nicola and say holding them the city of Coolidge, which there's more of those things even on the radar as well we will continue to look at acquisitions, but we can be discipline, because we've got good solid organic growth anyway, we've got lots of other good things going for the company and and where it makes sense.

To consolidate them and we we will do that now I'll also say two years and all of that said because of where the company is now today, we're probably for a for the first time willing to look at opportunities outside of this state or at least further away from Metro Phoenix as well so so.

So yes to that question. We are we are open to that at this stage.

That's great Okay.

Yeah, I'm not familiar with what has transpired with a big property that gates well.

Just outside of your service area, but has there been any progress with regard to developing that so plan.

Yes, they made progress on the plan now we sitting here today still don't know when they're going to move to land development and obviously our infrastructure goes in first and provide service from <unk> just like we've talked about earlier on the the a and B Coolidge project.

That's a that's a good 24 to 36 month process from the time they call us and say go for everything that we need to do so that's that's not on our radar yet to be clear. However, what they did say and if you can go back and I. Appreciate the article that was released at the time that announcement was made.

I mean, there they're not in designing your normal master planned community. There is a lot of.

Things that they want to do on that massive project that are property that they buy which is 20000 acres to remind everybody. So so some of that required them to go back and basically re entitle the land that the original plans and no longer apply and from what we understand some of that is even requiring them.

They want to do want to look at different regulatory or statue changes here in this day for some of the things they want to do so so that type of works moving forward, which gives us and that's enough.

Obviously, we are.

We don't believe that.

The group the investment group that has bill gates as part of it or at least the normal in the Gates Foundation as part of it.

Bought the property to do nothing with it so I'm sure. There's lots of planning lots of interesting things that they are looking at and working on it and the day that they're ready to actually engage and move forward with a plan in the utility portion of that we'll be ready to go.

All right well I appreciate the update thanks very much guys.

Thanks.

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

This concludes the question answer session.

Let's turn the conference back over to Ron Fleming for any closing remarks.

Alright. Thank you operator, I just want to thank everybody again for participating on the call and for your ongoing interest in global water resources. Thanks, and look forward to speaking with you again.

This concludes today's conference call you may disconnect your lines, thanks for participating and have a pleasant day.

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