Q4 2019 Earnings Call

No, I'd like to.

Nicole over to Consolidated water company co-rect McTaggart, sir, please go ahead.

Thanks Grant. Good morning everyone. Thank you for joining us today. I know most of you are following the impact that the code 19 virus is having on the world and why why they are concerned about the impact on our business. We remain optimistic about our long-term prospects. We believe that the travel interruptions and a decline in tourism and the Caribbean will suck adversely impact our desalination business in the short-term and we continue to closely monitor this very fluid situation.

Turning to our 2019 results as you saw from the earnings release we issued this morning 2019 was another great year for Consolidated water. She made strong progress and growing or overall business and expanding our platform to support future growth and Market reach overall. We reported record Revenue with improved profitability our retail and Manufacturing segments drove this Revenue increase with manufacturing segment Revenue nearly doubling to 13.6 million. We expect our manufacturing segment to continue to strengthen this year supported by purchase orders received to date that are already comparable to all of last year's.

Events and opportunities presented to us in 2019 underscored the importance of further diversifying our Revenue by adding complimentary service and product offerings home as well as expanding our Geographic presence and customer base this process actually began in 2016 with the acquisition of a controlling interest in Eric's Industries wage, which comprises our manufacturing segment and then in January of this year. We acquired the remaining 49% of Eric's

Over time we have strengthened are Xscape are exes capabilities and resources and expanded its product offerings resulting and improving results. We expect a tribute to increase shareholder value in the coming years.

To further expand our product offerings and presence in the United States in October of last year. We acquired a controlling interest in water Corporation a leading water treatment and they use infrastructure provider and manager that operates primarily in the western us.

In addition to its existing business offerings provides us with a platform in the US for expanding our Core Business of Designing constructing and operating desalination plants to water short regions of the US are strategies to expand such service service revenues is supported by a strong balance sheet and gas pipeline of projects, which I'll get into more a little later in the call. I would like to turn over the call to David who will take us through the financial details for 2019 Dodge after which I will return to discuss some more recent developments in our outlook for 2020 David. Thanks for good morning, everyone.

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18 or Revenue increased 5% to a record 68.8 million. This was driven by a revenue increases of six point three million in our manufacturing segment and 835000 in our retail segment.

The increase in manufacturing Revenue was due to a larger number of orders that resulted in expanded project production activity.

A retail segment revenue is higher due to a slight increase in the volume of water sold by Cayman water and higher energy prices. This increase was partially offset by the lack of Revenue in 2019 from Consolidated water Bali due to the cessation of this business in 2018 and its sale and 2019. If you look at our income statement, we generate it a gain on sale of asset disposition in 2019 of 445000 and this number was primarily from the sale of CW Bobby's assets and its stock which happens in June 2019.

The decrease in our what a revenue was due to the lower rates that came into effect in February for water supplied by the Red Gate in Northtown plants and the new contract that came into effect in July for the Norfolk Waterworks plant. Our previous contract had expired when we were fortunate enough to win to the when the tender process and get new contracts for these plans for the water authority and came in.

The slight decrease in Services revenue for 2019 reflects non-recurring activity that generated more than one point two million in Revenue in 2018, as well as lower fees generated in 2019 and our Management Services agreement with the British with our British Virgin Islands affiliate CBI. We were able to add a new Revenue source for our services segment to the our acquisition of 51% of water Corporation in October per contribute to one point four million to our services segment revenue for 2018.

Our gross profit in 2019 increased 6% to 28.3 million as compared to twenty six point seven million in 2018 with the gross. Margin as a percentage of Revenue improving 6.7% in 2018 to 41.1% in 2019.

Are they didn't come it could be able to stockholders told total 12.2 million or eighty cents per diluted share this number compares to 11.3 million or $0.75 per diluted share wage 2018.

If you look at our balance sheet cash and cash equivalents total 42.9 million is a December 31st, 2019 as compared to 31.3 million as of December 13th, 2018 the increase in our cash and cash equivalents was primarily due to income generated by continuing operations in the sale of RCW believes business for seven million dollars wage in February of 2019. Looking forward are projected liquidity requirements for 2020 include Capital expenditures for existing operations of approximately 4.7 million months three point nine billion for non-cancellable raw materials purchase orders three million to be extended for our development activities in Mexico related to the Rosarito project Thursday. We have presently 1.3 million dollars in dividends failed.

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Requirements for 2020 may also include future quarterly dividends as such Dividends are declared by our board our dividend payments amounted to 5.1 million for the year ended December 31st, 2019. That's just tell me about financial results. I'd like to turn the call back over to right now. Right? Thanks, David.

Our overall growth in 2019 demonstrates how we remain focused on our mission of providing water services to areas of the world where the supply of naturally occurring potable water is scarce and particularly where reverse osmosis technology is economically and environmentally feasible are push into new markets and product offerings have helped us first name carved out a niche as a company capable of solving some of the most daunting and challenging water problems in the world. We are seeing an increased number of new opportunities for desalination and the us as well as for other types of water projects using this or similar project delivery models to what we have used in the Caribbean traditionally off and this is especially true for the southwestern us.

We Believe California in particular with its eight hundred forty miles of Pacific Coastline will be a source of extensive desalination project opportunities for us back to 11. Our nation plants are already in operation in California with ten more being proposed.

To be sure our desalination opportunities aren't limited to Ocean coastlines Arizona, which has perpetually been short on water and facing a Colorado River Supply shortage has been looking at ways to treat it's estimated $600 million acre-feet of brackish water deposits using desalination because the dissolved solids content of brackish groundwater is considerably lower than seawater brackish water is actually considered to be more economical and to desalinate than seawater. In addition to producing poem water water management challenges are also creating a growing demand and opportunity for wastewater treatment and reuse projects for California, Arizona, Texas. And Florida State's actively pursuing such projects the anticipated demand for new wastewater treatment facilities and operations is actually several times higher than the corresponding cat.

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the addition of water supports our efforts to address these and many other emerging opportunities. They develop develops designs and builds state-of-the-art facilities recycle Wastewater for industrial use and groundwater replenishment and they can provide the ongoing operational and Management Services to keep these facilities operating at Peak Performance.

Perk is completed and continues to support several water infrastructure projects, including new facilities facility upgrades short and long-term operation services and office management engagements. They won numerous industry awards for their Innovative designs and highly efficient project delivery model.

Since we acquired them in October perk has proven to be highly complementary and synergistic to our existing business and overall mission allowing us to offer our customers a comprehensive solution for deploying or upgrading their water infrastructure perk also provides a solid platform on which we can expand our Core Business of Designing constructing and operating desalination plants for water short regions.

It's also important to note that water is highly complementary to Eric's which fabricates water treatment equipment for a diverse number of Industries involved in wastewater treatment infrastructure.

We have introduced to our specialized capabilities and greater access to Capital and other important resources allowing them to take greater advantage of these fast-growing markets wash perk is presently pursuing several new water and wastewater recycling projects being developed under various project delivery models including design build operate. Thursday is also pursuing opportunities to obtain management contracts with large utilities that could generate for us substantial management and Consulting fees.

Turning to our International activity or Mexico desalination project recently received Congressional extension of icky icky financing authorization to the passing of the legislative Bill de Cristo 37 the extension allows the state of Baja California additional time to establish the financing and securitization structure required for payments to us under the water projects water supply contract. We believe this extension demonstrates the states continued commitment to the completion of this important project.

The Rosarito project involves constructing a desalination plant designed to produce a hundred million gallons per day of potable water and two phases of fifty million gallons per day and will provide a major and much-needed new source of drinking water for the coastal region of Baja, California Mexico for at least thirty seven years.

In addition to Mexico many other water scares areas of the world need Solutions, especially as water demand continues to increase with the growth and populations Urban expansion and food production. However, desalination doesn't fit every need especially for landlocked areas and Community water planners typically strived to obtain a portfolio of water sources.

Bearing this in mind with perk water. We now have an additional new leg to support our growth objective their Advanced wastewater treatment and reuse expertise. Give it just another offering to support the growth and quality of life of communities where desalination is not the best option.

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Exemplifies the high-quality opportunities. We are pursuing to drive future growth and enhance shareholder value over the coming years.

Our Caribbean operations while in a mature market and likely to suffer short-term impacts from The Cove in nineteen virus pandemic will continue to provide not predictable source of cash flow these operations along with our ample liquidity and strong balance sheet will help us to whether the impacts of The Cove at 19th and emack & provide a solid foundation upon which we can advance our projects and plans for expansion.

Like to know open the call up for questions Grant.

We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys off to withdraw your question, please press * then two at this time. We will pause momentarily to assemble our roster.

Our first one moment, please.

Our first question comes from Gary Sweeney with Roth Capital, please go ahead.

Hey Jerry, can you hear us? I can't yeah, I apologize. I was sort of jumping on and off the calls as you know, we're working on her conference on the other end. But obviously there's a core base of business. I think the bulk water is probably a lot a good portion of it is driven to sort of a municipal use on the Bahamas and and I guess Grand Cayman, but there's also a portion that is retail that maybe retail and or maybe Taurus driven. Have you been able to look at your numbers and see what percentage of Revenue is sort of a core business that would I would assume to like general population used versus maybe some of the business that is used more on the Taurus side that may have some fluctuations.

Jerry this is David. Good morning, by the way. Yeah, we we've looked at these numbers. If you if you live in Grand Cayman, there's about 65,000 people to live on the island. And I would say that I'm more than half those people live in our service area of West Bay in Camana Bay and and

I'll Beach. I don't know if it's possible to quantify the exact impact of tourist on the amount of water that we sell. It's fair to say. I mean if you think about it more than 30,000 people are in our service area. I don't know if if the if the fact that you have one thousand or two thousand tourists there have a huge impact as we said earlier the biggest impact on our business is rainfall patterns without question though. If there were declining tourism in the Cayman Islands that's going to affect the overall activity on the island in general and the economy. So it's not just the lack of water sales. I think do the tourists. I think the whole activity on the island goes down. So it could have a pretty significant impact on us. I don't know if it's possible to really quantify it.

All right, but we never been able to figure out exactly, you know, the tourist level levels. They've always been pretty steady in Grand Cayman. Occasionally. They've gone up a little bit off the initial development we have down there but still the majority of the water we sell is to Residents and visitors. Okay. Yep, so I can read some business which is Thursday the most sensitive part right now. I think it's about 30. Is it 32% of our revenues something like that? I don't have the number right in front of me, but it's in the K. Okay 38%

Go ahead. Sorry. It's going to have a big impact on the island in general. Not only you know our numbers but our economy of the tourism shuts down there. Yep. I think today's environment people are looking out for stability. And and I think the key takeaway is there is some leverage to some tourism but there's a core base of business here that

we'll continue and I think that's I mean, that's exactly what I'm looking for in terms of just trying to figure out how much stability there is in in the General Revenue side. So it's helpful. That's it for my end. I got a bunch of little fires to put out. So I appreciate your time and I'll follow up with you if that's

An option. Thanks for calling injury. Appreciate it.

again, if you have a question, please press * then 1

Our next question comes from John bear with a send please. Go ahead.

Thank you and good morning. Glad you're out of juries. Also. I know that that you with our prices coming down should that help offset some of the potential operating costs or whatnot for and and and perhaps loss of some revenue and Faith Evans and and other areas, where where that's a factor.

Not really most of the energy almost all the energy costs in our Vulcan retail operations are passed through the consumers. So an increase in Energy prices are decreasing prices will not have a big impact on the profitability.

Okay, and then as soon as I honestly will affect our sales with the gross profit margin won't be impacted that much. Yeah, okay, okay and interesting comments on the bath water opportunities there does this have the potential to be more broad-based than just in Los say the southwestern region that you you mentioned in the call. I mean is this something that could be applied in other parts of the country, you know up here in the northeast or whatever even evaluated that or

I can tell you the area is John that I'm familiar with I mean Florida, for example, they've already started tapping a brackish aquifer which is deeper than the main aquifer pass in South Florida. So they have water treatment plants that utilize brackish water Ro in Texas same thing. I mean, there's a tremendous brackish aquifers wage in Texas and I think even into the the Midwest and then Arizona because of perk I mean they have excellent relationships and Page Arizona and California. I mean, we're more focused on those areas right now, but there are broader opportunities. I mean in Florida, you know, Eric's is built equipment off our equipment for municipalities that you know, use these deeper aquifers and there is a broader opportunity there.

I mean is this applicable in conjunction with oil and gas related projects or is it the totally suck this more specialized John? I mean they're just taking out a lot more than just dissolve solids there. So that's probably not a market. We want to be in right now. Yeah. Well, yeah other than a lot of these companies are trying to utilize, you know, looking at ways to cut costs. So obviously if they could reuse and I mean, I know they're doing this but reuse find better wage to to reuse their produce water that right produced water whether it's from fracking operations, or just water drive home related, you know production. So, okay, very good. Thanks. Thank you very much for taking the call.

True John. Take care. Yeah, you too.

again, if you have a question, please press * then 1

All right at this time this concludes our question-and-answer session. I'd like to turn the call back over to mr. Taggart Sarah, please. Go ahead.

Thanks Grant just like to thank everybody for joining us today. I'm sure that you got lots of things to do and hopefully when we speak to you again in May with our first class result, a lot of this stuff will be past. Take care and all the Best Buy.

So there's a little afraid.

Thank you. Ladies and gentlemen. Now before we conclude today's call. I would like to provide the company Safe Harbor statements that include important cautions regarding forward-looking statements made during today's call the information that we have provided in this conference call includes forward-looking statements within the meaning of the private Securities litigation Reform Act of 1995 including but not limited to statements regarding the company's future revenues future plans objective expectations and events assumptions and estimates forward-looking statements can be identified by the use of word or phrases usually containing the word volt lease estimate project intend expect should will or similar Expressions statements that are not historical facts are based on the company's current expectations. God believes assumptions estimates forecasts and projections for its business and the industry and markets related to its business any forward-looking statements made during this conference call log.

Guarantees of future performance and involve certain risks uncertainties and assumptions which are difficult to predict actual outcomes and results May differ materially from what is expressed in such forward-looking statements wage important factors, which may affect these actual outcomes and results include without limitation continue to acceptance of the company's products and services in the marketplace changes in its own ship with the governments of the jurisdictions in which it operates the outcome of its negotiations with the Cayman government regarding a new retail license agreement its ability to complete the project development in Baja, California Mexico, the future financial performance of its subsidiary that manufactures water treatment related systems and products and provides design engineering management operating and other services applicable to commercial Municipal and Industrial Water Production, the collection of its delinquent accounts receivable in the Bahamas, its ability to integrate and profitably authors.

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The possible adverse impact of the Cove in nineteen virus on the company's business and various other risks including those risk factors set forth under part one item 1A risk factors took the company's annual report on form 10-K any forward-looking statements made during the conference call speak as of today's date the company expressly disclaims any obligation or undertaking to update or revise any forward-looking statements made during this conference call to reflect any change in its expectations with regard thereto or any change in events conditions or circumstances on which any forward-looking statement is based except as it may be required by law before we end today's conference call. I would like to remind everyone that this call will be available for replay start off this evening and running through March 23rd. Please refer to today's earnings release for dial and replay instructions available via the company's website at ww.w wage.

CWC. Thank you for joining us today. This concludes the conference call. You may now disconnect.