Q1 2020 Earnings Call

Thank you for your patience the call will be beginning shortly.

[music].

Greetings, ladies and gentlemen.

Thank you for standing by welcome to the global water resources, Inc., 2021st quarter Conference call.

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

Following the presentation, we will conduct a question and answer session.

Instructions will be provided at that time for you to queue up for questions.

If anyone has any difficulties during the conference. Please press star zero for operator assistance at any time.

We'd like to remind everyone does this call is being recorded on May 7th 2020 at one PM Eastern time.

I would now like to turn the conference over to Heather Crowell, Vice President Controller. Please go ahead.

Welcome everyone and thank you for joining us on today's call yesterday, we issued our 2021st quarter financial results by press release, a copy of which is available on our website at www Dot GW resources Dot com.

Speaking today is 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 Flemming and Mr. Lehman 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 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 FCC and latest form 10-Q filed with the FCC such file either.

A little at Www Dot SCC Dot Gov.

Certain non-GAAP measures baby 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're very pleased to report the results for first quarter Twentytwenty.

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 cobot 19 pandemic. We're currently navigating it is appropriate to start here once again.

In short as an a central utility services are vital during a health pandemic. Our company moved quickly and early to implement all national local industry specific guidance to maximize social distancing and other measures to protect the health and safety ever employees and customers and safeguard our operations.

These proactive measures have gone well and we have not incurred any significant disruptions in the first quarter, resulting from the pandemic either operationally or financially.

However, at this point, we cannot predict the impact it could have on our operations and financial results going forward.

It is worth noting that since our customer base is over 90% residential connections. We may see an increase in water usage due to more people working or staying at home.

[noise], we do expect some customers to eventually have difficulty paying their utility bills due to covert 19 related unemployment.

But we're ready to work with them to set up payment plans and offer other options. For example, we recently rolled out and expanded customer assistance program.

In the meantime, we voluntarily have suspended disconnections for non payment and eliminated late fees.

Currently our state public utility Commission is disgusting options with the industry to determine how best to track and recover costs related to the pandemic at a future date.

Moving back to our typical operational highlights I'm very pleased to announce that we continue to extend our employee safety and regulatory compliance non recordable incident streaks.

As of last week in our staff hit the 1000 consecutive day, Mark without a recordable safety accident.

Also it has been nearly 1500 days since our last significant compliance violation.

We also continued to realize benefits from Brean customer service and billing in house last December including better control of long term service costs and benefits derived from a deeper focus on customer experience and enhance scalability of operations as we continue to grow.

On the growth front total active connections increased 4.7% to 46227 as of the ended the quarter.

Over the 12 months prior.

Q1 annualized active connection growth rate slowed a bit to 3.5%.

Turning to financial highlights revenues increased 6.6% to 8.2 million.

Adjusted EBITDA increased point, sixmillion or 18.4% to 4.1 million.

Following our effort to raised net proceeds of approximately 11.5 million from an equity offering to provide working capital.

For acquisitions and other general corporate purposes.

Cash and cash equivalents totaled 17.1 million at the end of the quarter.

Further subsequent to the ended the quarter at the company secured a new two year revolving 10 million credit line to support its growth strategy, replacing the previous line at better terms.

These remarkable achievement show the dedication and care of our employees as we continue deliver exceptional performance, both financially and operationally and position ourselves for long term success.

Next I typically highlight single family dwelling permit growth and Maricopa and find out counties generally the Metro Phoenix area.

As a reminder, in 2019, we realized a 14% increase as permits grew to 25127.

It was projected that 2020 would seem increased to 26000 permits.

Clearly this growth will be impacted by dependent make so all projections will need to be reassessed.

Regardless looking ahead, we believe Arizona, and especially the communities, we serve and Maricopa and now counties will continue to see strong growth overtime. Despite the current and largely viewed as temporary economic and social challenges.

Given the many economic impractical benefits, Arizona offers businesses of all size, we expect our region to benefit from the ongoing business and population net migration that has put our state at or near the top analysts nationally for many years.

In addition to the current call to return important manufacturing and supply chains back to the us.

We are prepared to support the growth of our region with our total water management solution that helps create sustainable communities I will now turn the call over to Mike.

Thank you Ron.

Hello, everyone.

Total revenue for the quarter was 8.2 million, which was up 507000 or 6.6% compared to Q1 of 2019.

This increase is primarily driven by the 4.7% organic connection growth increased consumption and our approved rate increase.

Operating expenses in Q1 of 2020 were 6.4 million compared to 6.5 million in 2019.

This is a decrease of 91000 or 1.4%.

Notable changes in operating expenses included the following.

Increased operating and maintenance expense by 94000.

Decreased DNA expense by 287000, which can primarily be attributed to the reduced deferred compensation and board compensation tied to the reduction in stock price.

Offset by increased personnel expense.

Lastly, increased depreciation and amortization expense by 100 in 2000, primarily due to the increases and our fixed assets associated with our capital expenditures plan.

Now to discuss other expense or an income.

Other expense for Q1 or 2020, it was 1.2 million compared to 200000 in 2019.

This 1 million dollar increase was primarily due to the million dollars of proceeds of other income received in Q1 of 2019 from the loop three or three contract.

Turning to net income global water and net income of 354000 or two cents per share in Q1 of 2020.

Adjusted EBITDA, which adjusts for nonrecurring events, such as Luke three or three proceeds and also adjusted for noncash items like option expense was 4.1 million in Q1 of 2020.

Which is up 635000 or 18.4% compared to Q1 of 2019.

Adjusted EBITDA was up primarily due to the increases in revenue as well as the reduction in operating expenses tied to that.

Before turning the call back to Ron I'd like to hit a few of the highlights for our most recent financing.

On April Thirtyth 2020, we entered into an agreement with the Northern Trust company for a two year revolving line of credit with the maturity date of April 32022.

This new $10 million credit facility replaces our old 8 million credit facility, we had with mid first bank.

The rate of alone is LIBOR, plus 200, which is 25 basis point savings from our prior revolver and we also eliminated the unused line fees all in all pretty good outcome.

This concludes our update on Q1 2020 results I'll now pass the call back to Ron.

Thank you Mike.

It is clear we remain well positioned to whether these uncertain and turbulent times with a strong balance sheet and a disciplined 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 growth we intend to remain at the forefront of the water management industry 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.

Actually now more than ever.

We appreciate your investment in us and supportive us as we grow global water to address important utility water resource and economic development issues in Arizona and potentially beyond.

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

Okay.

We will now begin the question and answer session to join the question Q You May Press Star then one on your telephone keypad you will see your tone acknowledging your request. If you are using of speakerphone. Please pick up your handset before pressing any key.

To withdraw your question. Please press Star then too well, we'll pause for a moment of colors join the queue.

Our first question comes from Gerry Sweeney with Roth Capital Partners. Please go ahead.

Okay.

Good morning, guys.

Okay.

Good.

Morning, Jerry I wanted to.

Just talking about the organic growth housing et cetera.

All early in the sort of covert probably.

Impacting on a everything but have you seen any or heard or incremental.

Permission on.

Just how the growth in the region things slowing down people pulling back et cetera.

Yes, as you can imagine just with everything these days Jerry to as information kind of all over the board, but I think what kind of hone in on what I think is important is.

For Q1 performance remained flat primarily for costs year over year, and we're actually still up quite a bit fourq for Metro Phoenix.

We noted over 19 pandemic any economic outfall related to it didn't start until now halfway through March. So that's that's not hard to believe.

Mark did see a dip in actual sales from a market perspective, but in April.

Interestingly and this article just came out this morning in Phoenix business Journal, if you have access to it.

For all new home sales on all price points actually increased over March so a little bit surprised to see that it was very positive article at the moment.

I will say, it's still probably prudent in the way with that's the way we're looking at our business to assume there's going to be a slowdown inorganic growth throughout the year.

Obviously, we.

The only saw 3.5%.

One of this year, which is below the last few years or even averaging north of four. So so you are starting to see it and we certainly project that for us, we'd probably be lower than our our last two or three years for that for for the remainder of this year at least but but we don't know we just think thats a prudent way to look at the business.

Got it and then.

Potentially maybe modestly offset by higher volume uses stay at home and shelter in place orders or.

Sure in places that fairway of.

Generally looking at it but I guess probably.

Well as well.

Yes, that's right Jerry I mean as early as Ron mentioned, the Twelveth, we didn't really started to see the impact to the back half of March. So it's kind of early to to say, but I think with over 90% of our customers being residential clearly think thats, a that's a possibility for sure.

One one or I think important point I would add to that hold discussion dairy and this again is.

A little bit of a longer term view of what's happened in the next quarter.

Development activity right. You can you can look at actual home. So you can look at actually permits which are the two data points I head on and then you can look at development activity. So so for US development activity today is actually.

Stronger in busier than and we have seen.

In years.

And I think that's deal is important to highlight because it was the strong home growth and Metro Phoenix had been seen for years was resulting in reduced walk inventory across metro Phoenix, and that's kind of the the point we've been making for years now as you know even following US is is ultimately there has been.

Last horizontal construction then you historically would have seen in metro Phoenix, and so so a lot capacity and lot inventory, we're starting to become an issue so even though.

I think it's again fair to project, we're not going to see 5%. This year and all 3.5 end to end too shabby, but homebuilders I think our end developers are indicating where they think still the market is going to be in what they're going to need from an inventory perspective coming out of this later this year and projects continue to move forward our Gulf.

We're never slowed down construction here its consider non essential service and part of the economy and and construction crews are cranking in our area is our inspections teams have never been busier.

For what that's worth.

Also I mean, just on that front, while we're talking about it I mean.

Probably the tails for some of the infrastructure projects Maricopa put in place I think in that southern half below the realignment put in.

Hi, flyover for the bridge.

Is that some areas.

That would be an area that would be.

More open for development is that a fair way of looking at looking at it as well.

Yes, yes that area and there is just theres, just new property that immediately adjacent and almost kind of still feel and property.

Some of our service area, where we have active connections and they're just prime location, so even though it again.

Homesales may slow for a little while getting those projects ready for it.

For finished lots and for homebuilding when it gets to them that just it just makes so much sense and so those projects have not slow down at all if anything they've sped up.

Got it.

And then again this is little bit longer term right as well, but.

No on the acquisition front always.

Kicking tires and things like that but.

With increase.

Potential stress on companies maybe.

Unpaid bills and things like that I know, you're you're well positioned to handle that could that potentially speed up.

Some acquisitions or.

[music].

Help people.

Move along in that direction.

Yeah, absolutely I mean, thats the thats the right way to think about it. We we took a 60 day pause because it's appropriate I mean, we are focused internally on our employees and on our customers and so.

We didn't kick tires in the last 60 days per se, because what's it's appropriate delivery, but deal at the situation. However.

Coming out of this.

The less remains the same.

And if anything potentially the there is a little higher probability that we can have success for those that are on the list due to due to the circumstances and as you as you mentioned the pressures that are on some of them. So I think thats the right way to look at it.

And that certainly the way we're looking at it.

Got it and then finally on the customer billing that you brought in house.

Fathom assets.

There were some costs spring, bringing those assets and I think there was some costs even maintaining those assets.

As we look out longer term is there any operating leverage opportunity from that or is it just better control.

Little bit better working capital.

Think about on that front.

Yeah, Hey, Jerry this is Mike and I would see other ladders, probably right, it's more better controls, but those costs are probably going to continue at the run rate that we're seeing so I mean, there is some things that happened in Q1 kind of covert 19 specific that we had to ramp up for but outside of that bring inside an in house throughout the run rates that were at right. Now is kind of what we think in that and as we grow.

So over the long term I think you'll start to see those benefits in future years.

Got it will leverage perspective, yes, yeah.

All right. Thanks, guys.

That's it from me stay well talk you Sir.

It was on thanks, Gerry Thanks Gerry.

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

Thank you operator.

This would like to thank everybody for participating on our call today and for your continued interest in global water resource.

Thanks, and we look forward to speaking with you soon.

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

And.

And.

[music].

Sure.

And.

And.

[music].

Yeah.

[music].

And.

And.

[music].

Okay.

And.

And.

So.

[music].

And.

[music].

Sure.

[music].

Yeah.

[music].

Yeah.

Yeah.

[music].

Thanks.

[music].