Q1 2020 Earnings Call
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Ended March 31st 2020 <unk>.
Joining us today is the Chief Executive Officer up consolidated water company, Rick Mctaggart, and the company's Chief Financial Officer, David Sasnett.
Following their remarks, well open the call to your question.
Before we conclude today's call I'll provide some important cautions regarding forward looking statements made by management during the call.
I'd like to remind everyone that today's call is being recorded and will be made available for telecom replay and be instructions and last Fridays press release, which is available under Investor Relations section of the company's website.
Now I would like to turn the call over to consolidated water companies CEO, Rick Mctaggart, Sir. Please go ahead.
Thanks, a lot Sean and good morning, everyone. Thanks for joining us on today's call.
The first quarter of 2020 was a solid quarter consolidated water, we made strong progress in growing our overall business and expanding our operational platform to support continued growth and market reach.
Our 22% increase in revenues to a record 20.7 million was largely due to $3 million. There was contributed by PERC water or new 51% owned subsidiary that we acquired in the fourth quarter last year.
Our retail segment and manufacturing segment also contributed to the increase in overall revenue.
With these segments gross profits also up from the first quarter of last year.
Water management challenges continue to create demand not only for potable water solutions like desalination, but also for waste water treatment and reuse projects.
Hurt supports our pursuit of these water reuse projects and other emerging opportunities and has proven to be highly complementary and synergistic to our existing business and overall Michelle.
Brick allows us to offer comprehensive solutions for improving water and wastewater treatment infrastructures and provides us a solid platform upon which we can expand our core business of designing constructing an operating desalination plants in North America.
PERC also exemplifies the high quality opportunities, we are pursuing to drive continued growth and enhance shareholder value over the coming years.
Also in the first quarter, we acquired the remaining 49% interest in Aerex industries, our manufacturing subsidiary based import peers, Florida.
Since we acquired our original 51% of Iraq back in February 2016.
We have strengthened its capabilities and resources as well as expanded its product offerings. As a result their performance has improved substantially and we expect directs to continue to enhance our shareholder value over the coming years.
Now before I go further I'd like to turn the call over to David who will take us through the financial details of the quarter. I'll then return to provide more information on how cobot 19 has impacted our operational activities and the company's outlook for the remainder of the year.
David.
Thanks, Rick Good morning, everyone. Hopefully everyone has had a chance to look at our press release, which we issued on Friday.
This first quarter was an excellent quarter for us from a financial results perspective.
Our revenue increased 22% to 20.7 million as compared to 17 billion for the first quarter 2019.
Our services segment contributed most to this revenue increased our services segment added 3 million in revenues do the our acquisition apart which occurred back in October.
Manufacturing segment grew its revenue by 823000, and our retail segment posted a 571000 dollar increase in revenue.
These increases were partially offset by decrease of about 671004 bulk segment.
The increased our manufacturing revenue was due to an increase the number projects in production activity.
The increase in our retail revenue was due to a 10% increase in the volume of a water sold and on Grand Cayman by came in water. This was primarily due to drought like conditions that existed for the first quarter of this year as compared to last year rainfall for the first quarter on Grand Cayman, There's only 12% of what it was for the first quarter last year and only 12%.
Well the 30 year historical average for the first quarter.
The decrease in bulk revenue was due to the lower rates that came into effect in February of 2019 for water supply by the Red Gate and north South plants.
As well as lower rates that came into effect in last July for the north side Waterworks plant.
These revenue decreases were due to new contracts, we signed for those plants.
Our gross profit for the first quarter 2020 was 8.4 million to purchase a 21% increase for the 7 million we posted in the same first quarter last year.
Our net income attributable to consolidate or what to stockholders for the first quarter of 2000 22.9 billion or 19 cents per fully diluted share.
This was down 53%, the 6.2 billion or 41% 41 cents per fully diluted share the same quarter last year, but last year had a gain of 3.6 million.
And the first quarter for the sale our beliefs subsidiary.
With respect to our balance sheet, our cash and cash equivalents totaled 32 point Threemillion as of March 31st 2020, as compared to 42.9 million as at the end of 2019 and the decrease our cash was primarily due to the cash we used to acquire the remaining 40 diaper set of Eric.
We believe our cash position and available funds for him and borrowing capabilities providers would be sufficient liquidity we need.
For the rest of this year.
And this wraps up my brief discussion of the financial results for the quarter I'd like turn the call back over correct.
Thanks, David.
Well, we continue to be concerned about the impact of cobot 19 on the world economy and our business.
We remain optimistic about consolidated waters future, especially as it appears from recent reports at the rate of spread of the disease has begun to diminish and the economies of some states in cities are opening up again.
All of our water treatment and manufacturing operation.
An operating reliably and efficiently and we expect us to continue based on our experiences so far.
We continue to provide world class service to all of our customers.
However, continued travel interruptions, and resulting declines in tourism will likely adversely affect water demand for our desalination businesses in Grand Cayman.
Because the vast majority of our retail customers are residents and businesses on Grand Cayman, who depend on tourism, we've already been asked to help support those customers by extending credit terms and suspending service disconnections.
Our revenues from bulk water supply contracts with government entities are not as directly affected by a short term decline and tourism, but could be adversely impacted over the longer term by continued weaknesses in the economies of the Cayman Islands, and the Bahamas, which have already drastically slowed.
Due to the impact of Cobot 19.
Well the outlook for our U.S. based businesses is not affected by tourism and remains positive. These businesses could eventually be adversely affected by a decline in the U.S. and world economies or supply chain interruptions.
For our project and Rosarito, Baja California, Mexico involving the construction and operating of a major seawater desalination plant and distribution pipeline.
The impact of Cobot 19 is difficult to measure at present.
Mexico like everywhere else is experiencing economic and social difficulties from the pandemic and government entities are closed or working with skeleton staff, which has slowed work on our project.
Like many of the states in the U.S.
Mexico recently announced new stayed home orders, social dispensing and suspension of non essential school and working activities.
These restrictions being in place until May Thirtyth.
The Rosarito project will provide a much needed major new source of drinking water for the coastal region of Baja California.
So we are hopeful this project can continue to advance in the near term.
Despite the uncertainties created by the pandemic, we still consider acquisitions to be a strategic imperative and this continues to be supported by our cash on hand.
While we remain open to a number of strategic options and scenarios are ideal target.
I would expand our geographic footprint in the U.S. and further diversify our revenue streams.
Looking beyond the near term challenges and setbacks created by the pandemic, we see long term industry growth drivers remaining strong and boding well for consolidated water.
We expect them to be good for our growth and opportunities and especially for building shareholder value over the quarters in years to come.
Now I'd like to open the call up two questions Sean.
Thank you we will now begin the question and answer session.
To ask your question. Please press Star then one if your question has been addressed and you would like to withdraw your question. Please press Star then too.
Our first question today will come from a Gerry Sweeney with Roth capital. Please go ahead.
Hi, good morning.
Taking my call.
Hey, Gerry Hey, Gerry.
Just on the bulk side I know I believe most of the contracts have certain I guess take or pay level. So as if volumes go down.
Not.
Impacted.
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On the revenue side on the retail side are there any take or pay levels or is that strictly volume driven and.
We've seen any decrease in volumes.
Well first of all Jerry let me clarify the structure of our bulk contracts.
They're not minimum take or pays their minimum payments that have to be made by the government regardless of the amount of water. They use but it's not really a minimum take or pay then there is a separate component they pay us for the amount of one of the U.S.
So as we said in the queue the bulk contracts or not is impacted by changes in demand is retail.
With respect to our retail contracts, it's very much dependent upon.
Use the usage, there's really not any minimum payments there.
That are significant.
But you have to understand that there is a certain.
Population in our and our license area that has to have the water our residents there.
But.
Yeah, we've often talked about the impact on for rainfall.
On our business in Grand Cayman and really that's been the biggest determinant of how much we sell.
Because tourism the go up and down but it was always a base level tourism on Grand Cayman, but now there is no tourism.
So looking forward. It is we talked about in Q, there was a 13% decline and water demand.
For our retail operation in April as compared to March so.
We're very sensitive to changes in demand there and then clearly is going to be off because there are no tourist on Grand Cayman.
Got it yeah, I was trying to attract tourism numbers, but they haven't been updated since February.
Last numbers or lack thereof, there's zero sorted and I thought I'd say I figured I figured that's fine and update.
There was nothing to really put in there so.
And then shifting gears a little bit.
Correct.
It continues to do pretty well.
And.
Executed very well over the last several quarters in the press release you highlighted.
The strength and capabilities and resources added some additional up product offerings et cetera.
Can you give us a little bit of detail as to what you did there just and.
How much things have changed.
Perspective.
Well, we bolstered the staff last year, we hired a VP of manufacturing.
Which added a.
A lot of value to that business and we've also higher to full time sales guy.
Devoted specifically for Eric's.
From the standpoint, a product offerings I mean, we've gone back to some.
Products that we had.
Done in recent years and.
We're going after customers that are.
You know that there's demand for those products with so.
We're not in reinventing anything I think just the.
Bolstering, what we have and going back to some of the basics there to increase shareholder value.
Got it and.
Any any impact on the backlog at Eric's from Covidien or is it remained relatively in good shape.
Well I.
I mean from the standpoint of what we're doing this year I think we remain busy for the rest of the year.
Going forward, it's really difficult to say Jerry I mean.
You know sort of the.
Project activities worldwide have slowed.
It's really early.
On to see how it's going to look next year.
Okay, that's fair.
And then finally just.
On Rosarito I know you gave some color on the in the prepared remarks, but just.
Any any additional thoughts conversations with.
The government there to where do we have to sort of wait until.
Maybe the state or how motors are lifted people go back to work.
I'd also suspect that.
At some point infrastructure may become a.
I will sort of stimulus.
Opportunity and maybe.
To that.
Comment thoughts.
Well, it's difficult to to make progress now with a lot of these guys.
Some of the people that we've been dealing with and gotten stick and recovered and it slows down thing.
You know there's been if you look at them the Baja California recent press. The mean, there's waters been talked about quite a bit there. There. The governor is a created a new cabinet position that deals exclusively with with water. So.
The focus is on solving the issues there its just.
Like the disruption from the pandemic is.
Has slowed things down a bit so.
Well, we're working with the government officials and continuing to.
Contact with them, but it's difficult to make progress.
Got it.
I appreciate it I know, it's a tough questions.
Appreciate it I'll jump back in line. Thanks.
Thanks Jerry.
As a reminder, you'd like to ask your question. Please press Star then one our next question will come from Sandoz out with water asset. Please go ahead.
Hi, Good morning zone on them all ball quasi will host holds all you all.
Key AMOLED on all in the pull ups on all the C mall in hormones multiple modes.
All can you.
Given our blue that's what we've seen in the Bahamas, and how much would be honorable ball horrible.
On more comparable quality.
So I'm not cut your could you repeat that first part of your question how I saw you didn't come into that.
Im talking about the will.
In Q.
Loaded.
He also increased in your receivables in Bahama.
Okay. So I wanted to kind of understand on the loan situation in bahama more in the past you've had all the hard plan called Insolvable on palms on will implement and how much.
Yes.
Even more audible bulk cable modem team once again overall.
Some folks on the Bahamas, Oklahoma receivables Wilson.
Well first I think us on its important to recognize that hurricane Dorian hit the Bahamas back in September.
Not really said the Allen back and then obviously they've been impacted.
I kind of the 19, because they've closed the islands.
It is travel, but the situation that exist with our receivables, we've actually seen a slight decline to receivables from the ended the year and it was also a slight decline living into April.
This is a pattern that's existed for as long as I've been with the company and I've been with this for about 14 years now it's just the way the Bahamas operate the water and Sewerage Corporation.
Can't really meet the financial commitment for our bills. So periodically the receivable balances bill.
And then the government steps in and makes lump sum payments on their behalf and brings the receivable balance down on control. It's important to note that they're paying us interest on these receivables. So we've never been recorded any kind of allowance for doubtful accounts and we feel very confident that when things stabilize the government will bring the receivables back down.
And to a much lower level in the meantime, they're paying us periodically.
Like I said, we received substantial payment in April and we're confident that over the long term will collect 100% these receivables.
No we presently have a bit about liquidity problem, there the bahamas, but the government's recognizes that and I think they'll pay us and I think you'll see hopefully once we get passed the impacts of cobot 19, I think you'll see those receivables come down to more traditional levels, they're not at the highest level I mean, they actually had us more money than.
We have now it's important time the fast so.
Will or will you will model.
We'll grand Cayman loophole business one.
Global model what.
Well customer base, all like typical residential we call wholesome small business customers Paul.
Told them.
Yes.
Yes, we don't provide that sort of detail on the split of consumption and stuff, but you can get a good idea of.
The impact just by looking at where we said in the queue Weve seemed like a 13% decline in volumes in April.
In our retail business, though.
With that would have been the full impact of all the hotel closures and.
The tourism lock down so.
Well the retail sales have dropped.
Our bulk water sales in Grand Cayman to the other utility company there.
They've come down a little bit, but not to the extent that the retail sales have dropped so.
Yes, we detail.
The impacts.
The April impacts in the queue their Hassan give you some numbers.
And the next question will come from John Bear with Us.
Please go ahead.
Thank you good morning, gentlemen.
Just a follow up on Rosarito project.
Just wondering I realize.
The government agencies or shutdown so forth.
And.
I'm just wondering what are the main obstacles at this point to proceed with getting at underway. It seems like you're just so close kind of knocking on the door to get this.
Going and just just maybe give us an idea what does main obstacles are at this point. Thanks.
Yes sure John.
So just to remind everybody.
The state actually elected a new governor last year.
In the summer and he took office a ticket was November 1st.
So you have all new administration, there from late last year.
It's a getting familiar with the project.
Getting familiar with.
The obligations that are generated for the state.
They have obviously has a different party that was elected different policies different views on.
How much state support should be landed to this project so.
We were doing a lot of educating.
For the first certainly four or five months.
And then.
Really what needs to be finished is the guarantee structure on the state side.
Which would allow us to move into.
Closing the financing.
With banks and that sort of thing so.
It's really in their court right now and the clients court to finish.
Establishing this guarantees structure.
You also note from our filings that the legislative framework that created that structure was renewed for another six months.
Right at the end of last year so.
The the congressional decrease.
That authorize the project in the guarantee structure.
We will continue until June thirtyth of this year.
And.
We see the cobot situation.
Has impacted that timetable so.
We would expect it will have to negotiate with the state again on any sort of extensions to that.
That legislation.
Yeah.
Do you have any insights as to why.
An extension would only go six months I mean, the project has been ongoing.
I know the wheels of progress turn slowly.
Why would they do it in.
A six month increment.
As opposed to say a year or whatever.
Any any sense on.
Or is that just the way they do business.
Well you know I don't have answered.
But I'd like to think that they were.
They were.
Optimistic that they could get it done within that period.
I'm not I'm sure there's other political.
Calendars and that sort of thing that would have impacted that so.
I can only say that my interpretation was that they were optimistic at the end of last year that they could get it done.
One last quick one and that is I know there were some write a ways.
But still.
To be worked out.
You've been able to make any progress on that prior to this.
Pandemic breakout.
As I'd be pretty good shape.
So those are some pretty.
Expensive final things to do.
For us to get resolved so we put that on hold.
We've negotiated agreements with the landowners and that sort of thing but.
It's really on hold until we get some more visibility on.
When the government is going to get these guarantees in place and there's also been some technical discussions about the project.
Have caused us to put right of ways on hold.
In total.
Those things are resolved with the client.
Hi, everybody has some changes they want to may two a project when they take it over and.
These could impact the right away.
Okay very good. Thank you very much for taking my questions.
Sure.
As a reminder, she would like to ask your question. Please press Star then one.
At this time there are no further questions and this will conclude our question and answer session I would now like to turn the conference back over to Mr. Mitchell.
All right. Thanks, a lot shot and again, thank you for joining the call today and we look forward to speaking with you again and August when we release, our second quarter results take care and stay safe.
Thank you, ladies and gentlemen, now before we conclude today's call I would like to provide the company's safe Harbor statements that might be will include important caution 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 objectives expectations and events assumptions and estimates.
Forward looking statements can be identified by the use of words or phrases usually containing the words believe estimate project intend expect should will or similar expressions statements that are not historical facts are based on the company's current expectations beliefs assumptions estimates forecasts and projections sports betting.
And the industry end markets related to its business any forward looking statements made during this conference.
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 important factors, which may affect these actual outcomes and results include without limitation continued acceptance.
The company's products and services in the marketplace changes and its relationships, but the government other jurisdictions in which it operates the outcome of negotiations, but they came in government regarding a new retail license agreement its ability to successfully secure contracts for the new water projects, including the projects under development in Baja California, Mexico, It's a below.
Due to develop and operate such project projects profitably and its ability to renew existing bulk water supply contracts its ability to collected delinquent accounts receivable in the Bahamas, and its ability to manage growth and other risks, including those risk factors set forth under part one item one a risk factors and the company's annual report.
On form 10, K. any forward looking statements made during the conference call speak as of today.
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 there too or any changes in events conditions or circumstances on which any forward looking statements.
Except as may be required by law before we end today's conference call I would like to remind everyone that this call will be made available for replay starting later this evening and running through May 20.
Please refer to today's earnings release for dial in replay instructions available via via the company's website at Www Dot see W. C. O dotcom. Thank you for joining US today. This concludes todays conference and you may now disconnect.