Q2 2020 Global Water Resources Inc Earnings Call

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<unk> controller. Please go ahead.

Welcome everyone and thank you for joining us on today's call yesterday, we issued our 2022nd quarter financial results I press release, a copy of what she's available on our website at Www Dot GW resources Dot com.

Speaking today is Ron Fleming, President and Chief Executive Officer, and make Lehman Chief Financial Officer.

Mr Funny, who will summarize the key operational events of the quarter, following which Mr. Lehman will review the financial results for the quarter.

Mr Funny, and Mr. Lehman will be available for questions at the end 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 company's current expectation.

<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 daycare and.

And are not guarantees of future performance.

For additional information regarding factors that may affect future results. Please read the section risk factors and managements discussion and analysis a financial condition results of operations included within our latest form 10-K filed with the FCC.

Such filings are available at Www Dot FCC Dot Gov.

Certain non-GAAP measures maybe 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. 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 second quarter.

Good morning.

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 Koby 19 pandemic. We're currently navigating is appropriate to start here again.

Having essentially utility whose services are vital during a help pandemic. Our company moved quickly in early to implement all national local and industry specific guidance to maximize social distancing and other measures to protect the health and safety of our employees and customers and safeguard our operations.

These measures continued to be modified guidance in that situation on the ground changes.

Generally all measures remain in place and have gone well and we have not incurred any significant disruptions throughout 2020, resulting from the pandemic either operationally or financially.

However, at this point, we cannot predict the impact it could have an operation and financial results going forward.

We expect some customers to eventually have difficulty paying their utility bills due to colder 19 related unemployment.

What we're ready to work with them to set up payment plans and offer other options.

For example, we previously rolled out an expanded customer assistance program.

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

Moving back to our typical operational highlights I'm very pleased to announce that in court in accordance with our top priority. We continued to perform at an extremely high level on employee safety and regulatory compliance non recordable incident.

As of today, our staff is the only experienced two minor osha recordable incidents and 1068 days.

As evidence of our success in the quarter, we were able to reduce our annual workers comp expense, despite having a higher headcount and payroll.

Also it has been 1591 days since our last significant compliance violation.

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

This has been magnified by our proactive measures to work with customers during this challenging time.

On the organic growth from total active connections increased 4.2% to 46573 at June Thirtyth Twentytwenty over the 12 months prior.

Few to analyze act annualized active connection growth rate slow to 3.3%.

Well, new home connection slowed a bit development in housing activity remains very strong and our areas.

Actually I can say it hasn't felt like this since the 2006 timeframe.

In fact in July the City America issue 117 single family home permits and this is the second best month since 2015.

Typically we site specific sources for housing projection permit growth.

We cannot do that right now as those projections have been suspended due to cope in 19.

However, I want to read part of a quote release just this week by one of the most prominent real estate experts in Metro Phoenix.

Housing demand is at its highest level since 2006 in Arizona.

Well supply is that low it's not seen since 2005.

The places with the most visible rising demand are those on the outskirts of the Metro Phoenix area.

Areas, where demand largely dried up following the housing bubble and the great recession areas within putting out county.

At this moment the fastest selling Arizona communities are here in the San 10 Valley in cost figure on a and in Maricopa, maybe the city America.

So now county is about to see more growth than it had ever experienced.

As Phoenix area builder seek affordable land and homebuyer seek more affordable housing, we're going to see the put now county building boom return rapidly over the next 30 month.

So for those of you haven't following our company for a while you know that this is what we've been preparing for speaking about as a company really since the beginning.

This was the strategy to buyer build utilities in the profit growth along these growth corridors.

This is again happening and in short we are well positioned to benefit from rapid growth throughout our large service area in put out county.

The organic growth. The addition of Chris Krieger as Chief Strategy Officer also allows for daily focus on growth through acquisitions and new business opportunities.

We're very excited about this addition, as Chris brings a wealth of experience and skills to the executive team of global water.

Well, there's nothing we can announce today, we are now making constant progress on this front.

Finally in addition to strong organic growth and acquisitions, we have disclosed that we'll be filing a new rate case with regulators later this month and will be requesting a modest rate increase to our customer rate.

We don't expect a decision on rates before September of next year and do we have requested that they not be effective until January 1st 2022.

As to further sure that any rate increases beyond the current pandemic.

I'll now turn the call over to Mike for financial highlights.

Thank you Ron.

Hello, everyone.

Total revenue for the quarter was 9.9 million, which was up 760000 or 8.4% compared to Q2 2019.

This increase is primarily driven by the 4.2% organic connection growth increased consumption and our approved rate increase.

Year to date through Q2 2020 revenue was up was at 18.1 million compared to 16.8 million in 2019.

This reflects an increase of 1.3 million or 7.6%.

Similar to the quarter. This increase is primarily driven by the organic connection growth increased consumption and approved rate increase.

Operating expenses in Q2, 2020 were 8.2 million compared to 6.9 million in 2019.

This is an increase of 1.3 million or 18.7%.

Notable changes in operating expenses include.

Increased operating and maintenance cost by 123000.

Increased DNA expense by 975000, which can primarily be attributed to a noncash deferred compensation expense of 654000 related to restricted shares awarded to the executive team.

It's worth noting that to some extent, we have shifted towards restricted shares and options as incentive compensation for employees and away from equity like incentive compensation that results in real cash expense to the company.

The remaining increases in DNA is primarily driven by increased professional fees and personnel expense.

Lastly, we had increased depreciation and amortization expense by 188000, primarily due to the increases in or fixed assets associated with our capital expenditures plant.

Year to date through Q2, 2020 operating expenses were 14.6 million compared to 13.4 million. In 2019. This is an increase of 1.2 million or 8.9%.

Now to discuss other expense.

Other expense for Q2, 2020 was 1.8 million compared to 1.1 million in 2019.

700000, an increase was primarily due to noncash asset disposals of 550000.

Year to date through Q2, a 2020 other expense was 3 million compared to 1.3 million in 2019.

This increase was primarily due to the 1 million of other income received in Q1 of 2019 from the loop three or three contract. In addition to the previously mentioned noncash asset disposal of 550000.

Turning to net income global water had net loss of 122000 in Q2 2020. However, if you adjust for the noncash expenses related to deferred compensation an asset disposals Q2, 2020, net income was 779000 or three cents per share.

Year to date through Q2 2020 after adjusting for the noncash expenses. Just mentioned net income was 1.1 million or five cents per share, whereas 2019 year to date and income after adjusting for the nonrecurring loop three or three proceeds was 677000 or three cents per share.

Now to talk about adjusted EBITDA, which adjust for nonrecurring events, such as the loop three or three proceeds and also just for noncash items like deferred compensation expense related to restricted share awards and asset disposals. Adjusted EBITDA was 4.8 million in Q2, 2020, which is up 261000.

Isn't or 5.8% compared to Q2 2019.

Year to date through Q2 of 2020, adjusted EBITDA was 8.8 million, which is up 895000 or 11.3% compared to 2019.

Before turning the call back to Ron I'd like to remind everyone that on April Thirtyth of 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 30, 2020 to this new $10 million line of credit replaces our old 8 million credit facility, we had with mid first bank the.

On the loan is LIBOR, plus 200, which is a 25 basis point savings from our prior revolver and we also eliminated the unused line fees.

With existing cash on hand, and this unused line of credit we have over 25 million of liquidity to support ongoing operations and our growth strategy.

This concludes our update on Q2 2020 results I'll now pass the call back to Ron.

Thank you Mike.

It is clear we remain well position to whether these uncertain and turbulent times, what best strong balance sheet and disciplined strategy.

In fact from an operational and financial perspective, we've never been stronger.

We have more than ample liquidity in capital resources to pursue expansion through organic growth acquisitions, and new projects, both big and small.

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

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

That highlight conclude our prepared remarks, thank you, Mike and I are now available to answer any questions.

We will now begin the question and answer session to join the question Q You May Press Star, then one and our telephone keypad, you'll hear a tone acknowledging your request if you're using a speakerphone. Please pick up your handset I swore pressing the kids to withdraw your question. Please press Star then too.

Well pause for a moment as collars join the queue.

The first question is from Jerry Sweeney of Roth Capital. Please go ahead.

Hi, Good morning Rotten Mike Thanks for taking my call and thanks for that Martin Gerry.

<unk>.

Just a couple quick questions here I know you discussed.

Permits, especially in June.

I'm sorry July I know, a I think April may were actually down a little bit.

But.

Just curious as to.

Hi mine and from once those permits are issued how long to breaking ground.

Some of the homes are up and occupied.

Just want to get a little bit better town 10 or how.

Construction operations et cetera.

<unk>.

Yeah sure absolutely.

So we actually did over 100 permits in June and then it was that a stat that I gave earlier.

In July so last two months have been quite strong and and more than recovered from the dip and March April may.

So.

The way that process works Jerry is typically less than 12 months from the time the homebuilder builds the permit to their goal of having a home that's available for sale. So.

They pull the meters a little bit earlier than that so they have a active meter the builder does that before it gets converted to the final end user so that they have water availability for part of the construction process elsewhere or somewhere before that so it's it's safe to say, it's typically well within a year.

Got it and then just a little bit of at different question I know some time ago.

Had an outspend with Citi Coolidge faint holdings.

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Providing some operations for for that area. That's also where I think nickel motors is located are you going to be providing services to nickel and motors or is that the area. Just curious because that's been a in.

An area of interest.

The company in its entirety.

Yeah for sure, but we're very excited about that.

Progress continues to be made I would I would think about it this way Gerry.

The call. A is is the project, that's really going to put that entire region on the map and attract further industrial and commercial and ultimately residential growth.

Because of its location there.

We signed a contract with a land owner or on the same holdings you mentioned them.

For a an area.

I think it's north of $2 and acres actually for for what they call inland Port Arizona.

They sold about three or 400 acres of that entire project to Nicola. So it's a it's part of it but it's a much smaller part than what actually planned and is occurring and then beyond that going into that area of was it's not really a fish and from a regional planning perspective.

To build it to bill utility just for industrial park, even if its sizable like that to dolphin acres. So we work with the city Coolidge to ensure we could be the integrated water and wastewater provider for a much larger area and ultimately signed a license agreement with them to be that provider for 30 square miles. So so Nicole is is the one movie.

In the fastest Nicola as a kind of the kind of the one catching all the attention, but it will really start we believe lots of activity in that area, where we will be the provider.

At this point all we filed I will say, we filed for the certificate convenience and necessity our service area right at the Corporation Commission in the quarter or that industrial Park.

And at this point it looks like we'll be getting that CNN by the end of the year and you've already starting to move into more detailed engineering design. So lots of activity lots of good stuff going on today I can't tell you why inc. The contracted Nicola to also be their provider, but we're working on that was all I can say for the moment.

Great. Thanks, that's it for me and other nice quarter as always I appreciate it. Thank you.

Thanks, Gary sure.

As a reminder, it is star one to ask a question.

This concludes the question and answer session I would like to turn the conference back over to Ron Fleming for any closing remarks.

Thank you operator.

Again, I would like to thank everybody for participating on this call and for your continued interest in global water resource.

So when we look forward to speaking with you again.

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

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