Q3 2020 Global Water Resources Inc Earnings Call
[music].
Greetings, ladies and gentlemen, thank you for standing by welcome to the global water resources Inc. 2023rd quarter Conference call at.
At this time all participants are in listen only mode. Following.
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 hearing the conference. Please press star zero for operator assistance at any time.
I'd like to remind everyone that this call is being recorded on November six tiny tiny at one PM Eastern time, I would now like to turn the conference over to Heather Cooper.
<unk> President and controller. Please go ahead.
Welcome everyone and thank you for joining us on today's call yesterday, we issued our Twentytwenty third quarter financial results press release, a copy of which is available on our website at www Dot GW resources Dot com.
Looking today is Ron Fleming, President and Chief Executive Officer, Mike Lehman, Chief Financial Officer, and Chris Krueger Chief Strategy Officer.
Mr funding will summarize the key operational events over the quarter. Mr. So I mean will review the financial results for the quarter and Mr., Craig will review strategic initiatives and business development for the quarter.
Mr. Fleming Mr. Lehman I missed it Mr. Crocker 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.
Such statements reflect the company's 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, you're out and are not guarantees of future performance.
For additional information regarding factors that may affect future results. Please read the section risk factors and management discussion and analysis of financial condition and results of operations included within our latest form 10-K, and form 10-Q filed with the SEC such.
Such filings are available at Www Dot I see Si dot Gov.
Certain non-GAAP measures may be included within today's call for a reconciliation of these measures to the comparable GAAP financial measures. Please see the tables included in Yesterdays 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. Martin funny.
Oh. Thank you had there good morning, everyone and thank you for joining us today.
We're very pleased to report the results for the third 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 consider.
Considering the COVID-19 pandemic. We're currently navigating it is appropriate to start here again.
As an essential utility who services are vital during a help and they make our company moved quickly and early to implement all national local and 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 measures continued to be modified his guidance and the situation on the ground changes.
But generally all measures remain in place and have gone well and we have not incurred any significant disruptions. The route 2020, resulting from the pandemic either operationally or financially.
However, at this point, we cannot predict the impact it could have on operations and financial results going forward.
Any event that customers have difficulty paying their utility bills due to COVID-19, we're ready to work with them to set a payment plans and offer other options. For example, we previously rolled out an expanded customer assistance program.
We can report today that this assistance is being utilized and in 2020 alone through our program partners, we have distributed over $100000 to customers in need of help to pay their utility bill.
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 accordance with our top priority. We continue to perform at an extremely high level on employee safety and regulatory compliance on non recordable incident.
As of today, our staff has only experienced two minor osha recordable incidents and 1162 days.
In fact, we have almost no related cost incurred in over four years, resulting in an experienced modifier or emad <unk> 0.65.
As a reminder, and he might have one is considered to be industry average. So said another way, we're performing 35% better than the industry average, which results in lower actual costs and workman's comp insurance costs.
Also it has been 1685 days since our last significant compliant violation.
In fact, just this week, we received unsolicited recognition from the Arizona Department of environmental quality as part of their voluntary environmental stewardship program bronze level.
Bronze level recognizes companies that demonstrates strong environmental compliance for the past three years and demonstrate environmental excellence and leadership in providing customers with safe drinking water.
This recognition is a nice addition to the utility of the future today National Award that we received an announced earlier in the quarter.
For the company's transformational work and community engagement watershed stewardship and resources recovery.
On a related note in the quarter, we delivered a record volume of recycled water 273 million gallons, which is an increase of 20.4% year over year.
[noise] full reuse of recycled water is a primary element of our total water management approach for growing communities that allows us to achieve meaningful conservation.
We also continue to realize benefits from Brean customer service and billing in house last December including better control of long term service costs.
Benefits derived from a deeper focus on customer experience and enhance scalability of operations as we continue to grow.
This has been magnified by our proactive measures to move employees to work from home because of the pandemic and our work with customers. During this challenging time.
I now want to highlight customer growth.
On the organic growth front total active service connections increased 5% to 47594 at September Thirtyth 2020.
Development in housing activity remains very strong and our areas in fact through the end of Q3, the city of Maricopa issue 937 single family home permit.
23% over the prior year and on pace to have the best year since before the great recession.
Typically we cite specific sources for housing projection permit growth, we cannot do that right now as those projections have been suspended due to COVID-19. However.
However, I want to read part of a recent quote by one of the most prominent real estate experts in Metro Phoenix.
Jim BL for.
Housing demand is at its highest level since 2006 and Arizona.
While supply is that its lows not seen since 2005.
The places with the most visible rise in 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.
Areas within Pan out County.
At this moment the fastest selling Arizona communities are here in the San Tan Valley, and configure on day and in Maricopa.
Meaning the city America.
He also continued and now county is about to see more growth than has ever experienced as Phoenix area, bill or seek affordable and home buyers seek more affordable housing, we're going to see that but now county building boom return rapidly over the next 30 months.
So for those of you that have been following our company for a while and no. This is what we have been preparing for and speaking about as a company.
They really really since the beginning this was the strategy to buy or build utilities in the path of growth along growth corridors.
This is again happening and in short we are well positioned to benefit from rapid growth throughout our large service areas in play now county and elsewhere.
Beyond organic growth. The addition of Chris Krueger earlier this year as Chief strategy Officer has allowed for daily focus on growth through acquisitions and new business opportunities.
As announced last week, we just completed our first acquisition since 2018.
And are now making constant progress on business development.
Chris will provide more information later in the call.
Finally in addition to strong organic growth and acquisitions, we have discussed that we filed a new rate case with regulators during the quarter and will be requesting a modest increase to customer rates.
We don't expect a decision on rates before September of next year and have requested that they not be effective until January onest 2020 two as to further shirt any rate increase is well beyond the current pandemic.
Putting all these elements together global water is well positioned for notable growth in the years to come.
Finally, the board of Directors has approved a 1% increase to our annual dividend paid monthly as we are committed to growing the dividend along with the rest of our business.
The first dividend at the new monthly rate will be paid on December thirtyth 2020 to holders of record on December 16th Twentytwenty.
I will now turn the call over to Mike for financial highlights.
Thanks, Ron.
Hello, everyone.
Total revenue for the quarter was 10.8 million, which was up 815000 or 8.2% compared to Q3 of 2019.
This increase is primarily driven by the 5% organic connection growth increased consumption in our approved rate increase.
Year to date through Q3 of 2020 revenue was $28.9 million compared to $26.8 million in 2019. This.
This reflects an increase of $2.1 million or 7.8%.
Similar to the quarter. This increase is primarily driven by the organic connection growth increased consumption and approved rate increase.
Operating expenses in Q3, 2020 were $7.9 million compared to 7.4 million in 2019.
This is an increase of 485000 or 6.6%.
Notable changes in operating expenses included increased operating and maintenance cost by 235000, primarily driven by cost increases revenue increases.
Second increased depreciation and amortization expense by 355000, primarily due to the increase in our fixed assets associated with our capital expenditure plan.
And these increases thirdly were offset by reduced DNA expense of about 105000.
Year to date through Q3 of 2020 operating expenses were $22.5 million compared to 20.8 million in 2019. This.
This is an increase of $1.7 million or 8.1%.
Now to discuss other expense.
Other expense for Q3, 2020 was $1.26 million compared to 1.13 and 2019. The 136000 increase was primarily due to the elimination of the fathom royalty.
Year to date through Q3 of 2020 other expense was $4.3 million compared to $2.4 million in 2019, the $1.9 million increase was primarily due to the 1 million of other income received in Q1 of 2019 from the loot three or three contract. In addition to the noncash asset disposal of approximately.
550000 in Q2 of 2020 as well as the elimination of the Furthermore, royalty of 292000.
Turning to net income global.
Global water had net income of 1.1 million or five cents per diluted share in Q3 of 2020. This is an increase of 8% compared to Q3 of 2019.
Year to date through Q3 of 2020 net income decreased 1.1 million to 1.4 million or six cents per diluted share.
This decrease was primarily attributed to the final payout. The three all three contracts in Q1 of 2019 combined with a noncash loss on asset disposals of 547000 in Q2 of 2020 and the non cash restricted stock expense of 654000 booked throughout 2020.
After adjusting for the noncash expenses just mentioned net income was $2.3 million or 10 cents per diluted share, whereas 2019 year to date net income after adjusting for the nonrecurring loop three or three proceeds was $1.7 million or seven cents per diluted share.
Now to talk about adjusted EBITDA, which adjusts for nonrecurring events, such as leukemia through proceeds and also adjust for non cash items like deferred compensation expense related to restricted share awards and asset disposals.
Adjusted EBITDA was $5.5 million in Q3 of 2020, which is up 771000 or 16.1% compared to Q3 of 2019.
Year to date through Q3 of 2020, adjusted EBITDA was $14.4 million, which is up $1.7 million or 13.1% compared to 2019.
Before turning the call over I'd like to touch on our liquidity situation with existing cash on hand of 18.1 million and our $10 million unused line of credit we have over 20 million of liquidity to support ongoing operations and our growth strategy.
This concludes our update on Q3 2020 financial results I'll now pass the call to Chris to review, our strategic initiatives and business development activities.
Thanks, Mike Good morning, everyone.
I will highlight three items for you before passing the call back to Ron.
As you will recall in the past we discussed for different elements to our revenue growth story.
First natural organic customer growth within our existing utilities, which you heard Ron and Mike discussed earlier.
Second recurring rate case activity.
Third growth due to new service area establishment or expansion.
And for acquisitions.
My remarks will focus on the last three of those elements recurring rate case activity service area expansion and acquisitions.
As it relates to revenue growth our rate case activity.
As Ron mentioned, we made our rate case filing on August 20, Eightth of this year as filed the case proposes an approximately 13% rate increase equivalent to approximately $4.6 million and additional revenue with new rates to be effective through a phase and starting in January 1st 2022.
Besides the increase in rates are filing contemplates elements of commission policy to incentive further consolidation of small troubled utilities in the state.
We think these proposals are a meaningful opportunity to move the discussion forward on the issue, which is not only good for all stakeholders involved including customers existing owners and the regulators themselves. It.
It also creates further revenue growth opportunities for our company.
As Youll recall global water has a long track record of acquiring and approving utilities and we see a great opportunities to improve the framework to make this an important change in Arizona.
[noise] procedurally on September 25th of this year, we accomplished the first project milestone, having our filing deemed sufficient by the Arizona Corporation Commission staff. This means the filing is administratively complete and can now proceed along its normal course.
About a month later on October 20, Threerd, we received what is called a procedural order, which outlined the calendar for the case, including key events such as other parties testimony and the hearing itself.
Overall, the case is proceeding as anticipated and we will continue to update you as the case progresses.
Now turning to expansion of current service areas and establishment of new service areas.
In the quarter, we received a CE CE staff's recommendation and held a hearing regarding our certificate of convenience and necessity for Penn now landholdings inland Port, Arizona project as you'll recall located near the city of Coolidge.
This project represents approximately 2500 acres of land and is directly adjacent to the future Nicolas site.
The case is on track and we expect to receive a commission order by the end of this year.
The landowners actively marketing the property and we will continue our infrastructure planning efforts in 2021.
Relative to new service area expansion. We also filed one news certificate of convenience and necessity in the quarter related to our Western Maricopa County operations.
We expect to receive a CE CE approval of this filing in the first half of 2021.
Finally, the last element of our revenue growth drivers relates to acquisition activity.
Last week, we announced the acquisition of Mirabelle water company Inc., a water utility located in the greater Tucson area.
Our first transaction since 2018. This deal represents the next step in our growth through acquisition.
Rebels in close proximity to our Red Rock service area, and Tucson, making this a logical extension of our utility footprint.
Well financially it will not make headlines so to speak is a low risk deal that complements our existing business. We will continue pursuing other opportunities that fit this profile and hope to have further announcements in the near future.
This concludes the update on the strategic in his initiatives and business developments for the quarter I'll now pass the call back to Ron.
Thank you, Chris and thank you Mike it.
It is clear we remain well positioned to weather these uncertain times.
So with a strong balance sheet and 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.
New projects, both big and small.
As we handle 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 applying our expertise throughout regional service areas into new utilities will be beneficial beneficial to all stakeholders involved.
We appreciate your investment in and support of US as we grow global water to address important utility water resource and economic development issues in Arizona and potentially beyond.
These highlights conclude our prepared remarks, thank you.
We are now available to answer your questions.
Thank you.
We will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you will hear at selling acknowledging your request if.
If you're using a speaker phone please pick up your handset before pressing any key.
I would draw your question. Please press Star then too.
We will pause for a moment as college joined the Q.
The first question comes from Gerry Sweeney from Roth Capital. Please go ahead.
Yeah, Good morning, Ron.
Ron Mike and Chris Thanks for taking my call.
Hi, there thanks.
A couple of questions.
Maybe I'll just start on the acquisition front.
Notice the mirabelle acquisition.
Ron or Chris or Mike could.
Could you maybe give a little bit of.
[noise] call the qualitative description of maybe what the acquisition pipeline looks like or at least what the market.
Like in Arizona for acquisitions, whether it be like the number of potential candidates out there or size just so we can get to.
A sense of maybe size and scope of what what you're looking at.
Yeah. Good morning, Jerry This is Chris So a couple of thoughts directly to your question.
The first would be.
Generally speaking the AC see website lists over 350 water and waste water utilities in the state of Arizona just to give you a directional sense of the opportunity set and then from our perspective.
No. We're looking at the whole range of those from things as small as mirabelle too much larger than that I think from our perspective, we see well something like mirabelle per say well you know grabbed the headlines if you start adding up and aggregating a lot of mirabelle it can be really meaningful for for us and for the.
Company from a customer growth standpoint, but then also from a rate base and capital deployment standpoint, which is the business that we're in so I think significant opportunity set in Arizona and can really make a meaningful difference in our company.
Got it I'm, assuming a part of the attraction to them memorable acquisition that it was very close to the red rocks.
Leverage some either existing infrastructure.
Or at least people on its pretty easy just a tuck in.
Yes, that's part of it for sure.
Okay.
Got it and then.
Any comments on the APC in particular I believe there was an election.
Commissioners down there recently.
Just was curious a an update how that stands and if there was a potential impact on you.
Either a policy or what have you.
With that regulatory agency.
Yes, Hey, Jerry this is Ron I'll start with that you are right. There wasn't election, [laughter] lets going on [laughter], but but a couple I guess, that's all commissioner yeah [laughter] a commissioner election in Arizona is one of the many things going on so you are right.
Sitting here today to the.
The the the factual data that's available to us today.
Has.
A candidate and into war in the lead and then Canada at least Marquez Peterson and second and then candidate Jim O'connor in third so and as far as a Democrat or the other to our Republic Republican.
And there are right and the reason I gave all three as there are three seats up for up for election, there are other candidates below them.
But but that looks like sitting here today, who will probably take the seeds and so you know.
That would make the commission three.
Three Republican to Democratic to go with our current commission or just an Olson and commissioner Sandra Kennedy So.
I think that ultimately.
We've worked really hard down at the commission authorized rate case, and all of our other communications campaigns within our communities two to establish the company in a in a good place and we don't think that what is going on at the commission or.
Regardless of ultimately who would have been elected through this cycle.
Cycle.
Well really impact or change what's going on in Arizona on the water regulatory front. So so yeah. Then they those are the names you can do your own research and develop what you think but we we feel we feel good about the outcome. We think we would have felt good regardless of ultimately who had been elected and we're going to just keep doing the right things and do it.
We do and and and and you.
Continuing to build good relationships down there at the Corporation Commission.
Got it that's a point of reference I know you guys are Maricopa County, I'm in Philadelphia County, probably the two most interesting counties in the country right now so [laughter].
And one other.
One other comment or question I should say a permit growth I add something like truck single family permits.
Through September 22% October looks like.
Year to date, 22% that I'm, sorry through September 22% that October another big.
Just.
Not being in and Marriott City Maricopa in the surrounding area and not being able to travel.
Can you maybe give a little bit <unk> update what's going on there lots of growth as you said earlier in your commentary you know part of the strategy for global water was being in the path of growth and.
Buying or building utilities, but.
What is really developed.
In the last year 18, 24 months, that's maybe driving some of this growth just from.
Qualitative perspective too.
Yeah, Hey, Jerry this is Mike I'll take a stab at that and ask running Chris to chime in but I.
I think you know in light of what we're seeing obviously a lot of developments happening covert potentially having implications. There. The fact that there's a lot of of lots available Californians move into Phoenix to high affordability of the bedroom communities in the growth areas outside of Phoenix, We think is putting putting Arizona and.
Phoenix and the city at Morococha specific thing on the map and we're seeing seeing the benefits of that and so that was what we believe is driving that and as you mentioned, it's through October and you've seen the ramp up the last few months. That's what we're seeing Thats continued so it really puts us in a good place.
Okay.
That's it for me so I appreciate it.
All right I think next year.
Once again, if you have a question. Please press Star then one on your telephone keypad.
The next question comes from John John from Trailhead asset management. Please go ahead.
Good morning, guys in the future.
Report this morning, you taking my call.
Yeah, Hi, John good to talk to you.
Hi, My question really goes you regard to what are the financial parameters for this acquisition to mirror pool in terms of.
Revenues and what does it cost you to acquire.
A small project like that.
Yeah, Hey, John This is Mike so.
The acquisition price isn't something that we've disclosed, but it's a small transaction 60 customers. So it's not a you know overly material transaction, but that's kind of where it's at.
Okay. So these are these residential customers.
Yes, yes.
Okay, well Uh huh.
[noise] cushion for me is is when you look at.
Going out consolidating industry.
Which I've been involved in NIM.
And we'll go to different industries.
Rolling up medical equipment dealers et cetera.
<unk>.
Lot of the.
<unk> success with those is based on how expensive it is to make those acquisitions.
Typically the public water cookies, so pretty high multiples.
What are you flowing.
300 different.
[noise] <unk> listed companies that you indicated cruises is.
Yeah.
Most Arizona, what do you expect food range of cost of doing transactions do you have a budget for that or do you have a strategy that suggest what you can afford to pay Naples mutually attractive.
Future growth.
Yeah, Hey, John This is Ron I like Mike mentioned I mean, we're.
We're not we're not disclosing dell's specifics, but this is the way I would think about it I mean ultimately.
It it's just like almost any asset class across any industry. There's a there's a range depending upon the benefit to the buyer and meeting the consolidation benefits and the quality of the asset so the opportunity that we see in Arizona and clearly existing.
Other locations.
Is that there's there's a there's a need and unmet demand for the consolidation of what we call troubled utilities.
So clearly you know if the big water companies want to sit around and exchange their assets back and forth to each other than that would demand that type of market.
Lesions in premiums that you're talking about but that's not what we're talking about here, we're talking about class C D and he's now it doesn't mean, we won't do some of the larger ones and those would be based.
Specifically on it on if we can get a financial structure in place that makes sense for us the buyer and then the seller of the deals just won't happen, but what do you think about the opportunities on the smaller scale, which was the basis of your original question.
These deals and ease aren't valued like that and so they are certainly cash flow to the owners and that cash means something to them and so there is a value to that.
But so you have to just get to a a deal that works for them on the replacement of the cash flow that they're taking from the utilities and obviously, there's risk they're exiting as they as they as they sell the regulatory out that that's got a high.
Risk profile, just based on what we do.
Verse, how that utility then looks inside of our consolidated utility and when you look at it from those two paradigms. We we believe and have been I know, we just announced the one and 2018, but we didnt see as a reminder, actually four as a reminder, in in 2018 and 2017.
We have been able to get the deals done at a valuation that.
Very.
Favorable and accretive to our shareholders and we believe we can continue to do that and that's that's even on the just the acquisition cost, but then as Chris mentioned, we get to invest to improve them, bringing.
Bring them up to our standards of quality and automation and then ultimately that's just more rate base investment that we get to but inside the you know the the rates that ultimately the customers pay so so so theres, we try to get it an immediate you don't valuation lift or arbitrage again, each deal by itself isn't going to make a.
Make a make a step function increase in our stock today, but if we can do enough of them over time, that's the strategy and we think we can do it and we think there is a need frankly for us to do it.
Okay. So when you say looking up these projects are these.
Utilities, the troubled well.
What kind of.
Range of troubled.
Why you Wouldnt go what can acquire movies.
Oh, the operational traditionally for mutual global.
This is Chris Yeah. So obviously, it's specific to each utility.
It has their own unique fact pattern, but troubled usually is as relative to their size because they either don't have the capital to raise to make the projects are to complete the projects they need to to continue providing that safe reliable service or just operational challenges from how the system was set.
Up when they bought it to and how they've been operating it and so it can be a myriad of all of those things and so I guess from.
We think of it in troubled in that regard, but that's our expertise to come in and fix those issues and that's where we can provide that value to customers and that ultimately that's that's part of the benefit we bring to the table. So things that those smaller utilities are difficult challenges for them, that's our wheelhouse and our bread and butter.
Okay, that's great and what about competition for these deals.
Yeah. So for sure there is competition out there no doubt, but I think as as Ron alluded to we're going to find the right deals for us at the right price and right opportunity and we've been successful at that and and thankfully, we theres a significant opportunity set in Arizona. So we don't have.
To do any that we don't think make sense.
Okay and are you looking at this point it anything outside of Arizona.
So weve generally looked at opportunities outside the state we haven't found anything that that's balanced all those different elements that Ron was talking about and so we'll as I like to say you know, we'll keep our eyes above the proverbial state fence line, but if nothing ever happened in another state that we have so much.
Opportunity here between our four different drivers of growth in the company that we don't have to do that much I think it really makes sense.
Okay. Good thank you.
Thank you John.
Once again, if you have a question. Please press Star then one on your telephone keypad.
The next question comes from Greg beneath from Morgan Stanley. Please go ahead.
Hi, I'm new to your company so.
Okay.
Excuse me if I asked some questions that possibly been answered.
Usually when you make or acquisitions are they usually for cash or core equity.
Yeah, Greg This is Mike so right.
Right now with the cash that we have on our balance sheet of North of 18 million and then you know the opportunity set on the smaller side, we have plenty of cash and then we've got liquidity with the unused line of credit. So between those two we're in a good place for some of the smaller deals and to what Chris mentioned, there are larger ones that we're looking at and so to the extent that were able to.
To be successful in that regard, we would look to the capital markets from a debt and equity side to kind of helps us so that acquisition so on.
On the smaller deals cash and the bigger deals we'd look to for additional capital.
See you have the purpose of your 150 million Reggie.
Registrations, that's just the renewing an old one this to have a shelf registration that gets you.
That's it that's exactly right, Greg yet, but it was our three years was up this past August and so then we just re upped it for another 100 million yeah.
Okay, So one and.
Again, I'm not from the Arizona, but yeah, I always hear I'm hearing about housing starts in the growth and people migrating from California, and other states to Arizona, but.
At the same time I read articles about the lack of water in the Colorado River, you know dropping and.
So the utilities that you have they they have a nice source of water from the Colorado River from wells that is substantial is that.
The the assets that you buy or.
Do you do you need or do you buy water from.
From the state of Arizona, how does that work.
Yeah, Hey, Greg This is Ron good each you.
Yes. So it was so talking about water typically requires a long answer but I'll try to keep it short here today and we're open to follow up with you as necessary. So so water as both a local issue and a regional issue and a.
Short term issue and a long term issue and so those are those things start to kind of intersect with each other so where are we at today.
Today global water, primarily utilizes groundwater, but the awards, we talked about earlier and if you do research on us as a company the way, we manage water wastewater recycled water and all of our conservation associated with that result in a really low per capita or per home was.
Her demand on the local groundwater resources that we rely upon and so and so we're pretty proud of that that really is our expertise a a competitive advantage to some respects and and and so where are we on utilities today and with the local water resource portfolios, we've put together.
We don't have any issue in the foreseeable future. So.
So again I could spend a lot more time on that and we can do that as necessary, but the growth. We're talking about is fully supportable and sustainable with the water portfolios and the way we operate our utilities today was.
Long term, which is whats, making the headlines sure. We're in our twentyth year of drought, the Colorado River flowing less than ever we said the longest highest longest hottest dry summer time here in Arizona, and thus long term the demand versus supply lines.
Our going to intersect sooner than they otherwise would have invest that creates the headlines and all the activity at a local level state level and even federal level about what are we going to do about that so so sure that has some implications on the states today, primarily what it means is we're losing what's called access water supply.
For things like a non essential agricultural use and.
And things like that we're a long way away from it affecting what's called an eye municipal and industrial use at all of the economic development and growth that's occurring across our state we're well positioned for that is that it's so it's that's kind of the good and bad of it we actually.
Yeah, It's bad we don't there or have no long term water issues, but when you're good at dealing with that and that's what we do that is good for your business or at your needed more in our opinion to help address that long term issue and so that's the way I would answer that question and again happy to connect with you separately, if you want to dig into that further.
Okay. So the growth for new growth I guess, you described in Maricopa County, and analysis County.
I think he just made some mention of that.
To provide those homebuilders.
Or industrial.
Do you have enough water to satisfy whatever their needs.
That's the way to think about it.
That's exactly right then and for years to come I'll, just give you one.
Data point.
For our largest utility and our largest area. That's that's incurring a lot of this growth.
We are today, a less than one third into our available water portfolio to both meet continued to meet current demand and allow for all this growth. So so hopefully that's a meaningful data point to.
And now we'd be water coming from a well or is that coming from Oh the river, but I think there's only two sources, but.
Yeah, you got you got your local groundwater offers you haven't in state water supplies and then you have out of state water supplies, which is basically the Colorado River. So yes today, we rely primarily in our areas because again that was <unk> and I know, we're we're just getting to know each other the original business model was to go to me.
New emerging communities around Metro Phoenix consolidate the existing system there overlay a regional plan infuse our total water management strategy and so I'd just say all that to say that that was the plan because these new emerging areas what will rely upon their historic.
Really large and high quality groundwater I'll go first because most of the existing large metro Phoenix suburbs and municipalities basically already control most of the available out of state and in state water supplies now there's a market for those things. So I don't want to say at some point we can't.
Tap those other supplies. We can just comes at a future cost we don't need to do that today because of the local or groundwater supplies portfolio than I used the term portfolios generally there's lots of things that go into that.
Have positioned our utilities in a great place whereby we don't really have to worry about buying water supplies or the long term challenges I talked about earlier for a long time. So we're in a good place groundwater wells that are high quality water. There are called the value of the Sun for a reason in the valley is where water has been coming down from north.
Northern Arizona in Northern Mexico. It flows together into central Arizona, which is the areas. We're talking about and there is massive and large high quality groundwater all prefers and and we have the right to pump that understate.
State statutes and rules.
Okay. All right. Thank you very much appreciate it.
All right.
Thank you.
Once again, if you have a question. Please press Star then one on your telephone keypad.
The next question comes from Zack well, they get from Desmond <unk> wealth advisors. Please go ahead.
Hi, great. Thanks for taking my question. So on the first one you guys called out Eldorado Holdings and.
With a pretty sizable development it looks like.
Can you help me just frame the magnitude and timing on what that means for you guys.
How we should think about that is that potential business for you several years down the road or.
Or something maybe more imminent.
Okay is that good to meet you so we.
We definitely think it's something more in mint, [laughter] going up and down there.
So yeah.
<unk>. This is the way I would think about it you know the project. If you will look up its location is right in the center and the heart of the City America about which is our largest integrated utility. So that means we do bulk water wastewater and recycled water and.
And so the city of Maricopa is the permit growth I talked about earlier, where it looks like we're on track this year to do more than any year than since prior to the great recession.
And so I'll break it down and some data points for you.
There's you know north of 5000.
Finished or partially finished lots in the city of Maricopa today and that sounds like a lot and it is that's like 25% growth.
Oh to fulfill those bad at 1500 lots per year, which is what which is what this year's.
You know growth rate is looking like it could be.
But that's only a couple of years out great and these developers have to get lots into that that that pipeline.
In front of that and so they can sell them to homebuilders and keep that growth occurring and so the projects starting now they didnt announce it for for no reason.
They're starting with phases as they do for projects that big the first phase I believe is somewhere between 500 and around 500 lots and then they'll just keep doing 500 lot phases from there generally speaking.
And so they're starting out as probably a two year project to do the horizontal improvements that are necessary, we will do ours right alongside them again, it's right in the heart of the city. So it's not really that complicated for us and they'll start putting the lots read on the back end of that pipeline I talked about earlier, so, we'll probably be selling homes into that community and.
The next three years or so.
So it just becomes part of the the five percentish organic growth that were or seen in this city today. It just allows that growth to continue almost continuously once you put that size of a project on the.
On the back end of it.
Great Great and then not to beat a dead horse on the M&A front. There's some good there earlier, but I mean would you say the hurdles going forward or are more.
I guess getting these potential sellers to be real sellers or are you finding sellers willing to sell and just not coming.
Terms that make sense for for us as shareholders.
I would say, there's you know, there's probably a little bit of everybody in category, a and B and so I think as as this one shows we've had some success and as Ron alluded to we had a few more recently or in 2017 2018, and so but we feel good about going forward what opportunities are out there.
All right and then just kind of an eyeball on I've seen some reports around the country, where some utilities are there some pilots to do like cobot testing.
Via the wastewater stream and I'm just curious if you got it.
Been involved in anything like that it seemed like a fascinating way to.
Maybe get to some early alerts out there I'm sort of disease spread whether it's for co that or or something like this down the road.
Yeah, no. It is fascinating and we're very happy to see our industry takes such an important role in that issue.
You know, we really do pride ourselves on being a leader in the in the industry. We do a lot on lots of different fronts that make that true from water reuse and use of technology and things like that so so we definitely are interested in the topic, but the fact is ultimately the very large.
Utilities in the space and that includes municipalities and very large institutions and groups from like Academia gone all over that early and a lot of them here in the Metro Phoenix area, including a S U and the city of Tempe, which is where a issue is located and so what we decided on that.
Front was you know.
A lot is going to be a learned rapidly let's sit back see what happens learn best practices and to go implement those best practices versus you know try to created ourselves at the scale that we have so so we're monitoring what's going on and I assume we.
I assume at some level in the future we will be involved as well but were.
We're not really on the research side of that at this point.
Okay.
Thank you.
This concludes the question answer session I would now like to turn the conference back over to Mr., Ron Fleming for any closing remarks.
All right. Thank you operator.
Just like to think everyone for participating on the call today and for your ongoing interest in global water resources.
We look forward to speaking with you again.
Thanks.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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