Q3 2020 Consolidated Water Co Ltd Earnings Call

Good morning. Thank.

Thank you for joining us today to discuss consolidated water Companys third quarter of 2020 results.

Joining us today is the Chief Executive Officer of consolidated water company, Rick Mctaggart, and the company's Chief Financial Officer, David Sasnett falling.

Following their remarks, well open the call to your questions.

Before we conclude today's call I'll provide some important cautions regarding the 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 via instructions in Yesterdays press release, which is available in the Investor Relations section of the company's website.

Now I'd like to turn the call over to consolidated water Companys CEO, Rick Mctaggart, Sir. Please go ahead.

Thank you Gary and good morning, everyone. Thanks for joining us on today's call I hope.

Everyone is well.

Fortunately consolidated water has not been impacted by the adverse conditions created by the pandemic as much as others. Our team has worked diligently throughout the pandemic to ensure that we are able to continue our operations and pursue additional projects that can strengthen our business.

During the third quarter of 2020, we managed to generate substantial revenue growth and return to profitability from Q2 over.

Over the first nine months for the year, we were also profitable generating nearly $11 million and cash from operations.

Our Q3 top line growth is largely due to the 3.2 million and revenue contributed by our new per water subsidiary.

<unk> core business, which provides engineering construction and management services for water treatment infrastructure and the United States has met our expectations. So far this year in spite of the pandemic.

And so far we've seen no material impact from the COVID-19 pandemic and its day to day operations.

The management team and PERC has been focused on increasing its recurring revenue through multi year operating contract and consequently per was awarded for operating contract renewals and two new operating contracts during the first nine months for this year.

I'll provide more details about the growth opportunities, we see with per later and the call.

Our retail segment experienced a decline in revenue in Q3 compared to last year, mainly due to the continuing closure of the borders and the Cayman Islands to tourist travel and this is in response to the pandemic.

It was also lower because.

Because of much wetter weather conditions, and the Cayman Islands during the third quarter.

The seaport and airport and the Cayman Islands had been close to tourist since March which has reduced visitors and tourism to know.

However, as the first of October residence and property owners had been allowed to return to the Cayman Islands subject to Quarantining for 14 days after arrived and.

This has allowed flights from the United Kingdom and the U.S. for.

For resume and a reduced schedule.

To encourage more long term visitors the Cayman Islands government recently implemented a global citizen Concierge program, whereby tourist visas are granted to individuals and families who wish to reside and work remotely and the islands for up to two years.

These developments are very encouraging and can help bring much needed economic activity back to these islands.

The Cayman Islands have actually been very successful and keeping the country co <unk> free for many months and.

And mitigating pandemic related damage to its economy and this is one of the strong selling points. They present for their global citizen Concierge program.

We're also encouraged by recent positive announcements regarding COVID-19 vaccines and believe that the Cayman Islands are well positioned to quickly rebound from the economic downturn created by the pandemic once the vaccine is available and regular tours and resumes.

Well. These are all positive developments, we expect that our retail segment will continue to be negatively affected and tell the United States, which is the principal source of tours for the Cayman Islands has recovered from the pandemic.

Our bulk water operations and the Cayman Islands, and the Bahamas has continued to operate without incident and I've been much less affected by the pandemic than our retail business.

However, our bulk segment revenue that is generated and the Bahamas and the Cayman Islands declined slightly period over period due to factors unrelated to co bid 19.

Bulk water revenue decreased last quarter compared to prior year due to lower energy costs, which reduced the energy patch passthrough charges to our behavior and customer.

For water gross profit margin was lower due to higher scheduled maintenance costs for our Bahamas operations.

The COVID-19 pandemic has caused an unprecedented complications for the majority of industries and companies and we believe nevertheless, we are well positioned to execute our growth strategies with a very strong balance sheet and over $30 million and cash to support our ongoing key business development initial.

Yes.

Our core operations and mission of providing affordable quality drinking water through our highly energy efficient desalination plants as well as waste water treatment services through advanced water treatment and recycling facilities continues to be a public health and economic necessity for our customers and the Caribbean.

And the United States.

Now before I go further I'd like to turn the call over to our CFO, David Sasnett, who will take us through the financial details for the quarter.

Ill, then return to provide more detail and our operational activity and our outlook for the remainder of the year David growth.

Thanks, Rick and good morning, everyone slightly.

Despite the challenges presented by the current economic environment.

And of the nine from pandemic.

Revenue and a third quarter increased 11.2% to 17.7 million compared to 15.9 million and the same period and last year.

This increase is largely due to the addition of 3.2 million and revenue from park water, which we acquired in October 2019.

We also saw a slight increase our manufacturing segment revenue of approximately 187000.

The incremental PERC and manufacturing revenue was partially offset by revenue decreases in our retail and bell segments of 1.3 million and $400000 respectively.

Our retail revenue was lower due to an 18% decrease and the volume of water sold and.

As a result for the temporary cessation of tourism and Grand Cayman and response to the COVID-19 pandemic and.

As Rick mentioned earlier the decrease in bulk segment revenue was due to CW Bahamas lower.

Lower energy cost debt Correspondently decrease the energy pass through component of CW Bahamas rates.

Our manufacturing revenue increased as a result, and shift and our production mix to higher revenue projects.

Gross profit for Q3 totaled 6.2 million or 35% of total revenue.

This represents a decline of 7.4% from the 6.7 million and same quarter last year.

And it represented 42.2 per cent co revenue.

And the third quarter of 2020 net income from continuing operations attributable to consolidated water shareholders was 1.8 million or 12 cents per basic and fully diluted share. This compares to $2.3 million or 15 cents per basic and fully diluted share the same period of last year.

With respect to our balance sheet and financial condition, our accounts receivable balances relate to our Bahamas business amounted to 18.4 million as of September Thirtyth 2020, which was essentially the same balance that we had as of December 31st 2019. However, due to payments received from the hedge book from the heavy and government.

Net.

In October as of October 31st 2020, our Bahamas receivables from the water and sewage Corporation. Other partners had been reduced to approximately 15.1 million.

[noise], historically, CW, Bahamas, and experienced delays and collecting its accounts receivable from the WSE.

When these delays for the current we held discussions and meetings with representatives of the water and sewage Corporation and Bahamas government and.

As a result payment schedules are developed for Wses delinquent accounts receivable.

All previous delinquent accounts receivable from the WSE for eventually paid in full and as a result, we have never been acquired provided an allowance for doubtful accounts from Bahamas receivables.

We believe the delays, we've experienced and collecting CW Bahamas receivables for extended due to the impact of Hurricane Dorian.

Which devastated the northern Bahamas since September 2019, we.

We also believe the delays.

Craig and both to the economic impact for the co that night and pandemic and.

Thomas governments revenue sources.

And so September Thirtyth 2020, our cash and cash equivalents totaled $38.2 million.

Our projected liquidity requirements for the balance of 2020 include capital expenditures for existing operations of about 150000.

And about 1.3 million for dividends payable force our Liberty liquidity requirements May also include future quarterly dividends as such dividends for declared by our board.

Our dividend payments amounted to approximately 3.9 billion for the nine months ended September Thirtyth 2020.

And approximately 5.1 day and for the year ended December 31 2019.

Now I would like to turn the call back over correct.

Thank you David.

I'd like to share a little more about our manufacturing business. This segment is entirely comprised of SRX, our manufacturing subsidiary based and for appears Florida.

Eric This is primarily a custom manufacturing shop. So its contracts are typically shorter term than those in our other businesses as David mentioned, our manufacturing segment results for the quarter benefited from a favorable production mix.

That resulted in an increase and its revenue and gross profit for the quarter.

In October SRX is largest customer informed us that it expects to suspend its purchases and tell the first quarter of 2022 due to inventory management reasons.

We have been focused for some time now and diversifying SRX as customers and products and believe that we have a good opportunity to replace some or all of this anticipated lost revenue.

By increasing sales of other products Eric's manufacturers for.

For existing and potentially new customers.

Bidding activity for the for new water treatment projects and our current market area for pain remains robust and per through its strong presence and the southwestern United States is helping her ex to expand its market into that area.

The addition of per has been highly complementary to our existing business and overall mission supporting our pursuit of water reuse projects and other emerging opportunities with a comprehensive suite of solutions for improving water infrastructure.

FERC also provides us a solid platform and.

Which to expand to North America, our core business of designing constructing and operating seawater desalination plants.

And the third quarter, we acquired an additional 10% of FERC from another shareholder for $900000.

Raising our ownership to 61% and underscoring our confidence and the per business model and its markets.

Per represents.

The principal component of our it services segment and has maintained its positive performance since we acquired a controlling interest in October of last year.

We are especially encouraged by the prospects and this area of our business as per continues to actively pursue various potential new projects and contracts.

Several of these could have a substantial positive impact on perks results of operations should we ultimately be successful and capitalizing on these opportunities.

Well the total bid 19 pandemic does not appear to be getting any closer to ending we think our business is stable and the current environment. We have gone through two full quarters of lockdowns with the various companies that we operate and while sales and our retail business for remained lower than.

Normal our other businesses are operating status quo, where our for our improving.

Looking ahead, our healthy financial condition and ample liquidity provide us with a solid foundation necessary for dealing with the challenges of the current economic environment.

And we are well positioned to take advantage of opportunities that may arise to expand or enhance our operations, especially as conditions eventually improve.

The strong growth drivers inherent to our markets will continue to persist over the long term regardless of the pandemic and this bodes well for consolidated water as we work to enhance shareholder value over the months in years to come.

And now with that I'd like to open the call for questions Gary.

We will now begin the question and answer session.

To ask a question press Star then one on your telephone keypad.

If you are using a speakerphone please pick up your handset before pressing the keys.

If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two at.

This time, we will pause momentarily to assemble our roster.

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

Good morning, Rick and David Thanks for taking my call.

And Warner boundary for how you doing.

And well.

I was wondering that I'm wondering if you could provide a little bit more information on per day.

Specifically and maybe.

How.

How large their pipeline is our backlog how large that backlog is versus a couple of quarters ago and how much visibility you have into sales for the next couple of quarters, and then part two and park would be.

How much is recurring revenue versus.

And construction.

Jerry we've added to the risk factors in our 10-Q that talks about the amount of revenue.

Debt potentially.

Could not be renewed from these operations and management contracts.

Assuming that those contracts are renewed I think what you're seeing with current right now and substantially all of the revenue. This other recurring nature because here for operations and maintenance contracts per Costco has an element of their business, which is a design build.

But at the moment that particular revenue does and constitute very much of their total revenue I think what excites us about the businesses. They are pursuing a number of design build contracts, which are very significant as we said earlier and for decides and revenue.

We can't provide any assurances that when these these contracts, but they certainly have a number of interest can targets and then the continued to pursue the operations and maintenance business as well but.

But occupancy with the exception of the fact that perhaps these contracts and ultimately may not be renewed and as Rick mentioned earlier, we just renewed for we described and new contracts and new.

The total for for this this year so.

We'd like to think of that bids is occurring and we will get renewals from those contracts.

So.

Okay, but how many total contract value per cap today.

I don't have that number for the top I EBIT has changed somewhat around 20.

Okay. Okay.

Okay. That's helpful. I, just was wondering magnitude versus for being renewed and these design build opportunities is there an opportunity that day themselves lead to an opportunity.

Yes.

Some of these contracts and media business is very similar to our desalination business often Nobel to plan for third party and and run it for them or operating the plant cell the water service, we do and game and so.

Similar possibility exist for perks business, they could build a plant and.

Make money on selling and plants and at same time make it into two and own and contract run the plant.

Got it.

Switching gears to the retail side obviously.

And it's going to be a lot that's going to face headwinds until.

Hey vaccine comes out and as you said the United States.

It starts to rebound but.

Right.

Specifically about the quarter would you know how much impact.

Impact was range versus tourism, and just even broad brush as fine and.

Out of curiosity there.

The best thing I could say look and what the.

The volume drop was and the.

Second quarter, which I think was.

Helpful.

Percentage points less than what it was in the third quarter. So.

I mean.

They went from I think.

15% to 18% down and maybe that other 3% is related to the range and maybe it's not I mean, it's really hard to.

To determine but it did go up and the third quarter.

Got it and then final question and I was reading the Q and you haven't note and they're about the Rosarito project I think you submitted if I read it right.

Non recoverable assets from.

$51.1 million.

One is that correct and two.

Any type of timeline or.

Thoughts on how that.

Moves along and develops.

Well I'd like to hope that develops quickly but.

It's a legal issue now Gary so it's very difficult to say, how long that's going to take and if the total is the is closer to $56 million. So there's a certain amount and pesos and then there is a certain amount and us dollars and Weve got you.

Oh, Hi, sorry, I apologize and an additional.

On the pay for a solid.

So we I can assure shareholders. We are working very hard and looking at every way possible to recover that money. So.

Im spending a lot and my.

Hi, I'm on that right now so.

I can't tell you when it could get worked out but.

They really haven't given us response.

Okay.

And so there that there have been a little acquired what about other potential assets and I think you on the land I think thats on the balance sheet and around $21 million.

Right and a little while ago, but is there an opportunity to monetize and heavy assets other than some of that.

Non recoverable amount that you submitted.

No.

Nothing we have some receivables that are due from the government that we're collecting and the ordinary course of business.

Value added receivables.

That and.

And we have the land.

Yes, I mean for us.

The land a separate from that 56 million I should say going on and that has included Jerry. It's just for this include files.

Parallel path by listing the land for sale.

And get that so earlier than that comes out of the claim.

Got it perfect Okay great.

Great. That's it from a debt that's very helpful debt for putting that on the Brazilian and thank you.

Again, if you have a question. Please press Star then one please standby as the call for questions.

The next question is from John Bair with ascend wealth advisors. Please go ahead.

Thank you good morning, Thanks for taking my call here could you.

Shut some some more information on the geographical footprint of park and are there markets is it expanding any other geographical.

Reach for them and.

See more opportunities outside of their current primary markets.

Yes, so their primary contracts are in California, they have other contracts in Arizona.

We're working on projects with them.

In Oregon, and additional projects in California.

We're trying to get them into the Florida market.

We're working with them here out of the Coral Springs office, and outerwear, Eric the facility and for peers too.

Two.

Pursue some.

Opportunities that we see here in Florida that would fit well with them.

So.

That's kind of what we're looking at at the moment and I mean.

We see some opportunity additional opportunities and Arizona.

We're working on some projects there.

And that pretty much covered California is the primary market.

John there.

For the aftermarket.

California, and Arizona and we're also looking at.

Project for two and Utah so.

We're very encouraged by the prospects for our is a lot going on and that area for business.

With the municipalities being.

Impacted by co bid and so forth.

Are you seeing any you're saying, it's active but are you seeing any.

Hesitation or push out on on proposed projects or whatnot and.

Do you have any any sense as to me and everybody is talking about and infrastructure Bill it's going to be coming out and so on and so for us I imagine that there could be.

From benefits there for you.

Yes, so because per day.

As operations contracts and design build and as David mentioned.

Earlier, I mean at the moment most of the revenues are from the operating contracts. So.

The.

The troubles with the municipalities is actually in my view how per to get some of these extensions.

On the operating contracts and to.

We have opportunities to get new operating contracts.

Municipalities that maybe cash strapped and ER.

For trying to optimize limb.

Limited resources the design build stuff for sure has.

Slow down a little bit and Thats reflected in the fact that.

We don't have any major design build projects going right now this year so.

We're trying to make up for certain lacks lacking in the markets and with other areas such as the operations contracts, which we see as a positive.

Growth area right now.

Okay, and what does this tight budgets are they they try to chip away on the on the terms of and.

Contract renewals, and so forth, where where you're being pressured at all and in that regard.

Well, there's always some pressure I mean municipalities.

Yes.

Talk about going to re bid and that sort of thing so we've had to.

Negotiate on some of them, but nothing.

I would say significant for me and I think we're already.

Pretty.

Cost effective to these places versus operating the facilities themselves. So.

And I haven't seen.

A real tightening in the margin on these.

Renewals this year any but nothing material.

Okay.

And last question and the.

Sounds like you're pretty much focusing on that.

South southwest part of the U.S. what about any.

Central internationally.

It's pretty much folks.

UES business at this point.

And not enough and international at the moment, we look at the Caribbean, but.

But the.

The Pandemics really.

Made and challenging to.

Steve and move around some of these places so.

And just focusing on the U.S. right now primarily.

Good.

Very good good luck with the true.

And.

Debt Rose arena behind Us.

Thank you very much John and good holidays. Thank you you too.

Once again, if you have a question. Please press Star then one.

The next question is a follow up from Gerry Sweeney with Roth capital. Please go ahead.

Hey, just wanted to follow up five cents, but.

For the space there.

Are you looking at any acquisitions, so any comments on that front.

We're always looking at acquisitions, Gerry and we got a couple of things and we're looking at and now.

And we'll keep everybody posted if that develops but some pretty exciting stuff and my view okay.

Okay.

I mean, I think that you weren't looking for I apologize, but.

Hi, Rob.

Are they more debt.

You asked based just out of curious if you can you guys give a little bit yep got it I wont put around too much but I appreciate it thanks Rick.

Sure.

At this time this concludes our question and answer session I'd.

I'd like to now turn the call back over to Mr. Mctaggart, Sir. Please go ahead.

Just like to again, thank everybody for joining us this morning for being shareholders and.

And look forward to speaking with you again toward the end of March next year, when we release, our 2020 full year results.

Nice holidays and stay safe.

Thank you, ladies and gentlemen, now before we conclude today's call I would like to provide the Companys Safe Harbor statement that includes cautions regarding forward looking statements made during today's call.

The information that we 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 revenue future plans objectives expectations and events assumptions and estimates for.

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 for its business and the industry and markets related to its business any forward looking statements made during this conference call are not 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 for.

Factors that would cause or contribute to such differences include but are not limited to one continued acceptance of the company's products and services in the marketplace.

To changes and its relationships with the governments of the jurisdictions in which it operates three the outcome if its and negotiations with the came and government regarding new a new retail license agreement for the future financial performance of its subsidiary that manufactures water treatment related systems and products and provides design engineering.

Management operating and other services applicable to commercial municipal and industrial water production.

Five the collection of this delinquent accounts receivable and the Bahamas, six its ability to integrate and profitably operate its recently acquired subsidiary per water Corporation seven the possible adverse impact of the co bit 19 virus on the company's business and aid and various other risks as detailed in the company's periodic reports.

Filings with the Securities and Exchange Commission.

For more information about risks and uncertainties associated with the company's business. Please refer to the management's discussion and analysis of financial conditions or results of operations and risk factors sections of the company's SEC filings, including but not limited to the annual report on the form 10-K and quarterly reports for form 10.

Q.

Any forward looking statements made during the conference call speak as of today's date, the company expressly disclaims any obligations or undertaking to update or revise any forward looking statements made during the conference call to reflect any changes and its expectations with regard there to or any changes and its events conditions or circumstances, which any for.

And looking statement is based except as where it may be required by law.

Before we go to end today's conference call I would like to remind everyone that this call will be available for replay. Starting later this evening and running through November 20 for US. Please refer to today's earnings release for dial in replay instructions available via the company's website at Www Dot CW Seo Dot com.

Thank you for attending today's presentation. This concludes the conference call you may now disconnect.

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