Q4 2020 Global Water Resources Inc Earnings Call
Good day, ladies and gentlemen, thank you for standing by welcome to the global water resources 'twenty 'twenty year end conference call.
At this time, all participants listen only mode.
Flow in 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.
Any time.
I would like to remind everyone that this call is being recorded on March four 2021 at one P M Eastern time.
I would now like to turn the conference over to our debt Krupa, Vice President and controller. Please go ahead.
Welcome everyone and thank you for joining us on today's call yesterday, we issued our 2020 year end financial results by press release, a copy of which is available on our website at www Dot GW resources dotcom.
<unk> today is Ron Fleming, President and Chief Executive Officer, Mike Liebman, Chief Financial Officer, and Chris Kreger, Chief Strategy Officer, Mr. Fleming will summarize the key operational events of the year. Mr. Liebman will review the financial results for the year and Mr. Kreger will review strategic initiatives and business.
Development for the year.
Mr Fleming, Mr. Lehman and Mr carrier will be available for questions at the end of the call.
Before we begin I would like to remind you that certain information presented today may include forward looking statements.
Such statements reflect the 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 hereof and are not guarantees of future performance.
For additional information regarding factors that may affect future results. Please read the sections risk factors and management's discussion and analysis of financial condition and results of operations included within our latest form 10-K filed with the SEC such.
Such filings are available at Www Dot FCC 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 yesterday's earnings release, which is available on our website.
Unless otherwise stated all amounts discussed are in U S dollars I will now turn the call over to Mr. Ron Fleming.
Thank you Heather good morning, everyone and thank you for joining us today.
We are very pleased to report the results for the fourth quarter at year end 'twenty 'twenty.
2020 was both a challenging and exciting year for global water in them.
I'm very proud of the company and our employees for delivering strong company performance during a global pandemic.
We will talk about growth throughout our commentary today, but I will start where I always do by discussing our top priority, which is the health and safety of our employees and our customers, including how we continue to navigate COVID-19.
As an essential utility whose services are vital and during the pandemic our company moving 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 of our employees and customers and safeguard our operations.
These measures continued to be modified as 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, resulting from the pandemic either operationally or financially.
Further in the event that customers had difficulty paying their utility bills due to COVID-19.
We worked with them to set up payment plans and offer other options. For example in March of 2020, we rolled out an expanded customer assistance program.
I can report today that this sets our assistance is being utilized and in 'twenty 'twenty alone through our program partners. We distributed over 100000 to customers in need of help to pay their utility bill.
Based on overall progress on these fronts over the last 12 months and based on the improving overall environment in Arizona and our areas I will not be addressing COVID-19, again during our quarterly calls unless I need develops.
Moving back to our typical operational highlights I am very pleased to announce.
In accordance with our top priority, we continue to perform at an extremely high level unemployed safety and regulatory compliance non recordable incidents.
As of today, our staff is the only experienced two minor osha recordable incidents and 1282 days.
We haven't heard of only $2500 and nearly five years, an osha recordable related incidents, resulting in an extremely low loss ratio and experienced modifier or E mode, which is at 0.61 today.
As a reminder, <unk> is considered to be industry average. So said another way, we are performing 39% better than the industry average, which results in lower actual costs and worker's comp insurance costs.
Also it has been 1805 days since our last significant compliance violation or nearly five years.
In fact in late 2020, 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 demonstrate 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 also received in 2024, the company's transformational work and community engagement watershed stewardship and resources recovery.
On a related note in 2020, we delivered a record volume of recycled water 1.16 billion gallons, which is an increase of 11% over the year prior.
Maximum reuse of recycled water is a primary element of our total water management approach for growing communities that allows us to achieve meaningful conservation.
Yeah.
I now want to highlight customer growth.
On the organic growth front total active service connections increased six 7% to 48899 at year end debt.
Development and housing activity remained very strong in metro Phoenix, and our service areas.
According to local real estate consensus single family permits increased by 36, 3% in Q4 2020.
And the Homebuilders Homebuilders Association of Central Arizona reported that permits grew 18% year over year to 228700 and force.
All projections indicate that growth will continue throughout 2021 and 2022.
Specific to our largest service area the city of Maricopa.
Issued 1514 single family home permits.
In 2020, 53% over the prior year. This represents the single best year since before the great recession.
Those of you that have been following our company for a while no. This is what we have been preparing for and speaking about as a company.
Really since the beginning.
This was the strategy to buy or build utilities in the path of growth along growth corridors.
This is again accelerating and in short we are well positioned to benefit from rapid growth throughout our large service areas and banal and Maricopa counties.
2020 also brought the addition of Chris career as Chief Strategy Officer, and he has allowed for continuous focus on growth through acquisitions and new business opportunities.
Based on 2020 and to date announcements you can see we are starting to achieve some success and are building a nice pipeline of opportunities Chris.
Chris will speak about this and the rate case, we filed in 2020 later on in the call.
Putting all these elements together global water is well positioned from an operational safety compliance and financial perspective with notable growth in the years to come.
I will now turn the call over to Mike for financial highlights.
Thanks, Ron.
Hello, everyone.
Revenue for the year was $38 6 million, which was up $3 2 million or eight 9% compared to 2019. This.
This increase is primarily driven by the organic connection growth increase consumption and our approved rate increase.
Operating expenses for 2020 were $31 3 million compared to $28 5 million in 2019.
This is an increase of $2 8 million or nine 8%.
Notable changes in operating expenses include one incur.
Increased operating and maintenance cost by 624000, which was primarily driven by increased revenue.
Two increased depreciation and amortization expense by 678000, primarily due to the increases in our fixed assets associated with their capital expenditures planned in amortization of our intangible assets.
And thirdly increased G&A expense by $1 5 million, primarily due to non cash equity awards increases in expense as well as bad debt and medical expenses.
Now to discuss other expense.
Other expense for 2020 was $5 5 million compared to $3 6 million in 2019.
The $1 9 million increase was primarily due to the nonrecurring 1 million of other income received in 2019 from the loop 303 contract. In addition to the noncash asset disposal of 550000 as well as the elimination of the fathom royalty of 280000, both in 2020.
Turning to net income global water had net income of $1 1 million or five cents per diluted share in 2020.
This is a decrease of $1 1 million compared to 2019.
This decrease was primarily attributed to the final pay out of the loop 303 contract in 2019 combined with the noncash loss on asset disposal and non cash restricted stock expense booked in 2020, which after tax affected equals $1 1 million.
After adjusting for all the non cash expenses just mentioned adjusted net income in 2020 was $2 2 million or nine cents per diluted share, whereas 2019 net income after adjusting for the nonrecurring 303 proceeds was $1 5 million or six cents per diluted share.
Yeah.
Now to talk about adjusted EBITDA, which adjusts for nonrecurring events, such as loop 303 proceeds.
And also adjust for noncash items like deferred compensation expense related to equity awards and asset disposals.
Adjusted EBITDA was $18 million in 2020, which is up $1 7 million or 10, 1% compared to 2019.
Lastly, I'd like to touch on our liquidity position with the existing cash on hand of $18 million and our 10 million unused line of credit we have approximately $28 million.
Liquidity available to support ongoing operations and our growth strategy.
This concludes our update on the 2020 financial results I'll now pass the call to Chris to review, our strategic initiatives and business development activities.
Thanks, Mike Hello, everyone.
I will highlight three items for you before passing the call back to Ron.
As you will recall in the past we discussed four different elements to our revenue growth story.
First Nash.
Natural organic 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 fourth acquisitions.
Remarks will focus on the on those last three elements service area expansion recurring rate case activity and acquisitions.
As it relates to revenue growth through our rate case activity, we announced our rate case filing on August 28, 2020 as filed the case proposes an approximately 13% rate increase equivalent to approximately $4 6 million in additional revenue with new rates to be effective for the majority of our utilities through.
Three year phase in starting January one 2022.
Currently.
We are in the discovery part of the case or we are answering questions asked by the parties and providing additional detail as necessary the net.
Next major milestone is receipt of the first round of staff and intervenor testimony in mid May with the hearing scheduled for August.
Overall, the case continues to proceed as anticipated and we will continue to update you as the case progresses.
It is important to note that there can be no assurance. However on the outcome of the rate case there.
The requested rate increase or the timing of any increase.
Now turning to expansion of current service areas and establishment of new service areas.
In the quarter you saw a press release, describing our success, receiving Arizona Corporation Commission approval for a certificate of convenience and necessity for the inland Port Arizona project being developed by Pineapple Land Holdings you have.
Recall. This project represents approximately 2700 acres of land or 3.4 square miles and is in the city of Coolidge, Arizona.
It is also directly adjacent to the Nikola site there.
We are starting the infrastructure design and engineering efforts, while the landowner is actively marketing the property.
Speaking of Nicola subsequent to the quarter on January 7th 2021, we announced that we have entered into a master utility agreement to serve nickel as new facility.
Nicolas site construction is actively underway and we are working on the first stages of implementing the water and wastewater solution for their site.
While we don't anticipate nickels initial usage demand to be material. We are optimistic about the long term growth prospects of the larger inland port Arizona area.
Finally.
The last element of our revenue growth drivers relates to acquisition activity.
As Youll recall on October 29, 2020, we announced our first acquisition of Mirabel water company that represented our first acquisition since 2018.
In the quarter, we closed three more acquisitions Francesco water company toward a litre water company and Lynne Ley water company.
Geographically Francesco water is in close proximity to Mirabel, and our Red Rock service area South of Tucson Lindley.
Lindley and toward a leader or approximately 10 miles from each other.
These four deals mirabel Francesca toward a leader in Lindley represent approximate approximately 230 active connections. All four deals were completed on favorable terms and continue our track record of successful low risk tuck ins.
Subsequent to the quarter end, we announced our signing of two agreements to acquire additional utilities.
On March 19th 2021, we signed asset purchase agreements to acquire twin Hawks utility, Inc, and <unk> water company together, representing an additional 93 water connections.
Twin Hawks is a water utility.
Water only utility located in <unk> County, approximately eight miles away from our current operations, representing an easy operational integration.
In addition, a twin Hawks, we're also crank acquiring bringing con water company's assets.
Located in Pima County, which is the greater Tucson area, bringing con represents another opportunity for us to deploy our operational expertise.
<unk> is currently under a consent order from the Pima County Department of environmental quality due to high fluoride levels.
Once we close the acquisition, we will resolve the fluoride issue by investing additional capital and eventually filing a rate case. We highlight this example to make a point about both the real needs and the investment opportunities that exist when consolidating smaller water utilities.
These two acquisitions or asset purchases, which require approval by the Arizona Corporation Commission a process that takes approximately six to 12 months to complete after our filing is initiated.
Once approved we anticipate closing with cash on hand.
Looking prospectively, we continue to focus on water and wastewater utilities across the state of Arizona from the very small to the very large and remain optimistic about our near term opportunities while nothing is adamant eminent.
While nothing is imminent, we continue to explore opportunities outside the state that may make sense.
This concludes the update on strategic initiatives and business developments for the quarter I will now pass the call back to Ron.
Thank you Chris.
So it is clear we remain well positioned 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 be a great utility partner for the communities, where we have the privilege to serve and to pursue expansion through organic growth acquisitions, and 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 and applying our expertise throughout our regional service areas and to new utilities will be 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.
This concludes our prepared remarks. Thank you we're 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.
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Okay.
Yes.
Our first question is from Gerry Sweeney with Roth Capital. Please go ahead.
Good morning, Ron Mike and Chris Thanks for taking my call.
Hi, Jerry.
Just a question on.
On growth.
Obviously lots of organic growth there.
Arizona Great State.
After taxes et cetera.
No.
Hmm.
You've always discussed about being in line with with growth.
Your next etcetera is that coming to fruition, where I'm always sharing.
More and more cash.
Moving to Chandler Gilbert area.
Is growth really pushing into your operating area.
Yeah.
All available lots, an opportunity to sort of backfill them.
The Phoenix region, as you get closer to the city.
Yeah, Thanks, Jerry so.
Look I think.
How we've described it in the past is definitely what continues to become more and more real which is ultimately Phoenix grows in concentric rings and that growth pushes down.
Growth corridor or Baker basically are aligned with.
Transportation infrastructure, so highways and free ways and really no different than anywhere else. It's just there's only so much places that growth can go and so when you combine that with the fact that from a land development perspective.
There just hasnt been coming out of the great recession, the same amount of of proactive investment in <unk> to bring it from third through the three year entitlement process to get it ready for Watts, which is obviously, what you need to build a home what's.
What's happening right now is you know.
Both in Phoenix is going.
Crazy basically right.
Lots of lots of net in migration, we call. It. So literally population. This is an investment this isn't people speculate this is people moving here.
Both job growth and population growth and so there's only so many of those developments and lot that exist.
And we have a lot of them in our service area, So more and more growth is coming our way and we think that's really just.
Not only going to continue to increases as metro Phoenix expands thirty's emerging areas that we serve.
And I will make another point, that's all I can say on the housing side, but on the on the cash.
Jobs side, we're also getting into where these emerging areas are getting more and more of the opportunities on both commercial growth due to population growth, but also industrial growth and really job centers Youre right. You know the major metro communities around Phoenix like.
Chandler and Gilbert.
On the other side.
Guy they've been getting a lot of announcements for a long time on these large facilities that have been coming into Arizona.
But that's now moving further out as well obviously, that's underpinned the Nikola deal we're working on underpins the P&L land Holdings Industrial Corp.
Community that we're working on and those types of opportunities continue to increase as well.
Got it switching gears, a little bit I think even in the release you mentioned fathom, it's been a full year.
It's come.
Come in house.
Maybe discuss.
Is that working out appropriately.
Or even outperforming some of the benefits maybe you anticipated.
Yeah. Jerry this is Mike good question. So as it has been great actually I'd say, specifically you know we've been able to after bringing fathom in house to continue to expand and improve our customer service area and have a reduction in complaints from customer service. So that's been a great add having the direct oversight of it.
Yeah.
Additionally, we continue to see a reduction in costs on a go forward basis.
As the costs that we incur are much less than what we were being charged by fathom and so we are getting those benefits and will continue to get those benefits.
Going forward.
And lastly.
The timing of it with the fathom transition at the end of last month, we made the decision to hire an it director with a career in it security and and in light of the pandemic. It's been a great add for the team to kind of help us stay out in front of it and with people working from home and from a security perspective, So it's really been a great add.
And lastly, you know Jerry you've seen our facilities were highly automated and technologically advanced and so this we do believe this gives us a pretty good competitive advantage from an M&A perspective, as well as dealing with you know as you're hearing in the news things about cyber security issues. So it was it's been a great add for us and we're pretty pretty happy with it.
Yes.
I was reading the stuff about Florida in cyber security So that's great.
Very pertinent thank you.
Just one other quick question. This is for Chris I'm not sure if you can really hum.
If you're in a position to discuss it but obviously I think you mentioned youre looking at some M&A activity outside the states.
Is can you.
Like where you're looking but also how much of an opportunity is it bringing the global water.
In water reuse in some of the technology you have there in house to other states and how much of an opportunity does that sort of afford you.
When you're looking at a potential.
Potential.
Purchases.
Yeah, Great question. Thanks Gerry.
So big picture I can't give you too many specifics just yeah, obviously from a competitive perspective with our peers.
All I'll say, let me start with this high level.
In terms of what's in front of us in Arizona, We really love that opportunity has set a lot and you've seen in a pretty short period of time, we've been able to bring some things together very quickly and so from our perspective.
Looking out of state, we're going to keep our eyes open to what opportunities are there and discuss those but we can afford to be selective in and really thoughtful about pursuing those and so obviously you always look at them from a financial perspective.
But you also ought to look at them in terms of what's the market. There in terms of is there a lot of opportunity can you scale quickly can you apply what we're really good at from a total water management perspective, and so I would say, we will absolutely be keeping our eyes open to a wide variety of places nothing is eminent we're happy with what we're seeing so far.
In Arizona to kind of build the company out here and so but we're always open to the next opportunity at least listening and learning.
Got it I appreciate it.
I'll hand, it over thank you.
Once again, if you have a question. Please press Star then one on your telephone.
There are no further questions registered at this time I would now like to turn the conference back over to Mr. Ron Fleming for any closing remarks. Please go ahead Sir.
Alright, great. Thank you operator.
I'd just like to thank everyone for participating in the call today and your ongoing interest in global water.
And we look forward to speaking to you again bye.
This concludes today's conference call you may disconnect. Your lines. Thank you for talking to global and have a great day.
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