Q4 2020 Consolidated Water Co Ltd Earnings Call

[music].

Good morning, Thank you for joining us today to discuss consolidated water company's full year 2020 results hosting the call today is the Chief Executive Officer of consolidated water Company, Rick Mctaggart, and the company's Chief Financial Officer, David Sasnett. Following their remarks, we'll open the call to your questions.

And anytime during the call you made joined the Q&A question queue by pressing star one on your keypad to withdraw from the question queue Press Star two.

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 today that today's call.

Good recorded and will be made available for telecom replay via instructions and Yesterdays press release, which is available and the investor relations of the company's website now I'd like to turn the call over to consolidated water company's CEO Rick Mctaggart, Sir. Please go ahead.

Thank you Tom and good morning.

Everyone and I hope, everyone is staying safe and healthy.

Despite the unprecedented challenges caused by the pandemic and 2020, we increased our total revenue by 6% to a record $72 6 million.

Our services segment was the biggest contributor with services revenues.

News.

To $12 9 million with $12 $5 million of that amount generated by our PERC water subsidiary and we acquired in October 2019.

Likewise services gross profit increased to $3 2 million versus just about a half.

$5 million and 2019.

PERC water provides design and engineering construction and management services for water treatment infrastructure and the average southwestern U S. It provides a platform upon which we can expand our core business of designing constructing and operating desalination.

And Asian plants to North America.

PERC also presents opportunities for additional recurring revenue from operating and maintenance contracts as well as design build projects that can eventually turn into operating contracts.

There's a lot more to talk about in terms of progress we made last year.

And on our growth strategies for 2021.

Before going further I'd like to turn the call over to David who will take us through the financial details for the year I will then return to add some additional comments around our operational activity and outlook.

On it.

Good morning, everyone.

As written.

Mentioned and.

As it has for many other companies the COVID-19 pandemic and has created unprecedented challenges for us.

But despite these challenges we remain profitable in 2020.

We increased our revenue line.

Maintained our financial condition or liquidity in <unk>.

And to pursue new opportunities to grow our business, both organically and through acquisitions.

Our total revenue and the full year of 2020 increased 6% to a record $72 6 million.

This increase was driven by an increase of $1 2 million and services revenue.

As Rick mentioned.

And was due to the acquisition of PERC water to our services segment and late October 2019.

The increase in our services segment revenue was offset partially.

The decreases in revenue for our retail bulk and manufacturing segments of $3 5 million to <unk>.

$7 million and $1 2 million respectively.

Our retail revenue declined due to a 13% decrease and the volume of water sold on Grand Cayman Islands.

As a result of the tourists restrictions, which were and in fact for the last nine months from 2020 on Grand Cayman Islands.

The decrease and bulk segment revenue was due to two new water supply contracts that commenced in February and July of 2019, with the water authority, Cayman and a lower per gallon rate and the contracts they replaced.

And our bulk segment revenue also decreased.

Due to a decline in revenue of approximately.

And one 5 million from our Bahamas operations, which arose from lower energy prices, which correspondingly reduce the energy pass through component.

Bahamas and rates.

The decrease and on manufacturing segment revenue was deeply decrease and the orders and the fourth quarter of 2020.

<unk> profit for the full year of 2020 was $26 8 million.

Or 36 nine percentage of revenue.

Paired with $28 3 million or <unk> $41, one per cent of revenue and 2019.

This decline was largely attributable to decreased revenue generated by our retail water segment.

To a lesser extent and bulk and manufacturing segments.

For 2020, net income attributable to consolidated and water shareholders was $3 7 million.

Which equates to <unk> 24 per fully diluted share as compared to $12 2 million or <unk> 80 per fully diluted share in 2019.

Now turning to our financial.

And conditions, our accounts receivable balances related to our Bahamas business amounted to $16 8 million as of December 31, 2020, as compared to $18 4 million for the same time with the previous year.

Historically CW behind us has experienced delays in collecting it and accounts receivables will no.

Financial consumer each corporation of the Bahamas.

And when these delays have occurred we hold discussions and meetings with representatives of the water and sewage Corporation and the Bahamas government.

As a result payment schedules or develop for the Ufc's delinquent accounts receivable.

All previous delinquent accounts receivable from the Ws.

Water receipt.

And where eventually paid in full as a result, we have never been required to provide and allowance for doubtful accounts for behind the receivables.

We believe that the delays, we have experienced and collecting citigroup harmless receivables were initially extended due.

Due to the impacts of hurricane Dorian, which devastated the north.

<unk>.

In September 2019.

And those delays have been further extended as a result of the economic impacts of the pandemic on the Bahamas government revenue sources.

We eventually see every Bahamas accounts receivables will eventually be collected in full.

As of December 31, 2000.

And behind our cash and cash equivalents totaled $43 8 million and.

And on working capital of $66 million.

Our projected liquidity requirements for 2021 include capital expenditures for existing operations of about $6 3 million.

And about $1 3 million for dividends.

And 'twenty operating requirements May also include future quarterly dividends and such dividends are declared by our board.

Our dividend payments amounted to approximately $5 1 million.

For the year ended December 31 2020.

And that summarizes a brief discussion of our financial results and I would like to turn the call that co correct.

Our liquidity ex David.

Our services segment led by PERC water was our best performing operating segment last year as David mentioned and.

And we expect per to continue consistent performance in 2021.

Two of our more challenged segments have been retail water and manufacturing.

Retail segment performance directly reflects the impact of the pandemic on.

On tourism and Grand Cayman, and we believe that that segment.

Our business will eventually return to normal as vaccines become more widely administered and the island opens up again for normal.

Tourism.

Our manufacturing segment is entirely comprised of Eric's industries, our subsidiary based in Fort Pierce, Florida.

<unk> is primarily a custom manufacturing shop, so it's contracts and project cycles are shorter term and those in our other business segments.

And the first quarter of 2020, we acquired the remaining 49% interest and <unk>, which we had not owned G&A.

G&A expenses for our manufacturing segment, and 2020 decreased by about $5 million as a.

<unk> decrease and amortization expense for certain intangible.

All assets associated with the initial acquisition of air ex these assets became fully amortized and early 2020.

This manufacturing business has not been significantly affected by the pandemic. However.

However, as we discussed on our previous calls <unk> largest customer informed us last.

Last October and and expects to suspend it has suspended its purchases until the first quarter of 2022 due to inventory management related factors.

While we can't make any guarantees we do anticipate that this customer will resume purchasing and Q1 of.

2022.

Meanwhile, we have been taking steps to replace this loss revenue by increasing sales and other products sales of other products Eric's manufacturers for existing.

And new customers.

<unk> was recently awarded contracts to manufacture.

Actually to municipal water treatment projects at a targeted and Florida, one of which was awarded at the end of 2020 and the other just last month.

We anticipate the earlier awarded projects.

We will begin production and our shop this month and.

And the second project.

Project will begin production and the third quarter of this year.

So we see these contracts positively impacting our manufacturing revenues beginning in the second quarter of this year.

We are also targeting three additional $1 million plus manufacturing process projects and Florida.

And if for.

A successful.

This work.

These additional projects would likely commence and late 2021 or early 2022.

Now a little bit more about our services business.

With its comprehensive suite of solutions for improving water infrastructure PERC has strength.

Strength in our existing business and overall mission supporting our pursuit of water reuse projects and other emerging water treatment opportunities.

As the principal component of our services segment PERC has maintained its positive performance since we acquired a controlling interest in October 2019.

Third quarter of last year, we acquired an additional 10% and per for $900000, which increased our ownership to 61%.

Security and this additional ownership demonstrated our confidence and perk and the growing markets. They serve.

Last year existing per clients granted renewals.

On a four operating agreements, including water wastewater and advanced water treatment and California.

PERC also obtained three new operations and maintenance contracts and California and commenced those operations during 2020.

Already this year per completed.

<unk> contract negotiations and has begun operating another three facilities for high profile clients and the Los Angeles, and Arizona markets such contracts provide recurring revenue to perk typically and one year increments and our renewable for various terms from three to five years.

We are currently in discussions with existing and potential clients in California that are seeking immediate solutions to their wastewater treatment and potable water problems.

<unk> excellent reputation and the market and its track record of successfully delivering projects through a wide range of project delivery.

Livery models.

And is very attractive to rapidly growing and resource conscious municipalities and private clients.

These clients include golf courses, and California that are looking to replace expensive potable water with sustainable reclaimed wastewater per year, gaining their landscaping and golf courses.

We believe that perks significant experience designing building and operating wastewater harvesting facilities provides a competitive advantage in this niche market.

We are also making progress expanding perks business into central Florida.

We expect <unk> to have natural synergies.

Iridex has water infrastructure manufacturing capabilities and is already leveraging and PERC is already leveraging <unk> client base and excellent reputation and the region.

After a long drought, we are finally, seeing some bidding activity for seawater desalination projects and.

And with <unk> being region and are carefully evaluating these opportunities.

And those are you.

Following us know our our Mexico project was canceled by the client and June of last year.

We are vigorously pursuing all available legal remedy.

On the carrier and courses of action to enforce our rights to recover from the client our costs and investments and this project.

We hope this resolved quickly, but it is a legal matter now and difficult to say, how long and will take given.

Given the legal process and unpredictable timeline, we're not planning to.

And that's the topic of Rosarito again until the matter is resolved or unless a special need develops.

So now looking ahead to the remainder of this year on the.

The M&A front through PERC, we are actively evaluating potential acquisitions and have several irons and the fire.

We hope to complete at least one acquisition before the end of the year that will expand our U S footprint.

For the first quarter of 2021, we expect our manufacturing segment to be down as discussed as we continue to diversify <unk> products and solutions with existing and new customers.

We expect to see our other business segments continuing to operate at status quo.

However, we see possible tailwind emerging from the post pandemic reopening of certain markets.

With this revitalizing.

Yeah.

And particularly the tourism market and the Cayman Islands, but we're not waiting around for tourism to return and we are actively focused on replacing loss revenues by growing our services and manufacturing business as discussed and completing strategic acquisitions.

Overall from an operational and financial.

Actual perspective, we have never been stronger we have substantially no debt and more than ample liquidity and capital resources to be a great utility partner for the communities, where we have the privilege to serve.

We plan to continue to expand our business through organic growth acquisitions and new projects.

As we further develop and expand the water solutions that we offer and above all we will continue to focus on business that will provide increasing value to our shareholders.

So Tom with that I'd like to open the call for questions.

Thank you we.

We will now begin the question and answer session.

Ask a question press Star then one on a touchtone phone.

We're using a speaker phone please pickup your handset before pressing the keys.

Anytime you question has been addressed and you would like to withdraw your question. Please press Star then two at.

At this time, we will pause momentarily.

Really to assemble our roster.

Yeah.

And the first question comes from Gerry Sweeney with Roth Capital. Please go ahead.

Hey, good morning, Thanks for taking my call.

Hey, Jerry how are you doing.

Good thanks.

Wanted to start with retail and the Cayman Islands.

Could you give us a little.

Are the islands opened up or are they.

Any indication that they will open up.

And the vaccine rolls out and.

Any type of thoughts on that process.

On the right now there.

And there is air travel back and forth if youre not vaccinated.

After the quarantine for 14 days and a government approved facility.

And if you have a box if you have and vaccination car then it's only 10 days. So it's still not really conducive for tourism yet.

And.

Once.

Talks locally about opening.

Up more which would mean eliminating quarantine for vaccinating people.

And when they have reached I think it's 70% to 80% and the population and the islands being vaccinated. So.

And kind of targeting that from May or June.

And it totally.

Eliminate the quarantine requirement I think tourism is still going to be down.

Down there and even if it starts back up it will be slow because you have to have the vaccine to be able to.

Moving to quarantine.

Got you and.

Obviously, the margins and the retail segment were down I mean lots of fixed costs, I mean, and the margins are down and I presume just because of the direct result of a volume. So is that correct. So what I'm trying to yes.

Yes.

And just on back of tourism that should improve.

Team.

Slowly yeah.

And has a substantial amount of fixed cost Jerry.

They only on plants and distribution system and <unk>.

And as revenues decline this cost.

Eat away at the margin.

So.

Once revenues come back to the.

As well on that.

Got it.

Yeah.

Okay.

Switching gears I think you mentioned PERC won three contracts.

Just this year.

Couple of questions or just kind of try and bracket that a little bit not how.

The margin contracts as per cap and total now and those three projects.

Are they all of these and other projects around the similar size and I just wanted to see I'm, just trying to gauge the impact quite on it.

The projects are relatively small.

And the new ones this year relative to two.

Two of the ones that they got last year I mean there.

There are two projects last year that were very sizable.

The ones this year probably about.

[noise] represent maybe a third of that.

About a third of the revenues that.

The new projects.

Represented last year.

Yeah, we disclosed the number of active contracts.

As of December 31.

And then there is contracts after that day traders.

And just check our tech I think it's 27 day 27 operating contracts at the end of the year memory serves and correct.

Got it and Congress and.

And the.

Its range I mean, they can be for $250000 a year to over $1 million per year. So three three.

<unk> and offer our largest one.

But nevertheless.

They all are they all are.

They will generate good profits and it's great to have them because typically what we've seen is the.

And the client renews these.

Usually for the three to five years.

Got it.

So I was a little under the weather and post.

Second Covid shot yesterday, so didn't get a chance it from.

And as the 10-K, one more question Park.

Youre looking at acquisitions and that.

Any other detail you can give and.

The contract.

Is it actually operating assets or.

On specific areas just curious as to what.

The focus is on the acquisition front.

Yes, I mean, as you know, Jerry we love operating contracts and longer term.

And you can't get them more than sort of five years here and the state. So that's long term or for the state.

Operating companies it would.

Expand our geographic footprint really take us into markets that are.

Benefiting from.

All of these.

Terms movements of people from the pandemic so.

That's kind of what we're looking at.

Got it.

I'll jump back in queue. Thanks.

Yes.

We actually currently do not have anybody on the queue. Jerry if you would like to ask your next question.

Okay.

Okay can you hear me.

Yep.

I'll ask one more so.

Bulk was down I think 27 million and 24.

$3 million.

But $1.5 million of that with energy. So there was only a marginal decline from volume is that a fair assessment.

Yes.

Packs.

And the things that affected bulk revenues last year.

Four point compared to 2019, where the energy, which was significant and that's just.

The pass through charge so.

On.

And we don't we don't lose anything from that.

And.

And just the final impacts of the <unk>.

The full year impact of.

<unk>.

The change and contract terms.

With the two water authority contracts. So if you remember in 2019, we.

Reduced our prices are to retain.

And as operating contracts for three plants, there and Grand Cayman.

So that's done I mean.

And so you anything to.

<unk> thousand 20 to 2021.

Very good.

Comparatively on the Cayman Islands book.

And differences unless theres, some energy variation energy cost variations, we get and it's likely to go up I think energy is already going up this year. So.

And you want to if you're likely to see.

Yes, It was pass throughs.

And we go up pretty significantly over the course of this year.

Yeah, the pass throughs from the Bahamas, Gerry Gerry keep in mind, and new contracts and in Grand Cayman.

We're structured differently.

And it used to be that we would pass through the energy charges to the customer.

But now they.

Pay the energy directly themselves. So it's not part of our revenue component.

Even though we had a significant decline in and.

Our book revenue for the Cayman Islands, the P&L impact is not as great at all.

Because the revenue and the cost revenue rose Stepmothers energy charges that are no longer being paid.

Alright got it so that's why even though we had from.

And revenue margins from that Okay got it.

Also what about the Bahamas and.

Theres, a bulk component there and if any.

Is that.

Feed some of the tourist.

And I am locations and.

I know the Bahamas are coming back because I know people are doing spring break and the Bahamas.

And just curious as to potential rebounded tourism in that region.

Yes.

The charges and the Bahamas or are mainly fixed charges.

There's a minimum take or pay volumes from the two plants.

And so.

And there has been a drop and.

And.

Volume I think that we've mentioned and the 10-K it's depth.

Definitely not as pronounced as the retail drop in Grand Cayman.

But it hasnt impacted revenues.

And because it is the.

They pay for the capacity there essentially and no.

And so.

On the other hand, we are seeing volumes come back up.

And the last few months I think some of the hotels have reopened there so.

It's not going to make any big impact on our revenues there because of the take.

And BK particular gotcha got it okay great.

Great that's really helpful.

Alrighty I'm done on a lot.

Fortunately thanks.

Thanks Jerry.

Again as a reminder, if you have a question press Star then one to be joined into the queue.

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

Thank you good morning, gentlemen, Hey, John.

At the risk of.

Adding a dead horse here just curious on.

Rosa Rita yes, if anything.

Changed as far as.

The.

The government willing to change direction and and.

Resurrect that so to speak I guess, that's an appropriate way.

They are putting it and given the timeframe we're in right now, but if that would have skewed.

And do you pursue that.

Net or.

What's your thought process on that is just said.

Over and done with and just try to get it taken.

Care of or would you perhaps think of.

Pursuing the project if it's for some reason were to come back to life.

Yeah, I mean, John I'm, not going to and.

To answer the question directly but I will tell you a couple of things that are going on there.

I mean really our goal is to recoup our investment right now.

There is a there's an election coming up and the state for a new Governor I think thats.

That's in June or July so theres, a lot of campaigning going on down there now.

And all of the cash all the candidates are talking about.

<unk> water shortages there on.

And so you know.

The problem Hasnt gone away.

On the.

The underlying issue that.

And they need water there they need somebody to build a desalination plant at some point so.

There's a lot of discussion about that.

But then the Mexican situation has changed politically I think and economically.

Over the last few years and.

We have concerns about that.

So I can't really say what would happen if somebody approached us.

And to restart the project I mean.

We could end up selling it to you know the assets to somebody that wanted to two to leave the project down there.

And we could end up doing it ourselves again or we could end up just gone through court to get our.

You know our reimbursement so.

But we don't have any sort of defined path at this point.

Okay fair enough.

Curious what the thought process was there so.

Very good good luck going forward, we've got a lot on other things and the.

And the offering here so that's good take care.

Thanks, John Okay.

At this time this concludes.

Sure and answer session I'd like to now turn the call back over to Mr. Mctaggart. Sir. Please go ahead.

Thanks, Tom.

I appreciate everybody dialing in today and I look forward to.

And speaking with you again in May when we announce our first quarter results.

Everybody take care and stay safe.

Thank you, ladies and gentlemen, and 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 have provided.

And 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 events assumptions and estimates forward looking statements can be identified by the.

Words or phrases usually containing the words believe estimate project intend expect should will or other 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.

Use of end markets related to its business any forward looking statement made during this conference call are not guarantees of future performances and involve certain risks uncertainties and assumptions, which are difficult to protect.

Actual outcomes and results may differ materially from what is expressed in such forward looking statements factors.

History include or contribute to such differences include but are not limited to continued acceptance of the company's products and services and the marketplace changes and its relationships with the governments of jurisdictions in which it operates.

Outcome of its negotiations with the Cayman government regarding a new retail license agreement and the future financial performance.

That would've of its subsidiary that manufacturers water treatment related systems and products and provides design and engineering management operating and other services applicable to commercial and municipal and industrial water production the.

The collection of its delinquent accounts receivable and the Bahamas.

Its ability to integrate and.

Farming operate the company's recently acquired subsidiary P. R E C water Corporation.

The possible adverse impact of COVID-19 virus on the company's business and various other risks as detailed in the company's periodic report filings with the Securities Exchange Securities 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 included but not limited to its annual report on the form 10-K and quarterly.

Reports form 10-Q.

Any forward looking statements made during the conference call speaks 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.

<unk> changes and its events conditions or circumstances of which any forward looking statement is based except as where it may be required by law.

Before we end today's conference call I would now like to remind everybody that this call will be available for replay. Starting later this evening. Please refer to yesterday's earnings release for dial and <unk>.

Or any instructions available via the company's website at Www Dot C. W. C O dot com.

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