Q1 2021 Global Water Resources Inc Earnings Call

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Greetings, ladies and gentlemen, thank you for standing by.

Welcome to the global water resources incorporated 2021 first quarter conference call.

At this time participants are in a listen only mode.

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 would like to remind everyone that this call is being recorded on May 6th 2021 at one P M Eastern time.

I would now like to turn the conference over to Joanne Ellsworth, Vice President corporate and regulatory affairs.

Please go ahead.

Welcome everyone and thank you for joining us on today's call yesterday, we issued our two 2021 first quarter financial results by press release, a copy of which is available on our website at www Dot GW resources Dot com.

Speaking 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 quarter. Mr. Liebman will review the financial results for the quarter and Mr. Kreger overview strategic initiatives and business development for the quarter.

Mr Fleming, Mr. Lehman and Mr for Europe 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 risk 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-Q filed with the SEC and such.

Such filings are available at Www Dot S E C 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 I will now turn the call over to Mr. Ron Fleming.

Thank you Joanne and good morning, everyone and thank you for joining us today.

We are very pleased to report the results for the first quarter of 2021.

Before handing the call over to Mike to review financial highlights.

I will review a few operational highlights.

Operational highlights for the quarter include.

In accordance with our top priority, we continue to perform and an extremely high level unemployed and safety and regulatory compliance non recordable incident.

Within the quarter, we experienced no recordable events injuries or expenses related to employee safety.

And as of today, our staff is only experienced two minor osha recordable incidents and 1000 and 345 days.

We haven't heard only $2500 and nearly five years on Osha recordable related incidents, resulting in an extremely low loss ratio and experienced modifier or E board appoint six two.

As a reminder, and he might have won is considered to be industry average and.

So said another way, we are performing 38% better than the industry average, which results in lower actual costs and worker's comp insurance costs.

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And so having incurred no significant compliance violations and the quarter. It has now been 1868 days since our last significant compliance violation or over five years.

These impressive track records clearly demonstrate our performance on our top mandate customer and employee safety.

And I want to highlight customer growth on the organic growth front total active service connections increased eight 5% as compared to the end of Q1 and 2020, bringing total connections to 50162.

Development and housing activity remained very strong and metro Phoenix and our service areas.

As a reminder, single family dwelling permits for Metro Phoenix totaled 28700 for <unk>.

Up 18% over 2019.

Sorry in 2020.

According to local real estate and consensus single family permits increased by another 28% and Q1 2021 year over year.

Local real estate consensus projections indicate that growth will continue throughout 2021 and 2022.

Specific to our largest service area. The City America has already issued 825 housing permits through April of 2021.

A 215% increase over the same period the prior year.

Beyond housing growth and our core existing utilities and.

As noted in our earnings release, we also are making excellent progress on our engineering permitting and construction of new service areas, including for the Nikola Motor Corp project and the surrounding inland Port, Arizona project amongst other areas within our large service areas.

It is important to note that we have accelerated capital investments as required to prudently manage this type of growth, including the new areas requiring service.

Those of you that have been following our company for a while no. This is what we've been preparing for and speaking about as a company really since the beginning.

This was the strategy to buy or build utilities and the path of growth along growth corridor.

This is again accelerating and in short we are well positioned to benefit from rapid growth throughout our large service areas and Pinellas County, and Maricopa County.

Chris Kreger will discuss acquisitions and are in process right application later 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.

And I will now turn the call over to Mike for financial highlights.

Thanks, Ron and Hello, everyone.

Total revenue for the first quarter of 2021 was $9 3 million, which was up $1 million or $12 five per cent compared to Q1 of 2020. This increase is primarily driven by the organic connection growth increased consumption and our approved rate increase.

Operating expenses for Q1 of 'twenty, 'twenty, one or $8 2 million compared to $6 4 million in Q1 of 2020. This is an increase of $1 8 million or 27, 7%.

Notable changes in operating expenses and conclude.

Increased operating and maintenance costs by 267000, which was primarily driven by those costs that increase as revenue increases as well as increased metal medical expenses.

And second increased depreciation and amortization expense by 113000, primarily due to the increases and our fixed assets associated with their capital expenditures plan.

And thirdly increased G&A expense by $1 4 million, primarily due to the deferred compensation tied to the change and our stock price specifically in Q1 of 'twenty 'twenty. One we saw an increase and our stock price of $1 90, or 13, 2% going from 14 and 41 to <unk>.

16 and 31.

Additionally, in Q1 of 2020 and likely due to the COVID-19 pandemic, our stock price declined by $2.96 or 23%.

This large swing from Q1 of 'twenty 'twenty to Q1 of 'twenty 'twenty. One is driving the increase in G&A expense and summary, this caused deferred compensation tied to stock price to go from a negative expense of 733000 and Q1 of 'twenty 'twenty two a positive expense of 460000 <unk>.

And a swing of $1 2 million.

Now to discuss other expense.

Other expense for Q1 of 2021 was $1 3 million compared to $1 2 million in Q1 of 2020. The $68000 increase was primarily due to reduced interest income and lower Buckeye royalties.

Turning to net income global water had net loss of 217000 or one cent per diluted share and Q1 of 2021.

Now to talk about adjusted EBITDA, which adjusts for nonrecurring and noncash items adjust.

Adjusted EBITDA was $3 6 million in Q1 of 2021 which was down 519000 for $12 seven per cent compared to Q1 of 2020.

Primarily driven by the previously mentioned increase in deferred compensation expense associated to the change in stock price.

Before turning the call over to Chris I'd like to touch on our liquidity position.

Firstly I'd like to mention that we recently extended our $10 million revolving line of credit for three years, which has now been extended until April 30th 'twenty 'twenty four.

When combining this unused $10 million line of credit with our existing cash on hand of $18 2 million, we have over 28 million of liquidity to support ongoing operations and our growth strategy.

This concludes our update on the first quarter 2021 financial results I'll now pass the call to Chris to review, our strategic initiatives and business development activities for the quarter.

Thanks, Mike Hello, everyone I'll briefly highlight three items for you before passing the call back to Ron for.

First our rate case process at the Arizona Corporation Commission continues as expected.

The next major milestone is receipt of the initial staff and intervenor testimony on or around May 19, 2021.

And with reply testimony to be filed in June and July this year.

After the written testimony process is complete the evidentiary hearing is scheduled for August.

After the evidentiary hearing is concluded the parties provide legal briefs summarizing the case and the administrative law judge dress a proposed order for the commission to consider for a final vote.

As you will recall any new rates authorized by the commission will be effective for the majority of our utilities through a multiyear phase in starting January 2022.

And finally.

It is important to note that there can be no assurance. However on the outcome of the case the requested rate increase for the timing of any increase.

Next turning to expansion of current service areas and the establishment of new service areas and the quarter, we issued a press release announcing our agreement.

To provide service to the Nikola Motor Court facility and Coolidge, Arizona, specifically Nikola continues a rapid construction pace with water service anticipated to be delivered this quarter.

While we don't anticipate Nicholas initial usage demand to be material. We are optimistic about the long term growth prospects of the larger adjacent inland port Arizona area.

As we continue to respond to various proposals to provide service in that area.

Finally, the last element of our revenue growth drivers relates to acquisition activity.

In February of this year, we signed asset purchase agreements to acquire the water utility assets of twin Hawks utility, Inc, and rank on water company.

These two acquisitions or asset purchases, which require approval by the Arizona Corporation Commission a process, we initiated with the commission just last month.

We estimate that the commission will issue an order on both acquisitions by the end of the year.

Once approved we anticipate closing with cash on hand.

Looking prospectively, we continue to focus on acquiring water and wastewater utilities across the state of Arizona on the very small to the very large and our and due diligence with several parties.

Regarding out of state acquisitions, well nothing is eminent we continue to explore different opportunities outside of Arizona.

This concludes the update on strategic initiatives and business development for the quarter I'll now pass the call back to Ron.

Thank you Chris.

It's clear we are well positioned with a strong balance sheet and disciplined strategy that continues to accelerate.

And in fact from an operational and financial perspective, we have never been stronger and we have more than ample liquidity and access to capital to be great utility partners 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 total water management platform and applying our expertise throughout our regional service areas into new areas.

And would be beneficial to all stakeholders involved.

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

These highlights conclude our prepared remarks. Thank you we are now available to answer any questions.

Thank you.

And we will now begin the question and answer session.

And the question queue you May Press Star then one on your telephone for Pat.

Here at Cowen and acknowledging and request.

If youre using a speakerphone please pick up your handset before pressing any keys to withdraw your question. Please press Star then two.

We will pause for a moment of callers join the queue.

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

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

Great. Thank you operator, I'd like to thank everyone for participating in the call today and your interest and global water resources. Thank you and we look forward to speaking again with you soon.

This.

Today's conference call you may disconnect. Your lines. Thank you for participating and have a great rest of your day.

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