Q2 2021 Global Water Resources Inc Earnings Call

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Ladies and gentlemen, thank you for standing by welcome to the global water resources 2021 second quarter conference call.

At this time, all participants are in listen only mode.

Following the presentation, we will conduct a question and answer session and instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties during the conference. Please press star zero for operator assistance at any time.

We'd like to remind everyone that this call is being reported on August 6.

2021at 1 P M. Eastern time, I would now like to turn the conference over to Heather Krupa, Vice President and controller. Please go ahead.

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

And 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 will review strategic initiatives and business development.

For the quarter, Mr Fleming, Mr. Lehman and Mr. Kreger 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 section 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 such filings are available at Www Dot FCC.

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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 Heather.

Good morning, everyone and thank you for joining us today.

We are very pleased to report the results for the second quarter of 'twenty 'twenty 1.

Before handing the call over to Mike to review financial highlights I will review a few operational highlights for the quarter.

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

Within the quarter, we experienced no recordable injuries.

Injuries or expenses related to employee safety.

And as of today, our staff is only experienced 2 minor osha recordable incidents and 1436 days.

We have incurred only $2500 and nearly 5 years on Osha recordable related incidents.

This resulted in extremely low loss ratio and experienced modifier or E bond, which is 0.6 to today.

As a reminder, an email out of 1 is considered to be an industry average.

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 and most importantly, a safer work environment.

Also having incurred no significant compliance violations in the quarter. It has now been 1951 days since our last significant compliance violation or over 5 years.

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

Okay.

I now want to highlight customer growth.

On the organic growth front total active service connections increased 10.2% as compared to the end of Q2.2020, bringing total connections to 51314.

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

As a reminder, single family dwelling permits for Metro Phoenix totaled 28704, and 'twenty 'twenty and that was up 18% over 2019.

According to local real estate consensus.

Single family permits increased by another 40% in 2021 through Q2 year over year.

Local real estate consensus projections.

Also indicate that growth will continue throughout 2021 and 2022.

Specific to our largest service area the city of Maricopa. It is already issued 1150 housing permits through June in 2021, 883% increase over the same period the prior year.

Beyond housing growth in our core existing utilities as noted in our earnings release, which we also are making excellent progress on the engineering permitting and construction of new service areas.

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Mongst other areas within our large service areas and.

In fact, we began initial service to Nikola Motor Corp in the quarter.

So 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.

As such we've invested $3.1 million on infrastructure projects to support our existing utilities as well as the continued growth.

This brings the year to date total capital investments to $6.4 million.

Those of you who 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 corridor. This.

This is again accelerating and in short we are well positioned to benefit from growth throughout the large service areas and for now.

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.

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

Thanks, Ron and Hello, everyone.

Total revenue for the second quarter of 2021 was $10.9 million, which was up $1.1 million or 10, 7% compared to Q2 of 2020.

This increase is primarily driven by the organic connection growth increased consumption and our approved rate increased on.

Operating expenses for Q2 of 'twenty, 'twenty, 1 or $8.6 million compared to $8.2 million in Q2 of 2020. This is an increase of 440000 or 5.4%.

Notable changes in operating expenses include.

Increased operating and maintenance cost by 140000, which was primarily driven by those costs that increase as revenue increases.

Second increased depreciation and amortization expense by 211000, primarily due to the increases in our fixed assets associated with our capital expenditures plan as well as increased amortization of intangibles.

Lastly, we had increased G&A expense by 92000.

Now to discuss other income and expense.

Other income for Q2 of 2021 was 284000 compared to $1.8 million of expense in Q1 of 2020. This improvement of $2.1 million was primarily due to a onetime other income of $1.5 million for cell tower leases we sold.

Additionally, we incurred 532000 of expense in Q2 of 'twenty 'twenty 4 loss on disposal of assets versus only 16000 in Q2 of 2021.

Turning to net income global water had net income of 2 million or 9 cents per diluted share in Q2 of 'twenty 'twenty 1.

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

Adjusted EBITDA was $5.3 million in Q2 of 2021, which was up 550000 or 11, 5% compared to Q2 of 2020.

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

When combining our unused $10 million line of credit with our existing cash on hand of $19.3 million, we have over $20.29 million of liquidity to support our ongoing operations and our growth strategy.

It's also worth reminding folks that we have $100 million shelf registration in the event, we need to access the capital markets to execute our growth strategy.

This concludes our update on our second quarter 2021 financial results I will now pass the call to Chris to review, our rate case and strategic initiatives for the quarter.

Thanks, Mike Hello, everyone I will briefly highlight 3 items for you before passing the call back to Ron.

First on.

Our pending rate case before the Arizona Corporation Commission continues as expected.

In the quarter all written pre filed testimony was completed and the hearing starts next week.

The latest rounds of testimony reflect our current position requesting an approximately $3 million revenue increase with staff and Rocco, both recommending and approximately 1 million dollar revenue increase.

As I mentioned earlier the hearing before the administrative law Judge starts next week and is expected to conclude on or around August 20th.

From that point the parties file sets of legal briefs summarizing the case and the administrative law judge dress, what it's called a recommended opinion and order or Roo as it is sometimes abbreviated.

The Commissioners will then review the judge's recommendation and issue a final order.

We estimate the commissioners to review the rule in Q4 with new rates to be implemented on or around January 1.2022.

Finally, as we previously stated is important to note that there can be no assurance. However on the outcome on the rate case, the requested rate increase or the timing of any increase.

Next turning to expansion of current service areas and establishment of new service areas.

As you read in our press release and heard Ron referenced we began providing potable water service to Nikola motor Corp's, New manufacturing facility in the city of Coolidge.

This is an impressive achievement as it reflects the ability of our team to execute key projects with short turnarounds.

We originally signed a master utility agreement with Nicola in December 2020, and provided potable water service less than 7 months later on.

Reflection of hard work by our engineering and operations team.

Now our efforts turn to initial discussions on details surrounding the provision of wastewater service to Nicola.

Okay.

As a result of marketing efforts by the developer Saint Holdings, and our ability to quickly deliver for our customers. We expect the inland port, Arizona industrial area to continue receiving interest from new prospective customers.

Returning to our core city of Maricopa utility.

Starting next week anticipate delivering water service to our first construction customer and an area, we refer to as the southwest plant area.

This is approximately 6 miles south as the Crow flies from the center of the city of Maricopa.

The customer a national Homebuilder recently purchased 600 residential lots and plans to begin constructing homes by the end of 2022.

This development has 2 positive implications for our company first it opens another geographic area for future growth.

Second it is the first step in us unlocking the $32 million of infrastructure that is on our balance sheet, but not currently in rates.

We will provide updates over the next year as the project progresses.

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

We are in advanced discussions on several opportunities and hope to have an announcement before our next earnings conference call.

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

Thank you Chris.

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

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. We are privileged 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 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.

These highlights conclude our prepared remarks, thank you.

We are now available to answer your questions.

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There are no questions from the telephone lines. This concludes the question and answer session I would like to turn the conference back over to the presenters for any closing remarks.

Great. Thank you operator.

We'd just like to thank everyone for participating on the call today and for your ongoing interest in global water resources.

And we look forward to speaking with you again soon.

This.

Conclude today's conference call you may disconnect. Your lines. Thank you for participating on behalf of CASM goal.

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