Q3 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, Inc. 2021 third 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 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 November 9th 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.

Yeah.

Welcome everyone and thank you for joining us on todays call yes.

Yesterday, we issued our 2021 third 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 will review strategic initiatives and business development for the quarter Mr.

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 to not 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-Q filed with the SEC 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 again on our website I will now turn the call over to Mr. Ron Fleming.

Thank you Joanne.

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

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

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

First in accordance with our top priority, we continue to perform at an extremely high level unemployed safety and regulatory compliance non recordable incidents.

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

As of today, our staff was only experienced two minor osha recordable incidents and 1436 days.

We have incurred only $2500 and over five years, an osha recordable related incidents.

Resulting in an extremely low loss ratio and experienced modifier or E. Mont.

0.62.

As a reminder, in emon of one is considered to be industry average. So said another way, we are performing 38% better than the industry average.

Which results in lower actual costs and walkman.

Workmen's compensation insurance costs.

Also having incurred no significant compliance violations in the quarter. It is now about 1959 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 health and safety.

And I want to highlight customer growth.

On the organic growth front total active service connections increased eight 6% as compared to the end of Q3 2020, bringing total connections to 51709.

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 up 18% over 2019.

According to local real estate consensus single family permits increased by another 28% in Q3, 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 of Maricopa has already issued 1519 housing permits year to date, a 62% increase over the same period the year prior.

Beyond housing growth in our core existing utilities as noted in our earnings release, we are also making excellent progress on the engineering permitting and construction of new service areas, including for the Nikola Motor Corp project, which we began servicing in the quarter.

And the surrounding future inland port, Arizona 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.

We invested $5 4 million on infrastructure projects during the quarter, bringing our year to date total to 11 8 million.

Those of you those of you who have been following our company for Awhile. 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 is clearly accelerating and in short we stand to benefit from rapid growth throughout our large service areas in Pan now County, and Maricopa County.

Chris Kreger, who 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 our financial highlights.

Thanks, Ron and Hello, everyone.

Total revenue for the third quarter of 2021 was $11 4 million, which was up 647000 or 6% compared to Q3 of 2020.

This increase is primarily driven by the recognition of revenue under infrastructure coordination and financing agreements also known as Ics as.

A more fulsome explanation of ICF as can be found in our quarterly and annual filings.

Shifting back to our water and wastewater services revenue, it's important to note that while we experienced an eight 6% organic connection growth in the quarter. This didn't result in increased revenue during the quarter, primarily due to precipitation and the city of Maricopa, where over 90% or our revenue comes from we experienced seven inches.

A rain in Q3 of 2021 versus 0.3 inches in Q3 of 2020.

Operating expenses for Q3, 2021, or $9 1 million compared to $7 9 million in Q3 of 2020. This is an increase of $1 2 million or 15, 8%.

Notable changes in operating expenses include increased G&A expense by $1 1 million, primarily due to the increases in deferred compensation professional fees and medical expenses.

We also had increased operating and maintenance cost by about 93000, which was primarily driven by those costs that increase as revenue increases.

And lastly, we had increased depreciation and amortization expense by about 44000, primarily due to the increases in our fixed assets.

Now to discuss other income expense other expense for Q3, 2021 was 472000 compared to $1 3 million of expense in Q3 of 2020. This improvement of 791000 was primarily due to a settlement payment received from the city of Buck.

Guy that had not been remitted to the company from an audit as well as an increase connection growth in the Buckeye service area.

Turning to net income global water had net income of $1 5 million or seven cents per diluted share in Q3 2021.

Now to talk about adjusted EBITDA, which adjusts for nonrecurring items, such as the ICF a revenue as well as noncash items such as restricted stock expense adjusted.

Adjusted EBITDA was $5 1 million in Q3, 2021, which was down 474000 or eight 5% compared to Q3 2020. This can be attributed to the reduced revenue due to precipitation and higher G&A expense in the quarter offset by an increased buckeye earn out.

Okay.

Now 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 $21 million, we have over 31 million of liquidity to support ongoing operations and our growth strategy.

Lastly, as you know Congress has passed has approved the $1 two trillion dollar infrastructure Bill that now just the weights the president's signature to finalize.

Based on our understanding of the Bill all contributions and advances that we receive from developers and homebuilders will no longer be taxable income with all the development activity in our growing service areas. This has positive cash flow implications to us that we wanted to highlight for you.

Yeah.

This concludes our update on the third 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.

As Ron mentioned earlier I'll provide an update on our ongoing rate case and acquisition activity.

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

Since our last conference call, we completed the administrative hearings and written legal briefs portion of the rate case.

The final positions of the parties reflect the following.

Our current position requesting an approximately $3 million revenue increase commissions.

Commission staff recommending an approximately $2 million revenue increase in the residential utility consumer office recommending an approximately $1 million revenue increase.

The next step in the process is for the administrative law judge to draft. What is called a recommended opinion and order.

The Commissioners will then review the judge's recommendation for consideration and issuing a final order.

We estimate the commissioners to review a recommended opinion and order in Q1, 2022 with new rates, if any to be implemented on or around April one 2022.

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

Turning to acquisition activity.

As you saw in our press releases issued on September 22nd in November 3rd we acquired last keen to Serena <unk> water company and.

And approximately 1100 connection water utility south of Tucson.

It is in close geographic proximity to our other two the other utilities, we own in the area and future service areas.

This is our largest acquisition since 2018 Red rock deal and provides a solid anchor to continue consolidating additional utilities in the area. We are excited to welcome the employees of <unk>.

Customers and the community and to the global water family.

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 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 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 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 any questions.

Thank you. So we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you'll hear a tone acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing any teeth to withdraw your question. Please press Star then two.

Once again to join the question queue. Please press Star then one now.

Should you have a question. Please press Star then one.

As there are no questions. At this time. This concludes the question and answer session I would like to turn the conference back over to Mr. Fleming for any closing remarks.

Thank you operator.

I'd like to thank all those participating in the call today for your interest in global water resources. Thank you and we look forward to speaking with you again.

This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

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