Q4 2021 Global Water Resources Inc Earnings Call

Greetings, ladies and gentlemen, thank you for standing by welcome to the Global Water Resources, Inc, 2021 fourth quarter Conference call.

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

During the presentation, we will conduct a question 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.

To remind everyone that this call is being recorded on March 10, 2022 at one P M Eastern time.

Now I'd like to turn the corporate over to Joanne Ellsworth Executive Vice President Corporate Affairs. Please go ahead.

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

Speaking today is Ron Fleming, President and Chief Executive Officer.

Mike Liebman, Chief Financial Officer, and Chris Kreger, Chief Strategy Officer.

Ron will summarize the key operational events of the quarter and year and Mike will review the financial results for the fourth quarter and Chris will review, the strategic initiatives and business development for the quarter.

Ron Mike and Chris 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 S. E C 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 today's earnings release, which is available on our website I will now turn the call over to Ron.

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

We are very pleased to report the results for the quarter and year end of 2021.

2021 was another wonderful year for our company and there are many highlights worth mentioning.

But first I want to thank all of our employees partners and shareholders for their efforts and support that together produced these results.

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

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

Throughout 2021, and even through today, 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 1557 days.

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

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

0.62.

As a reminder, an email 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 worker's comp.

Comp insurance costs.

Also haven't incurred no significant compliance violations in the quarter. It has now been 2080 days since our last significant compliance violation or almost six years.

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

We expanded our footprint with the recent acquisition and successful integration of La Quinta Serena's water company in November of 2021.

The size in close proximity of less Quintus serene as to other utilities made it an ideal addition to our portfolio.

Subsequent to year end, we completed two smaller additional tuck ins and.

Acquisitions in P&L and Pima counties.

Adding another 9.1 square miles of service area to our regional footprint.

Including the C. C N N from these acquisitions and other service area expansion is granted by the ACC at the request of numerous land owners. This.

This means we have added 15.5 square miles of service area to our growing regional footprints.

I now want to highlight customer growth on.

On the organic growth front total active service connections increased 10.2% as compared to the end of 'twenty 'twenty, bringing total active connections to 53882.

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 approximately 31000.

Or 8% compared to 28700 or four in 'twenty 'twenty.

And this number is forecasted to increase to 35030 6000 in 2022 and 2023, respectively.

As local real estate consensus projections indicate.

Specific to our largest service area. The City America issued 1801 housing permits in 2020 , one a 19% increase over the same period in prior year.

This increase is in addition to the 53% housing permit increase in the city of America, but in 'twenty 'twenty over 2019.

So it's worth pausing to note what this data means this data confirms we are getting more and more of the market share of new housing in the Metro Phoenix area based on affordability and availability of land in our utilities.

So we felt if you apply this expanding market share to the forecasted overall housing growth in Metro Phoenix that I previously previously mentioned.

You can get a sense of what may occur in our utilities and the years to come.

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 Court project, which we began servicing last year.

And the surrounding future inland Port Arizona.

Amongst other areas within our large service territories.

Based on the dozens of potential large scale projects coming our way.

There is really a transition occurring from mostly residential rooftops two significant large scale commercial and industrial growth.

It is also 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 $6 5 million on infrastructure projects during the quarter, bringing our year to date total to $18 3 million.

Yeah.

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 a long growth corridors.

This continues to accelerate and in short we are well positioned to benefit from rapid growth throughout our large service areas in Panera County, Maricopa County, and now Pima County.

Chris Kreger will discuss are in process right application acquisition activity and provide an update on ESG later in the call.

Yes.

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 Q4, 2021 was $10 3 million, which was up 600000 compared to Q4 2020. This.

This increase was primarily driven by organic growth and the acquisition of La Quinta Serena <unk> in Q4 of 2021.

Operating expenses for Q4, 'twenty, 'twenty, one or 9 million compared to $8 8 million in Q4 2020.

This is a slight increase of 172000 or one 9%.

Notable changes in operating expenses include increased.

Increased operating and maintenance costs by 260000, which was primarily due to increased personnel and related cost.

Increased depreciation and amortization expense by 91000, primarily due to the increases in our fixed assets.

And decreased G&A expense by 179000, primarily due to the decrease in deferred compensation, partially offset by increases in professional fees and medical expenses.

Now to discuss other income and expense.

Other expense for Q4, 2021 was 728000 compared to $1 1 million in Q4 2020.

The improvement of 419000 was primarily due to growth premiums received from the city of Buckeye.

Yes.

Turning to net income global water had net income of 346000 or two cents per share in Q4, 2021 compared to a net loss of 258000 or one cent per diluted share in Q4 2020.

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

Adjusted EBITDA was $4 7 million in Q4, 2021, an increase of $1 1 million or 39% compared to Q4 2020.

This increase can be attributed to increased organic connection growth combined with an increase in buckeye royalties and lower deferred compensation expense tied to the change in stock price.

Before turning the call over 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 $12 6 million, we have over $22 million of liquidity to support ongoing operations and our growth strategy.

This concludes our financial results and updates I'll 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 acquisition activity ongoing rate case and ESG.

First our rate case process at the Arizona Corporation Commission is still pending.

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 a final decision to be issued in Q2 2022 .

As we previously noted regarding the rate case it is important.

To note that there can be no assurance. However on the outcome of the rate case, the requested rate increase or the timing of any increase.

Second turning to acquisition activity.

As you heard earlier a highlight of 2021 was our closing of the La Quinta Serena's water company acquisition.

Representing over 1100 water connections La Quinta Serena is in close proximity to other utilities, we own and future service areas.

Lots can't this arena is our largest acquisition since our 2018 Red rock transaction and provides a solid anchor to continue building economies of scale in the area.

We are excited to welcome the employees customers and community into the global water family.

The acquisition integration continues as expected with our team deploying many of our operations engineering and back office best practices that have made us so successful in our other communities.

Additionally, as you saw on our press release issued on January 24th of this year, we closed on the acquisitions of twin Hawks, and RIN con water companies.

It is exciting to reflect upon our acquisition campaign with the closing of La Quinta Serene us twin Hawks and rent com.

We successfully acquired and integrated seven utilities over the last two years.

This reflects our continued success sourcing and closing and integrating acquisitions that allow us to continue growing our company, while simultaneously benefiting customers and the community through our expertise.

We continue evaluating additional acquisition opportunities.

Finally, I'll provide an update on our environmental social and governance activity, commonly referred to as ESG.

Over the past year, we retained two separate consultants to assist our team and incorporating more ESG elements into our business.

Our company has a great story to tell on various aspects of ESG.

For example, our environmental leadership on water resources has won numerous awards in our company's history.

Second we actively participate in our community through volunteer organizations and donations to charitable groups.

And finally as you heard Ron discussed earlier, our focus on compliance and safety is our top mandate and our track record speaks for itself.

We look forward to providing further updates on our ESG efforts in the future.

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.

So 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 a great utility partner for the communities, where we have the privilege to serve.

And to pursue expansion through organic growth acquisition, 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.

While advancing our commitment to ESG.

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 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 we will now begin the question and answer session joined.

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There are currently no questions in the queue I would like to turn the conference back over to Ron Fleming for any closing remarks.

Thank you operator.

Just want to thank everybody for participating on this call today and for your interest and ongoing support of global water.

Thanks, and we look forward to speaking with you again.

Yes.

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

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