Q4 2021 Consolidated Water Co Ltd Earnings Call

Yeah.

Good morning, Thank you for joining us today to discuss consolidated water company's full year 2021 results.

Hosting the call today is chief Executive Officer of consolidated water company, Rick Mctaggart, and the company's Chief Financial Officer, David Sasnett.

Following their remarks, well open the call to your questions.

At any time during the call you made during the Q&A queue by pressing star one on your key.

Before we conclude today's call I'll provide some important cautions regarding the forward looking statements made.

It made by management during the call.

I'd like to remind everyone that today's call is being recorded and will be made available for telecom replay via instructions in yesterday's press release, which is available on the Investor Relations section of the company's website.

Now I'd like to turn the call over to consolidate waters company CEO , Rick Mctaggart, Sir. Please go ahead.

Thank you Anthony good morning, everyone. Thanks for joining us on today's call as.

As you saw from our earnings release yesterday, 2021 was a challenging year for the company due to the impact of the pandemic on certain areas of our business.

While our retail and manufacturing segments performed below historical levels, we made progress growing our business in other areas on.

On the call today I'd like to talk about what produce these results and the foundations we continued delay.

To support our future growth and expansion.

Last year, a big bulk segment was our biggest revenue contributor and biggest incremental revenue contributor in Greece, increasing $2 5 million compared to 2020.

Our services segment was our second biggest incremental revenue contributor by $947000.

While our manufacturing revenue declined during the year due to adverse economic conditions and retail revenue declined due to the cessation of tourism in Grand Cayman during the pandemic the.

The challenges and opportunities presented to us during this period further validated the importance of diversifying our manufacturing segment revenue by expanding our geographic presence and customer base.

In 2021, we successfully integrated our sales team across four business segments led by our recently promoted executive Vice President of business development, Mr. Brent Brody.

We expect our manufacturing segment to strengthen this year supported by our integrated sales team, which is leveraging the relationships and excellent reputation that PERC has developed over many years with potential customers and engineering advisors in the southwestern United States.

This integrated sales approach is providing opportunities for Eric to pursue projects in this water short area of the country. In addition to its primary sales market in Florida.

And on the desalination side of the business. Our manufacturing segment is fully integrated and three projects that we're pursuing in.

In Hawaii, California in Grand Cayman.

We believe that having Eric is design and manufacturing capabilities in house makes us more competitive on these three important projects each of which includes design construction and long term operation of seawater desalination plants were municipal customers.

Our retail segment with operations in Grand Cayman.

Continued to be adversely impacted by the pandemic during 2021.

We operate four seawater desalination plants that produce pipe drinking water for a retail utility business and another three seawater desalination plants, where our bulk water customer in Grand Cayman in total we produce all of the pipes drinking water on Grand Cayman, which is home to about 95%.

The country's population.

We are extremely encouraged by recent easing of COVID-19 restrictions.

And the return of tourism to the Cayman Islands as the country's phase five reopening plan continues.

In fact, we've already seen a 7% increase in water sales in our retail service area. During the first two months of 2022 as compared to the same period last year.

And with just about a day left in March we've already produced almost 15% more water.

Then in March 2021.

Just last week, the Cayman Islands welcome back its first cruise ship in two years the Disney Magic.

It is a first of a series of ships scheduled to visit Grand Cayman over the next months.

Yeah.

Naturally we expect the resurgence of tourism to help our retail water sales returned to normal levels over the coming months as hotels and businesses begin to serve the thousands of tourists and vacationers coming back to the islands.

Now before I talk a little more about the year and the outlook for 2022 I'd like to turn the call over to David who will take us through the financial results for the year.

Thanks, Rick and good morning, everyone. Thanks for joining us today.

As Rick mentioned, we are encouraged by the easing of travel restrictions, but we continue to face significant challenges as a result of the current economic environment.

By these challenges we maintained our strong financial foundation as we pursue new opportunities and we have continued to pay dividends.

Yesterday, we issued our earnings release for 2021, which is available in the investors section of our website.

We reported that revenue totaled $66 9 million for our 2021 fiscal year, which is a decrease of seven 9% 2020. This decline reflects decreases of 847000 retail segment revenue and $8 4 million in manufacturing segment revenue.

This decline was partially offset by an increase of $2 5 million and our bulk segment revenue and 947000 in our services segment revenue.

The reduction in our retail revenue represents a 4% decrease in the volume of water sold by Cayman water.

This is due to the closing of Grand Cayman Island to all tourism back in March 2020.

In response to the COVID-19 pandemic.

The decrease in our manufacturing segment revenue was due to the loss of orders from Eric's former largest customer and.

And we've discussed this in previous calls and in our public filings Ericsson's made efforts to replace this revenue generated from this customer with new revenue from existing and new customers. However, this effort has been adversely affected by continuing negative economic conditions. For example, we are experiencing an increasing raw material.

Cost raw material shortages and extended delivery times for our raw materials.

We believe these same factors have also adversely affected the overall financial condition of Eric's as current and prospective customers.

We'll go into detail about Eric as key strategic initiatives later on in this call.

The increase in our services segment revenue was due to an increase of approximately $3 2 million from operating and maintenance contracts attributable.

To new customers, which helped to offset a plant excuse me, which helped offset plant.

Construction revenue, which declined during.

During the year.

The increased our bulk segment revenues attributable to an increase in energy costs for CW Bahamas.

Which increased the energy pass through component of CW Bahamas rates in the.

The increase is also due to a lesser extent by a 5% increase in the volume of water sold by the CW Bahamas.

Our gross profit for 2021 was $23 5 million or 35, 2% of revenue as.

As compared to $26 8 million or 36, 9% of revenue in 2020.

Our net income from continuing operations attributable to consolidated water stockholders for the full year of 2021 was $3 4 million or <unk> 23 per basic and diluted share that's compared to net income of $8 6 million or <unk> 56 per basic and diluted share for 2020.

Total net income attributable to consolidated stockholders.

Full year 2021, which includes the results of discontinued operations was 876000 or six cents per basic and fully diluted share. This was down from net income of $3 7 million or <unk> 24 cents per basic and fully diluted share.

<unk> for the previous year.

I'd like to speak briefly about our balance sheet now.

Our accounts receivable balances related to our CW Bahamas business.

Totaled $21 5 million at the end of 2021, which was up from the $16 8 million at the end of the previous year. These receivables due from the water and sewage corporation of the Bahamas.

Last month, we received correspondence from the Ministry of Finance that the government of the Bahamas as set forth a payment schedule, providing for the gradual reduction over the course of 2022 of CW Bahamas delinquent accounts receivables due from the water and sewage Corporation.

Such correspondence also indicated that the government intends to return all of CW Bahamas accounts receivables from the water and sewage corporation to current status.

We appreciate the government's renewed focus on paying CW Bahamas receivables given the economic impact depending demick has had on the Bahamas, it's important to remember that the Bahamas government is always eventually paid 100% of <unk> receivables and that we have never been required to record an allowance for doubtful accounts.

While our CW Bahamas receivables.

As of December 31, 2021, our cash and cash equivalents totaled a healthy $44 million or working capital exceeded $69 million our debt was only 200000.

Stockholders' equity attributable to the CW.

Bahama excuse me C difficile shareholders totaled $157 6 million.

So this completes my financial summary, I'd like to turn the call back over to Rick now.

Thank you David.

One of our key strategic initiatives has been to build out a more diversified book of business for Air X.

For those unfamiliar <unk> is a custom and specialty manufacturer of water treatment related systems and projects. It also provides design engineering management operating and other services applicable to commercial municipal and industrial water production.

As I mentioned earlier in the call we fully integrated our sales team across our business segments. In 2021. This is particularly benefited air X by further diversifying its client base and geographical market.

As we reported last year are Eric sales team has been focused on developing and redevelop in relationships with large engineering consultants and general contractors, who provide data and design and construction services to the municipal water market.

In 2021 about 77% of our manufacturing revenues came from various municipal water projects.

The municipal water market is cyclical and while bidding activity for municipal equipment supply has slowed in recent months after a strong post COVID-19 burst of activity.

<unk> is maintaining a much stronger contracted orders backlog than this time last year.

Yeah.

Unfortunately like many companies over the last several months <unk> has been adversely affected by supply chain challenges, including material shortages price increases and logistical delays that have impacted it.

<unk> manufacturing processes.

Certain municipal orders that we had expected to be completed in the last half of 2021.

Pushed into this year and we are now seeing about $2 6 million of orders pushed into next year 2023.

In response to these challenges Eric's engineers are working with suppliers and customers to find solutions to avoid these delays by implementing design changes <unk> substituting equipment and materials, while all the time, ensuring that our products meet or exceed customer requirements.

We've also been working on other areas to expand our product offerings and presence in the U S and as you know in October 2019, we acquired a controlling interest in PERC Water Corporation and award winning water treatment and reuse infrastructure provider and manager.

It currently operates primarily in the western United States.

PERC expands our service offerings as well as provides us with a new platform in the western United States for expanding our core business of designing constructing and operating water desalination plants.

And as I mentioned earlier, we're currently pursuing three projects two of which are in the western United States.

PERC is seeing increased bidding activity in primary markets for new plants and asset management contracts and they are currently pursuing more than a dozen potential design build and asset management projects.

<unk> has developed an excellent reputation with municipalities and developers in the southwest as a company that delivers design build water treatment projects on time and at the most competitive cost.

Yeah.

<unk> unique custom design report, where ctr offering provides potential clients with a 20% design plus a not to exceed construction cost estimate, which the client can use for planning in comparison with other project delivery models.

<unk> provides clients with a single point of responsibility for design construction and commissioning of municipal water treatment projects.

By comparison other project delivery models typically used in municipal projects.

Such as design bid build.

<unk> multiple points of responsibility for design construction commissioning et cetera.

Ultimately increases the cost of the project to the client.

Purpose of innovative wastewater treatment plant design features minimal land use neighbor friendly facilities maximum noise and odor control and maximum cost efficiency once.

Once the plant is commissioned PERC is also able to operate the plant using its highly skilled workforce of licensed operators.

Yeah.

<unk> currently operates two of the most advanced water reuse plants in California for the water replenishment district in Los Angeles.

A combination of perks in consolidated's unique experience operating complex membrane based water treatment plants permits us to pre qualify to bid for similar new projects and operating contracts.

Our plan to expand service revenues in the wastewater reuse market is supported by our strong balance sheet and growing pipeline of potential projects.

Now looking at our international operations.

Outside of the United States as I mentioned earlier, the easing of the COVID-19 restrictions and the return of tourism to the Cayman Islands has been very encouraging to see after many months of Lockdowns and travel bans.

On February 18th the Cayman Islands government dropped all on island Covid testing for vaccinated travelers and they no longer require post arrival COVID-19 tests per fully vaccinated travelers.

Quarantine period for partially vaccinated and unvaccinated individuals was also reduced from 10 days to seven days.

The government significantly increase the occupancy limits on gatherings, which.

<unk> the return of conferences and conventions to the islands.

Fact, I know one of my friends is actually attending a conference in May there. So.

In addition to the return of cruise ships to the island major Airlines, including American Delta Southwest and United have resumed their flight routes to <unk> earlier this month.

So as a result of these positive indicators, we see our retail water sales returning to normal levels over the coming months as hotels restaurants, and other tourism related businesses return to service the island's visitors once again.

In fact, as I mentioned earlier in the call we have seen.

Our retail water sales increased by 7% in January and February compared to last year and in production is actually up by 15% So far in March.

We are also seeing the potential for expansion of our business on the island.

In January we submitted a multimillion dollar bid to design build and operate a new $2 6 million gallon per day desalination plant in Grand Cayman for the government owned water utility, we anticipate we anticipate hearing the results of that bidding process.

By the middle of next month.

Our Bahamas operations through our Bahamas government customer supplies all of the pipe water on the island of New Providence, Bahamas, and New Providence is the most populous island in the Bahamas with about 275000 residents.

Or 70% of the country's population.

And this includes Nassau and cable beach.

Nassau is a political capital in commercial hub of the Bahamas.

We're seeing a rapid return of tourists to the Bahamas, and although higher tourism numbers don't necessarily translate the higher water sales for us It does bode well for the overall financial health of the Bahamas since a significant part of the Bahamian economy and tax base is directly.

Pendant on tourism.

And as David mentioned, our receivable receivable balance in the Bahamas is still high but we recently received assurances from the highest levels of government that the balances will be brought current by early 2023.

So in closing, we believe that our management team and board have charted the best course for the company to recover in 2022 from the impacts of the pandemic and to grow our business by focusing on water short regions of the western United States.

We believe that our extensive experience excellent track record and novel approach to designing building and operating both seawater desalination facilities.

And wastewater treatment and recycling plants.

As well as our strong cash position and relatively low overhead burden.

Didn't use to give us the competitive advantage over other companies some of which are much larger than us.

Looking ahead in 2022, we remain very optimistic about our growth prospects. Our optimism is buoyed by the ongoing return of tourism to Grand Cayman and our increased project bidding activity in the U S and internationally, we see these as strong catalyst for growth in 2002.

Two and beyond.

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

We will now begin the question and answer session.

Ask a question you May press Star then one of your telephone keypad.

If you're using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Our first question comes from Steve Pardon Me. Our first question will come from John Bair with ascend wealth Advisors. You May now go ahead.

Good morning.

Hey, John and John .

I was on speaker.

Couple of quick questions Sir.

And Sir as.

You said, if I caught this right about 77% of their business is coming from the muni market and I'm, assuming that most of that is.

Our funds that had already been.

Targeted for for that work.

Is that is that right.

From the municipal.

Yes, I mean.

There are municipal water projects, so for port St. Lucie.

Palm City varies.

Municipal water plants.

Don't know where they are.

Getting the funding for these I mean, we're working through contractors and engineering group on these projects as equipment supply.

Okay.

Where I was going with this is whether or not you're starting to see or have any indication that money.

Money is starting to come in from the infrastructure Bill that might.

Help either open up new projects or.

Fun ones that have been kind of on the table and and kind of just pending that kind of stuff are you seeing or able to tell if youre seeing any impact from that positive impact.

Honestly I am not aware of any specific projects that.

That are tied to that infrastructure bill.

A lot of this work was.

I mean being planned in.

Design and even before that Bill is passed so these are things that they are multi year.

Contracts.

We are involved in so I really can't say with any certainty whether that's helped okay.

We've had general discussions with people.

Relative to our port business.

It seem to lead us to believe that that infrastructure Bill will impact.

The amount of construction Thats done certainly in California, and Arizona and it could be already having an indirect impact we haven't had anybody come to us and say, though this project was the direct result of funding we received from the infrastructure Bill I don't know if you've had enough time to make that kind of impact yet yeah, yeah, and there are a lot of talk about you know.

Getting rid of you know.

Placing lead pipes, and all that kind of stuff and I don't know if that.

Into your into.

And to your repertoire or not or Ericsson's for example, but.

Okay wouldn't impact us.

Okay, and then and then the other another question is okay. At your statement about Eric should become fully integrated.

With the projects. So am I understanding this right that your sales force is not working kind of hand in hand, with the park folks show that Park Windsor.

Our contract or whatever that they will be utilizing eric's products within the design and construction is that.

That's exactly it yet and there are also marketing <unk> products too.

Potential customers that don't necessarily involve Kirk so.

We were able to bid on a project.

In Arizona, we became aware of through our perk sales team so.

We had we had individual sales guys for air X for Kirk and for our legacy businesses and Thats, all sort of been United under.

Under Brent.

Who is running that now so.

<unk>.

Well I mean, I think it's been very effective.

Okay job, where it makes sense, we employee Rx to make equipment for <unk>.

Plants that we will be building.

The exciting part of this is that we now have an Eric sales team through Kirk.

On the western coast of United States and in Arizona.

<unk> Erik has never had the opportunity previously to reach out to those areas of the country.

And we think Eric will be very competitive bidding on projects there as Rick said earlier don't really directly in ballpark, but has the relationships with the customer in context to lead as opportunities to Eric's give them a chance for them. So yes.

Sounds very encouraging.

You've mentioned about.

We're all material demands and so forth pressures there are you seeing anything in the way of.

Personnel issues.

Turnover that kind of thing that's affecting you at all.

No I mean, we.

We're aware of.

The demand for operators for example.

Our <unk> business so.

Our management team has been.

Very attentive to that to make sure that we don't have that sort of turnover.

I think we offer.

Very competitive employment terms, and we want to make sure we stay that way.

On the customer side.

And they seem to be there is a willingness to absorb these extra costs I mean, certainly on projects that we're looking at so something that.

Might have been 20% cheaper two years ago.

The customers are still moving on those projects.

Most of them are lagging.

But let me point out John that our customers are having issues two relative to <unk>.

A number of things so that's why those orders were pushed.

Mentioned was pushed from 2022% to 23, eventually that will settle out and we won't have this issue going forward, but for the short term that's what we have.

A small deferral of revenue from this year to next year.

Very good thanks for taking my questions I'll, let somebody else go forward. Thanks.

Thanks, John .

Okay and then if you have a question. Please press Star then one our next question will come from Ada Petzel with PSP Capital Management you May now go ahead.

Hi, I just wanted to follow up on Eric's topic.

Since they are located in Florida, and Youre trying to be.

Manufacturing for California, and Arizona would you be looking to open a manufacturing facility in the southwest.

No. We don't have any plans for that I think.

The.

The facility, we have in fluke and Florida is completely capable of servicing those.

Those regions just as some of our competitors are actually located in California, and they regularly participate in the Florida market here. So.

We're trying to make it a little bit more uncomfortable for them in their home market.

Paul.

Another question that I had was what.

In your press release, I believe you talked a little bit about.

Yeah.

Acquisitions that your balance sheet is strong.

Candidate that and what would you be looking for in a potential acquisition.

We are looking for.

Well, mainly companies now that would give us an expanded.

<unk> President presidents for our business.

So they would be located in the United States.

Operating companies.

Service wastewater clients that would be additive to perk.

We're not looking to expand.

Our manufacturing business.

From that standpoint, but.

Which is also in the United States, but we are.

Certainly looking at potential opportunities to expand <unk> footprint.

And we're also looking at companies involved in membrane technology, and we're very familiar with that that would perhaps give us.

Access to new markets, there's a number of technologies.

We've looked at over the years, we continue to look at companies that may give us a competitive edge from a technology standpoint.

We've looked at a couple of those recently, we're always interested in enhancing.

The scope of products that we can offer to our existing customers and even getting into perhaps a new market, that's potentially highly profitable because it's a niche market that involves the use of membrane technology.

Yes.

Thank you.

Youre welcome.

Again, if you have a question. Please press Star then one our next question will come from Steve <unk> with Lark Research you May now go ahead.

Okay. Thank you.

I have a question.

If you answer that.

I apologize but.

Can you give us a better perspective on the new plant that is.

Youre bidding on and Cayman is is that going to be additive to the market is it going to replace capacity in the market I presume that water authority is going to operate the plant but.

Maybe I'm wrong about that and you know would you have if I'm wrong would you have an opportunity to bid on the operations of that and then also.

Whereas the plant located I mean does it.

Affect your existing.

Owned plants.

So Steve the projects that we bid on was for was a design build and operate.

Agreement for the water authority.

So it's a 10 year operating tail.

Which is included in the contract there is no financing component so.

If we were successful we would get paid for the plant when it's completed.

The plant is located in Georgetown, which is the government utilities service area. So it would not impact.

Our our service area of our retail business.

And I'm not sure what their plans are on whether this is additive or whether it would.

There is.

An older plant.

In the area that.

There has been some talk of them retiring that but we're not sure what theyre doing.

Uh huh.

Given that.

With the opening back up there's still some uncertainty about what how strong tourism is going to come back I would imagine right I mean, and so I would think that.

They they would they would gauge this plant two.

You know or at least wait to see how.

Strong.

Tourism comes back because that.

Reasonably right or or is it or are they just planning to go ahead with it no matter what at this point.

So the government utilities service area did not experience the declines in demand that we did in our retail area.

The government services the population local population centers.

We service the tourism business on the seven mile Beach, which.

All the big hotels are located within our service area. So.

Yeah.

I presume they need the capacity just based on their normal growth projections.

<unk> have not been skewed by the pandemic.

Compared comparative to our.

Our demand.

Okay, Alright, well great.

That's all I had good luck with your bid.

Okay. Thank you very much Steve.

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

It appears there are no further questions. This concludes our question and answer session I would like to turn the call back over to Mr. Mctaggart. Sir. Please go ahead.

Yeah. Thanks Anthony.

I appreciate everybody joining the call today and.

And I look forward to speaking with you hopefully again.

In may when we release, our first quarter 2022 results.

Thank you.

Thank you, ladies and gentlemen, before we conclude today's call I would like to provide the company's safe Harbor statement that includes cautions regarding forward looking statements made during today's call.

The information that we have provided in 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 revenues future plans objectives expectations and events assumptions and estimates forward looking statements can be identified by the.

Use of the words or phrases usually containing the words believe estimate project intend expect should will or similar expressions.

Statements that are not historical facts are based on the company's current expectations beliefs assumptions estimates forecasts and projections sports businesses.

Industry and markets related business.

Statements made during this conference call are not a guarantee of future performance and involve certain risks uncertainties and assumptions, which are difficult to predict.

Actual outcomes and results may differ materially from what is expressed in such forward looking statements factors that would cause or contribute to such differences include but are not limited to continued acceptance of the company's products and services in the marketplace changes in its relationships with the government or the jurisdiction in which it operates.

The outcome of its negotiations with the Cayman government regarding a new retail license agreement.

The collection of its delinquent accounts receivable in the Bahamas.

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 and Exchange Commission.

For more information about risks and uncertainties associated with the company's business. Please refer to the management discussion.

And analysis of financial condition and results of operations and risk factors sections of the company's SEC filings, including but not limited to its annual report on Form 10-K , and quarterly reports on Form 10-Q .

Any forward looking statement made during the conference call.

As of today's date.

Company expressly disclaims any obligations or undertaking to update or revise any forward looking statements made during the conference call to reflect any changes in it.

And its expectations with regard there to or any changes in it.

Conditions or circumstances on which any forward looking statement is based except as required by law.

Before we end today's conference call.

To remind everyone that this call will be available for replay starting later this evening.

Please refer to yesterday's earnings release for dial in replay instructions available via the company's website at Www Dot CWC O Dot com.

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