Q1 2022 Global Water Resources Inc Earnings Call

Greetings, ladies and gentlemen.

Thank you for standing by.

Welcome to the global Water Resources, Inc. 2022 first quarter conference call.

At this time, all participants are in 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 5th 2022 at one P M Eastern time.

I would now like to turn the conference over to Joanna Ellsworth Executive Vice President Corporate Affairs. Please go ahead.

Welcome everyone and thank you for joining us on today's call yesterday, we issued our first quarter 2020 to financial results by press release, a copy of which is available on our website at www Dot G. W 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 first quarter and Mr. Kreger will review strategic initiatives and business development for the quarter.

Mr Fleming, Mr. Li and Mr. <unk> 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 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 see 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.

Such filings are available at Www Dot FCC 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 Ms. Fleming.

Thank you Joanne.

Morning, everyone and thank you for joining us today.

We are very pleased to report the results for the first quarter of 2022.

2022 is off to a positive start for our company and there are many highlights worth mentioning.

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'll 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.

For the three months ended March 31, 2022, and even through today, we've experienced no recordable events injuries or expenses related to employee safety.

And as of today, our staff is the only experienced two minor osha recordable incidents and 1732 days.

We've incurred only 2500 inexpensive and over five years, an osha recordable related incidents.

Resulting in an extremely low loss ratio and experienced modifier or E. Mod a 0.63.

As a reminder, an email one is considered to be industry average. So said another way, we are performing 37% better than the industry average, which results in lower actual costs and workman's comp insurance costs.

We have only incurred one significant compliance event in 2229 days, which is almost six years.

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

Okay.

We expanded our footprint in Q1 2022 by acquiring the assets of Marine Con water company.

With a service area and <unk> County, Arizona, and twin Hawks utility with a service area in Pima County, Arizona.

The acquisitions added a total of 91 connections and approximately 9.1 square miles of service area to our regional and growing footprint.

On April 18, 2022, we announced that we signed a definitive agreement to acquire farmers water company, a water utility with service area located in Pima County, Arizona.

Subject to customary closing conditions and the Arizona Corporation Commission approval.

The acquisition when completed would add approximately 3300 active water service connections.

And approximately 21 five square miles of service area.

Yes.

I now want to highlight customer growth with total active connections growing by nine 7% of which seven 1% was organic growth and two 6% was primarily related to our acquisition of La Quinta Serena's.

When compared to.

The end of Q1 2021.

This brings our total active connections to 55012.

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.

9329 in Q1 of 2022, a seven 3% increase compared to 8692 in Q1 of 2021.

And this number is expected to remain strong throughout 2022 and forecasted.

<unk> to be approximately 36000 in 2023.

His most recent local real estate consensus projections indicate.

We are also making excellent progress on the engineering permitting and construction of new service areas, which includes the Nikola Motor Corp, manufacturing facility and the surrounding future inland Port, Arizona amongst other areas in our large service territories.

We believe that we will continue to see large scale commercial and industrial growth. In addition to our strong organic housing growth.

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

We invested $6 2 million in infrastructure projects during the quarter to continue to fulfill our ongoing commitment to strategic capital expansions.

Those of you that 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 and build utilities in the path of growth along growth corridors.

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

Chris Krueger will discuss are in process right application and acquisition activity in more detail 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 Q1, 2022.

It was $10 million.

Up by eight 3% compared to the same period in 2021.

This increase was primarily driven by organic growth combined with new connections associated with the acquisition of La Quinta Cerritos in Q4 of 2021, which together reflect a nine 7% increase in active service connections year over year.

Operating expenses for Q1, 2022, or $8 7 million compared to $8 2 million in Q1, 2021 the.

The increase was primarily attributable to increased general and administrative expenses related to acquisition costs and increased depreciation and amortization costs tied to our capital improvement plan.

Now to discuss other income and expense.

Total other expense for Q1, 2022 was 131000 compared to $1 3 million of expense in Q1, 2021.

The improvement of $1 2 million was primarily attributed to the $1 1 million Buckeye gross premium received.

Turning to net income.

The water had net income of 889000 or four cents per diluted share in Q1 2022 compared to net loss of 217000 in Q1, 2021 or one cent per diluted share.

The 1 million $1 1 million increase was primarily attributed to the increased operating income driven by connection growth as well as the decrease in total other expense due to the Buckeye growth premium.

Now to talk about adjusted EBITDA, which adjusts for nonrecurring items and noncash items, such as restricted stock expense.

Adjusted EBITDA was $5 2 million in Q1 of 2022, an increase of $1 6 million or 45, 2% compared to Q1 of 2021 the.

The increase was primarily driven by an increase in revenue from new connections and higher Buckeye growth premiums slightly offset by increased professional fees associated with acquisitions.

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 $11 1 million, we have over $21 million of liquidity to support ongoing operations and our growth strategy.

This concludes our financial results and updates 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 is still pending.

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

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

We estimate a final decision to be issued in Q2, 2022 with any potential rate change to be implemented thereafter.

As we previously stated 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 saw on the press releases and heard Ron mentioned earlier in the quarter, we successfully closed the asset acquisitions of twin Hawks and rent com.

The operations and engineering teams are now hard at work implementing and integrating these utilities into the global water family.

Additionally, as you saw in our press release issued on April 18th of this year.

We signed a definitive agreement to acquire farmers water company a subsidiary of farmers investment company located in Pima County, Arizona.

Bob.

Farmers is our second acquisition in the summer he took community just south of Tucson.

The transaction complements our previous acquisitions of loss Qantas arenas in 2021 and our 2018 Red rock deal, which included two service areas just to the northeast Asahi tub.

The combination of loss Quintus and farmers would represent over 4000 active active connections in the summer he to area.

In terms of next steps for farmers. We are focused on two efforts first due to the size of the utility the acquisition requires a C. C approval and thus were preparing the application and supporting documentation.

Second we began the transition integration process, focusing on such activities as billing system installation customer service planning and seamlessly onboarding employees.

Finally, we estimate closing the farmers acquisition in the first quarter of 2023.

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

Thank you Chris.

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

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 and.

And 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 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 we will now begin the question answer session to.

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

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As there are no questions from the phone lines at this does conclude the question and answer session.

I would now like to turn the call over to Ron Fleming for any closing remarks.

Yeah.

Great. Thank you operator I.

I would like to thank all of you for participating in our call today and for your ongoing interest in global water.

So we look forward to speaking with you again.

Yeah.

This concludes the conference call you may disconnect your lines. Thank.

Thank you for participating and have a pleasant day.

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