Q1 2022 Consolidated Water Co Ltd Earnings Call
Good morning, Thank you for joining us today to discuss consolidated water company's first quarter 2022 results.
Hosting the call today is the Chief Executive Officer of consolidated water company.
CAGR and the company's Chief Financial Officer, David Sasnett.
Following their remarks, we'll open the call to your questions.
Any time during the call. He may join the Q&A queue by pressing Star then one on your telephone keypad.
Could you need operator assistance, Please press star zero to some the operator.
Before we conclude today's call I'll provide some important cautions regarding the forward looking statements made by management during the call.
I'd like to remind everyone that today's call is being recorded and it will be made available for telecom replay instructions in yesterday's press release, which is available in the Investor Relations section of the company's website.
Now I'd like to turn the call over to consolidated water company's CEO Rick Mctaggart. Please go ahead Sir.
Thank you Chad and good morning, everyone. Thanks for joining us today.
As you saw in our earnings release issued yesterday evening, our first quarter of 2022 shared great improvements across three of our four business segments, specifically, our retail bulk and services segment.
Unfortunately, the results of our manufacturing segment came in below last year's levels, largely due to adverse global economic conditions, including but not limited to increasing raw materials prices, increasing human resource cost tight labor markets and.
And extended an unexpected delays in the procurement and delivery of raw materials and equipment.
We believe these global visa adverse global economic conditions have also resulted in product order delays from our existing and prospective customers.
However, as I mentioned, we made strong progress in other areas of our business that bodes well for our future results.
Our total revenue for the first quarter increased 14% to $19 6 million. This top line growth helped to increase net income from continuing operations attributable to our stockholders by 79%, reaching $2 3 million or <unk> 15 per share.
Our retail segment revenue increased by 600 to 2000.
Which was the result of increased tourism activity due to the easing of travel restrictions to Grand Cayman.
Vaccinated travelers, which occurred earlier this year.
Our bulk segment revenue increased by $1 1 million.
Bulk segment operating income increased by 638000.
Our operating or sorry, our services segment revenue increased by $1 2 million with operating income up for that segment by 231000.
During the quarter, we announced two major contract awards.
First award was to our California based subsidiary PERC water to design, an advanced wastewater recycling facility in Goodyear, Arizona.
This project is progressing as planned.
Positively impacted this past quarter's financial results.
This win also gives us the opportunity to negotiate with the client to construct the facility.
The second project win was awarded tests provide manufacturing and installation services for the refurbishment of the 20 million gallon per day groundwater treatment facility in Florida.
Port St. Lucie. This project is ongoing but has been delayed due to site conditions.
This could result in.
And expanded project scope for us with these sites.
Site condition changes.
We believe our in house manufacturing capabilities also provided us the competitive advantage and our recent bid for a project to design build and operate a new 626 4 million gallon per day seawater desalination plant in Georgetown Grand Cayman.
Earliest earlier this week, we announced that we were awarded this project, which we expect to generate about $20 million in revenue over the 11 and a half year term of the contract.
The majority of this revenue is expected to be generated by the construction and sale of the plant to our client during the first 18 months.
Winning this contract was the result of our many years of experience designing building and operating some of the most energy efficient seawater desalination plants in the world, We believe the energy efficiency.
We bid was key in our win for this project.
We believe desalination is key to alleviating global water scarcity, and especially in the area southwestern United States, where they need to take immediate steps to diversify their shrinking water sources by implementing drought proof water resources like desalination.
Water scarcity is also pressing international concern. According.
According to the World data labs water scarcity clock too.
Two 4 billion people are currently living in water deficient regions and experts predict that this will reach $2 7 billion by 2030.
Now before I talk more about our progress across our business segments and the outlet outlook for 2022.
To turn the call over to David who will take us through the financial details for.
For the quarter.
Thanks, Rick and good morning, everyone.
And thanks for joining us this morning.
Yesterday, we issued our earnings release for the first quarter of 2022, which you can find.
Or the investors section of our website.
Looking back over the quarter, we were encouraged by the return of tourism to the Cayman Islands via Air and Sea and the improvements we showed in two of our other business segments.
However, our manufacturing business continues to face significant challenges as a result of the current economic.
<unk> around the world, most notably rising cost and supply chain constraints.
But despite these challenges we have maintained a strong financial condition as we pursue new opportunities and we've continued to pay meaningful dividends.
We reported net revenue totaled $19 6 million in the first quarter of 2022, an increase of 14% from the same year ago period.
The growth reflects increases of 600 in 2000, and our retail segment revenue $1 1 million in our bulk segment revenue and $1 2 million in our services segment revenue.
This was partially offset by a decrease of 455000 in manufacturing segment revenue.
As Rick mentioned the increase in our retail revenue was due to the resumption of tourism.
In the Cayman Islands last quarter. This generated an 8% increase in the volume more so by Cayman water subsidiary and we would hope and expect that over the course of 2002, we will continue to report increases in the volume of water sold by our retail segment. When you compare it to 2021 and 2020.
And eventually we expect the tourism levels in Grand Cayman to report return to normalcy, we just don't know when that will be but hopefully sooner rather than later.
The increase in bulk segment revenue was attributable to the higher energy pass through charges to our customer the water and sewage corporation in the Bahamas, which were caused by higher costs for electricity and fuel that we use to power our desalination plant.
Yeah.
Bulk segment revenues increased to a lesser extent due to a 6% increase in the volume of water sold to our customer in the Bahamas.
The increase in our service segment revenue is attributable to revenue from new design build projects.
And operating contracts.
The decrease in manufacturing segment revenue was due in part.
Two.
Contract delays requested by certain customers as well as the continuing unexpected delivery days are wrong delays of raw materials and equipment.
Our gross profit for the first quarter of 2022 was $7 1 million or 36, 5% of revenue.
This compares to $6 1 billion or 35, 8% of revenue in the same year ago period.
Our net income from continuing operations attributable to stockholders.
Consolidated water for the first quarter of 2022 was $2 3 million or <unk> 15 per basic and diluted share.
This is up from net income of $1 3 million or eight cents per basic and diluted share.
For the same quarter of 2021.
Net income attributable to consolidated water stockholders for the first quarter of 2022, which includes the results of discontinued operations.
It was $1 7 million or <unk> 11 per basic and fully diluted share.
This is up from net income of 999000 or six cents per share.
The first quarter of 2021.
Moving from our results of operations to our balance sheet, our accounts receivable balances related to our CW Bahamas business amounted to $21 2 million.
At March 31, 2022, this was down slightly from the $21 5 billion at.
At the end of 2021.
These receivables are due from the water and sewage corporation of the Bahamas.
Historically, all delinquent accounts receivable from the water and sewage Corporation had been paid in full to us, including the interest we charge on those receivables in.
In February of this year, we received a payment schedule from the Bahamas government.
Pursuant to which the government plans to reduce CW behind us delinquent accounts receivables.
Course of 2022, where the attention of eventually bringing all the seed gave me Bahamas receivables from the water and sewage corporation to current status.
As of March 31, 2022, our cash and cash equivalents totaled $43 1 million working capital was $70 9 million, we had debt of only around $200000 in our stockholders equity totaled $158 2 million.
So with this I'd like to turn things back over to Rick.
Thanks, David.
As I mentioned earlier, we were awarded a contract in January by the city of Port Port St. Lucie, Florida to replace membrane elements and upgrade equipment at the cities 20 Mgd.
J Anderson reverse osmosis water treatment plant.
We believe this project.
Bolted from our efforts to enhance and expand our municipality relationships.
And particularly with consulting engineers that advise these municipalities. This as part of our diversification exercise for for Air X <unk>.
During the quarter, we continued to diversify our manufactured products customer base and leveraged our sales teams across our four business segments.
We expect this integrated sales approach will further support the <unk>.
Suffocation of our manufacturing segments client base.
And geographical markets.
Our in house manufacturing expertise and capabilities gave us a significant competitive advantage in our bid for the just awarded Red Gate seawater desalination plant and advantage, we can utilize in future bids for contracts across all of our business segments.
Our services segment led by our PERC water subsidiary continues to see increased project opportunities and strengthening markets and.
During the quarter, we took steps to aggressively pursue potential new projects.
In business activity and perks primary markets for infrastructure construction contracts and operations agreements has picked up and PERC is currently pursuing more than it does in potential design build projects and operations contracts.
The sales and marketing cycle for design build projects is usually lengthy so it may be a while before we know the outcome of some of our current marketing efforts.
It is important to note that some of the projects. We are pursuing are not in response to a tender process, but instead involved the preparation and submission to the perspective clients have a customized design report, which we referred to as a C. D. R.
We believe Perth Ctr process provides us with a unique competitive advantage as it gives the customer.
Guaranteed solution for their water problems at a guaranteed maximum price, resulting in the most cost efficient cost effective and efficient methodology for addressing their water treatment and reuse needs.
You can go on perks website, they talk more about the CD ours and provide more detail.
Earlier, I mentioned PERC had won a major contract in January .
To design and advanced water reuse facility in the city of Goodyear, Arizona.
This facility will address the increasing demand in our client service territory and Goodyear in Litchfield Park is both cities have experienced significant residential and commercial growth over the past decade.
The new facility will help our clients to provide additional reclaimed water or other beneficial uses such as irrigation, which will offset and conserve millions of gallons of potable water for human consumption and domestic purposes.
Our plans to expand our service revenues in the wastewater reuse market as supported by our strong balance sheet and a growing pipeline of potential projects.
Looking at came in the Cayman Islands, we are very encouraged by the return of tourism to the Cayman Islands as a company or the countries reopening plan continues in February the Cayman Islands government dropped all post the arrival of COVID-19 tests for fully vaccinated.
Travelers, citing a decline in local infection cases, and the quarantine period for partially vaccinated or unvaccinated individuals.
This was reduced from 10 to seven days.
Hopefully eventually that will go to zero.
Several major airlines resumed their flights to the islands and cruise ships were welcome back in March of 2022.
As David mentioned, we expect.
The resurgence of tourism to help our retail water sales returned to normal levels over time.
As hotels and businesses continue to serve the thousands of tourists and vacationers that are returning to the Cayman Islands.
Now turning to our Bahamas operations as many of you know.
Our CW Bahamas operations through our client the water and sewage corporation in the Bahamas supplies.
The majority of the pipe water on the island of New Providence Bahamas.
Which includes Nassau.
The Bahamas largest city in political capital and commercial hub.
New Providence is also the most populous island in the Bahamas with about 275000 residents or 70% of the country's population.
We anticipate our bulk business will continue its stable and profitable performance.
And with the return of tourism to the Bahamas, and the resulting significant increase in economic activity.
We now see new potential opportunities.
To expand that business as water demand grows.
In new provenance and in the family Islands.
Given the overall strong progress in our first quarter, we remain very optimistic about the future of consolidated water.
We offer our customers decades of experience and excellent track record and efficient and cost effective approaches to designing building and operating both seawater desalination facilities and wastewater treatment and recycling plants.
Combined with our strong.
Financial position low cost operating structure and inherent synergies between our four operating.
Segment, we believe we enjoy numerous competitive advantages as we pursue new opportunities and growing market.
And now I'd like to open the call up to questions Chad.
Thank you Sir we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre 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.
And the first question will be from Jerry Sweeney Some Roth capital. Please go ahead.
Hey, good morning, Rick and David Thanks for taking my call.
Good morning, Jeremy Jeremy.
Came in retail you mentioned that it was I think volumes were up 8%.
What is volume relate to current volume relate to what it was pre pandemic, obviously, we're sort of trending back up but I want to see it potentially how much further volume needs to come.
Come back to sort of get back to a normalized level.
Yeah, I mean, we're still down.
Quite a bit I think.
Last the last year, we were down about 20% from pre pandemic levels.
But just 25% and seven months yeah. So.
So we still have ways to go back to them.
To get back however, recognize that the changes that the.
The government made to travel easing travel restrictions and that sort of thing.
We're sort of halfway through the quarter first quarter. So okay.
No I would expect the second quarter to be better and then the summer is usually a little slower, but then when you get to the fourth quarter of this year, we should.
We should be back on track I would think.
No.
At least from the standpoint of the number of tourists that are coming and the other thing to keep in mind is the.
The the revenues that we lost were from our.
Higher rate customers. So all of the hotels in commercial properties pay a higher rate than the residential users too.
It's sort of a.
A multiplier effect there on the dollars that we'll see come back.
You know for that additional water that we're selling.
Got it.
Thanks.
Helpful. Thank you.
And then you talked about the Bahamas.
Well, maybe higher volumes coming through there or higher.
More of an opportunity I'm not sure exactly how you phrased it.
But is that higher volume.
Would that translate into higher volume for your facility or translate into maybe even an opportunity for an expansion of your I think it's blue hills facility or even.
Adding additional facilities to the BOP.
Yeah, I mean, the Blue Hills plant is pretty much operating at.
Full capacity.
We see the.
No the growth potential there.
As significant.
So it could involve.
Expanding those plants at some point.
The Windsor plant, which was the sort of the newest one there.
We have a little bit of.
Additional capacity I think that we could get out of that by doing some modifications.
But once they get.
Past that level, then you're talking about building new plants and that sort of thing. So that's what we're hoping the result will be you know in.
In the future that they will oh needless to expand those plants.
Jerry they're taking every gallon that we can produce from Blue Hills.
Where we're producing more than ever before for them. They are using every gallon.
And there have similar demands for winter. So we're hopeful that down the road if things continue they'll need additional capacity.
Got it and new Providence, I mean, I I apologize.
Not exactly.
Familiar with the entire makeup of the island, but if there are an increasing buildout of resorts or is it increasing population is it increasing water usage, just any thoughts on what's happening.
Driving some of that demand.
Yes, I mean, we don't we don't have all the details because were not.
Distributing the water on the island.
But I can tell you just anecdotally I was there at the beginning of March at one of the bigger hotels.
And I mean, the place was ramping up.
It seems like there's a big return of tourists to the Bahamas, They don't have any sort of quarantine restrictions in.
It's just sort of a reciprocal deal where you got to have a COVID-19 test before you go there and then before you come back to the U S.
I mean, their tourism business seems to be going.
Very well so that would be driving it and then just population growth.
Yeah.
There's a lot of smaller islands, and the Bahamas, and everybody seems to end up in new private intervention to get work.
Got you okay.
Do you also discuss the the Liberty project, but also mentioned that you were pursuing.
The plant construction opportunity.
Could you provide any additional details around.
When that May.
Be determined and potential size or.
Anything along those lines.
Yeah, that's something that's in progress are Jerry So I mean.
If anything.
<unk> from that then we will certainly advise.
Investors.
As soon as possible but.
We do have the opportunity to.
Negotiate the build contract with them.
I think that's key.
Got it.
Anil question the.
The D B O Cayman Islands to six 4 million gallons.
Living in a half year as I think about it about $20 million.
Does that fall.
Excuse me.
The construction side and does that what segment is that falling falling two it does have some manufacturing in.
And now it falls into services that plan will be actually you can.
<unk> signed the contract, but it will be constructed by the South coast subsidiary in the Cayman Islands. Okay services consist of PERC and the soccer, Okay, and so that will show up as manufacturing revenue excuse me construction revenues in our services segment got.
Got it.
And then.
Thank you operator.
Yes, and also about the operating contract will be our bulk water sale green.
Agreement so.
The revenue, we generate from the operation of the plant and selling the water to water.
I thought he will show up in our bulk segment okay.
Okay that was the next question and then.
On the construction side 18 months is this sort of.
Percentage of completion accounting, how do you know how does that well I know, it's not exactly 20 million because you have the service side, but how does that sort of flow through over the next 18 months. So actually we don't the percentage of completion methodology is no longer allowed under GAAP.
Revenue rec, but they have something that we need something very similar to what's called the input method.
And so yeah. So you can think of it as a percentage of completion there are some subtle differences, but not a lot in the outlets method as opposed to the percentage of completion method, yeah that'll be recognized in a manner consistent with revenue recognized on previous construction projects and as the work progresses, we incur costs will be recognizing revenue and gross profit.
Got it okay.
That's it for me so I appreciate it.
Yes. Thank you.
Thank you Jerry.
And once again, if you have a question. Please press Star then one.
Next question is from John Bair from ascend wealth advisors. Please go ahead.
Thanks, Good morning, gentlemen, nice quarter, it looks encouraging just picking up.
Interesting too I have family that lives in Goodyear, So I'll have to.
Never been out there, but I'm gonna have to go out and visit.
Two questions.
Number one can you can you speak to that.
Possible M&A.
Landscape are you are you actively looking at some.
Possible bolt ons, there and then secondly kind of dig it up from the grave here can you shed any light on any progress if any regarding a recapture of.
Assets are money really for the Rosarito project.
Project.
Yeah, sure John and good morning.
The M&A stuff I mean, where we.
We still have a couple of.
Opportunities that were.
We're following.
One is a technology opportunity.
That would give us some advantages technical advantage.
Some markets.
Another one would be.
To expand perks operating service area.
Theres other opportunities.
Are more sort of exotic.
Quasi PPP opportunities that we're looking at.
In the southwest U S.
So those would be.
They wouldn't be M&A, but they would be sort of organic growth stuff that we.
We would partner with with other groups to pursue.
The.
The PERC market right now is just excluding for us.
We're focusing a lot of our.
Resources and attention on.
On managing.
Managing that sort of growth.
And you know I'll be honest with you I mean, theres not a lot of M&A opportunities out there but.
We havent forgotten about it but we are focused quite a bit on managing the growth in our existing business with her.
From the standpoint of the Mexico.
Litigation I mean, that's something that's ongoing.
We.
We disclosed in the filings that we've taken it to an international venue.
So we're just working our way through that.
Something that could take three or four years to resolve if it goes full course.
And we'll obviously give you.
As an investor and update if anything material.
Along those lines.
Yeah, I figured it'll be a long drawn out process is there.
How frequently do you get any kind of updates I mean, do you have to badger them or.
How does that work.
We're driving the process John So our lawyers are are driving this I mean, I'm working quite regularly with them too.
Move this forward I mean, it's not a matter of badgering. The government I mean, they have to respond to the to the arbitration requests. So there's a protocol in place John we're following in that protocol.
So our attorneys make the proper motions and file the appropriate documents at the proper time.
The process moves along in its own right. The government of Mexico can't really holds up.
International rules for this kind of stuff.
Well that doesn't mean is stellar.
Hello conform to that.
That's what I was trying to get at it sounds like there are time schedule sorry.
You get a feedback then you have a certain amount of time that you can respond to it and you do that and then they have a certain amount of time is that kind of the way it goes.
Yeah pretty much I mean, we haven't we.
We haven't gotten into the details of the case, yet I mean, we're still.
We've given them notice is in.
Notices to appoint arbitrators and that sort of thing, but I can tell you we're not into the <unk>.
The meat of the case, yet with them yeah.
And I don't know if you can say does it say anything about this or not but is that.
Kind of fun on our cost.
I guess within the SG&A aspect.
Is it a fairly.
Meaningful amount of of certainly time and money that's being spent on that or.
How does that fit in.
Well I mean, essentially if you look at the difference between our continuing operation results in.
Total results with discontinued operations.
That's what it's costing us too.
Two.
So we maintain a presence there in Mexico that we need and pay for these legal costs so that.
You can kind of peel that out on a quarterly basis.
John we've disclosed in our 10-K that niche legal fees will be meaningful substantial stock cheap to run this Ah yeah Barbara.
I mean, we've hired what we believe to be an excellent law firm one of the best in the world at doing this.
And we think it's money well spent given here.
What we know about the litigation and arbitration, whatever but we'll have to spend some money to take this through the.
Four year process it typically requires.
I mean, we will be spending.
You'll see our estimate is that you know.
Well, we haven't provided an estimate let me just say it but it will they will be material to our results of operations, yeah, but they will be moved quarter it'll be.
Quoted as discontinued operations it'll be segregated from our continuing operations results.
Okay, well you put a lot of time and cash into it. So I hope I hope you get a good chunk back if not all and some.
Thanks, very much for taking my call take care.
Pleasure John .
Thank you at this time. This concludes our question and answer session I'd like to turn the call back over to Mr. Mctaggart. Sir. Please go ahead.
Yes, I'd just like to thank everybody again for joining us this morning, and I look forward to speaking with you again.
Just when we.
Released our second quarter results.
And hold an investor call.
Thank you.
And thank you, Sir 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 90%.
95, including but not limited to statements regarding the company's future revenue future plans objectives expectations and events assumptions and estimates.
Looking statements can be identified by the use of 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.
Well, its business and industry and markets related to its business.
Any forward looking statements made during this conference call are not guarantees 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 contribute to such differences include but are not limited to tourism and weather conditions in the areas we serve.
The impacts of the COVID-19, pandemic, particularly on our retail and manufacturing segments.
Economic political and social conditions in each country in which we conduct we plan to conduct business.
Our relationships with the government entities and other customers we serve.
Regulatory matters, including resolution of the negotiations for the renewal of our retail license on Grand Cayman.
Ability to successfully enter new markets.
And various other risks and.
As detailed in the company's periodic report filings with the Securities and Exchange Commission.
More information about risks and uncertainties associated with the company's business. Please refer to the management's discussion and analysis of financial conditions and results of operations and risk factors.
Section of the company's SEC filings, including but not limited to its annual report on the Form 10-K and quarterly reports on Form 10-Q.
Any forward looking statements made during the conference call speaks as.
Today's date, the company expressly disclaims any obligations or undertaking to update or revise any forward looking statements made during the conference call will reflect any change in its expectations with regard there to what.
Any changes in events conditions or circumstances on which any forward looking statement is based except as required by law.
Before we end today's conference call I would like.
I would now like 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 Companys website at Www Dot CWC O Dot com.
Thank you for attending today's presentation. This concludes the conference call you may now disconnect.
Okay.
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