Q3 2022 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. 2022 third quarter conference call. At this time all participants are in a 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 difficulty 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 10th 2022 at one P M Eastern time.
I would now like to turn the conference over to Joanne 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 2022 third quarter financial results by press release, a copy of which is available on our website at www Dot G. W resources dotcom.
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 third quarter and Mr. Kreger will review strategic initiatives and business development.
Mr Fleming, Mr. Lehman, 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 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-Q filed with the S. C C.
Those 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 again available on our website I will now turn the call over to Rod.
Thank you Joanne and good morning, everyone and thank you for joining us today.
We are very pleased to report the results for the third quarter of 2022 is there are many highlights worth mentioning.
Our global water, we continue to advance our mission of growing and aggregating water and wastewater utilities, so that our customers can realize the benefits of consolidation regionalization and environmental stewardship in the face of water scarcity challenging regulations and aging infrastructure.
So in the quarter, our company completed a public offering of common stock totaling net proceeds of $14 9 million and an increase to our unused revolving line of credit from 10 million to $15 million, ensuring we have the capital necessary to fund acquisitions infrastructure investments and for general corporate purposes.
We also announced the completion of our company wide rate case, which includes new rates for 96% of our customers, including numerous notable policy decisions.
On October 3rd we filed an application at the ACC for approval to acquire farmers water company and it's roughly 3300 customers in the town Osama Rita.
Chris will discuss the farmers acquisition and the rate case further.
Subsequent to quarter close we completed the upgrade of La Quinta Serena's customer connections from manually read meters to smart meters.
Bart meter support greater operational efficiency as well as real time automated notifications.
As a reminder, plus Quintus arenas as a utility we acquired in 2021 also in the town of salaried Huh.
We intend to do the same meter upgrade project in farmers water company once that acquisition closes.
And I want to highlight customer growth.
Total active connections grew 8% as compared to the end of Q3 2021.
Bringing total connections to 56134.
Despite the national slowdown development and housing activity continues in Metro Phoenix, and our service areas.
Thus far Metro Phoenix as the only experienced a 14% reduction in single family home permits in 2022 over the same period in 2021.
In Maricopa, our largest utilities or you're also seeing a slowdown but the city has still issued over 1000 single family housing permits year to date.
However, large scale commercial and industrial growth continues to accelerate at a pace never seen before in Metro Phoenix and this continues to push out to our areas either in our planned service territories or in communities immediately adjacent.
Because of this we continue to make excellent progress on the engineering permitting and construction of new service areas, including for the Nikola Motor Corp, manufacturing facility and the surrounding inland Port Arizona.
Other areas within our large service territories.
We believe that soon and in the years to come we will continue to see large scale commercial and industrial growth. In addition to our strong organic housing growth.
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.
And now I'd like to turn the call over to Mike for financial highlights.
Thanks, Ron.
Hello, everyone.
Total revenue for the third quarter of 2022 was $11 9 million, which is up 488000 or four 3% compared to Q3 of 2021.
This increase is primarily driven by an 8% increase in active service connections combined with the new rates that were implemented in August of 2022 as approved in our most recent rate case decision.
These increases were offset by the 692000 of revenue recognized in Q3, 2021 related to our infrastructure coordination and financing agreements also known as Ics as as we didn't recognize any ICF a revenue in Q3 of 2022.
A more fulsome explanation of the ICA fees can be found in our quarterly and annual filings.
Water and wastewater revenue, which excludes Ics a revenue for Q3 of 2022 increased $1 2 million or 11% compared to Q3 of 2021.
This increase was driven by the increase in active service connections combined with new rates.
Operating expenses remained flat at $9 1 million in Q3 of 2022 compared to Q3 of 2021.
Some notable changes in operating expenses included increased operating and maintenance costs by approximately 100000, which was primarily associated with increased expenses as the company continues to grow in addition to increases in costs related to inflation.
These increases were offset by lower property taxes.
G&A expense was reduced by 155000, primarily driven by lower deferred compensation and board compensation tied to the reduction in stock price during the quarter.
These decreases were offset by higher professional fees and it related costs.
Lastly, we had approximately $73000 increase in depreciation and amortization tied to our capital expenditure program.
Other expense for Q3 of 2022 remained flat at approximately 470000 compared to Q3 of 2021.
Turning to net income global water had net income of $1 7 million in Q3 of 2022.
This was a 12, 6% increase compared to Q3 of 2021 and equated to a seven cents per diluted share.
Now to talk about adjusted EBITDA, which adjusts for nonrecurring items, such as ICF, a revenue as well as noncash items such as restricted stock expense.
Adjusted EBITDA was $6 1 million in Q3 of 2022, an increase of $1 million or 26% compared to Q3 of 2021.
Yeah.
I'd like to briefly touch on inflation and while we have not seen a material increase in our operating expenses as a result of inflation, we do expect to see some increases in future periods, primarily related to personnel costs.
Additionally, as you would expect we have experienced an increase in capital cost as a direct result of inflation.
Lastly, before turning the call over to Chris I'd like to touch on our liquidity position.
When combining our unused $15 million line of credit with our September 30th cash on hand of over 15 million, we have over $30 million of liquidity to support ongoing operations and our growth strategy.
This concludes our update on the third quarter 2022 financial results I'll now pass the call to Chris to review, our Arizona Corporation Commission activity and strategic initiatives for the quarter.
Thank you Mike Hello, everyone.
It was a busy quarter at the Arizona Corporation Commission.
First as you heard earlier and we mentioned on our last quarterly call. We received rate decision 78644 in July 2022.
We implemented phase one of our rate increase on August 1st 20, twenty-two animal implement phase two of our rate increase on January 1st 2023.
This process is proceeding as anticipated.
Second in the quarter.
Work began on the Arizona Corporation commissions water task force.
Led by chairwoman Marquez Peterson the task force is focused on reviewing and potentially providing more certainty around commission rules and procedures in particular around acquisition policy and water supply policy.
The intent of the task force is to see if the commission policy can provide more clarity for all utility stakeholders.
We see the task force and the associated workshops as important discussions to continue building constructive regulatory frameworks around continued acquisitions of small troubled utilities and the acquisition of future water supplies.
Finally at the ACC as you may have seen the initial election results for the two open seats occurred this week.
Currently the two were public and candidates, Kevin Thompson and Nick Meyers are leading the two Democratic candidates incumbent Commissioner Kennedy and candidate floor and QB.
Candidate toxin brings experience as a member of the Mesa City Council and worked for southwest gas and natural gas utility for a number of years.
Ended at Myers has worked for the last four years as a policy adviser to a sitting commissioner.
Candidate Kobe has experience working on the Tempe City Council.
While we await the election results, regardless of who wins, we look forward to engaging with the current commissioners and newly elected commissioners to advance important water policies in our state.
Finally, turning to our acquisition of farmers water company.
As you may have seen in yesterday's press release, we filed a request for ACC approval to acquire farmers on October 3rd 2022.
Just a few weeks later on October 24th staff issued its recommendation to the commission recommending approval of our application, which we appreciate.
Finally yesterday at the ACC open meeting the commissioners verbally approve the application on an expedited basis and we appreciate their quick action.
The transition planning process is going well and we continue to estimate closing the farmers acquisition in the first quarter of 2023.
This concludes the update on the ACC activity and strategic initiatives for the quarter I'll now pass the call back to Rob.
Thank you Chris.
So it is clear we are well positioned with a strong balance sheet and disciplined strategy.
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 great utility partners for the communities, where we have the privilege to serve.
And we will 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.
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Our first question comes from the line of Gerry Sweeney with Roth Capital. Please proceed with your question.
Good morning, Brian Hi, Chris Thanks for taking my call.
Hey, Jerry.
What's thought with the inland port.
Obviously.
A lot of activity in that area.
And I'm just curious if.
It's just built out will this be an entirely regulated opportunity for you or is there also potential opportunity to do something that's unregulated or.
I'm just curious as to how this is kind of a function very familiar with connections on the homeowner side, but I think this is a little bit different for a lot of us.
Okay.
Yeah absolutely.
This is Ron I'll go ahead and take that Jerry So first youre right Theres lots of activity on that obviously, if you follow Arizona at all or.
Or in a industrial boom.
Quite a bit of that has been moving south of Phoenix to P&L County, which as you know where was where we got lots of.
Lots of large service territory.
And that includes the panel landholdings inland Port, Arizona property in the city of Coolidge.
So I'll just say this.
We've been very active working with lots of potential projects that want to locate in our service areas. There and then that inland port.
Yeah stay tuned I believe we'll have some announcements pretty soon on that but to your broader question.
You know I'd.
I think part of the reason we were brought into inland poor and really our large service areas third out Panera County, and other places us as.
Here's the way, we think about regional planning.
And ultimately you certainly could have some industrial users go out and individually try to do their own solutions on a case by case basis, but.
We certainly aren't a proponent for that.
You know obviously, there's companies that focus on that aspect and become there.
Utility partner internal to the property if they do a sole source solution.
But we think from a from a efficiency standpoint, a water resource management standpoint from a community standpoint, it's best if this is all part of an integrated regulated planning and that's our company's model and that's what we've positioned to these landowners andy's communities and gotten that support so so.
Mostly for I would say for any industrial project, that's coming into our service areas. It's part of an integrated plan and it will be the kind of the fully regulated normal water and wastewater utility service now I say normal because of the the rate regulation component. Obviously these are some of them pretty big projects and so.
It does have some different considerations as you as you provide service to them, but but nothing nothing that we can't do and in fact, we're a we're looking forward to to those opportunities that are coming to us really quick on that.
I imagine one really big meter that's all so.
[laughter] if it was the only bad stuff.
[laughter] flattish.
But oh second question permits obviously been really strong for an extended period of time and also obviously they've slowed down a little bit but.
Just curious I mean, roughly speaking how long does it take.
From what to say and issued permit to maybe metering.
Location and granted.
Understand that this was a little bit more broad brushed but.
Just curious as to how long that lasts or what that transition period is.
Yeah, Yeah, no no worries Terry this is Mike you know in the obviously market has influence here, but traditionally what we have seen it's usually kind of a 12 to 18 month process. So as you think about the Ron mentioned that thousand plus permits that were issued this year you know that will take some time for that to funnel through yeah got it.
And Mike why have you.
Quick question on that.
<unk>.
Seeing a lot of companies that have some type of structure.
So for plus a fixed amount, but so first accelerated quite substantially over the last six nine months.
Could you just.
So your debt structure and talk about is there anything like that kind of impact you guys at all.
Yeah, Yeah. Thanks, Jerry Good question, so fortunate for us the existing debt that we have outstanding over $110 million is all fixed rate debt at roughly $4 five 5%. So we're in a we're in a really good position there as it pertains to a revolver. There is a variable component that's sofa related so that piece will move, but it's you know.
Pretty small piece considering the the big tranche.
Got it and then last question farmers.
Any idea I expect the capex required as you sort of a transition that into the global water family.
Great question, Jerry We're this is Chris Hey, good morning, or good afternoon.
On your side of the country.
We're still refining what that'll be internally, but I'll tell you broadly speaking, we see that there is a significant opportunity to deploy capital down there one to catch up to the utility for that too to implement our platform and everything we've done in all of our other utilities. So for example, you heard Ron talk about.
The meter upgrades and a M. I, we did at <unk>, we're going to replicate that down at farmers and so I don't have the specific dollars that we're ready to share at this point, but we definitely see it as an opportunity to deploy more capital that's needed and will provide all the fantastic benefits of their customers and our other service territories.
Loving speak so highly of.
Got it and one real short one since that's correct.
If the two Republicans win.
And the ACC elections, what's the balance Republican or Democrat Yeah.
Yes, great Great question, Jerry So if right now the current composition is three Republicans to Democrats and one Republic can see is up and one Democrats cetus.
If the two Republicans win it will be.
Four to one.
Republicans to Democrats, if youre in a flip it and say two Democrats win it would then be three Democrats two Republicans.
Got it thanks I appreciate it.
I'll talk to you absolutely.
Thanks Jerry.
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Ladies and gentlemen, there are no further questions at this time I'll turn the floor back to Mr. Fleming for any final comments.
Okay. Thank you operator, thanks, everyone for participating in our call today and your ongoing interest in global water resources. We appreciate it and look forward to speaking with you again soon.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.