Q4 2022 Global Water Resources Inc Earnings Call
Speaker 2: Greetings ladies and gentlemen. Thank you for standing by. Welcome to the Global Water Resources Inc. 2022 year-end 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 a question.
Speaker 2: If anyone has any difficulties hearing the conference, please press star then zero for operator assistance at any time. We would like to remind everyone that this call is being recorded on March 9, 2023 at 1 p.m. Eastern Time.
Speaker 2: I would now like to turn the conference over to Joanne Ellsworth, Executive Vice President, Corporate Affairs. Please go ahead.
Speaker 2: Welcome everyone and thank you for joining us on today's call. Yesterday we issued our 2022 fourth quarter and year-end financial results by press release, a copy of which is available on our website at www.gwresources.com.
Speaker 2: Speaking today is Ron Fleming, President and Chief Executive Officer, Mike Liebman, Chief Financial Officer, and Chris Krieger, Chief Operating Officer.
Speaker 2: Ron will submit key operational events for the year, Mike will review the financial results for 2022, and Chris will review strategic initiatives and business development for the year.
Speaker 3: Ron, Mike, and Chris will be available for questions at the end of the call.
Speaker 3: But before we begin, I would like to remind you that certain information presented today may include forward-looking statements.
Speaker 3: Such statements reflect the company's current expectations, estimates, projections, and assumptions regarding future events.
Speaker 3: 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.
Speaker 3: Accordingly, investors are cautioned not to place undue reliance on any forward-looking statements which reflect management's views as of the date thereof and are not guarantees of future performance.
Speaker 3: For additional information regarding factors that may affect future results, please read the section's risk factors and management's discussion and analysis of financial conditions and results of operations included within our latest Form 10-K filed with the SEC.
Speaker 3: Such filings are available at www.scc.gov.
Speaker 3: 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 Ron.
Speaker 3: Thank you, Joanne. Good morning, everyone. Thank you for joining us today. We're very pleased to report the results for the fourth quarter and year-end in 2022. There are many highlights worth mentioning.
Speaker 3: In short, 2022 was another incredible year for global water as 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.
Speaker 3: challenging regulation, and aging infrastructure.
Speaker 3: Per year, total active service connections increased 4.4% to 56,270 at December 31, 2022, up from 53,882 at December 31, 2021.
Speaker 3: When combining service connection growth with the completion of our company rate case earlier in the year, which included new rates for 96% of our customers, revenues increased 6.7% to $44.7 million for the full year.
Speaker 3: We also continue design and engineering work for the Inland Port Arizona mega site where Global Water will be working with Procter & Gamble to provide water, wastewater, and recycled water services to P&G's new manufacturing facility, which is adjacent to the Nikola Motor Corp facility.
Speaker 3: We invested $8.7 million in CapEx investment in the quarter in existing utilities to provide safe, reliable service, and focused on increasing revenues, reducing expenses, and building rate base.
Speaker 3: We also began providing bulk water service to 7 ranches domestic water district in Maricopa, at the request of the City and the local district board.
Speaker 3: From an acquisition perspective, earlier in the year we continued to expand our footprint with two smaller tuck-in water utility acquisitions in Pima County, an area that continues to build momentum.
Speaker 3: Within Pima County, subsequent to quarter close, in February 2023, the company completed the acquisition of Farmers Water Company.
Speaker 3: The acquisition added a total of 3,300 active water service connections and approximately 21.5 square miles of Certificate of Convenience and Necessity service area in the town of Salarita and the surrounding unincorporated area of Pima County.
Speaker 3: These acquisitions have increased Global Water's total active water service connections in Pima County to nearly 5,000.
Speaker 3: And finally, with safety and compliance being our top mandate, we are very proud of our ongoing safety and compliance records.
Speaker 3: For the year, we had zero significant compliance events and no preventable OSHA reportable events.
Speaker 3: In fact, this means we have now surpassed six years without a significant compliance event and have now gone over 980 days since our last preventable OSHA reportable event.
Speaker 3: I want to pause, highlight, and thank the team here at Global Water whose exceptional performance allows me to provide such wonderful updates for our company.
Speaker 3: Now, I want to discuss organic customer growth and what is going on in our core utilities.
Speaker 3: Despite the local and national slowdown, development and housing activity does continue in Metro Phoenix and our service areas.
Speaker 3: In 2022, Metro Phoenix did experience a 23% reduction in single-family home building permits over the same period of 2021, but this was still nearly 25,000 single-family building permit.
Speaker 3: In Maricopa, our largest utility, where we're also seeing a slowdown, the city still issued 1,157 permits in 2022.
Speaker 3: With that said on housing, the booming economy and net immigration that Arizona continues to realize requires more and more places for people to live, work, and play.
Speaker 3: That is why large-scale, multifamily housing, commercial, and recreational projects continue to accelerate at an extremely high pace in Metro Phoenix, and this continues to push out to our areas, either in existing service territories or in communities immediately chasing.
Speaker 3: Additionally, the industrial manufacturing boom also continues, with 2022 being the single best year for Arizona all-time from an industrial economic development investment perspective.
Speaker 3: This seems to be continuing into 2023. Because of this, we continue to make excellent progress on the engineering, permitting, and construction of new service areas, including for the Inland Port Arizona.
Speaker 3: Our Nikola Motor Corps facility is being expanded and will proctor and gamble acquired land.
Speaker 3: Based on all of these trends, we believe that in the years to come, we will continue to see considerable large-scale commercial, multifamily housing, and industrial growth, in addition to the return of strong organic housing growth.
Speaker 3: Putting all these elements together, global water remains well positioned.
Speaker 3: I will now turn the call over to Mike for financial highlights.
Speaker 4: Thanks Ron. Hello everyone.
Speaker 4: Total revenue for the year was $44.7 million, which was up $2.8 million or 6.7% compared to 2021. The total revenue for the year was $4.7 million.
Speaker 4: This increase is primarily driven by the 4.4% increase in active service connections.
Speaker 4: The acquisition of Las Tintas Sirenas in Q4 of 2021, combined with the new rates that were implemented in August of 2022.
Speaker 4: These increases were offset by the $692,000 in revenue recognized.
Speaker 4: in Q3 of 2021 related to our infrastructure coordination and financing agreements.
Speaker 4: also known as ICFAs.
Speaker 4: as we did not recognize any ICFA revenue in 2022.
Speaker 4: A more fulsome explanation of ICFAs can be found in our annual filings. Regulated revenue, which excludes ICFA revenue for 2022, increased $3.5 million, or 8.6 percent compared to 2021.
Speaker 4: Again, this increase was driven by the increase in active service connections combined with new rates in the acquisition of Las Quintas Arenas.
Speaker 4: Operating expenses for 2022 were $36.8 million compared to $34.9 million in 2021.
Speaker 4: This is an increase of 1.9 million or 5.3 percent.
Speaker 4: Notable changes in operating expenses included increased operating and maintenance costs by $590,000, which was primarily associated with the acquisition of Las Tintas Arenas,
Speaker 4: combined with increased expenses as the company continues to grow and manage inflation.
Speaker 4: G&A expense increased by $880,000, primarily driven by 600,000 higher professional fees, primarily tied to acquisition and rate case matters.
Speaker 4: The write-off of $314,000 in rate case expenses as a result of the approved rate case
Speaker 4: and higher IT contract services and rent expense.
Speaker 4: These were offset by lower deferred comp and board expense due to the reduction in stock price.
Speaker 4: Lastly, we have a $400,000 increase in depreciation and amortization tied to our capital expenditure program in the acquisition of Lusting to Surinas.
Speaker 4: Now, to discuss other expense.
Speaker 4: Other expense for 2022 was $1.4 million compared to $2.2 million in 2021.
Speaker 4: This $836,000 decrease was primarily due to the $1.1 million increase in the Buckeye growth premium and higher capitalized interest. These were offset by the $1.4 million sale of cell tower leases in 2021.
Speaker 4: Turning to net income.
Speaker 4: Global water had net income of $5.6 million in 2022. This was a 52.6% increase compared to 2021 and equated to $0.24 per diluted share.
Speaker 4: Now to talk about adjusted EBITDA, which adjusts for non-recurring items such as ICFA revenue as well as non-cash items such as restricted stock expense. adjusted EBITDA was $22.1 million in 2022 and increased to $3.4 million or 18.3 percent.
Speaker 4: compared to 2021. I'd like to briefly touch on inflation. While we have been able to manage expenses in 2022 quite well given the inflation situation, 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 costs as we and the general public are
Speaker 4: financial statements.
Speaker 4: This represents $2.1 million of the approved $2.2 million in new rates based on a 2019 net dragon length CEblem capacity for 50 years.
Speaker 4: This concludes our update on the year-end 2020 financial results. I'll now pass the call to Chris.
Speaker 5: Thanks, Mike. Hello, everyone.
Speaker 5: As you may have seen in our press release and heard Ron mention earlier, we closed the farmers acquisition on February 1, 2023.
Speaker 5: This acquisition is a culmination of a significant amount of work to bring the deal to fruition and something we are very proud of. We are now focused on integrating the company into our professional utility platform and the process is continuing as expected.
Speaker 5: This acquisition brings significant benefits to our company. First, it adds over 3,300 active water connections to our family of companies.
Speaker 5: This represents over 5% to our active connection count at the end of 2022.
Speaker 5: Second, it adds over 21 square miles of service territory that will eventually convert from pecan farming into primarily residential homes.
Speaker 5: This 21 square miles represents an additional 5% to the number of square miles of service area.
Speaker 5: At full build out, the service area could reach approximately 20,000 customers.
Speaker 5: Third, farmers' customers will benefit from our total water management approach, including our expertise in technology automation and other internal operations.
Speaker 5: Finally, when combined with our Las Quinta Serenes acquisition in 2021, the utility that is adjacent to farmers, we now have additional scale to make further capital investments and recover costs from customers in the future.
Speaker 5: We are pleased this deal came together and believe it will provide long-term customer and shareholder benefits.
Speaker 5: Briefly, turning to acquisitions more broadly, we continue to focus our efforts on finding opportunities that complement our existing portfolio and are in various stages of discussions with potential prospects.
Speaker 5: This concludes the update on growth activity and strategic initiatives in the quarter. I'll now pass the call back to Ron.
Speaker 6: Thank you, Chris.
Speaker 3: It is clear, despite the challenges of the last few years, that the
Speaker 3: We will remain well positioned from an operational and financial perspective.
Speaker 3: And then continue to be great utility partners for the community where we have the privilege to serve.
Speaker 3: We will pursue expansion through organic growth, acquisition, and new projects, both big and small.
Speaker 3: We intend to remain at the forefront of the water management industry and advance our mission of achieving efficiency and consolidation.
Speaker 3: We truly believe that expanding our total water management platform and applying our expertise throughout our regional service areas and to new utilities will benefit all stakeholders involved.
Speaker 3: We appreciate your investment and support of us as we continue to grow global water to address important utility, water resource, and economic development issues in Arizona.
Speaker 3: and potentially beyond.
Speaker 3: These highlights conclude our prepared remarks. Thank you. There are no questions now available to answer questions.
Speaker 2: Thank you. We will now begin the question and answer session. To join the question queue, you may press star, then 1 on your telephone keypad. You will hear a tone acknowledging your request.
Speaker 2: If you are using a speakerphone, please pick up your handset before pressing any keys.
Speaker 2: To withdraw your question, please press star then 2.
Speaker 2: Once again, to join the question queue, please press star, then 1 now.
Speaker 2: Our first question comes from Jerry Sweeney of Roth Capital. Please go ahead.
Speaker 7: Good morning slash afternoon for me, Ron, Mike, Chris. Thanks for taking my call.
Speaker 6: moar.
Speaker 6: More Gary.
Speaker 7: I a question on so on Maricopa
Speaker 7: Historically, I've tracked single-family permits because I thought that was a great sort of metric to watch in terms of watching growth in the area. That market is slowing, but affordability is a big...
Speaker 7: single-family permits because I thought that was a great sort of metric to watch in terms of watching growth in the area. But obviously that market is slowing but affordability is a big...
Speaker 7: a big draw to Arizona, you have the Proctor-Gamel plant going in, you have semiconductor plants coming in, and it also sounds like you have multifamily opportunities starting to arise. How do we look at that in terms of growth and how does that impact income statement? Multifamily are different from single family. We've got those through our marketing partner, for example, Campus
Speaker 7: Should we look at not only single-family permits, but also watch total population growth in the area because there's going to be different ways of tracking it? Maybe some suggestions, ideas of where you see growth going and how it's going to develop and change in the short to medium term. Hey, Jerry, this is Mike. I'm happy to take that one.
Speaker 4: We have two multifamily projects, but they're slated in 2023, seven projects. And there's an additional seven to nine projects that are slated 18 to 36 months out. So there's quite a bit of activity there that could ultimately result in the 2023 projects would lead closer to 1,500 units and more fulsome is closer to 4,000 units with these stuff 18 to 36 months out. So say a few questions during that time, you don't have to worry about anything as the equipment itself.
Speaker 4: So, what I'll tell you is that that's not a one-for-one on a single-family home, and so you can't necessarily draw each unit as a new home. There will be substantial revenue associated with these multi-family units coming in. And then, as a reminder on the single-family home side, what we do believe in the medium and the long term, there is a lot of growth from the industrial and businesses that are coming to Arizona.
Speaker 7: I look at this as sort of the foundational stage for that project. Could you give a little bit of maybe view to how that develops over the next...
Speaker 7: one, three, five years and how we should think about it. Obviously, I don't think it's a short-term impact on earnings, but I do think it is, like I said, a foundational opportunity that adds runway to the growth story down there.
Speaker 3: Yeah, hey, Jerry, this is Ron. I'll go ahead and take that 1. I think that's a great way to say it. It's really just the foundational elements of. Of what is to come is really just getting going. Obviously we, we started up service to to Nicola.
Speaker 3: Kind of a smaller scale last year. And then now we've announced the, at least being a land acquisition that Procter and Gamble made immediately adjacent to Nicholas part of this inland port mega site.
Speaker 3: But so, you know, 1st, I'll speak just to that and I'll step back and talk a little bit more broadly. Yeah, so Proctor and Gamble, you know, they're obviously a well planned. Organization.
Speaker 3: And so, you know, they're, they're, they're ahead of the game from what we typically see from a build time perspective. But what they're currently telling us early says announced publicly as well is that they're, they're shooting for a mid 2025 to late 2025. Opening date for their project, so that's just over.
Speaker 3: 2 years out, so for the work that we do, that still means that. That starts almost immediately, but from a financial results perspective that. Further down the road.
Speaker 3: But once you put Procter and Gamble and Nikola together, which I think the 2 transactions, at least what was announced is
Speaker 3: A total of 700 acres. What we're currently working with them on really is.
Speaker 3: Potentially not still build out of those 700 acres is ultimately you can put lots of. Plant and facilities in the size of properties that they bought and so. It's up to them to announce and talk about what they may do on the property later, but but for now we're working with them on their current phases to meet that timeline. But stepping back from the properties they acquired. There is a total of about 17, 18 parcels.
Speaker 3: inside of this Inland Port, Arizona. P&G actually took down two of them. Nicola took one of the bigger ones. But it's over like 2,300 acres, and so there's still over a dozen parcels still to go. And because of the activity of those two,
Speaker 8: really
Speaker 3: The activity around the entire site has picked up and I'll just say that we, we answer the early. Um, what they call project information forms, which people are looking to potentially select 1 of those parcels of located in the report. You know, we're dealing with those on a weekly basis now.
Speaker 3: You know, we can't speak to who's going to select the property, but they're going to build and win. But but the belief is that now that there's that foundation as you referred to it. Yeah. It's just the beginning of that. That in one port will actually fill up pretty well in the years and decade to come. The evidence of this is the same developer. That doing in one port.
Speaker 3: Actually did this 1st, the city across the ground day just, you know. 20 minutes away from where we're at in Coolidge.
Speaker 3: And he, he started that project with with lucid. So, we should be familiar with their electric vehicle manufacturing facility and then the new Southwest regional head core or. Main facility for our tractor supply company, and since that beginning those 2.
Speaker 3: The whole park there is filled out. He's out of land there. That's his full attention here on Coolidge. And we just think that's a, that's evidence of how he does it and what is to come.
Speaker 2: Got it. Super helpful. I appreciate it. That's it for me. Once again, if you have a question, please press star then 1.
Speaker 2: All right. At this time, this concludes our question and answer session.
Speaker 2: I'd like to now turn the call back over to Mr. Fleming. Sir, please go ahead.
Speaker 3: Thank you, operator. I would like to thank everybody for participating on the call today and for your ongoing interest in global water resources.
Speaker 2: I appreciate it and we look forward to speaking with you again soon. This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a great rest of your day.
Speaker 1: For.