Q2 2023 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. 2023 second 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.

Instructions will be provided at that time, you to queue up for questions.

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 August 10, 2023 at one P M Eastern time.

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

Thank you welcome everyone and thank you for joining us on today's call yesterday, we issued our 2023 second quarter financial results by press release, a copy of which is available on our website at www Dot GW resources Dot com.

Speaking today is Ron Fleming, President and Chief Executive Officer, Mike Liebman, Chief Financial Officer, and Chris Kreger, Chief operating Officer.

Ron will summarize the key operational events of the quarter, Mike will review the financial results for the second quarter and Chris will review strategic initiatives and the Arizona Corporation Commission activity for the quarter, Ron Mike and Chris 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 Lady of latest forms 10-K, and 10-Q filed with the SEC.

Such 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 available on our website.

I will now turn the call over to Ron Thank.

Thank you Joanne.

Good morning, everyone and thank you for joining us today.

We are very pleased to report the results for the second quarter 2023.

Before discussing our normal highlights I wanted to briefly mentioned a few records that occurred locally and in around Phoenix.

Phoenix recently experienced a record number of consecutive days of over 110 degrees shattering prior records for daytime highs or you mean lowes for days over 110 degrees and the global water team maintain reliable service for its customers throughout.

Because of this prolonged high temperature period it.

It is not just weather records that were broken as global water set records for highest average volume pump for a calendar month repeatedly breaking highest single day pumped up volume records throughout.

We will discuss more specifics about these numbers next quarter, but today I want to recognize our field teams for what they do every day at a high level to ensure our customers have the essential service they need to manage such heat.

More broadly it is worth noting our total water management approach to resource conservation and utilization that allows us to be ready for unprecedented peak demand, including regional planning and permitting maximizing the use of recycled water automated meter reading customer notifications and smartwater.

Our rate structures.

Other highlights for the quarter include.

Global water surpassed the 60000 connection count for the first time ever with total active service connections increasing 8% to 60291 at June 30 of 2023 up from 55814 12 months prior.

Included in these numbers is the acquisition of farmers water company that closed in February of 2023.

The acquisition added a total of 3325 active water service connections and approximately 21 five square miles a certificate of convenience and necessity service area in the town of sour Rita and the surrounding unincorporated area of Pima County.

This acquisition has increased global water's total active water service connections in Pima County to nearly 5000.

Year to date, we have invested 13.7 million into infrastructure improvements and to existing utilities to provide safe and reliable service.

And a significant portion of a water and wastewater infrastructure in our P&L County Southwest service area was put into service on or after July one 2023 with the remaining planned to be put into service once sufficient flows are established.

The total value of this investment is approximately $38 4 million.

Okay.

And finally with safety and compliance being our top mandate, we are very proud of our ongoing safety and compliance records.

For the quarter, we had zero significant compliance events and no preventable Osha reportable events.

<unk>, our strikes from 2022 and prior.

In fact this means we have now surpassed six years in six months without a significant compliance event.

And have now gone over 1130 days since our last preventable Osha reportable event.

I want to pause highlight and thank the team here at global water, who is exceptional performance allows me to provide such wonderful updates for our company.

[laughter].

Now I wanted to discuss organic customer growth and what is going on in our core utilities a little bit further.

Despite the local and national slowdown development and housing activity does continue in Metro Phoenix and our service areas.

In 2022 Metro Phoenix did experience a 23% reduction in single family home building permits over the same period in 2021.

But this was still nearly 25000 single family building permits.

In Maricopa, our largest utilities, we also saw a slowdown but the city still issued 1157 permits in 2022.

Now through the first six months of 2023, we have seen 392 permit issued in Maricopa, which is more than the 245 permits we saw the entire last six months of last year. This.

This represents a 60% increase.

Yes.

With that said on housing the booming economy and net in migration that Arizona continues to realize requires more and more places for people to live work and play.

That is why large scale multifamily housing commercial and recreational projects continued to accelerate and an extremely high pace in metro Phoenix and in our service areas with a record number of multifamily units being constructed in the city of Maricopa.

Additionally, the industrial manufacturing boom also continues with 2022 being the single best year for Arizona, All time from an industrial economic development perspective.

And that has continued 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, where Nikola Motor Court facilities, located in where Procter and Gamble acquired land.

Yeah.

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.

Putting all these elements together 2023 will be another incredible year for global water as we continued 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 regulation.

<unk> and aging infrastructure.

I will now turn the call over to Mike for financial highlights.

Thanks, Ron.

Hello, everyone.

Total revenue for the second quarter of 2023 was $13 million, which was up $1 3 million or 11% compared to Q2 2022.

The increase in revenue was primarily attributable to the increase in rates related to our 2022 approved rate decision.

New connections associated with the acquisition of farmers in February 2023, and year over year organic growth in connections of approximately 2%.

Operating expenses for Q2, 2023 or $10 million compared to $9 2 million. In Q2 2022. This is an increase of 745000 or eight 1%.

Notable changes in operating expenses included approximately 278000 increase in depreciation and amortization expense tied to our capital expenditure program.

Increased operating and maintenance cost by 239000, which was largely attributed to the farmers acquisition.

And increased G&A expense by 228000, primarily due to increased personnel costs and deferred compensation expense and board compensation expense, partially offset by lower professional fees and regulatory expenses.

Now to discuss other income slash expense other expense for Q2 of 2023 was 540000, which was slightly higher compared to the 505000 of expense in Q2 of 2022.

Okay.

Turning to net income global water had net income of $1 7 million or seven cents per diluted share in Q2 of 2023.

Oh. This is a decrease of 368000 compared to Q2 of 2022. The primary reason for this was the nonrecurring tax benefit received in Q2 of 2022 tied to our 2022 rate order.

Looking at pretax income you can see that Q2, 2023 was 513000 or 26% better than Q2 of 2022.

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 7 million in Q2 of 2023, an increase of 638000 or 10, 5% compared to Q2.

Lastly, I'd like to mention that during the quarter, we were able to extend our $15 million line of credit through July of 2025.

This concludes our update on the second quarter 2023 financial results I will now pass the call to Chris to review, our rate case and strategic initiatives for the quarter.

Thank you Mike Hello, everyone on.

On the acquisition and growth front, we don't have any specific acquisitions to announce at this time. However, we continue exploring a number of different opportunities that may be good strategic fits for our company.

Yeah.

On the Arizona Corporation Commission front, we made two important filings in the quarter, a small rate case, and an accounting deferral related to the southwest plant.

First on the rate case filing.

On June 27, 2023, we filed a rate case for seven of our small utilities and our swore of district within PMA County.

The filing includes the utilities, we acquired in recent years, including La Quinta Serena's, Francesca Mirabel, Brian Kahn toward a leader in Lindley.

This filing does not include farmers water, which we acquired earlier this year that will be captured in a future rate case filings.

This case requests a revenue increase of approximately $420000 phased in over two steps.

It also requests regional consolidation of the utilities, including their rates and legal entities.

The process is going as expected at the ACC with the next step.

In the utilities Division staff, beginning their audit of the case.

We estimate that the case will conclude next year.

There can be no assurance that the ACC will approve the requested rate increase or any increase the consolidation of the rates described above or the timing of any increase in the ACC could take further actions as a result of the rate case.

Further it is possible that the ACC may determine to decrease future rates.

Second as you heard earlier from Ron after many years of waiting. We finally turned in service a large portion of the assets related to our southwest plant infrastructure, which is located in <unk> County close to the city of Maricopa.

Related to this development on July three 2023, we filed a request for an accounting deferral at the ACC.

The request if granted would authorize the company to differ as a regulatory asset on its balance sheet, the depreciation expense related to the southwest plant assets.

If granted at the time of a future rate case, we would then have the opportunity to request recovery and rates of regulatory asset.

This concludes the update on strategic initiatives and business developments for the quarter I will now pass the call back to Ron.

Thank you Chris.

As we are still experiencing rapid growth model also handling challenging times on the macroeconomic front.

Global water continues to focus on year over year improvements across the company that will benefit long term value creation.

As we execute our growth plan, we intend to remain at the forefront of the water management industry and.

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 for 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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Okay at seeing if there are no questions I would like to turn the call back to Ms.

Fleming for closing remarks.

Thank you operator.

You everybody for participating on the call today and your ongoing interest in global water resources.

Look forward to speaking with you again.

The conference has now concluded you may disconnect. Your lines at this time, thank you for participating and have a great rest of your day.

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