Q3 2023 Consolidated Water Co Ltd Earnings Call
Good morning.
For joining us today to discuss consolidated water company's third quarter of 2023 results.
Hosting the call today is the Chief Executive Officer of consolidated water Company, Rick Mctaggart, and the company's Chief Financial Officer, David <unk>.
Following their remarks, we'll open the call to your questions.
At any time during the call you may join the question queue by pressing the star key followed by one on your telephone keypad. If you would like to withdraw a question. Please press Star then two.
Should you need any operator assistance you May press Star then zero.
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 per the instructions 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, Sir. Please go ahead.
Thanks, Joe Good morning, everybody. Thank you for joining us today to discuss our results for the third quarter of 2023.
Like last quarter, we're reporting record quarterly revenue and earnings.
As you saw on our press release yesterday.
We reported a nearly 100% increase in revenue to $49 9 million compared to the third quarter last year.
Revenue was up in three of our four business segments.
Our retail water segment benefited from a 16% increase in the volume of water sold in Grand Cayman.
And we attribute this increase to improve tourist activity since the third quarter of last year. The island was still.
Recovering from the lingering impacts of the pandemic.
Our services segment revenue increased by $27 million in the third quarter with much of that increase generated by the progress our PERC water subsidiary has made on construction of an $82 million.
Advanced water treatment plant and.
Goodyear, Arizona.
We've managed to control our costs on this project are much better than anticipated, resulting in improved gross margins for our services segment.
Construction on this project is progressing as planned and we anticipate generating additional revenue from the project.
<unk> construction commissioning and startup is completed at the end of the second quarter of next year.
First continued strong operating performance and revenue growth.
Continued to significantly improve our top and bottom line.
Strong operational presence in the southwestern U S. A region that urgently needs new freshwater sources due to unprecedented drought conditions.
Has positioned us for further growth and development in this important segment of our business.
In our U S desalination business.
We commenced work last quarter on site investigations engineering, permitting and public outreach for our contract to design build operate and maintain a $1 seven mgd seawater desalination plant in Oahu, Hawaii.
This project includes a two year development phase.
Two year construction phase and a 20 year operating phase with two potential five year operating phase extensions at the client's option.
Yeah.
Our footprint continues to expand in the U S with the recently announced acquisition of <unk>, environmental compliance or RBC by PERC.
<unk> operates and maintains water and wastewater treatment plants and provides technical services to more than 100 clients and the mountain in eastern Plains regions of Colorado and their business is very similar to what perks.
So it doesn't it's O&M business.
Now before discussion discussing more about recent developments and talking about our outlook for the rest of the year I'd like to turn the call over to our CFO, David Sasnett, who will take us through the financial details for the quarter.
Thanks, Rick and good morning, everyone.
Rick mentioned revenue for the third quarter was up.
249.
$9 million, which is up 99% increase compared to third quarter of last year Youre.
This increase was driven by revenue increases of 900000 in our retail segment.
$20 7 million in our services segment.
And $3 3 million in our manufacturing segment.
Our retail revenue increased primarily due to a 16% increase in the volume of water. We sold during the quarter. This was due to increased tourism on Grand Cayman the number of tourists driving by air.
Those are the tourist stay we're not used to hotels and increased our water volume.
<unk> significantly in the third quarter of this year as compared to last year as the lingering effect of the pandemic and disappeared and we think tourism is back to normal on Grand Cayman.
Retail revenue also increased as a result of higher energy costs that increased the energy pass through component.
Our water rates.
Our bulk revenue decreased slightly primarily due to a decrease the price of energy paid by CW Bahamas.
This decreased decreased the energy pass through component.
CW Bahamas rates.
The decrease in box segment revenue was due to the energy was partially offset by a 6% increase in CW Bahamas volume of water sold and I can say that we're producing.
Producing.
As bad as much water as we can produce in the.
In the Bahamas for the water and sewage Corporation so.
Operations, there are very favorable to our company the increase in services Regnant segment revenue was due to an increase both in construction revenue and O&M revenue, we recognized approximately $20 million in revenue in the third quarter. This year.
For the construction of the water treatment plant in Goodyear, Arizona for Liberty utilities.
And are the retail generated under operations and maintenance contracts in our services segment also increased <unk> 5 million in the third quarter. This year.
Up 48% as compared to $3 4 million in the third quarter of 2022, and this is attributable both to better margins earned on our existing contracts and the addition of new contracts.
The increase in our manufacturing segment revenue.
Due to increased production activity at some of the supply chain and economic issues that affected our manufacturing operations in 2022 have abated.
Gross profit for the third quarter of 2023 was $16 6 million or 33% of total revenue as compared to $6 8 million or 27% of total revenue for the same quarter of last year.
Net income from continuing operations attributable to consolidated water shareholders for the third quarter of 2023 was $8 8 million or 55 cent per diluted share. This compares to net income of 800000 or five cents per diluted share for the same quarter of last year.
Net income attributable to the consolidated water shareholders for the third quarter of 2023, which includes the results of discontinued operations was $8 6 million or 54 cents per fully diluted share. This was up net income of 300000 or two cents per basic and fully diluted share for the third quarter of 2022.
Now turning to our balance sheet and financial condition.
Cash and cash equivalents totaled $48 8 million as of September 30th 2023. This compares to $47 7 million as of June 32003, with working capital of $83 1 million debt of just 200000, and stockholders' equity totaling $178 million.
And as of the end of the quarter, our projected liquidity requirements for the remainder of 2023.
Including capital commitments for our existing operations of approximately $5 1 million. This includes $290000 that we expect to incur in 2023 to finish the refurbishment and replacement of our West Bay desalination water plant and it also includes about $2 5 million for construction of the new Red Gate desalination.
Plan on Grand Cayman for the water authority Cayman.
We had additionally, approximately $4 7 million in material raw material purchase commitments that were outstanding as of September 32023.
We paid approximately $4 million in dividends this year and our future liquidity requirements May also include any future potential dividends declared by our board.
So this completes our financial summary for the quarter now I'd like to turn the call back over to Rick.
Thanks, Dave.
We believe our strong results this past quarter once again reaffirm our growth strategy, which is to focus on the most water stressed areas of the United States and the Caribbean and provide not only desalination solutions, but also advanced wastewater treatment and recycling.
<unk>.
Such as those provided by perk in the southwestern U S.
Looking at our Caribbean seawater desalination business.
The revenue we recognize from the design and construction of the two point.
6 million gallon per day Red Gate desalination plant and the Cayman Islands also contributed to the year over year increase in our service segment.
Construction of this project for a valued client that we've had for more than 30 years is progressing well and is expected to be completed in April next year.
Our retail water utilities, new 1 million gallon per day west based seawater desalination plant.
Which replaced.
30 year old plant.
<unk> provides additional capacity to supplement our retail water business in Grand Cayman is currently being commissioned and will be fully operational in time for us to meet the higher retail water demand that we typically experience from mid December through April every year in Grand Cayman.
Humans post pandemic travel rebound continues as David mentioned in during the winter season Major Airlines, such as Delta came and Irwin and Cayman Airways had been adding additional direct flights to the islands.
Delta added a new flight from Minneapolis to Grand Cayman.
Which starts next year and Cayman Airways also announced the resumption of its seasonal service to Denver, Colorado.
Weekly Saturday flight set to begin in December.
Also southwest Airlines, who currently flies from Fort Lauderdale to the island is.
Moving that laid up to Orlando, Florida.
To begin in the summer of next year.
Given these favorable indicators, we expect a strong tourism season.
In the Cayman Islands, which should help our retail business.
In our manufacturing segment relief from severe supply chain constraints and customer requested delivery delays at <unk>.
Adversely impacted our results last year I have allowed us this year to advance more of or order backlog through the manufacturing and billing process.
Over the last couple of years, we've also diversified our manufacturing customer base in terms of customer concentration and types of products.
We anticipate this diversification will facilitate improved results and.
And provide greater consistency and future manufacturing segment performance.
We also saw this year return from our peers.
Historically return of business from our historically largest manufacturing customer and this was business that had been suspended over the past several years and we expect this level of business to continue into 2024 from this customer.
Okay.
Now talking about Hawaii for a bit.
Work on the $1 seven Mgd seawater desalination plant in Oahu is underway and on track.
The Hawaii plant will be the 24th.
Salination plant that we've constructed worldwide.
Our first desalination plant in the U S.
We believe that our 50 years of experience designing building and operating these types of plants, which are some of the world's most energy efficient seawater desalination plants.
Coupled with perks significant experience working with municipal clients and regulators in the U S.
To ensure that this project is successful we will exceed the expectations of our clients the board of water supply of Honolulu.
We believe that this entrance into the U S desalination market positions us well for additional opportunities in the western Continental U S. A region that continues to experience unprecedented drought conditions combined with growing populations.
This is a no to according to the U S drought monitor in more than 22% of the Western U S has been experiencing drought conditions and this number is up more than 51% since October of last year.
Looking at park and a bit more detail.
Our subsidiary that provides world class operational and asset management services in the Western U S.
We believe perks growth potential remains very high.
This potential is demonstrated by the number of design build an O&M contract opportunities that we're currently tracking in the Western U S. So.
So far this year, we've been successful obtaining wastewater treatment plant O&M contracts at Edwards Air Force base and on Catalina Island in California, which contributed to the increase in O&M revenue that David mentioned earlier for park.
We've also.
Through our <unk> subsidiaries assistance obtained the new seawater desalination plant in Hawaii.
These new projects have positively in fact impacted our services segment.
Results this year and we expect that they will continue to do so through the coming year.
On the acquisition front, we announced on Tuesday that Perth had acquired a 100% ownership interest in <unk> environmental compliance or already see.
They are located in Frederick Colorado, which is north of Denver.
<unk> specializes in helping municipalities in districts comply with environmental regulations and properly manage their precious water resources.
Through a variety of service offerings, including O&M contracts.
RAC brings deep experience and excellent relationships in the Colorado water and wastewater treatment industry.
Its commitment to delivering superior water and wastewater services has won numerous awards over the years, including National recognition for excellence by the EPA.
The company's field staff as professionally certified for the operation maintenance and management.
All types and sizes of water wastewater and industrial wastewater treatment systems.
In addition to the synergies of our culture and mission.
Acquisition of RPC immediately expands our operational presence into a new growth area of the Western U S.
<unk> and CWC OS greater financial capacity and incremental management expertise will help RBC to qualify for larger and potentially more complex O&M contracts in its home market.
The acquisition also creates an important new selling channel for PERC style design build projects and to grow in Colorado market.
Our third quarter results demonstrate how we are effectively applied our financial and management expertise to grow perks business exponentially.
We believe that our success with PERC can be replicated with this strategic acquisition.
As well as with future opportunities.
So looking ahead, we remain very optimistic about our future growth.
For many reasons. This includes the recovery of tourism in Grand Cayman, Our current construction projects, which are underway there and in the U S. As well as increased project bidding activity, we are seeing in the U S.
We believe our recent activities and successes along with our current positive trends in the market reps.
It represents strong drivers for growth increased profitability and further strengthening of our shareholders' value.
Now with that I'd like to open the call up for questions Joe.
Okay.
We will now begin the question and answer session.
Ask any question you May Press Star then one on your telephone keypad.
If you're using a speakerphone please pick up your handset before pressing the keys.
We would like to withdraw question for any reason please press Star then two.
At this time, we will take a moment to assemble our roster.
Okay.
And our first question here will come from Gerry Sweeney with Roth Capital. Please go ahead.
Hi, Good morning, Rick and David Thanks for taking my call.
Hey, Gerry good morning Gerry.
I appreciate the detail on the Remy acquisition and how it fits into park. So that was one of my main questions coming in.
I do appreciate that by staying with park.
Obviously, you've had a history of some really nice wins.
Not just Goodyear, but Edwards Air Force base Catalina.
You, either qualitatively or quantitatively give us a little bit of view too.
Pipeline that youre seeing out there.
Potential projects.
The short and medium term.
So right now.
We're focused on some opportunities some O&M opportunities.
Obviously.
There longer term.
Deals are competitive theyre going to be well being competitively bid so.
It's something that.
We're going to have to be mindful of our margins and that sort of thing.
From the standpoint of the design build business.
You will.
Looking at other opportunities that potentially could develop.
Into next year towards the end of next year.
No.
We are also.
Well this is a two part but we can talk about that on another question.
Yeah.
Yeah.
Yeah.
We don't.
Yes, I guess youre looking jewelry for some type of quantification as to.
I mean is is the pipeline as big as its been bigger Ivy you know theres a lot of dollars coming in because of.
The jobs I would say it is.
It's bigger than it's ever been in.
In terms of number of projects and opportunities.
The robust it's difficult to quantify some of these things we'll pursue some of these things we don't pursue Terry.
I can say that there's enough opportunity out there that we're going to have to go through an evaluation process, because we can't pursue everything and we recently had a strategic thinking along those lines.
We want to focus our business.
Development activities in those projects that make the most sense for us, but we had the highest chance of winning and where we would earn what we consider to be sufficient margin to justify investments in pursuing that business, but it's a very good time for us.
The only park because it seems like the situation in the Western United States gets worst day by day.
So really its just its a very sad.
Right.
Yeah, sorry, your acquisition <unk>.
The acquisition of the Colorado Company I mean, obviously, that's early days, but we.
We see additional opportunity there to develop the design build business.
Through already see which really was one of the key.
Parameters of our decision to acquire that company, Colorado has been very similar to Arizona, and California, they've got water issues.
And you know this.
And they are growing.
Pretty much twice the national average population wise.
It's it's a growing market there and already see was a great opportunity for us because they are very well respected company great capabilities, but similar to perk. It didnt have the capital paralyzed.
And so and they you know once we bring them into the fold with us and we can apply <unk> qualifications and CWC has qualifications to the business that already 6%, assuming we think we can be a significant player in Colorado and the amount of <unk>.
Cost of $4 2 million hours to get into this market.
Uh huh.
It's a great deal for us because if we get started the company yourselves.
The thing we spent more than $4 2 million now that's trying to penetrate that market now we already have a company with a great reputation there that we can leverage to pursue business. There. So we're pretty excited about the acquisition of <unk>. We think not initially you know not in the first six months a year that once we establish things there and start pursuing business using her team to help them.
I think we've got a chance to very significant growth in Colorado.
Got it fair to say broke brings technology reference accounts.
As well as consolidated water Raimi brings 100, plus customers and customer relationships and it sounds as though.
Across the Colorado is going to drive.
Either.
Upgraded or enhanced water wastewater and water recycling and other facilities is that a fair way of looking at it.
Yeah I think.
Theres needs there that are being unmet right now in the market and.
We're going to go in and try to meet those needs, particularly.
Creating.
Facilities, whose needs to upgrade facilities to meet tighter.
Nutrient removal requirements that were enacted I think about a year and a half two years ago.
And then Colorado has also recently enacted.
Direct potable reuse legislation, which.
<unk> is up a whole new opportunity there for preferred because they are experts in that sort of.
Level of treatment of wastewater.
Got it.
Staying with park for a second good year I think he did $20 million in.
Recorded $20 million in revenue in the quarter from the project back the envelope I have something like 45 or $46 million.
Uh huh.
That leaves just over $40 million left.
Maybe just under $40 million.
Is that roughly.
Roughly in the ballpark with that.
Yes, you are right I mean, we've been very transparent in how much revenue. We recognized on this project could happen literally from the date that we started construction. So if you go back and just simply add the numbers from last year as reported in our 10-K and then add in the nine months for this year.
You'll have what percentage of the of the $82 million, we've recognized to date and the remaining revenue Jerry will be recognized in the fourth quarter of this year and in the first two quarters of next year and then after that the project will essentially be done.
And Mike correct that.
A large proportion of the project is scheduled to be completed this year with.
I don't want to say tag ends by with the remainder next year.
Yeah, I think that's a.
I don't have the exact construction schedule in front of me as we speak but there will still be a lot of progress made in the fourth quarter of this year.
Got it so.
And I know this is maybe a little forward looking it sounds like margin you're been executing very well margins are above trend.
As far as you can tell.
Think that can continue.
No I don't think it's going to continue I think.
Yeah, I would be surprised if there is a significant amount of further margin adjustment in future quarters. I think we've got a really good handle on the cost necessary to complete the project.
So.
I don't think there'll be any cumulative type adjustments of any significance going forward.
That's the kind of asking.
Yeah, I just wasn't sure if it would stay I think it came in at around 30% I wasn't sure. If it would trend down you just you I'm not sure. If you had a good run things for ahead of schedule or ahead of margin and maybe they kind of revert back down to more.
Previously projected levels.
No the accounting doesn't work that way.
Unless they start cost estimate.
The margin should be pretty steady going forward and we're a lot more comfortable with the cost estimate now than we were during the first six months of construction.
When we proposed this project it was a very scary kind of environment and maybe there was a very tight labor market in the Arizona area and raw material prices were going through the roof.
So our initial margins.
Were lower because of the uncertainty and the anticipated additional cost the people and the person did a fantastic job both in efficiency constructions construction efficiency.
Arresting the labor shortage issues that must be the other construction companies are having out there in Arizona and they've done a good job of controlling cost. So they you know I have to say again, they've done a great job on the share ball project today some of the details.
Please fill in these projects.
Got it Super helpful.
That's it for me I'll jump back in line. Thanks, guys. Congrats on a great quarter.
Thanks Jerry.
Again, if you have a question you May press Star then one.
Our next question will come from John Bair with ascend wealth advisors. Please go ahead.
Thank you and good morning.
Yeah.
Congratulations on a.
Great quarter, and really a very solid momentum that you have.
Have.
Wanted to ask about.
Are the opportunities that you might see with.
Having won the.
The water treatment contract on the military base, if there's other opportunities like that.
In the country that you might be able to address or pick up.
Okay.
Yes, I think I think there are.
Thank you.
We probably haven't mentioned it too much in the calls and stuff I mean, we've been operating.
Camp Pendleton wastewater system for the Marine Corps for.
Several years now.
We added the Edwards Air Force base contract this summer.
Those types of contracts.
Go out to bid pretty regularly so.
We anticipate continuing to pursue those types of agreements.
And in those extensions on the annual basis does it does those.
Those go out for an annual bid.
In other words is it competitive or.
You have to continue to.
Offer a bid against others.
For them to decide not to.
Extending.
The contract or not.
Well its at the clients discretion to extend but those prices are already included in the.
And the.
Bid that we put in for the initial one year term. So you bid out to five years basically.
And your bid submission so it's really up to the client to decide what they want to do the following year, but typically we have.
Our experience has been that they renew them through the life of the contract Yeah. We've had very good experience there John I mean, there's no guarantee though or no.
The history.
It was on that you have experienced with a couple of them that do you sort of become a preferred.
Operator for other facilities, that's kind of where I was.
Driving it.
The opportunities throughout the U S base.
So yes camp Pendleton in Edwards Air Force base gives us a lot of credibility.
And.
That counts for a lot when you're bidding on new contracts.
The momentum feeds itself, John hopefully that won't continue.
Right and.
And then turning to the the Hawaii contract.
In your release that you use.
Moving on in the first phase so at what point do you.
To start receiving revenue.
On that project.
Yes, it's going to be like some of these other ones where it's at.
As you move forward that's when you.
<unk> revenues against the overall.
Contract win.
Yes, I mean, this is sort of more on David.
As Ali but.
We're booking the revenues for that project.
<unk> costs that we incur to date.
What do you call that it's called the input method input message. So I mean, although we have had some substantial payments from the client upfront for <unk>.
Mobilization in various insurances that sort of thing that were required for the project.
We're in the development phase right now so we're not incurring a lot of cost realm.
Relative to the size of the contract that would allow us to book.
The meaningful revenues on that project, yet I mean I think.
We're in the process of designing the piloting study and doing public outreach and that sort of thing.
By this time next year I think it will be.
It will be a different picture and we'll be booking some meaningful revenues from the development phase, which.
That totaled about 11.5.
$5 million or something.
That's out of the contract so.
The construction revenues are still probably a year and a half away.
And then we start booking the balance of that which is about 130 million Bucks.
And the construction revenue itself is subject to adjustment because contract gas inflation clauses in it. So when we finished the design phase development phase, we will and we've had the final design for the plant and the cost will be adjusted based upon you know.
CPI and things like that so that.
We're not hit for inflation over the design period.
But the big impact from Hawaii will have an impact in 2024, but it really starts with construction starts towards the end of 2024 or 2025 25.
Oh, that's good that's.
Elaborated a lot on.
You know Mike.
What I was thinking on this.
When construction starts and so forth so that's that.
It's very positive.
Another question is you alluded to a pretty full pipeline of bid opportunities and so forth do you think that is.
As much a function of the federal.
Hi.
Suppose it.
<unk> got to act.
Federal moneys flowing into that or do you think it's more.
Or just as much just the absolute need.
To develop a new water resources.
Capabilities.
The only project that we're aware of that.
Im aware personally it's receiving those types of funds from the federal government is the Hawaii project.
Presumably that Wouldnt move forward, if they werent able to get those sorts of commitments for the funding, but these other opportunities that we're seeing are either with private clients are.
Projects that are just sort of in the normal course of business I mean, it's not that I know of that theyre getting any.
Supplemental funding from from those federal.
Federal sources, Yeah, we haven't heard anything from our perspective clients that this is any federal monies involved and this is really just.
Projects.
Driven by the need not necessarily by extra funding available.
That's interesting.
Interesting.
Question is you got a nice chunk of cash there how do you have that positioned are you in short term treasuries.
Howard how are you how are you addressing that.
Well for the U S funds I mean, we have cash in several different locations John.
Significant cash balances historically in the Bahamas, and Grand Cayman and in the U S.
We don't move money around between countries that often especially not between the U S. In our foreign subsidiaries because of tax considerations.
We're sort of limited as to how much we can earn our money and the Grand Caymans banks, there aren't paying what they are in the U S.
But we are in a nice way.
We're in a nice return money market returns on the money that we have in the Bahamas. We're also opening up our interest bearing accounts in the U S.
Because <unk> is generating a lot of cash right now and we'll be starting youll see us reporting more interest income going forward.
We invested balances in the short term very secure type of money market accounts sure.
Very good well. Thank you very much for taking my questions. Congratulations again on a really strong momentum and a very positive outlook.
Thank you, thanks, John worthwhile being patient.
Yes.
What I say here.
Okay.
At this time, we will conclude our question and answer session.
Now I'll turn the call back over to Mr. Mctaggart, Sir Please go ahead.
Thanks, Joe just like to thank everybody once again for joining us today.
And I'm looking forward, David and I are looking forward to talking with you again.
When we.
Present are our year end results I guess in March of next year. So.
Take care.
Hope everybody stays safe thanks, Joe.
Yeah.
Before we conclude today's call I would like to provide the Companys Safe Harbor statement that includes cautions regarding forward looking statements made during today's call.
The information that we provided in this conference call includes forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, 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 forecast and projections sports business and the 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 and 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 to such differences include but are not limited to tourism and weather conditions in the areas we serve.
Economic political and social conditions of each country in which we conduct or planning 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.
Our ability to successfully enter new markets and various other risks as detailed in the company's periodic report filings with the Securities and Exchange Commission.
For 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 Form 10-K, and quarterly reports on Form 10-Q.
Any forward looking statements made during the conference call speaks as of today's date the company expressly disclaims any obligation or undertaking to update or revise any forward looking statements made during the conference call to reflect any changes in its expectations with regard thereto or any change in incidents conditions or circumstances of which any forward looking statements.
Except as required by law.
I would 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 company's website at Www Dot CW C O dot com.
And lastly, thank you for attending today's presentation. This will conclude the conference call. Today, you may now disconnect your lines.