Q3 2024 Global Water Resources Inc Earnings Call
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Speaker Change: Greetings, ladies and gentlemen. Thank you for standing by. Welcome to the Global Water Resources, Inc. 2024 third quarter conference call.
Speaker Change: 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 for you to queue up for questions.
Speaker Change: If anyone has any difficulties hearing the conference, please press star then zero for operator assistance at any time. I would like to remind everyone that this call is being recorded on November 7th, 2024 at 1pm Eastern Time.
Speaker Change: I would now like to turn the conference over to Joanne Ellsworth, Executive Vice President of Corporate Affairs. Please go ahead.
Joanne Ellsworth: Thank you. Welcome, everyone. Thank you for joining us on today's call. Yesterday, we issued our 2024 third quarter financial results by press release, a copy of which is available on our website at www.gwresources.com.
Joanne Ellsworth: Speaking today is Ron Fleming, President and Chief Executive Officer, Mike Liebman, Chief Financial Officer, and Chris Krygier, Chief Operating Officer.
Joanne Ellsworth: Ron will summarize the key operational events of the quarter, Mike will review the financial results, and Chris will review strategic initiatives and the Arizona Corporation Commission activities for the quarter. Ron, Mike, and Chris will be available for questions at the end of the call.
Speaker Change: 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.
Joanne Ellsworth: 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.
Joanne Ellsworth: Accordingly, investors have 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.
Joanne Ellsworth: 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-K filed with the FCC.
Such filings are available at www.fcc.gov.
Speaker Change: 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.
Ron Fleming: Thank you, Joanne. Good morning, everyone, and thank you for joining us today. We are very pleased to report the results for the third quarter of 2024.
Ron: I will start with some operational highlights. Total active service connections increased 4.7% to 63,889 as of September 30, 2024, from the 12 months prior.
The 2024 annualized growth rate is 4.5%.
Ron: Year to date, we've invested $19.2 million into infrastructure improvements and existing utilities to provide safe and reliable service.
Thank you for tuning in.
Ron: And finally, with public health and safety being our top mandate, we are very proud of our compliance record. For the quarter, we had zero significant compliance events continuing our streaks from 2023 and prior. In fact, this means it has been over seven years without a significant compliance event.
Ron: Now, I want to discuss organic customer growth and what is going on in our core utilities a bit further.
Ron: The single-family dwelling unit market ended 2023 with approximately 22,582 building permits issued in the Phoenix Greater Metropolitan Statistical Area.
Ron: For the last nine months, this market realized 21,125 building permits, representing a 28% increase from Q3 2023.
Joanne Ellsworth: In 2023, the City of Maricopa issued 884 single-family dwelling building permits.
Joanne Ellsworth: For the last nine months, this Maricopa market realized 764 building permits, representing a 13% increase from Q3 2023.
Joanne Ellsworth: As you can see, the year-to-date Q3 2024 Kerma data was strong in both Metro Phoenix and the City of Maricopa.
Joanne Ellsworth: Some contend there remains a housing shortage in Metro Phoenix, and thus over time, Metro Phoenix will retain an annual run rate approaching 30,000 housing units per year to keep pace with net immigration and job growth.
Joanne Ellsworth: This demand must be met by a combination of single-family drone units and multifamily.
Joanne Ellsworth: On this note, as previously reported, there is a significant shift occurring in the City of Maricopa to large-scale, high-density, multi-family dwelling complexes, along with more commercial and retail businesses.
Joanne Ellsworth: We believe this shift will be notable and at some level supplant the reduction in single family home growth.
Joanne Ellsworth: In fact, the year-to-date 2024 multifamily housing unit data was also strong in the City of Maricopa with 1,200 units permitted compared to 315 units permitted for the same period in 2023.
Joanne Ellsworth: This represents an increase of 885 units per minute, or 281%.
Joanne Ellsworth: Looking ahead, there is a record number of additional multifamily projects in some stage of development.
Joanne Ellsworth: The fact is, the booming economy and net immigration 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 continue to accelerate at an extremely high pace in Metro Phoenix and in our service areas.
Additionally, the industrial manufacturing boom also continues.
Joanne Ellsworth: Previously, 2022 was the single best year for Arizona all time from an industrial economic development investment perspective, and that was eclipsed in 2023 with $40.7 billion invested in the state just last year.
Joanne Ellsworth: Let me say that again, $40.7 billion invested in this state just last year.
Joanne Ellsworth: There's been significant further announcements made in 2024, including additional planned expansion at TSMC and Intel, as the chip industry continues to explode.
Joanne Ellsworth: Frankly, what continues to occur here in Arizona is unprecedented. Because of these things, we remain bullish on the future potential of our inland port Arizona service area, where Nikola Motor Corp. facility is located, and where Procter & Gamble acquired land.
Joanne Ellsworth: We continue discussing potential projects with several firms that would locate adjacent to Procter & Gamble.
Joanne Ellsworth: Additionally, the City of Maricopa continues progress on their recently announced large industrial complex consisting of over 1,200 acres of projects.
Joanne Ellsworth: The city identified a winning developer and is working on the sale of the property to that developer. While this project is still several years away from generating revenue, it represents another opportunity for growth of our company.
Joanne Ellsworth: Based on all of these trends, we believe that in the years to come, we will continue to see considerable, large-scale commercial, multifamily, and industrial growth, in addition to strong organic housing growth.
Joanne Ellsworth: As I mentioned in our last earnings release, yes, high inflation and other cost drivers have caught up with us and are impacting our earnings growth a bit. However, it's important to recognize that 2024 is a test year for our largest utilities whose last test year was five years ago in 2019.
Joanne Ellsworth: We need new rates to address all the cost increases over that period and the significant investments we have made. Chris will discuss this further later.
Speaker Change: You can see how Global Water is going to be able to grow earnings considerably in the years to come.
Speaker Change: As we continue to advance our mission of growing and aggregating water and waste water utilities so that our customers can realize the benefits of consolidation, regionalization, and environmental stewardship in the face of rapid growth, water scarcity, and climate change.
Challenging Regulations and Aging Infrastructure.
Speaker Change: I will now turn the call over to Mike for his financial highlights.
Thanks, Ron. Hello, everyone.
Mike Liebman: Total revenue for the third quarter of 2024 was $14.3 million which was down 0.2 million or 1.5 percent compared to Q3 2023.
Joanne Ellsworth: The decrease in revenue is primarily attributable to ICFA revenue recognized in Q3 2023 that did not recur in Q3 2024, and was partially offset by an increase in wastewater and recycled water service revenue, largely as a result of a 5% increase in active wastewater connections.
Joanne Ellsworth: Regulated revenue which excludes ICFA revenue for Q3 2024 was 14.3 million which was up 0.3 million or 2.2 percent compared to Q3 2023. This increase is primarily due to the increase in organic connection growth.
Joanne Ellsworth: Operating expenses for Q3 2024 were 10.3 million compared to 10.7 million in Q3 2023. This is a decrease of approximately 0.4 million or 3.3 percent.
Joanne Ellsworth: Notable changes in operating expenses included $252,000 decrease in depreciation and amortization, primarily driven by lower amortization of intangible assets related to acquired ICFAs that did not recur in Q3 2024.
Joanne Ellsworth: This is purposely upset by additional depreciation expense tied to our capital expenditure program.
Joanne Ellsworth: And secondly, we had a decrease in operating and maintenance costs by $143,000, which was primarily attributable to decrease in medical expenses and salary and wages.
Now to discuss other income and expense.
Joanne Ellsworth: Other income for Q3 2024 was $2,000 as compared to other expense of $315,000 in Q3 2023. This improvement was primarily driven by higher income from the Buckeye growth premium.
Joanne Ellsworth: Net income for Q3 2024 was $2.9 million or $0.12 per diluted share as compared to $2.6 million or $0.11 per diluted share in Q3 2023.
Joanne Ellsworth: And 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.
Joanne Ellsworth: Adjusted EBITDA was $8.2 million in Q3 of 2024 compared to $7.6 million in Q3 2023. This is an increase of approximately $600,000 or 7.2%.
Speaker Change: This concludes our update on the third quarter 2024 financial results, and I'll pass the call to Chris to review the regulatory activity and strategic initiatives for the quarter.
Thanks, Mike. Hello, everyone.
Chris Krygier: First, an election update. As you may know, here in Arizona, we had three of the five seats on the Arizona Corporation Commission on the ballot.
Chris Krygier: The results are still preliminary, but as of this morning, the three Republican candidates, current incumbent Commissioner Marquez-Peterson, Rachel Walden, and Renee Lopez are the top three vote getters.
Chris Krygier: In terms of actual activity at the Commission, it has been relatively quiet since the last time we spoke.
Chris Krygier: First, the Tucson Acquisition Approval application continues progressing, with the ACC Utilities Division Staff's recommendation to be filed today, and the hearing is scheduled for next week.
Speaker Change: After the hearing, the administrative law judge will issue a recommended opinion and order for the commission's consideration at a future open meeting date.
Speaker Change: We estimate to close the acquisition in the first quarter of 2025.
Speaker Change: Second, the Global Water Farmers Rate Case continues on its ACC process. We still estimate that Utilities Division staff will file their initial recommendations in December 2024, and we will provide an update in the future.
Speaker Change: As is always the case with our rate cases, we cannot guarantee what action the Commission may or may not take.
Speaker Change: Finally, as you heard Ron mention earlier, we are in a test year for our Global Water Santa Cruz and Global Water Palo Verde utilities, the two largest utilities within the company. We continue our customer outreach efforts to educate the community on the investments we are making to ensure we provide safe, reliable service and stay ahead of growth.
Speaker Change: We anticipate filing the rate case in the first half of 2025.
Speaker Change: Once the case is filed, it takes approximately one year from the date of sufficiency to receive a commission order.
Thank you.
Speaker Change: This concludes the update on acquisitions and regulatory activity for the quarter. I'll now pass the call back to Ron.
Thank you, Chris.
Ron Fleming: So it is clear we continue to achieve meaningful growth despite headwinds.
Ron Fleming: As we execute our growth plan, we intend to remain at the forefront of the water management industry and advance our mission of achieving efficiency and consolidation.
Speaker Change: 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.
Speaker Change: These highlights conclude our prepared remarks. Thank you. We are now available to answer any questions.
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2.
Speaker Change: And our first question today will come from Jerry Sweeney with Roth Capital. Please go ahead.
Good morning, guys. Thanks for taking my call.
Speaker Change: Good morning, Jerry. Good morning. Just one or two questions, actually. Great quarter speaks for itself. But, obviously, the political landscape has changed a little bit this week. And, you know, expectations are...
Speaker Change: maybe continued reshoring of manufacturing into the U.S., maybe speed that up as well as maybe some semiconductor opportunities, etc. I'm just curious.
if you had any viewpoints on the political landscape.
impact on the Greater Phoenix Area as well as Europe.
Thank you for your cooperation.
Speaker Change: Yeah, happy to take that. I agree with your assessment there. What's interesting is
Speaker Change: As we talk about, it is available in our investor deck on our website, the slope of the curve on
Speaker Change: is up and to the right and a pretty significant slope.
Speaker Change: and that has been over the last three years really coming out of COVID and some of the things the prior administration done and really a lot of great work.
here in the state of Arizona as well.
Speaker Change: And so, in some ways, I think this is just going to...
Speaker Change: for a little bit more fuel on the fire that already exists.
So, for us...
Speaker Change: You're seeing more and more of that push out from the Greater Metro Phoenix area to these new emerging communities and counties.
Speaker Change: But there's two things going on that I think is going to accelerate it coming out our direction and really any of these more kind of historically more rural areas.
One is...
the cost of housing.
Speaker Change: So that's obviously gone up quite a bit here in the Phoenix area and Arizona as a whole.
Speaker Change: And, you know, these new industries, as we talk to them and participate on economic development boards, they're quite interested in, you know, the housing availability and living affordability of the areas for their employees. So we obviously compete really strongly on that because we have some of the lowest affordability numbers in the metro Phoenix area where we are.
Speaker Change: So, I think that matters. And the second one is power supply.
Speaker Change: And in the future we may talk about this more, but this type of growth obviously is not just impacting our water industry, but the power industry as well. And what is difficult is getting the infrastructure into some of these infill sites.
Speaker Change: at the scale that is needed for the type of manufacturing facilities that are going in. So they're actually being redirected out to these more remote areas because the large power providers, be it APS or SRP or TEP, they actually have better access to run the type of transmission that's needed to these rural areas versus, you know, into heavily developed areas.
Speaker Change: So, we think it's going to just continue to be up and to the right, and in some respects move more out to the areas that we've been talking about, including our inland port project and the city of Maricopa.
Got it. Helpful. And then just one easy housekeeping.
Questions?
Speaker Change: from Mike. Mike, do you know how much the Buckeye Premium was?
Thank you very much.
Speaker Change: Yeah, no problem. Yeah, I was about just under $920,000 compared to 2022, it was about $730,000, so I was up a little over $180,000 or 25%. So it's been a pretty good run and year-to-date we're at about...
Speaker Change: $2.2 million versus $1.6 million last year. So that's up north of $500,000 or 35%. The Buckeye premium has been strong. And again, as Ron mentioned, it's another one of those areas where it's a lot more affordable than Metro Phoenix.
Speaker Change: itself because it's on the outskirts and so it's been nice and looking forward to seeing that sustain or even continue to grow.
Speaker Change: That's it for me. Thanks, guys, and congrats on the next quarter.
Thank you.
Speaker Change: Again, if you would like to ask a question, please press star and then 1.
Dr. Sweeney, Dr. Sweeney, Dr. Sweeney,
Speaker Change: Seeing no further questions, this will conclude our question and answer session. I would like to turn the conference back over to Ron Fleming for any closing remarks.
Ron Fleming: Yes, thank you, operator. I'd just like to thank everybody for participating on the call and for your ongoing interest in support of global water. Thanks and look forward to speaking with you again.