Q2 2019 Earnings Call
Good morning, ladies and gentlemen, thank you for standing by.
Welcome to the global water resources, Inc. 2019 second quarter 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 questions.
If 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 August eight 2019 at one PM Eastern time.
I would now like to turn the conference over to Heather Cooper.
Vice President and controller. Please go ahead.
Good morning, everyone and thank you for joining us on today's call.
Yesterday, we issued our 2019 second quarter financial results the 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, and Mike Lehman Chief Financial Officer.
Mr funding was summarized the key events of the quarter, following which Mr. Lehman will review the financial results for the quarter.
Mr Flemming and Mr. Lehman 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 section 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 SEC.
Such filings are available at Www dot at DC 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 Yesterdays earnings release, which is available on our website.
Unless otherwise stated all amounts discussed are in us dollars.
I will now turn the call over to Mr. Ron Fleming.
Thank you Heather.
Good morning, everyone and thank you for joining us today.
We are very pleased to report the results for the second quarter of 2019.
I'm going to let Mike Lehman add further detail on the financial highlights included in our earnings release, and I will focus on the operational highlights.
Those highlights include first and foremost in the quarter, we extended our employee safety and regulatory compliance and non recordable incident streak.
Just yesterday or staff passed the two year Mark having now achieved over 730 consecutive days without a recordable safety accidents.
Also it has been 1227 days since our last compliance violation or nearly three and a half years.
These remarkable achievement showed the dedication of our employees and the care shown towards public health and safety.
As we deliver exceptional performance, both financially and operationally.
Our director of water resources, Jake lender King was appointed to the board of the pad now County water augmentation authority.
Pick what as it is known serves as a resource and partner for the development an augmentation of water resources for the benefit of all users in the area known as the canal active management area. A large portion of put out county were significant growth is expected to occur where global water has material utility interest.
We secured a three year revolving line of credit up to $8 million to support the company's growth strategy and that remains unused today.
Oh, sorry, as a two year extension to the revolving line of credit.
And finally total active connections increased 8.9% to 44715 at June Thirtyth 2019, with the organic connections up 4.6% in that period.
Further I wanted to highlight permit growth.
For 2018 single family dwelling permits in Maricopa and for now counties were up to 22437 units or 13% over 2017.
The forecast remains strong with 2019 projected to see approximately 24000 single family dwelling need a permit.
And followed by 25020 20.
Importantly, the data for the City America Submarket continues to be very strong.
As a reminder, in 2018 permit growth was up 18% over 2017 with 1022 single family dwelling dwelling unit permits issued.
This was the first time since the housing market collapse in 2008 that we realized over 1000 permits in a single year.
To date in 2019. It appears Maricopa is on track to meet or exceed this mark again.
This acceleration supports our long stated position that a sustained growth continues throughout metro Phoenix, we will get a larger and larger market share of the new homes based on the amount of locked in infrastructure capacity that exists in our service areas.
Before turning the call over to Mike to review second quarter and year to date financial performance.
I wanted to again layout our primary objectives.
Global water will continue to meet our primary mandates to provide safe reliable and sustainable service to our customers and partners, while taking a disciplined approach to growth and long term value creation through the following me.
We will work to grow earnings by driving top line revenue growth, while creating operational efficiencies and managing controllable expenses.
We will make prudent capital investments as necessary.
We will expand our utility platform via new Greenfield opportunities.
And finally, we will pursue accretive acquisitions with consolidation benefits.
The accretive tuck in such as this will complement the strong position and growth of our core regional assets.
We are committed to continue to pursue similar opportunities both big and small.
Additionally, as proven by our recent acquisitions. This consolidation can help improve our industry as a whole and provide many benefits to the customers and communities we have the privilege to serve.
I will now turn the call over to Mike.
Revenue recognized in Q2 of 2018 that was not re occurring.
Regulated revenues for the second quarter of 2019 or $9.1 million, which is an increase of 671000 or 8% compared to Q2 of 2018.
This increase is primarily driven by the organic connection growth. In addition to the acquisition connection growth from Turner Wrenches and Red rock.
Year to date through Q2 of 2019 regulated revenues were $16.8 million compared to $15.8 million through 2018.
This reflects an increase of $966000 or 6.1%.
Similar to the quarter. This increase is primarily driven by the organic connection growth. In addition to the acquisition connection growth from both Turner ranches and Red rock.
Operating expenses in Q2, 2019 were $6.87 million compared to $6.73 million in Q2 of 2018.
This is an increase of 142000 or 2.1%.
Notable changes in operating expenses include.
Increased operating and maintenance costs by $192000. This increase was primarily driven by the additional costs associated with the Turner wrenches and Red Rock acquisition of 183000, as well as an increase in property tax and contract services, which increased as revenue increases.
Reduction in DNA expense by 170000, which can be attributed to the 168000 reduction in deferred compensation expense.
And lastly increased depreciation expense by 120000 due to the increase in fixed assets associated with the capital expenditure plan as well as the acquisitions of Red rock internal branches.
Other expense for Q2 of 2019 was $1.1 million, which was relatively flat compared to 2018.
Year to date through Q2 of 2019 other expense was $1.3 million compared to $2 million in 2018. The decrease was primarily due to the $1 million of other income received in Q1 of 2019 from the loot threethree contract offset by a decrease in the Valencia earn out of 306000.
Turning to net income.
For the quarter global water had a net income of in Q2 of 2018 of $779000 or four cents per share.
Adjusted EBITDA, which adjusts for nonrecurring events, such as ice CFA revenue loop Threethree proceeds and also adjusts for option expense and our equity investment in Fathom was 4.5 million in Q2 of 2019, which is up $541000 or 13.7% compared to Q2 of 2018.
Adjusted EBITDA was up primarily due to the increases and organic growth of 4.6% as well as the acquisition growth from Red Rock and Turner ranches.
I'd like to remind everyone that we were able to extend our 8 million line of credit as Ron mentioned until April Thirtyth of 2020.
Previously it was set to expire on April Thirtyth.
Of 2020, I'm, sorry, we extended to April Thirtyth of 2022.
It was previously set to expire in April Thirtyth of 2020, So we extended the line and additional two years and this line is currently unused.
This concludes our update on Q2 of 2019 results I'll now pass the call back to Ron.
Thank you Mike.
It is clear excluding onetime revenue recognition events and revenue reductions caused by the federal tax reform and corporate rate reductions.
And the slowdown over Valencia earn out both of which are beyond our control.
The global waters topline in connection growth rates continue to be very strong.
As we handle this high growth, we intend to remain at the forefront of the water management industry in advance our mission of achieving efficiency and consolidation.
We truly believe that expanding our platform and applying our expertise throughout the regional service areas into 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 than economic development issues in Arizona and potentially beyond.
This highly concludes our prepared remarks, thank you.
Mike and I are now available to answer your question.
Thank you.
We will now begin the question and answer session.
To join the question queue. You May Press Star then one on your telephone keypad, you will hear a tone acknowledging your request if you using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then too.
We will pause for a moment as college joined the Q.
The first question comes from Gerry Sweeney of Roth Capital Partners. Please go ahead.
Hey, good morning, Ron and Mike Thanks for taking my call.
Good morning, Jerry.
Just a.
A couple of questions specifically around growth a little bit and you touched upon it.
In your comments.
I track permits in.
Single family residences in Maricopa and.
And obviously 2018 up significantly over 17 and 19 late 18, <unk> early 19, almost seemed to slow a little bit but permit activity since may and June is appears to have accelerated even past.
Rates that we saw in 2018, and Bakken extrapolated out further, but obviously things are going very well there lots of growth maybe give a little bit of nuance, maybe what's happening on the ground outside of not just single family permits maybe some building some infrastructure and even maybe some bids.
Yeah, I think Sherri. This is this is Mike so I'll just I'll just sit on the numbers and we are seeing that acceleration Q1 seemed to be a little bit of a slowdown compared to 2018, but Q2 has as you see is bringing that percentage back up so were going at the 4.6 and its even in June and July we're even seeing additional acceleration. So you are correct and and we're seeing the same permit activity happening in the city of our Copa and and on the business side I'll turn it over to Ron that give a little bit of color on what we're seeing there.
Yes, Thanks, Mike.
Sorry so.
The city of Maricopa.
I think now officially last summer saw is over 53000 residents.
When they did the census last time they were just below 50, and that's kind of an important point for US cities are certainly like remote suburbs such as Maricopa.
When you get to north of that 50000, and Theres. This type of growth occurring all that's kind of the sweet spot for commercial interest to increase and that's exactly what we're seeing we are seeing really more than we've ever seen in that city in our 15 year history there.
More commercial.
Development occurring and we expect that to continue right along with the population growth.
Thats helpful.
And then also just one other question.
Not sure how much comment on it but I know you've got some other things that you're working on.
Potentially rate cases and things.
But.
Or any movement on the acquisition front or any comments on that if possible.
Hi, Jerry this is Mike. So I'll, just say look we continue to have active conversations and dialogue with folks theres nothing anything of no real meaning to discuss here at this point, but we are in active dialogue and we'll continue to chase down some of those.
And we are dedicating resources as well to the rate case, so that is true, but we still still are looking at the the acquisition opportunities.
Got it and then final final question.
On the need for extended two years any other major changes too.
Any the rates or anything involved.
Associated with the.
No no that's still the same so everything's the terms, there's still a LIBOR plus 225, so that's kinda nothing's changed on that front, we just were able to extend it to get it you know we've got about a three year runway versus.
What was going to be only one year left so which is good to have that additional couple of years.
Got it okay, great. Thanks, guys I appreciate taking my call.
Thanks Jerry.
This concludes the question and answer session I would now like to turn the conference back over to Mr., Ron Fleming for any closing remarks.
Thank you operator.
I would like to thank all of those participating in this call for your interest in global water.
Thank you and we look forward to speaking with you again take care.
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This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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