Market Overview

Global Water Resources Reports Second Quarter 2018 Results

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PHOENIX, Aug. 08, 2018 (GLOBE NEWSWIRE) -- Global Water Resources, Inc. (NASDAQ:GWRS), (TSX:GWR), a pure-play water resource management company, reported results for the second quarter ended June 30, 2018. All quarterly comparisons are to the same year-ago period unless otherwise noted.

Q2 2018 Financial Highlights

  • Revenues increased 33.1% to $10.8 million, driven primarily by a $2.4 million recognition of revenue under infrastructure coordination and financing agreements ("ICFAs") in connection with the substantial completion of capital improvements that increased the capacity of Palo Verde's wastewater reclamation facility. The increase in revenues was also due to growth in active connections of 7.8% and approved rate increases.

  • Regulated revenue increased 3.8% to $8.4 million, primarily due to organic growth and the acquisition of Turner Ranches Water and Sanitation Company. The increase was partially offset by reductions due to tax reform of $378,000, or 4.6%. Excluding the expected rate reductions due to tax reform, regulated revenue increased 8.4%.

  • Net income increased by $1.8 million to $2.3 million, or $0.11 per share.

  • Declared three monthly cash dividends of $0.023625 per common share (or $0.2835 per share on an annualized basis.)

Q2 2018 Operational Highlights

  • Total active connections increased 7.8% to 41,078 at June 30, 2018 from 38,115 at June 30, 2017, with organic connections up 2.9% (or 5.7% on an annualized basis) from 38,997 at December 31, 2017.

  • Completed the purchase of Turner Ranches Water and Sanitation Company, a non-potable irrigation water utility in Mesa, Arizona, which added 963 connections.

  • Signed a letter of intent to acquire a Class D water utility and a Class D wastewater utility, with plans to close the acquisitions on an accelerated basis as early as Q3 2018.

Subsequent Events in July 2018

  • Raised net proceeds of approximately $14.7 million in an equity offering to fund acquisitions, provide working capital, and for other general corporate purposes.

  • Declared a monthly cash dividend of $0.023625 per common share (or $0.2835 per share on an annualized basis), payable August 30, 2018 to holders of record at the close of business on August 16, 2018.

Management Commentary

"In Q2, the continued growth in revenue drove our fifth consecutive quarter of profitability," said Global Water Resources' president and CEO, Ron Fleming. "This growth was driven by approved rate increases and continued organic growth in new active connections. The number of total active connections accelerated this quarter in part due to the accretive acquisition of Turner Ranches Water and Sanitation Company, which represented our second acquisition post-recession in our declared strategy of pursuing water utility acquisitions.

"In Q3, we remain on track to complete two additional acquisitions, a Class D water utility and a Class D wastewater utility. We believe our focus on consolidating, improving, and automating water utility assets will greatly benefit the customers of these water and wastewater utilities, and we look forward to serving these new communities.

"Our recent equity raise with net proceeds of approximately $14.7 million provides us greater strength and flexibility as we pursue these strategies. This includes taking advantage of favorable market opportunities to aggregate water and wastewater utilities, and continuing to invest in our utilities as they experience rapid growth. Together, this will allow Global Water and our customers to realize the benefits of consolidation.

"Looking ahead, we see continued growth in total active connections driven by our utilities and service areas in metropolitan Phoenix where rapid housing growth is forecasted. This will be further supported by pre-approved rate increases and strategic acquisitions."

2018 Financial Summary

Revenues

Revenues in the second quarter of 2018 increased by $2.7 million, or 33.1%, to $10.8 million, compared to $8.1 million for the same period in 2017. The increase in revenues was primarily driven by a $2.4 million recognition of revenue under ICFAs, which was connected to the substantial completion of capital improvements that increased the capacity of Palo Verde's wastewater reclamation facility. The increase in revenue also reflects a 7.8% increase in active service connections, inclusive of the 2.5% increase due to the Turner acquisition, and combined with the approved increase in rates. The increase was slightly offset by a $378,000 reduction due to the expected rate reduction resulting from tax reform. Excluding the expected rate reductions resulting from tax reform, revenues increased 37.7%.

Revenues for the six months ended June 30, 2018 increased by $3.3 million, or 22.3%, to $18.3 million, compared to $14.9 million in the same period in 2017. The increase in revenues was primarily driven by a $2.4 million recognition of revenue under ICFAs in connection with the substantial completion of capital improvements that increased the capacity of Palo Verde's wastewater reclamation facility. The increase in revenue also reflects the 7.8% increase in active service connections, inclusive of the 2.5% increase due to the Turner acquisition, combined with the approved increase in rates.  This increase was slightly offset by a $378,000 reduction due to the expected rate reduction resulting from tax reform. Excluding the expected rate reductions resulting from tax reform, revenues increased 24.8%.

Operating Expenses

Operating expenses increased by $301,000, or 4.7%, to $6.7 million in the second quarter of 2018, compared to $6.4 million for the same period in 2017. The increase was due primarily to increases in operations and maintenance expense associated with the Turner acquisition and natural expense increases due to growth, such as property taxes and utilities, coupled with, to a lesser extent, an increase in depreciation.

Operating expenses increased by $672,000, or 5.5%, to $12.8 million for the six months ended June 30, 2018, compared to $12.1 million for the same period in 2017. The increase was due primarily to increases in operations and maintenance expense, associated with the Turner acquisition and natural expense increases due to growth, such as property taxes and utilities, coupled with, an increase in depreciation.

Other Income (Expense)

Total other expense increased by $86,000, or 8.6%, to $1.1 million in the second quarter of 2018, compared to $996,000 for the same period in 2017. The increase was primarily attributed to a decrease in the Valencia earn-out of $171,000, slightly offset with a $78,000 decrease in Other - related party loss, associated with our investment in FATHOMTM.

Total other expense increased by $247,000, or 14.2%, to $2.0 million for the six months ended June 30, 2018, compared to $1.7 million for the same period in 2017. The increase was primarily attributed to a $243,000 decrease related to Valencia earn-out, as well as due to a $123,000 decrease in Other – related party income, associated with the company's investment in FATHOMTM. The increase was slightly offset by an $82,000 decrease in interest expense.

Net Income

Net income increased by $1.8 million to $2.3 million, or $0.11 per share, for the second quarter of 2018 compared to $425,000, or $0.02 per share, for the same period in 2017. The increase was primarily attributed to the $2.4 million increase in operating income, partially offset by the $86,000 increase in other expense. The increase in operating income was primarily driven by the $2.4 million ICFA revenue recognized during the second quarter of 2018.

Net income increased by $2.0 million to $2.6 million, or $0.13 per share, for the six months ended June 30, 2018, compared to $614,000, or $0.03 per share, for the same period in 2017. The increase was primarily attributed to the $2.7 million increase in operating income, partially offset by the $247,000 increase in other expense. The increase in operating income was primarily driven by the $2.4 million ICFA revenue recognized for the six months ended June 30, 2018.

Adjusted EBITDA

Adjusted EBITDA slightly decreased $34,000, or 0.9%, to $4.0 million for the second quarter of 2018, virtually unchanged compared to the same period in 2017. The decrease was primarily due to the reduction in revenue due to tax reform, coupled with the decrease in the Valencia earn-out and the increase in professional fees. Partially offsetting the decrease was an increase in organic connection growth and higher rates. Excluding the reduction in revenue due to the expected rate reduction resulting from tax reform of $378,000, Adjusted EBITDA increased $344,000, or 8.6%. (See definition of Adjusted EBITDA, a non-GAAP term, and its reconciliation to GAAP, below.)

Adjusted EBITDA increased $423,000, or 5.9%, to $7.7 million for the six months ended June 30, 2018, compared to $7.2 million for the same period in 2017. The increase was primarily due to organic connection growth and higher rates. The increase was partially offset by reduction to revenue as a result of tax reform as well as a decrease in the Valencia earn-out. Excluding the reduction in revenue due to the expected rate reduction resulting from tax reform of $378,000, Adjusted EBITDA increased $801,000, or 11.1%. (See definition of Adjusted EBITDA, a non-GAAP term, and its reconciliation to GAAP, below.)

Dividend Policy
The company declared a monthly cash dividend of $0.023625 per common share (or $0.2835 per share on an annualized basis), which will be payable on August 30, 2018 to holders of record at the close of business on August 16, 2018.

Business Outlook
Global Water's near-term growth strategy for its regulated water, wastewater, and recycled water business is driven by increased service connections, continued operating efficiencies, and utility rate increases approved by the Arizona Corporation Commission. The company will also focus more on its original mission of aggregating water and wastewater utilities, allowing the company and its customers to realize the benefits of consolidation, regionalization, and environmental stewardship.

Connection Rates
As of June 30, 2018, active service connections increased by 2,963, or 7.8%, to 41,078, compared to 38,115 at June 30, 2017. The increase in active service connections primarily related to the organic growth in the company's current service areas (2,000 connections, or 5.2%), coupled with the acquisition of Turner (963 connections, or 2.5%). As of June 30, 2018, the vacancy rate was at 1.3% down from the peak of 11.9% in February 2009.

Arizona's Growth Corridor: Positive Population Trends
The Metropolitan Phoenix area is steadily growing due to low-cost housing, excellent weather, large and growing universities, a diverse employment base, and low taxes. The area's population has increased throughout 2017 and 2018, and it continues to grow. The Employment and Population Statistics Department of the State of Arizona predicts that Phoenix Metro will have a population of 4.9 million by 2020, up 15% from 2016 census estimates, and reach 6.8 million by 2040.

According to the W.P. Carey School of Business Greater Phoenix Blue Chip real estate consensus panel ("Greater Phoenix Blue Chip"), most sectors of real estate are expected to experience improved occupancy and growth. For Maricopa County and Pinal County combined, the Homebuilders Association of Central Arizona, reported that single family housing permits grew 12% to 19,863 units in 2017. Permits are forecasted by the Greater Phoenix Blue Chip to increase to nearly 24,000 permits in 2018 and to 27,000 permits in 2019. In the City of Maricopa, where Global Water has its largest water and wastewater permitted utility service area, the Home Builders Association of Central Arizona reports that permits are up 66% year-over-year.

The company believes this growth outlook, combined with three additional years of rate increase phase-ins, creates an opportunity for it to significantly increase its active connections and grow revenues.

Conference Call
Global Water Resources will hold a conference call to discuss its 2018 results tomorrow, followed by a question and answer period.

Date: Thursday, August 9, 2018
Time: 1:00 p.m. Eastern time (10:00 a.m. Pacific time)
Toll-free dial-in number: 1-855-327-6837
International dial-in number: 1-778-331-2160
Conference ID: 10005331

The conference call will be webcast live and available for replay here as well as via a link in the Investors section of the company's website at www.gwresources.com.

Please call the conference telephone number five minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact CMA at 1-949-432-7566.

A replay of the call will be available after 4:00 p.m. Eastern time on the same day through August 23, 2018.

Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 10005331

About Global Water Resources

Global Water Resources, Inc. is a leading water resource management company that owns and operates ten utility companies which provide water, wastewater, and recycled water services. The company's service areas are located primarily in growth corridors around metropolitan Phoenix. Global Water recycles nearly 1 billion gallons of water annually. To learn more, visit www.gwresources.com.

Cautionary Statement Regarding Non-GAAP Measures

This press release contains references to "EBITDA" and Adjusted EBITDA. EBITDA is defined for the purposes of this press release as net income or loss before interest, income taxes, depreciation, and amortization. Adjusted EBITDA is defined as EBITDA excluding the gain or loss related to (i) nonrecurring events; (ii) option expense related to awards made to the board of directors; and (iii) equity method investment. Management believes that EBITDA and Adjusted EBITDA are useful supplemental measures of our operating performance and provide our investors meaningful measures of overall corporate performance exclusive of our capital structure and the method and timing of expenditures associated with building and placing our systems. EBITDA is also presented because management believes that it is frequently used by investment analysts, investors, and other interested parties as a measure of financial performance. Adjusted EBITDA is also presented because management believes that it provides our investors measures of our recurring core business. However, EBITDA and Adjusted EBITDA are not recognized measures under accounting principles generally accepted in the United States of America ("GAAP") and do not have a standardized meaning prescribed by GAAP. Therefore, EBITDA and Adjusted EBITDA may not be comparable to similar measures presented by other issuers. Investors are cautioned that non-GAAP measures, such as EBITDA and Adjusted EBITDA should not be construed as an alternative to net income or loss or other income statement data (which are determined in accordance with GAAP) as an indicator of our performance or as a measure of liquidity and cash flows. Management's method of calculating EBITDA and Adjusted EBITDA may differ materially from the method used by other companies and accordingly, may not be comparable to similarly titled measures used by other companies. A reconciliation of EBITDA and Adjusted EBITDA to Net Income (Loss), the most comparable GAAP measures, are included in the schedules attached to this press release.

Cautionary Note Regarding Forward-Looking Statements

This press release includes certain forward-looking statements which reflect the company's expectations regarding future events. The forward-looking statements involve a number of assumptions, risks, uncertainties, and other factors that could cause actual results to differ materially from those contained in the forward-looking statements. These forward-looking statements include, but are not limited to, statements concerning, future net income growth, our strategy, acquisition plans, our dividend policy, trends relating to population growth, active connections, regulated revenue, housing permit projections, expected effect due to tax reform, and other statements that are not historical facts as well as statements identified by words such as "expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates", or the negative of these terms, or other words of similar meaning. These statements are based on our current beliefs or expectations and are inherently subject to a number of risks, uncertainties, and assumptions, most of which are difficult to predict and many of which are beyond our control. Actual results may differ materially from these expectations due to changes in political, economic, business, market, regulatory, and other factors. Accordingly, investors are cautioned not to place undue reliance on any forward-looking statements, which reflect management's views as of the date hereof. Factors that may affect future results are disclosed under the headings "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our filings with the Securities and Exchange Commission (the "SEC"), which are available at the SEC's website at www.sec.gov. This includes, but is not limited to, our Annual Report on Form 10-K for the year ended December 31, 2017 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 which were filed with the SEC. We undertake no obligation to publicly update any forward-looking statement, except as required by law, whether as a result of new information, future developments or otherwise.

Company Contact:
Michael J. Liebman
SVP and CFO
Tel (480) 999-5104
mike.liebman@gwresources.com

Investor Relations:
Ron Both, CMA
Tel (949) 432-7566
GWRS@cma.team

GLOBAL WATER RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share and per share amounts)

  June 30, 2018   December 31, 2017
ASSETS      
PROPERTY, PLANT AND EQUIPMENT:      
Property, plant and equipment 287,564     289,051  
Less accumulated depreciation (74,830 )   (75,592 )
Net property, plant and equipment 212,734     213,459  
CURRENT ASSETS:      
Cash and cash equivalents 3,778     5,248  
Accounts receivable — net 1,705     1,528  
Due from affiliates 404     430  
Accrued revenue 2,135     1,759  
Prepaid expenses and other current assets 769     700  
Total current assets 8,791     9,665  
OTHER ASSETS:      
Goodwill 1,743      
Intangible assets — net 12,772     12,772  
Regulatory asset 1,871     1,871  
Bond service fund and other restricted cash 484     436  
Equity method investment 185     345  
Other noncurrent assets 59     20  
Total other assets 17,114     15,444  
TOTAL ASSETS 238,639     238,568  
LIABILITIES AND SHAREHOLDERS' EQUITY      
CURRENT LIABILITIES:      
Accounts payable 523     321  
Accrued expenses 7,482     7,252  
Customer and meter deposits 1,374     1,395  
Long-term debt and capital leases — current portion 39     8  
Total current liabilities 9,418     8,976  
NONCURRENT LIABILITIES:      
Long-term debt and capital leases 114,472     114,363  
Deferred revenue - ICFA 17,358     19,746  
Regulatory liability 8,842     8,463  
Advances in aid of construction 63,107     62,725  
Contributions in aid of construction — net 4,339     4,425  
Deferred income tax liabilities, net 3,966     3,114  
Acquisition liability 934     934  
Other noncurrent liabilities 615     962  
Total noncurrent liabilities 213,633     214,732  
Total liabilities 223,051     223,708  
Commitments and contingencies      
SHAREHOLDERS' EQUITY:      
Common stock, $0.01 par value, 60,000,000 shares authorized; 19,756,266 and 19,631,266 shares issued as of June 30, 2018 and December 31, 2017, respectively. 197     196  
Treasury Stock, 20,673 and no shares at June 30, 2018 and December 31, 2017, respectively.      
Paid in capital 12,439     14,288  
Retained earnings 2,952     376  
Total shareholders' equity 15,588     14,860  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 238,639     238,568  

GLOBAL WATER RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except share and per share amounts)

  Three Months Ended June 30,   Six Months Ended June 30,
  2018   2017   2018   2017
REVENUES:              
Water services 3,916     $ 3,897     $ 7,031     $ 6,682  
Wastewater and recycled water services 4,518     4,230     8,815     8,218  
Unregulated revenues 2,404     18     2,417     36  
Total revenues 10,838     8,145     18,263     14,936  
               
OPERATING EXPENSES:              
Operations and maintenance 1,621     1,451     3,130     2,925  
Operations and maintenance - related party 404     365     760     725  
General and administrative 2,820     2,809     5,217     5,019  
Depreciation 1,889     1,808     3,688     3,454  
Total operating expenses 6,734     6,433     12,795     12,123  
OPERATING INCOME 4,104     1,712     5,468     2,813  
               
OTHER INCOME (EXPENSE):              
Interest income 8     6     15     10  
Interest expense (1,304 )   (1,305 )   (2,535 )   (2,617 )
Other 154     336     477     688  
Other - related party 60     (33 )   58     181  
Total other expense (1,082 )   (996 )   (1,985 )   (1,738 )
               
INCOME BEFORE INCOME TAXES 3,022     716     3,483     1,075  
INCOME TAX EXPENSE (766 )   (291 )   (907 )   (461 )
NET INCOME $ 2,256     $ 425     $ 2,576     $ 614  
               
Basic earnings per common share $ 0.11     $ 0.02     $ 0.13     $ 0.03  
Diluted earnings per common share $ 0.11     $ 0.02     $ 0.13     $ 0.03  
Dividends declared per common share $ 0.07     $ 0.07     $ 0.14     $ 0.14  
               
Weighted average number of common shares used in the determination of:              
Basic 19,640,295     19,589,782     19,635,805     19,585,548  
Diluted 19,683,072     19,646,448     19,676,827     19,633,269  

 GLOBAL WATER RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
(Unaudited, in thousands)

  Six Months Ended June 30,
  2018   2017
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income $ 2,576     $ 614  
Adjustments to reconcile net income to net cash provided by operating activities:    
Deferred compensation 595     1,082  
Depreciation 3,688     3,454  
Amortization of deferred debt issuance costs and discounts 22     22  
Loss on equity investment 160     5  
Other (gains) and losses (28 )   5  
Provision for doubtful accounts receivable (3 )   55  
Deferred income tax expense 852     396  
Changes in assets and liabilities      
Accounts receivable (53 )   (256 )
Other current assets (420 )   (771 )
Accounts payable and other current liabilities (148 )   (951 )
Other noncurrent assets     55  
Other noncurrent liabilities (1,942 )   (32 )
     Net cash provided by operating activities 5,299     3,678  
CASH FLOWS FROM INVESTING ACTIVITIES:      
Capital expenditures (2,458 )   (12,771 )
Cash paid for acquisitions, net of cash acquired (2,620 )    
Deposits of restricted cash, net (47 )   (3 )
Other cash flows from investing activities 64      
     Net cash used in investing activities (5,061 )   (12,774 )
CASH FLOWS FROM FINANCING ACTIVITIES:      
Dividends paid (2,786 )   (2,655 )
Advances in aid of construction 382     270  
Proceeds from stock option exercise 750     188  
Principal payments under capital lease (8 )   (80 )
Loan repayments (7 )    
Debt issuance costs paid (39 )    
     Net cash used in financing activities (1,708 )   (2,277 )
DECREASE IN CASH AND CASH EQUIVALENTS (1,470 )   (11,373 )
CASH AND CASH EQUIVALENTS — Beginning of period 5,248     20,498  
CASH AND CASH EQUIVALENTS – End of period 3,778     9,125  

A reconciliation of net income to EBITDA and Adjusted EBITDA for the three and six months ended June 30, 2018 and 2017 is as follows (in thousands):

    Three Months Ended June 30,   Six Months Ended June 30,
    2018   2017   2018   2017
Net Income   $ 2,256     $ 425     $ 2,576     $ 614  
Income tax expense   766     291     907     461  
Interest income   (8 )   (6 )   (15 )   (10 )
Interest expense   1,304     1,305     2,535     2,617  
Depreciation   1,889     1,808     3,688     3,454  
EBITDA   6,207     3,823     9,691     7,136  
ICFA Revenue Recognition   (2,388 )       (2,388 )    
Board option expense   24     43     68     87  
Management option expense   67         121      
Equity investment loss/(income)   49     127     159     5  
EBITDA Adjustments   (2,248 )   170     (2,040 )   92  
Adjusted EBITDA   $ 3,959     $ 3,993     $ 7,651     $ 7,228  

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