Attached files
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| 8-K - 8-K - Global Water Resources, Inc. | gwrsq12018-8xkearningsrele.htm |
Exhibit 99.1
Global Water Resources Reports First Quarter 2018 Results
PHOENIX, AZ – May 9, 2018 – Global Water Resources, Inc. (NASDAQ: GWRS), (TSX: GWR), a pure-play water resource management company, reported results for the first quarter ended March 31, 2018. All quarterly comparisons are to the previous year unless otherwise noted.
Q1 2018 Financial Highlights
• | Revenues increased 9.3% to $7.4 million, driven by growth in active connections, increased consumption, and approved rate increases. |
• | Net income increased by $0.1 million to $0.3 million, or $0.02 per share. As a percentage of revenues, net income was 4.3%. |
• | Adjusted EBITDA, a non-GAAP metric, as defined below, increased 14.1% to $3.7 million. As a percentage of revenues, Adjusted EBITDA was 49.7%. |
Q1 2018 Operational Highlights
• | Total active connections increased 4.9% to 39,542 at March 31, 2018 from 37,687 at March 31, 2017, and up 1.4% (or 5.6% on an annualized basis) from 38,997 at December 31, 2017. |
• | Nominated Debra G. Coy and Brett Huckelbridge to the board of directors, who will bring tremendous experience in policy, investments, capital markets, transactions, and strategic planning. |
• | Appointed senior water industry expert, Jake Lenderking, as director of Water Resources, bringing to Global Water more than 10 years of leadership experience in water resource management. |
• | Joined WaterStart, a consortium of global leaders in water technologies dedicated to accelerating the adoption of innovative water technologies. |
Subsequent Events in April 2018
• | Signed a definitive agreement to acquire Turner Ranches Water and Sanitation Company, a non-potable irrigation water utility in Mesa, Arizona. |
• | Secured a two-year revolving line of credit of up to $8 million to support the company's growth strategy. |
• | Declared a monthly cash dividend of $0.023625 per common share (or $0.2835 per share on an annualized basis), payable May 30, 2018 to holders of record at the close of business on May 16, 2018. |
Management Commentary
“In Q1, our top-line continued to grow year-over-year, driving our fourth consecutive quarter of profitability,” said Global Water Resources' president and CEO, Ron Fleming. “We also saw new connection growth accelerating, supported by continued growth in the Phoenix Metro population and single-family housing permits. We believe that our utilities and service areas are directly in the anticipated path of growth. This means we are well-positioned to benefit from the near-term growth in metropolitan Phoenix due to the availability of lots and existing infrastructure in place within our services areas.
“Our board nominations and expanded management team during the quarter will help us remain at the forefront of the water management industry, and advance our mission of achieving efficient growth and consolidation.
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“Our recently secured credit facility, combined with positive cash flow and over $6 million in cash, provides us greater financial flexibility as we pursue our growth 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 its customers to realize the benefits of consolidation.
“We recently announced an accretive acquisition of Turner Ranches to expand our footprint in Maricopa County, the fastest growing county in the nation, according to U.S. Census Bureau. Turner Ranches will be the second purchase, post-recession, in our declared strategy of pursuing water utility acquisitions. We believe our focus on consolidating, improving, and automating water utility assets will greatly benefit the customers of Turner Ranches, and we look forward to serving these new communities.
“Along with the Arizona Corporation Commission’s desire for consolidation of the highly-fragmented water utility industry in Arizona and their new policy guidelines that support and incent such consolidation, the stage is well set for additional acquisitions.
“Looking ahead, we see the potential for growth from our acquisition strategy. We also expect to see continued growth driven by organic growth in new connections, as well as increased consumption and pre-approved rate increases.”
2018 Financial Summary
Revenues
Revenues in the first quarter of 2018 increased by $0.6 million, or 9.3%, to $7.4 million, compared to $6.8 million for the same period in 2017. The increase in revenues was primarily attributed to a 4.9% increase in active connections, increased consumption, and the approved increase in rates.
Operating Expenses
Operating expenses increased by $0.4 million, or 6.5%, to $6.1 million in the first quarter of 2018, compared to $5.7 million for the same period in 2017. The increase was due primarily to increases in general and administrative expenses, coupled with an increase in depreciation.
Other Income (Expense)
Total other expense increased by $0.2 million, or 21.7%, to $0.9 million in the first quarter of 2018, compared to $0.7 million for the same period in 2017. The increase was primarily attributed to a $0.2 million increase in other – related party costs and a decrease in the Valencia earn-out of $0.1 million, partially offset by a reduction in interest expense of $0.1 million.
Net Income (Loss)
Net income increased by $0.1 million to $0.3 million, or $0.02 per share, for the first quarter of 2018 compared to $0.2 million, or $0.01 per share, for the same period in 2017. The increase was primarily attributed to the $0.3 million increase in operating income, partially offset by the $0.2 million increase in other expense.
Adjusted EBITDA
Adjusted EBITDA increased $0.5 million, or 14.1%, to $3.7 million for the first quarter of 2018, compared to $3.2 million for the same period in 2017. The increase was primarily due to organic connection growth, increased consumption, higher rates, and reduced deferred compensation. The increase in Adjusted EBITDA was partially offset by an increase in professional fees and general and administrative salaries, specifically due to a one-time severance payout. (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 May 30, 2018 to holders of record at the close of business on May 16, 2018.
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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 March 31, 2018, active service connections increased by 1,855, or 4.9%, to 39,542, compared to 37,687 at March 31, 2017. As of March 31, 2018, the vacancy rate was at 1.5% down from the peak of 11.2% 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 19,854 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 90% 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, May 10, 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: 10004716
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 May 24, 2018.
Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 10004716
About Global Water Resources
Global Water Resources, Inc. is a leading water resource management company that owns and operates nine utility companies which provide water, wastewater, and recycled water services. The company’s service areas are located
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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, 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 which was 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
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GLOBAL WATER RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share and per share amounts)
March 31, 2018 | December 31, 2017 | ||||
ASSETS | |||||
PROPERTY, PLANT AND EQUIPMENT: | |||||
Property, plant and equipment | 287,160 | 289,051 | |||
Less accumulated depreciation | (74,394 | ) | (75,592 | ) | |
Net property, plant and equipment | 212,766 | 213,459 | |||
CURRENT ASSETS: | |||||
Cash and cash equivalents | 6,915 | 5,248 | |||
Accounts receivable — net | 1,354 | 1,528 | |||
Due from affiliates | 463 | 430 | |||
Accrued revenue | 1,799 | 1,759 | |||
Prepaid expenses and other current assets | 684 | 700 | |||
Total current assets | 11,215 | 9,665 | |||
OTHER ASSETS: | |||||
Intangible assets — net | 12,772 | 12,772 | |||
Regulatory asset | 1,871 | 1,871 | |||
Bond service fund and other restricted cash | 499 | 436 | |||
Equity method investment | 234 | 345 | |||
Other noncurrent assets | 37 | 20 | |||
Total other assets | 15,413 | 15,444 | |||
TOTAL ASSETS | 239,394 | 238,568 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||
CURRENT LIABILITIES: | |||||
Accounts payable | 1,576 | 321 | |||
Accrued expenses | 7,832 | 7,252 | |||
Customer and meter deposits | 1,381 | 1,395 | |||
Long-term debt and capital leases — current portion | 29 | 8 | |||
Total current liabilities | 10,818 | 8,976 | |||
NONCURRENT LIABILITIES: | |||||
Long-term debt and capital leases | 114,444 | 114,363 | |||
Deferred regulatory gain - ICFA | 19,746 | 19,746 | |||
Regulatory liability | 8,463 | 8,463 | |||
Advances in aid of construction | 62,919 | 62,725 | |||
Contributions in aid of construction — net | 4,376 | 4,425 | |||
Deferred income tax liabilities, net | 3,228 | 3,114 | |||
Acquisition liability | 934 | 934 | |||
Other noncurrent liabilities | 579 | 962 | |||
Total noncurrent liabilities | 214,689 | 214,732 | |||
Total liabilities | 225,507 | 223,708 | |||
Commitments and contingencies | |||||
SHAREHOLDERS' EQUITY: | |||||
Common stock, $0.01 par value, 60,000,000 shares authorized; 19,631,266 shares issued as of March 31, 2018 and December 31, 2017. | 196 | 196 | |||
Paid in capital | 12,995 | 14,288 | |||
Retained earnings | 696 | 376 | |||
Total shareholders' equity | 13,887 | 14,860 | |||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 239,394 | 238,568 | |||
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GLOBAL WATER RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except share and per share amounts)
Three Months Ended March 31, | |||||||
2018 | 2017 | ||||||
REVENUES: | |||||||
Water services | 3,115 | $ | 2,785 | ||||
Wastewater and recycled water services | 4,297 | 3,988 | |||||
Unregulated revenues | 13 | 18 | |||||
Total revenues | 7,425 | 6,791 | |||||
OPERATING EXPENSES: | |||||||
Operations and maintenance | 1,509 | 1,474 | |||||
Operations and maintenance - related party | 356 | 360 | |||||
General and administrative | 2,397 | 2,210 | |||||
Depreciation | 1,799 | 1,646 | |||||
Total operating expenses | 6,061 | 5,690 | |||||
OPERATING INCOME | 1,364 | 1,101 | |||||
OTHER INCOME (EXPENSE): | |||||||
Interest income | 7 | 4 | |||||
Interest expense | (1,231 | ) | (1,312 | ) | |||
Other | 323 | 352 | |||||
Other - related party | (2 | ) | 214 | ||||
Total other income (expense) | (903 | ) | (742 | ) | |||
INCOME BEFORE INCOME TAXES | 461 | 359 | |||||
INCOME TAX EXPENSE | (141 | ) | (170 | ) | |||
NET INCOME | $ | 320 | $ | 189 | |||
Basic earnings per common share | $ | 0.02 | $ | 0.01 | |||
Diluted earnings per common share | $ | 0.02 | $ | 0.01 | |||
Dividends declared per common share | $ | 0.07 | $ | 0.07 | |||
Weighted average number of common shares used in the determination of: | |||||||
Basic | 19,631,266 | 19,581,266 | |||||
Diluted | 19,669,994 | 19,622,751 | |||||
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GLOBAL WATER RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
(Unaudited, in thousands)
Three Months Ended March 31, | |||||||
2018 | 2017 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net income | $ | 320 | $ | 189 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Deferred compensation | (9 | ) | 203 | ||||
Depreciation | 1,799 | 1,646 | |||||
Amortization of deferred debt issuance costs and discounts | 11 | 11 | |||||
Loss/(gain) on equity investment | 111 | (122 | ) | ||||
Other (gains) and losses | (41 | ) | 4 | ||||
Provision for doubtful accounts receivable | 25 | 21 | |||||
Deferred income tax expense | 114 | 140 | |||||
Changes in assets and liabilities | |||||||
Accounts receivable | 149 | 122 | |||||
Other current assets | (57 | ) | (100 | ) | |||
Accounts payable and other current liabilities | 1,506 | (12 | ) | ||||
Other noncurrent assets | — | 27 | |||||
Other noncurrent liabilities | 59 | (30 | ) | ||||
Net cash provided by operating activities | 3,987 | 2,099 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Capital expenditures | (1,101 | ) | (6,505 | ) | |||
Deposits of restricted cash, net | (62 | ) | (2 | ) | |||
Other cash flows from investing activities | 64 | (5 | ) | ||||
Net cash used in investing activities | (1,099 | ) | (6,512 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Dividends paid | (1,391 | ) | (1,322 | ) | |||
Advances in aid of construction | 194 | 111 | |||||
Principal payments under capital lease | (1 | ) | (67 | ) | |||
Loan repayments | (6 | ) | — | ||||
Debt issuance costs paid | (17 | ) | — | ||||
Net cash used in financing activities | (1,221 | ) | (1,278 | ) | |||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 1,667 | (5,691 | ) | ||||
CASH AND CASH EQUIVALENTS — Beginning of period | 5,248 | 20,498 | |||||
CASH AND CASH EQUIVALENTS – End of period | 6,915 | 14,807 | |||||
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A reconciliation of net income (loss) to EBITDA and Adjusted EBITDA for the quarters and three months ended March 31, 2018 and 2017 is as follows (in thousands):
Three Months Ended March 31, | ||||||||
2018 | 2017 | |||||||
Net Income | $ | 320 | $ | 189 | ||||
Income tax expense | 141 | 170 | ||||||
Interest income | (7 | ) | (4 | ) | ||||
Interest expense | 1,231 | 1,312 | ||||||
Depreciation | 1,799 | 1,646 | ||||||
EBITDA | 3,484 | 3,313 | ||||||
Board option expense | 43 | 43 | ||||||
Management option expense | 54 | — | ||||||
Equity investment loss/(income) | 110 | (122 | ) | |||||
EBITDA Adjustments | 207 | (79 | ) | |||||
Adjusted EBITDA | $ | 3,691 | $ | 3,234 | ||||
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