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Edited Transcript of GWRS.OQ earnings conference call or presentation 6-Nov-20 6:00pm GMT

·39 min read

Q3 2020 Global Water Resources Inc Earnings Call Phoenix Nov 6, 2020 (Thomson StreetEvents) -- Edited Transcript of Global Water Resources Inc earnings conference call or presentation Friday, November 6, 2020 at 6:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Christopher D. Krygier Global Water Resources, Inc. - Chief Strategy Officer * Heather M. Krupa Global Water Resources, Inc. - VP & Controller * Michael J. Liebman Global Water Resources, Inc. - Senior VP, CFO & Corporate Secretary * Ron L. Fleming Global Water Resources, Inc. - Chairman, CEO & President ================================================================================ Conference Call Participants ================================================================================ * Gerard J. Sweeney ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst * Greg Venit * Jon Jung * Zach Liggett ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Greetings, ladies and gentlemen. Thank you for standing by. Welcome to the Global Water Resources, Inc. 2020 Third Quarter Conference Call. (Operator Instructions) I would like to remind everyone that this call is being recorded on November 6, 2020, at 1:00 p.m. Eastern Time. I would now like to turn the conference over to Heather Krupa, Vice President and Controller. Please go ahead. -------------------------------------------------------------------------------- Heather M. Krupa, Global Water Resources, Inc. - VP & Controller [2] -------------------------------------------------------------------------------- Welcome, everyone, and thank you for joining us on today's call. Yesterday, we issued our 2020 third quarter financial results by press release, a copy of which is available on our website at www.gwresources.com. Speaking today is Ron Fleming, President and Chief Executive Officer; Mike Liebman, Chief Financial Officer; and Chris Krygier, Chief Strategy Officer. Mr. Fleming will summarize the key operational events of our -- the quarter; Mr. Fleming will review the financial results for the quarter; and Mr. Krygier will review strategic initiatives and business development for the quarter. Mr. Fleming, Mr. Liebman and Mr. Krygier 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 reflects 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 sections Risk Factors and Management Discussion and Analysis of Financial Condition and Results of Operations included within our latest Form 10-K and Form 10-Q filed with the SEC. Such filings are available at www.sec.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 yesterday's earnings release, which is available on our website. Unless otherwise stated, all amounts discussed are in U.S. dollars. I will now turn the call over to Mr. Ron Fleming. -------------------------------------------------------------------------------- Ron L. Fleming, Global Water Resources, Inc. - Chairman, CEO & President [3] -------------------------------------------------------------------------------- Thank you, Heather. Good morning, everyone, and thank you for joining us today. We are very pleased to report the results for the third quarter of 2020. First and foremost, I always begin by discussing our top priority, which is the health and safety of our employees and our customers. Considering the COVID-19 pandemic we are currently navigating, it is appropriate to start here again. As an essential utility, whose services are vital, during a health pandemic, our company moved quickly and early to implement all national, local and industry-specific guidance to maximize social distancing and other measures to protect the health and safety of our employees and customers and safeguard our operations. These measures continue to be modified as guidance and the situation on the ground changes, but, generally, all measures remain in place and have gone well. And we have not incurred any significant disruptions throughout 2020 resulting from the pandemic, either operationally or financially. However, at this point, we cannot predict the impact it could have on operations and financial results going forward. In the event that customers have difficulty paying their utility bills due to COVID-19, we're ready to work with them to setup payment plans and offer other options. For example, we previously rolled out an expanded customer assistance program. We can report today that this assistance is being utilized and in 2020 alone, through our program partners, we have distributed over $100,000 to customers in need of help to pay their utility bill. In the meantime, we voluntarily have suspended disconnections for nonpayment and eliminated late fees. Moving back to our typical operational highlights. I'm very pleased to announce that in accordance with our top priority, we continue to perform at an extremely high level on employee safety and regulatory compliance on non-recordable incidents. As of today, our staff has only experienced 2 minor OSHA recordable incidents in 1,162 days. In fact, we have almost no related costs incurred in over 4 years, resulting in an experience modifier, or EMOD, of 0.65. As a reminder, an EMOD of 1 is considered to be industry average. So said another way, we are performing 35% better than the industry average, which results in lower actual costs and workmen's comp insurance costs. Also, it has been 1,685 days since our last significant compliance violation. In fact, just this week, we received unsolicited recognition from the Arizona Department of Environmental Quality, as part of their Voluntary Environmental Stewardship Program Bronze Level. Bronze Level recognizes companies that demonstrate strong environmental compliance for the past 3 years and demonstrate environmental excellence and leadership in providing customers with safe drinking water. This recognition is a nice addition to the Utility of the Future Today national award that we received and announced earlier in the quarter, for the company's transformational work in community engagement, watershed stewardship and resources recovery. On a related note, in the quarter, we delivered a record volume of recycled water, 273 million gallons, which is an increase of 20.4% year-over-year. Full reuse of recycled water is a primary element of our Total Water Management approach for growing communities that allows us to achieve meaningful conservation. We also continue to realize benefits from bringing customer service and billing in-house last December, including better control of long-term service costs and benefits derived from a deeper focus on customer experience and enhanced scalability of operations as we continue to grow. This has been magnified by our proactive measures to move employees to work from home, because of the pandemic and our work with customers during this challenging time. I now want to highlight customer growth. On the organic growth front, total active service connections increased 5% to 47,594 at September 30, 2020. Development and housing activity remains very strong in our areas. In fact, through the end of Q3, the City of Maricopa issued 937 single-family home permits, up 23% over the prior year and on pace to have the best year since before the Great Recession. Typically, we cite specific sources for housing projection permit growth. We cannot do that right now, as those projections have been suspended due to COVID-19. However, I want to read part of a recent quote by one of the most prominent real estate experts in Metro-Phoenix, Jim Belfiore. "Housing demand is at its highest level since 2006 in Arizona, while supply is at its lows not seen since 2005. The places with the most visible rise in demand are those on the outskirts of the Metro-Phoenix area, areas where demand largely dried up following the housing bubble and the Great Recession, areas within Pinal County. At this moment, the fastest selling Arizona communities are here in the San Tan Valley and Casa Grande and in Maricopa, meaning the City of Maricopa." He also continued, "Pinal County is about to see more growth than it has ever experienced as Phoenix area builders seek affordable land and homebuyers seek more affordable housing. We are going to see the Pinal County building boom return rapidly over the next 30 months." So for those of you that have been following our company for a while and know this is what we have been preparing for and speaking about as a company, it really since the beginning. This was the strategy to buy or build utilities in the path of growth along growth corridors. This is again happening, and in short, we are well positioned to benefit from rapid growth throughout our large service areas in Pinal County and elsewhere. Beyond organic growth, the addition of Chris Krygier earlier this year, as Chief Strategy Officer, has allowed for daily focus on growth through acquisitions and new business opportunities. As announced last week, we just completed our first acquisition since 2018, and are now making constant progress on business development. Chris will provide more information later in the call. Finally, in addition to strong organic growth and acquisitions, we have discussed that we filed a new rate case with regulators during the quarter and will be requesting a modest increase to customer rates. We don't expect the decision on rates before September of next year and have requested that they not be effective until January 1, 2022, as to further assure any rate increase is well beyond the current pandemic. Putting all these elements together, Global Water is well positioned for notable growth in the years to come. Finally, the Board of Directors has approved a 1% increase to our annual dividend paid monthly as we're committed to growing the dividend along with the rest of our business. The first dividend at the new monthly rate will be paid on December 30, 2020, to holders of record on December 16, 2020. I will now turn the call over to Mike for financial highlights. -------------------------------------------------------------------------------- Michael J. Liebman, Global Water Resources, Inc. - Senior VP, CFO & Corporate Secretary [4] -------------------------------------------------------------------------------- Thanks, Ron. Hello, everyone. Total revenue for the quarter was $10.8 million, which was up $815,000 or 8.2% compared to Q3 of 2019. This increase is primarily driven by the 5% organic connection growth, increased consumption and our approved rate increase. Year-to-date through Q3 of 2020, revenue was $28.9 million compared to $26.8 million in 2019. This reflects an increase of $2.1 million or 7.8%. Similar to the quarter, this increase is primarily driven by the organic connection growth, increased consumption and approved rate increase. Operating expenses in Q3 2020 were $7.9 million compared to $7.4 million in 2019. This is an increase of $485,000 or 6.6%. Notable changes in operating expenses included increased operating and maintenance cost by $235,000, primarily driven by cost that increased as revenue increases; second, increased depreciation and amortization expense by $355,000, primarily due to the increase in our fixed assets associated with our capital expenditure plan; and these increases, thirdly, were offset by a reduced G&A expense of about $105,000. Year-to-date through Q3 of 2020, operating expenses were $22.5 million compared to $20.8 million in 2019. This is an increase of $1.7 million or 8.1%. Now to discuss other expense. Other expense for Q3 2020 was $1.26 million compared to $1.13 million in 2019. The $136,000 increase was primarily due to the elimination of the FATHOM royalty. Year-to-date, through Q3 of 2020, other expense was $4.3 million compared to $2.4 million in 2019. The $1.9 million increase was primarily due to the $1 million of other income received in Q1 of 2019 from the Loop 303 contract, in addition to the noncash asset disposal of approximately $550,000 in Q2 of 2020 as well as the elimination of the FATHOM royalty of $292,000. Turning to net income. Global Water had net income of $1.1 million or $0.05 per diluted share in Q3 of 2020. This is an increase of 8% compared to Q3 of 2019. Year-to-date, through Q3 of 2020, net income decreased $1.1 million to $1.4 million, or $0.06 per diluted share. This decrease was primarily attributed to the final payout of the Loop 303 contracts in Q1 of 2019, combined with the noncash loss on asset disposals of $547,000 in Q2 of 2020, and the noncash restricted stock expense of $654,000 booked throughout 2020. After adjusting for the noncash expenses just mentioned, net income was $2.3 million or $0.10 per diluted share, whereas 2019 year-to-date net income after adjusting for the nonrecurring Loop 303 proceeds was $1.7 million or $0.07 per diluted share. Now to talk about adjusted EBITDA, which adjusts for nonrecurring events, such as Loop 303 proceeds, and also adjust for noncash items like deferred compensation expense related to restricted share awards and asset disposals. Adjusted EBITDA was $5.5 million in Q3 of 2020, which is up $771,000 or 16.1% compared to Q3 of 2019. Year-to-date, through Q3 of 2020, adjusted EBITDA was $14.4 million, which is up $1.7 million or 13.1% compared to 2019. Before turning the call over, I'd like to touch on our liquidity situation. With the existing cash on hand of $18.1 million and our $10 million unused line of credit, we have over $28 million of liquidity to support ongoing operations and our growth strategy. This concludes our update on Q3 2020 financial results. I'll now pass the call to Chris to review our strategic initiatives and business development activities for the quarter. -------------------------------------------------------------------------------- Christopher D. Krygier, Global Water Resources, Inc. - Chief Strategy Officer [5] -------------------------------------------------------------------------------- Thanks, Mike. Good morning, everyone. I will highlight 3 items for you before passing the call back to Ron. As you will recall, in the past, we discussed 4 different elements to our revenue growth story: first, natural organic customer growth within our existing utilities, which you heard Ron and Mike discuss earlier; second, recurring rate case activity; third, growth due to new service area establishment or expansion; and fourth, acquisitions. My remarks will focus on the last 3 of those elements: recurring rate case activity, service area expansion and acquisitions. As it relates to revenue growth through our rate case activity, as Ron mentioned, we made our rate case filing on August 28 of this year. As filed, the case proposes an approximately 13% rate increase equivalent to approximately $4.6 million in additional revenue, with new rates to be effective through a phase-in starting in January 1, 2022. Besides the increase in rates, our filing contemplates elements of commission policy to incent further consolidation of small troubled utilities in the state. We think these proposals are a meaningful opportunity to move the discussion forward on the issue, which is not only good for all stakeholders involved, including customers, the existing owners and the regulators themselves. It also creates further revenue growth opportunities for our company. As you'll recall, Global Water has a long track record of acquiring and approving utilities, and we see great opportunities to improve the framework to make this an important change in Arizona. Procedurally, on September 25 of this year, we accomplished the first project milestone, having our filing deemed sufficient by the Arizona Corporation Commission staff. This means the filing is administratively complete and can now proceed along its normal course. About a month later, on October 23, we received what is called a Procedural Order, which outlined the calendar for the case, including key events such as other party's testimony and the hearing itself. Overall, the case is proceeding as anticipated, and we will continue to update you as the case progresses. Now turning to expansion of current service areas and establishment of new service areas. In the quarter, we received ACC staff's recommendation and held a hearing regarding our Certificate of Convenience & Necessity for Pinal land holdings Inland Port Arizona project, as you'll recall, located near the City of Coolidge. This project represents approximately 2,500 acres of land and is directly adjacent to the future Nikola site. The case is on track, and we expect to receive a commission order by the end of this year. The landowner is actively marketing the property, and we will continue our infrastructure planning efforts in 2021. Relative to new service area expansion, we also filed 1 new Certificate of Convenience & Necessity in the quarter related to our Western Maricopa County operations. We expect to receive ACC approval of this filing in the first half of 2021. Finally, the last element of our revenue growth drivers relates to acquisition activity. Last week, we announced the acquisition of Mirabell Water Company, Inc., a water utility located in the Greater Tucson area. Our first transaction since 2018, this deal represents the next step in our growth through acquisition. Mirabell is in close proximity to our Red Rock service area in Tucson, making this a logical extension of our utility footprint. While financially it will not make headlines, so to speak, it is a low-risk deal that complements our existing business. We will continue pursuing other opportunities that fit this profile and hope to have further announcements in the near future. This concludes the update on the strategic initiatives and business developments for the quarter. I'll now pass the call back to Ron. -------------------------------------------------------------------------------- Ron L. Fleming, Global Water Resources, Inc. - Chairman, CEO & President [6] -------------------------------------------------------------------------------- Thank you, Chris, and thank you, Mike. It is clear we remain well positioned to weather these uncertain times, but with a strong balance sheet and disciplined strategy. In fact, from an operational and financial perspective, we have never been stronger, and we have more than ample liquidity and capital resources to pursue expansion through organic growth, acquisitions and new projects, both big and small. As we handle this high growth, we intend to remain at the forefront of the water management industry and advance our mission of achieving efficiency and consolidation. We truly believe that expanding our platform and applying our expertise throughout regional service areas and to 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 and economic development issues in Arizona and potentially beyond. These highlights conclude our prepared remarks. Thank you. We are now available to answer your questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) The first question comes from Gerry Sweeney from ROTH Capital. -------------------------------------------------------------------------------- Gerard J. Sweeney, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [2] -------------------------------------------------------------------------------- A couple of questions. Maybe I'll just start on the acquisition front, noticed the Mirabell acquisition. Ron or Chris or Mike, could you maybe give a little bit of qualitative description of maybe what the acquisition pipeline looks like or at least what the market looks like in Arizona for acquisitions, whether it be like the number of potential candidates out there or size, just so we can get a sense of maybe size and scope of what you're looking at? -------------------------------------------------------------------------------- Christopher D. Krygier, Global Water Resources, Inc. - Chief Strategy Officer [3] -------------------------------------------------------------------------------- Yes. Gerry, this is Chris. So a couple of thoughts directly to your question. The first would be, generally speaking, the ACC website lists over 350 water and wastewater utilities in the state of Arizona, just to give you a directional sense of the opportunity set. And then from our perspective, we're looking at the whole range of those from things as small as Mirabell to much larger than that. I think from our perspective, we see -- while something like Mirabell, per se, won't grab the headlines, if you start adding up and aggregating a lot of Mirabells, it can be really meaningful for us and for the company, from a customer growth standpoint, but then also from a rate base and capital deployment standpoint, which is the business that we're in. So I think significant opportunity set in Arizona and can really make a meaningful difference in our company. -------------------------------------------------------------------------------- Gerard J. Sweeney, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [4] -------------------------------------------------------------------------------- Got it. I'm assuming part of the attraction to the Mirabell acquisition that it was very close to the Red Rock, and you can leverage some either existing infrastructure or at least people, and it's pretty easy just to tuck-in? -------------------------------------------------------------------------------- Christopher D. Krygier, Global Water Resources, Inc. - Chief Strategy Officer [5] -------------------------------------------------------------------------------- Yes. That's part of it, for sure. -------------------------------------------------------------------------------- Gerard J. Sweeney, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [6] -------------------------------------------------------------------------------- Okay. Got it. And then any comments on the ACC? In particular, I believe there was an election for commissioners down there recently. Just was curious an update on how that stands and if there was potential impact on either policy or what have you with that regulatory agency? -------------------------------------------------------------------------------- Ron L. Fleming, Global Water Resources, Inc. - Chairman, CEO & President [7] -------------------------------------------------------------------------------- Yes. Gerry, this is Ron. I'll start with that. You're right. There was an election. What's going on. But... -------------------------------------------------------------------------------- Christopher D. Krygier, Global Water Resources, Inc. - Chief Strategy Officer [8] -------------------------------------------------------------------------------- There's a couple elections going on, right. -------------------------------------------------------------------------------- Ron L. Fleming, Global Water Resources, Inc. - Chairman, CEO & President [9] -------------------------------------------------------------------------------- Yes, a commissioner election in Arizona is one of the many things going on. So you are right. Sitting here today, the factual data that's available to us today has a candidate Anna Tovar in the lead and then candidate Lea Márquez Peterson in second and then candidate Jim O'Connor in third. So Anna Tovar is a Democrat, the other 2 are Republican. And there are -- and the reason I gave all 3 is there are 3 seats up for election. There are other candidates below them, but that looks like sitting here today, who will probably take the seats. And so that would make the commission 3 Republican, 2 Democratic to go with our current Commissioner Justin Olson and Commissioner Sandra Kennedy. So I think that, ultimately, we've worked really hard down at the commission through our rate case and all of our other communications campaigns within our communities to establish the company in a good place. And we don't think that what is going on at the commission or regardless of ultimately who would have been elected through this cycle will really impact or change what's going on in Arizona on the water regulatory front. So at the end of the day, those are the names. You can do your own research and develop what you think, but we feel good about the outcome. We think we would have felt good regardless of ultimately who had been elected, and we're going to just keep doing the right things and do what we do and continuing to build good relationships down there at the Corporation Commission. -------------------------------------------------------------------------------- Gerard J. Sweeney, ROTH Capital Partners, LLC, Research Division - MD & Senior Research Analyst [10] -------------------------------------------------------------------------------- Got it. As a point of reference, I know you guys are in Maricopa County, I'm in Philadelphia County, probably the 2 most interesting counties in the country right now. So -- any -- one other comment -- question, I should say, permit growth. I had something like tracked single-family permits through September, 22%, October looked like year-to-date, 22% -- I'm sorry, through September, 22%. In October, another big. Just not being in City of Maricopa, in the surrounding area and not being able to travel, can you maybe give a little bit of update what's going on there? Lots of growth as you said earlier in your commentary. Part of the strategy of Global Water was being in the path of growth and buying or building utilities. But what has really developed in the last year, 18, 24 months that's maybe driving some of this growth, just from a qualitative perspective too? -------------------------------------------------------------------------------- Michael J. Liebman, Global Water Resources, Inc. - Senior VP, CFO & Corporate Secretary [11] -------------------------------------------------------------------------------- Gerry, this is Mike. I'll take a stab at that and ask Ron and Chris to chime in. But I think in light of what we're seeing, obviously, a lot of developments happening. COVID potentially having implications there. The fact that there's a lot of lots available. Californians moving to Phoenix, to high affordability of the bedroom communities and the growth areas outside of Phoenix, we think, is putting Arizona and Phoenix and the City of Maricopa specifically on the map, and we're seeing the benefits of that. And so that is what we believe is driving that. And as you mentioned, it's through October, and we've seen the ramp-up the last few months. That's what we're seeing. It's continued. So it really puts us in a good place. -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- (Operator Instructions) The next question comes from Jon Jung from Trailhead Asset Management. -------------------------------------------------------------------------------- Jon Jung, [13] -------------------------------------------------------------------------------- My question is regard to what are the financial parameters for this acquisition in Mirabell in terms of revenues? And what does it cost you to acquire a small project like that? -------------------------------------------------------------------------------- Michael J. Liebman, Global Water Resources, Inc. - Senior VP, CFO & Corporate Secretary [14] -------------------------------------------------------------------------------- Yes. Jon, this is Mike. So the acquisition price isn't something that we've disclosed, but it's a small transaction, 60 customers. So it's not an overly material transaction, but it's kind of where it's at. -------------------------------------------------------------------------------- Jon Jung, [15] -------------------------------------------------------------------------------- Okay. So these are -- are these residential customers? -------------------------------------------------------------------------------- Michael J. Liebman, Global Water Resources, Inc. - Senior VP, CFO & Corporate Secretary [16] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Christopher D. Krygier, Global Water Resources, Inc. - Chief Strategy Officer [17] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Jon Jung, [18] -------------------------------------------------------------------------------- Okay. Well, I guess a question for me is when you look at going out and consolidating an industry of which I've been involved in a handful of those different industries and in rolling up medical equipment dealers, et cetera, a lot of the success of those is based on how expensive it is to make those acquisitions. And typically, public water companies sell for pretty high multiples. What do you find in 300 different listed companies that you indicated, Chris, is in that list in Arizona, what do you expect for range of costs for doing transactions? And do you have a budget for that or do you have a strategy that suggests what you can afford to pay and make those financially attractive for future growth? -------------------------------------------------------------------------------- Ron L. Fleming, Global Water Resources, Inc. - Chairman, CEO & President [19] -------------------------------------------------------------------------------- Yes. Jon, this is Ron. Like Mike mentioned, I mean, we're not disclosing deal specifics, but this is the way I would think about it. I mean, ultimately, it's just like almost any asset class across any industry. There's a range depending upon the benefits to the buyer, meaning the consolidation benefits and the quality of the asset. So the opportunity that we see in Arizona and clearly exists in other locations is that there's a need and unmet demand for the consolidation of what we call troubled utilities. So clearly, if the big water companies want to sit around and exchange their assets back and forth to each other, then that would demand the type of market valuations and premiums that you're talking about, but that's not what we're talking about here. We're talking about Class C, D and Es. Now it doesn't mean we won't do some of the larger ones, and those will be based specifically on if we can get a financial structure in place that makes sense for us, the buyer and then the seller, the deals just won't happen. But when you think about the opportunities on the smaller scale, which was the basis of your original question, Cs, Ds and Es aren't valued like that. And so they are certainly cash flow to the owners, and that cash means something to them. And so there's a value to that. But so you have to just get to a deal that works for them on the replacement of the cash flow that they're taking from the utilities and, obviously, there's risk. They're exiting as they sell the regulatory asset. That's got a high risk profile just based on what we do versus how that utility then looks inside of our consolidated utility. And when you look at it from those 2 paradigms, we believe and have been -- I know we just announced the 1 in 2018, but we did 3 as a reminder -- actually 4, as a reminder, in 2018 and 2017. We have been able to get the deals done at a valuation that's very favorable and accretive to our shareholders. And we believe we can continue to do that. And that's even on just the acquisition cost. But then as Chris mentioned, we get to invest to improve them, bring them up to our standards of quality and automation and then, ultimately, that's just more rate base investment that we get to put inside the rates that ultimately the customers pay. So there's -- we try to get it an immediate valuation lift or arbitrage. Again, each deal by itself, isn't going to make a step function increase in our stock today. But if we can do enough of them over time, that's the strategy. And we think we can do it, and we think there's a need, frankly, for us to do it. -------------------------------------------------------------------------------- Jon Jung, [20] -------------------------------------------------------------------------------- Okay. So when you say you're looking at these projects or these utilities that are troubled, what kind of range of troubles do you find when you go look at acquiring one of these? Are they operational troubles? Are they financial troubles? -------------------------------------------------------------------------------- Christopher D. Krygier, Global Water Resources, Inc. - Chief Strategy Officer [21] -------------------------------------------------------------------------------- This is Chris. Yes. So obviously, it's specific to each utility has their own unique fact pattern, but trouble usually is relative to their size because they either don't have the capital to raise to make the projects or to complete the products they need to continue providing that safe, reliable service or just operational challenges from how the system was set up when they bought it to -- and how they've been operating it. And so it can be a myriad of all of those things. And so I guess, from -- we think of it in troubled in that regard, but that's our expertise to come in and fix those issues, and that's where we can provide that value to customers. And then ultimately, that's part of the benefit we bring to the table. So things that -- those smaller utilities are difficult challenges for them, that's our wheelhouse and our bread and butter. -------------------------------------------------------------------------------- Jon Jung, [22] -------------------------------------------------------------------------------- Okay. That's great. And what about competition for these deals? -------------------------------------------------------------------------------- Christopher D. Krygier, Global Water Resources, Inc. - Chief Strategy Officer [23] -------------------------------------------------------------------------------- Yes. So for sure, there's competition out there, no doubt. But I think, as Ron alluded to, we're going to find the right deals for us at the right price and right opportunity, and we've been successful at that. And thankfully, we -- there's a significant opportunity set in Arizona. So we don't have to do any that we don't think makes sense. -------------------------------------------------------------------------------- Jon Jung, [24] -------------------------------------------------------------------------------- Okay. And are you looking at this point at anything outside Arizona? -------------------------------------------------------------------------------- Christopher D. Krygier, Global Water Resources, Inc. - Chief Strategy Officer [25] -------------------------------------------------------------------------------- So we've generally looked at opportunities outside the state. We haven't found anything that's balanced all of those different elements that Ron was talking about. And so we'll -- as I'd like to say, we'll keep our eyes above the proverbial state fence line. But if nothing ever happened in another state, we have so much opportunity here between our 4 different drivers of growth in the company that we don't have to do that unless we think it really makes sense. -------------------------------------------------------------------------------- Operator [26] -------------------------------------------------------------------------------- (Operator Instructions) The next question comes from Greg Venit from Morgan Stanley. -------------------------------------------------------------------------------- Greg Venit, [27] -------------------------------------------------------------------------------- I'm new to your company. So excuse me if I ask some questions that have possibly been answered. Usually, when you make your acquisitions, are they usually for cash or equity? -------------------------------------------------------------------------------- Michael J. Liebman, Global Water Resources, Inc. - Senior VP, CFO & Corporate Secretary [28] -------------------------------------------------------------------------------- Yes. Greg, this is Mike. So right now, with the cash that we have on our balance sheet of north of $18 million and the opportunity set on the smaller size, we have plenty of cash, and then we've got liquidity with the unused line of credit. So between those 2, we're in a good place for some of the smaller deals. And to what Chris mentioned, there are larger ones that we're looking at. And so to the extent that we're able to be successful in that regard. We would look to the capital markets from a debt and equity side to kind of help fulfill that acquisition. So on the smaller deals, cash. On the bigger deals, we'd look to -- for additional capital. -------------------------------------------------------------------------------- Greg Venit, [29] -------------------------------------------------------------------------------- So you have -- the purpose of your $150 million registration, is that just renewing an old one just to have a shelf registration? -------------------------------------------------------------------------------- Michael J. Liebman, Global Water Resources, Inc. - Senior VP, CFO & Corporate Secretary [30] -------------------------------------------------------------------------------- That's exactly right, Greg. Yes, it was -- our 3 years was up this past August, and so then we just re-upped it for another $100 million, yes. -------------------------------------------------------------------------------- Greg Venit, [31] -------------------------------------------------------------------------------- Okay. So one -- again, I'm not from Arizona, but yes, I always hear -- I'm hearing about housing starts and the growth and people migrating from California and other states to Arizona. But at the same time, I read articles about the lack of water and the Colorado River dropping. And so the utilities that you have, they have a source of water from either the Colorado River or from wells that is sustainable. Is that the assets that you buy or do you need -- or do you buy water from the state of Arizona? How does that work? -------------------------------------------------------------------------------- Ron L. Fleming, Global Water Resources, Inc. - Chairman, CEO & President [32] -------------------------------------------------------------------------------- Yes. Greg, this is Ron. Good to meet you. Yes. So talking about water typically requires a long answer, but I'll try to keep it short here today, and we're open to follow-up with you as necessary. So water is both a local issue and a regional issue and a short-term issue and a long-term issue. And so those where those things start to kind of intersect with each other. So where are we at today? Today, Global Water primarily utilizes groundwater, but the awards we talked about earlier, and if you do research on us as a company, the way we manage water, wastewater, recycled water and all of our conservations associated with that result in a really low per capita or per home water demand on the local groundwater resources that we rely upon. And so we're pretty proud of that. That really is our expertise and a competitive advantage to some respects. And so where we own utilities today and with the local water resource portfolios we put together, we don't have any issue in the foreseeable future. So again, I could spend a lot more time on that, and we can do that as necessary. But the growth we're talking about is fully supportable and sustainable with the water portfolios and the way we operate our utilities today. Long term, which is what's making the headlines, sure, we're in our 20th year of drought. The Colorado River is flowing less than ever. We just had the longest, highest -- longest, hottest, driest summer of all time here in Arizona, and thus long term, the demand versus supply line are going to intersect sooner than they otherwise would have. And thus that creates the headlines and all the activity at a local level, state level and even federal level about what are we going to do about that. So sure, that has some implications on the states today. Primarily, what it means is we're losing what's called excess water supply for things like nonessential, agricultural use and things like that. We're a long away from affecting what's called M&I, municipal and industrial use and all of the economic development and growth that's occurring across our state. We're well positioned for that. So that's kind of the good and bad of it. We actually -- it's bad. We have no long-term water issues, but when you're good at dealing with that and that's what we do, then it's good for your business, right? You're needed more, in our opinion, to help address that long-term issue. And so that's the way I would answer that question. And again, happy to connect with you separately, if you want to dig into any of that further. -------------------------------------------------------------------------------- Greg Venit, [33] -------------------------------------------------------------------------------- Okay. So for new growth, I guess you described in Maricopa County and Pinal County, I think you just made some mention of that to provide those homebuilders or industrial, you have enough water to satisfy whatever their needs are. Is that the way to think about it? -------------------------------------------------------------------------------- Ron L. Fleming, Global Water Resources, Inc. - Chairman, CEO & President [34] -------------------------------------------------------------------------------- That's exactly right, and for years to come. I'll just give you one data point for our largest utility and our largest area that's incurring a lot of this growth. We are today less than 1/3 into our available water portfolio to both meet -- continue to meet current demand and allow for all this growth. So hopefully, that's a meaningful data point to you. -------------------------------------------------------------------------------- Greg Venit, [35] -------------------------------------------------------------------------------- And that would be water coming from a well or is that coming from the river? I think those are the only 2 sources, but... -------------------------------------------------------------------------------- Ron L. Fleming, Global Water Resources, Inc. - Chairman, CEO & President [36] -------------------------------------------------------------------------------- Yes. You got your local groundwater aquifers, you have in-state water supplies, and then you have out-of-state water supplies, which is basically the Colorado River. So yes, today, we rely primarily in our areas because, again -- and I know we're just getting to know each other. The original business model was to go to new emerging communities around Metro-Phoenix, consolidate the existing systems there, overlay a regional plan, infuse our Total Water Management strategy. And so I'd just say all that to say that, that was the plan because these new emerging areas will rely upon their historically large and high-quality groundwater aquifers because most of the existing large Metro-Phoenix suburbs and municipalities basically already control most of the available out-of-state and in-state water supplies. Now there's a market for those things. So I don't want to say, at some point, we can't tap those other supplies. We can. It just comes at a future cost. We don't need to do that today because of the local or groundwater supply portfolio. When I use the term portfolios, generally, there's lots of things that go into that. Have positioned our utilities in a great place, whereby we don't really have to worry about buying water supplies or the long-term challenges I talked about earlier for a long time. So we're in a good place. They're groundwater wells. They're high-quality water. We're called the Valley of the Sun for a reason. The valley is where our water has been coming down from Northern Arizona and Northern Mexico. It flows together into Central Arizona, which is the areas we're talking about. And there's massive and large high-quality groundwater aquifers, and we have the right to pump that under state statutes and rules. -------------------------------------------------------------------------------- Operator [37] -------------------------------------------------------------------------------- (Operator Instructions) The next question comes from Zach Liggett from Desmond Liggett Wealth Advisors. -------------------------------------------------------------------------------- Zach Liggett, [38] -------------------------------------------------------------------------------- The first one you guys called out this El Dorado Holdings and with a pretty sizable development, it looks like. Can you help us just frame the magnitude and timing on what that means for you guys? How we should think about that? Is that potential business for you several years down the road or something maybe more imminent? -------------------------------------------------------------------------------- Ron L. Fleming, Global Water Resources, Inc. - Chairman, CEO & President [39] -------------------------------------------------------------------------------- Zach, good to meet you. So we definitely think it's something more intimate, sorry, rolling off the tongue there. So this is the way I would think about it. The project, if you look up at location, is right in the center and the heart of the City of Maricopa, which is our largest integrated utility. So that means we do both water, wastewater and recycled water. And so the City of Maricopa is the permit growth I talked about earlier, where it looks like we're on track this year to do more than any year than since prior to the Great Recession. And so I'll break it down in some data points for you. There's north of 5,000 finished or partially finished lots in the City of Maricopa today, and that sounds like a lot, and it is. That's like 25% growth to fulfill those at 1,500 lots per year, which is what this year's growth rate is looking like it could be. That's only a couple of years out, right, and these developers have to get lots into that pipeline in front of that so they can sell them to homebuilders and keep that growth occurring. And so the project is starting now, they didn't announce it for no reason. They're starting with phases as they do for projects that big. The first phase, I believe, is somewhere between 500 and -- around 500 lots, and then they'll just keep doing 500 lot phases from there, generally speaking. And so they're starting now. It's probably a 2-year project to do the horizontal improvements that are necessary. We will do ours right alongside them. Again, it's right in the heart of the city. So it's not really that complicated for us. And they'll start putting those lots right on the back end of that pipeline I talked about earlier. So we're probably selling homes into that community in the next 3 years or so. That just becomes part of the 5%-ish organic growth that we're seeing in the city today. It just allows that growth to continue almost continuously once you put that size of a project on the back end of it. -------------------------------------------------------------------------------- Zach Liggett, [40] -------------------------------------------------------------------------------- Great. Great. And then not to beat a dead horse on the M&A front. There was some good earlier. But I mean, would you say the hurdles going forward are more, I guess, getting these potential sellers to be real sellers? Or are you finding sellers willing to sell and just not coming to terms that make sense for us as shareholders? -------------------------------------------------------------------------------- Christopher D. Krygier, Global Water Resources, Inc. - Chief Strategy Officer [41] -------------------------------------------------------------------------------- I would say there's probably a little bit of everybody in Category A and B. And so I think as this 1 shows, we've had some success. And as Ron alluded to, we had a few more recent in 2017, 2018. And so -- but we feel good about going forward, what opportunities are out there. -------------------------------------------------------------------------------- Zach Liggett, [42] -------------------------------------------------------------------------------- All right. And then just kind of an oddball one. I've seen some reports around the country where some utilities, are there some pilots to do like COVID testing via the wastewater stream. And I'm just curious if you guys been involved in anything like that. It seems like a fascinating way to maybe get some early alerts out there on sort of disease spread, whether it's for COVID or something like this down the road? -------------------------------------------------------------------------------- Ron L. Fleming, Global Water Resources, Inc. - Chairman, CEO & President [43] -------------------------------------------------------------------------------- Yes. No, it is fascinating, and we're very happy to see our industry take such an important role in that issue. We really do pride ourselves on being a leader in the industry. We do a lot on lots of different fronts that make that true from water reuse and use of technology and things like that. So we definitely are interested in the topic. But the fact is, ultimately, the very large utilities in the space, and that includes municipalities and very large institutions and groups from like academia got all over that early. And a lot of them here in the Metro-Phoenix area, including ASU in the City of Tempe, which is where ASU is located. And so what we decided on that front was a lot is going to be learned rapidly. Let's sit back, see what happens, learn best practices and go implement those best practices versus try to create it ourselves at the scale that we have. So we're monitoring what's going on. And I assume we -- I assume at some level in the future we will be involved as well, but we're not really on the research side of that at this point. -------------------------------------------------------------------------------- Operator [44] -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- Ron L. Fleming, Global Water Resources, Inc. - Chairman, CEO & President [45] -------------------------------------------------------------------------------- All right. Thank you, operator. Just like to thank everyone for participating in the call today and for your ongoing interest in Global Water Resources. We look forward to speaking with you again. Bye. -------------------------------------------------------------------------------- Operator [46] -------------------------------------------------------------------------------- This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.