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Global Water Resources Reports Fourth Quarter and Full Year 2019 Results

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PHOENIX, March 04, 2020 (GLOBE NEWSWIRE) -- Global Water Resources, Inc. (GWRS), (GWR.TO), a pure-play water resource management company, reported results for the year ended December 31, 2019. All annual comparisons are to the previous year unless otherwise noted.

Full Year 2019 Financial Highlights

  • Total revenues remained consistent at $35.5 million, primarily due to non-regulated, infrastructure coordination and financing agreements (ICFA) revenue recognized in 2018 that did not reoccur in 2019.

  • Excluding the ICFA revenue, total revenues from the company's core business of regulated water, wastewater and recycled water services increased $2.4 million, or 7.3%, to $35.5 million for the full year 2019.

  • Collected the final payment due of $1.0 million from the Loop 303 contract (for more information about the Loop 303 contract, see "Other Expense" section below).

  • Extended the availability of the company's $8.0 million revolving line of credit by an additional two years (through April 30, 2022). The full amount remains available to-date.

  • Received an extension from the Internal Revenue Service (IRS) to defer the remaining gain realized from the condemnation of the operations and assets of Valencia Water Company until the end of 2020.

  • Increased the dividend to $0.2892 per share on an annualized basis. The first monthly dividend payment at the new rate was paid on December 30, 2019 to holders of record on December 16, 2019.

Full Year 2019 Operational Highlights

  • Total active connections increased 4.9% to 45,823 at December 31, 2019 from 43,687 at December 31, 2018.

  • Brought customer service and billing operations in-house, allowing the company to provide a greater focus and control over customer service, as well as support its plans for growth and expansion.

  • Partnered with City of Coolidge and Saint Holdings to bring integrated utility solutions to Southern Coolidge and Inland Port Arizona.

  • Appointed David Rousseau to the company's board of directors, adding exceptional senior-level experience in utilities and water resources.

Subsequent Event in January 2020

  • Raised net proceeds of approximately $11.6 million in an equity offering to fund acquisitions, and provide funds for working capital and general corporate purposes.

Management Commentary

“Strong organic growth along with recent acquisitions drove our record growth in regulated revenue for the year,” said Global Water Resources' president and CEO, Ron Fleming. “Our focus on consolidating, improving, and automating water and wastewater utilities has helped drive this strong performance.

“The communities we serve have also continued to benefit from our commitment to exceptional customer service and efficient operations, as well as our effective implementation of Total Water Management, or TWM, which involves a holistic approach to achieving meaningful conservation.

“We continue to see many organic and acquisitive growth opportunities ahead, as demand for innovative water and wastewater services remains strong in the fast-growing Metropolitan Phoenix area. We believe our strategic growth initiatives, which include broader adoption of TWM principles, will allow Global Water and its customers to realize the benefits of regional consolidated water, wastewater, and recycled water services in areas of water scarcity.”

2019 Financial Summary

Revenues

Revenues for the full year 2019 remained consistent at $35.5 million, primarily due to ICFA revenue recognized in 2018 totaling $2.5 million which did not reoccur in 2019. Excluding the ICFA revenue, total revenues increased $2.4 million, or 7.3%, for the full year 2019. The increase in total revenues was driven by the Turner Ranches and Red Rock acquisitions combined with growth in connections.

Operating Expenses

Operating expenses increased by $2.3 million, or 8.6%, to $28.5 million in 2019, compared to $26.2 million in 2018. The increase was due to increases in depreciation and amortization as well as operational expenses, both of which were driven by the acquisition of Turner Ranches and Red Rock. Additionally, there was an increase in general and administrative expense which was primarily associated with deferred compensation (driven by the increase in stock price) as well as personnel expense increases.

Other Expense

Total other expense decreased by $0.8 million, or 18.5%, to $3.6 million in 2019, compared to $4.4 million in 2018. The decrease was primarily attributed to the receipt of $1.0 million in March 2019 from the 2013 Loop 303 sale of water management agreements relating to the 7,000-acre territory within a portion of the western planning area of the City of Glendale, Arizona, known as the "Loop 303 Corridor." This was partially offset by a reduction in the Valencia earnout of $0.2 million. The Valencia earnout consists of $3,000 for each new water meter installed within Valencia Water Company’s prior service areas. The decrease in the Valencia earnout was driven by slowed growth in the company's former service territory.

Net Income

Net income totaled $2.2 million, or $0.10 per share, in 2019, compared to $3.1 million, or $0.15 per share, in 2018. The decrease was primarily attributed to the decrease in operating income, which was primarily driven by the $2.5 million in ICFA revenue recognized in 2018 that did not reoccur in 2019. Excluding ICFA revenue, net income increased $1.0 million. The increase was driven by increases in water and wastewater and recycled water services revenue, as well as decreased total other expense.

Adjusted EBITDA

Adjusted EBITDA increased $0.7 million, or 4.5%, to $16.3 million in 2019, compared to $15.6 million in 2018. The increase was primarily driven by the increase in connection growth, the addition of Turner Ranches and Red Rock customers and higher rates. The increase was partially offset by a decrease in the Valencia earn out as well as increased deferred compensation and personnel expense. (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 $0.0241 per common share (or $0.2892 per share on an annualized basis), which will be payable on March 31, 2020 to holders of record at the close of business on March 17, 2020.

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 December 31, 2019, active service connections increased by 2,136, or 4.9%, to 45,823, compared to 43,687 at December 31, 2018. The increase in active service connections is due primarily to the positive growth in connections.

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 2018 and 2019, 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 5.7 million by 2030 and reach 6.5 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 14% to 25,127 units in 2019. Permits are forecasted by the Greater Phoenix Blue Chip to increase to nearly 26,000 permits in 2020.

The company believes this growth outlook creates an opportunity to significantly increase its active connections and grow revenues.

Conference Call
Global Water Resources will hold a conference call to discuss its 2019 results tomorrow, followed by a question and answer period.

Date: Thursday, March 5, 2020
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: 1-631-891-4304
Conference ID: 10008664

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 March 19, 2020.

Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 10008664

About Global Water Resources

Global Water Resources, Inc. is a leading water resource management company that owns and operates 12 utilities 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.

The company has been recognized for its highly-effective implementation of Total Water Management (TWM), an integrated approach to managing the entire water cycle by owning and operating water, wastewater and recycled water utilities within the same geographic area to maximize the beneficial use of recycled water. TWM conserves water by using the right water for the right use and helps protect water supplies in water-scarce areas experiencing population growth. 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 management; 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, the most comparable GAAP measure, is 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, 2019 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


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

December 31, 2019

December 31, 2018

ASSETS

PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment

326,303

312,148

Less accumulated depreciation

(92,749

)

(85,093

)

Net property, plant and equipment

233,554

227,055

CURRENT ASSETS:

Cash and cash equivalents

7,513

12,756

Accounts receivable — net

1,631

1,488

Due from affiliates

426

406

Unbilled revenue

2,048

1,998

Prepaid expenses and other current assets

675

686

Total current assets

12,293

17,334

OTHER ASSETS:

Goodwill

4,398

2,639

Intangible assets — net

12,554

12,972

Regulatory asset

1,715

1,793

Deposits

128

Restricted cash

1,582

441

Equity method investment

79

Other noncurrent assets

17

20

Total other assets

20,266

18,072

TOTAL ASSETS

266,113

262,461

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable

992

604

Accrued expenses

7,546

7,465

Customer and meter deposits

1,445

1,460

Long-term debt and capital leases — current portion

117

47

Total current liabilities

10,100

9,576

NONCURRENT LIABILITIES:

Long-term debt and capital leases

114,664

114,507

Deferred revenue - ICFA

17,372

17,358

Regulatory liability

8,803

8,851

Advances in aid of construction

67,621

67,684

Contributions in aid of construction — net

14,520

10,670

Deferred income tax liabilities, net

4,919

4,350

Acquisition liability

1,773

934

Other noncurrent liabilities

1,669

660

Total noncurrent liabilities

231,341

225,014

Total liabilities

241,441

234,590

Commitments and contingencies

SHAREHOLDERS' EQUITY:

Common stock, $0.01 par value, 60,000,000 shares authorized; 21,636,420 and 21,530,470 shares issued as of December 31, 2019 and December 31, 2018, respectively.

216

215

Treasury stock, 99,039 and 59,174 shares at December 31, 2019 and December 31, 2018, respectively.

(1

)

(1

)

Paid in capital

24,457

27,657

Retained earnings

Total shareholders' equity

24,672

27,871

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

266,113

262,461


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

Year Ended December 31,

2019

2018

REVENUES:

Water services

$

16,143

$

15,344

Wastewater and recycled water services

19,263

17,654

Unregulated revenues

65

2,517

Total revenues

35,471

35,515

OPERATING EXPENSES:

Operations and maintenance

7,237

6,630

Operations and maintenance - related party

1,678

1,599

General and administrative

11,242

10,548

Depreciation and amortization

8,353

7,469

Total operating expenses

28,510

26,246

OPERATING INCOME

6,961

9,269

OTHER INCOME (EXPENSE):

Interest income

203

101

Interest expense

(5,388

)

(5,255

)

Other

1,309

592

Other - related party

301

178

Total other expense

(3,575

)

(4,384

)

INCOME BEFORE INCOME TAXES

3,386

4,885

INCOME TAX EXPENSE

(1,162

)

(1,782

)

NET INCOME

$

2,224

$

3,103

Basic earnings per common share

$

0.10

$

0.15

Diluted earnings per common share

$

0.10

$

0.15

Dividends declared per common share

$

0.29

$

0.28

Weighted average number of common shares used in the determination of:

Basic

21,516,620

20,468,509

Diluted

21,531,594

20,507,437

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

Three Months Ended December 31,

2019

2018

Change

% Change

REVENUES:

Water services

$

3,799

$

3,848

$

(49

)

(1.3

)%

Wastewater and recycled water services

4,870

4,324

546

12.6

%

Unregulated revenues

16

81

(65

)

(80.2

)%

Total revenues

8,685

8,253

432

5.2

%

OPERATING EXPENSES:

Operations and maintenance

1,820

1,692

128

7.6

%

Operations and maintenance - related party

391

453

(62

)

(13.7

)%

General and administrative

3,143

2,389

754

31.6

%

Depreciation

2,376

1,974

402

20.4

%

Total operating expenses

7,730

6,508

1,222

18.8

%

OPERATING INCOME

955

1,745

(790

)

(45.3

)%

OTHER INCOME (EXPENSE):

Interest income

36

64

(28

)

(43.8

)%

Interest expense

(1,344

)

(1,362

)

18

(1.3

)%

Other

91

33

58

nm

Other - related party

88

68

20

29.4

%

Total other expense

(1,129

)

(1,197

)

68

(5.7

)%

INCOME/(LOSS) BEFORE INCOME TAXES

(174

)

548

(722

)

nm

INCOME TAX EXPENSE

(76

)

(654

)

578

(88.4

)%

NET LOSS

$

(250

)

$

(106

)

$

(144

)

nm

Basic earnings/(losses) per common share

$

(0.01

)

$

Diluted earnings/(losses) per common share

$

(0.01

)

$

Dividends declared per common share

$

0.07

$

0.07

Weighted average number of common shares used in the determination of:

Basic

21,536,945

21,471,296

Diluted

21,597,916

21,499,567

nm - not meaningful


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

Year Ended December 31,

2019

2018

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

2,224

$

3,103

Adjustments to reconcile net income to net cash provided by operating activities:

Deferred compensation

2,051

1,714

Depreciation and amortization

8,353

7,469

Amortization of deferred debt issuance costs and discounts

88

101

Gain on sale of Loop 303 contracts

(1,000

)

Loss on equity investment

79

265

Other gains (loss)

5

(27

)

Provision for doubtful accounts receivable

50

93

Deferred income tax expense

570

1,236

Changes in assets and liabilities

Accounts receivable

(193

)

178

Other current assets

(60

)

(110

)

Accounts payable and other current liabilities

(1,584

)

(688

)

Other noncurrent assets

75

73

Other noncurrent liabilities

908

(2,100

)

Net cash provided by operating activities

11,566

11,307

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures

(11,187

)

(4,787

)

Cash paid for acquisitions, net of cash acquired

(8,475

)

Cash received from the sale of Loop 303 contracts

1,000

Other cash flows from investing activities

131

(58

)

Net cash used in investing activities

(10,056

)

(13,320

)

CASH FLOWS FROM FINANCING ACTIVITIES:

Dividends paid

(6,165

)

(5,791

)

Advances in aid of construction

1,199

817

Refunds of advances for construction

(952

)

(896

)

Proceeds from stock option exercise

414

790

Principal payments under capital lease

(64

)

(27

)

Loan borrowings

35

140

Loan repayments

(39

)

(9

)

Proceeds from sale of stock

15,910

Debt issuance costs paid

(40

)

(134

)

Payments of offering costs for sale of stock

(1,274

)

Net cash provided by (used in) financing activities

(5,612

)

9,526

INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

(4,102

)

7,513

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH — Beginning of period

13,197

5,684

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH – End of period

9,095

13,197

Supplemental disclosure of cash flow information:

Year Ended December 31,

2019

2018

Cash and cash equivalents

$

7,513

$

12,756

Restricted Cash

1,582

441

Total cash, cash equivalents, and restricted cash

$

9,095

$

13,197

A reconciliation of net income to EBITDA and Adjusted EBITDA for the three months and years ended December 31, 2019 and 2018 is as follows (in thousands):

Three Months Ended December 31,

Year Ended December 31,

2019

2018

2019

2018

Net Income

$

(250

)

$

(106

)

$

2,224

$

3,103

Income tax expense

76

654

1,162

1,782

Interest income

(36

)

(64

)

(203

)

(101

)

Interest expense

1,344

1,362

5,388

5,255

Depreciation

2,376

1,974

8,353

7,469

EBITDA

3,510

3,820

16,924

17,508

ICFA Revenue Recognition

(68

)

(2,456

)

Board option expense

68

Management option expense

112

67

336

255

Loop 303 Income

(1,000

)

Equity investment loss

45

79

265

EBITDA Adjustments

112

44

(585

)

(1,868

)

Adjusted EBITDA

3,622

3,864

16,339

15,640