Global Water Resources reports fourth quarter and full year 2019 results

05-03-2020
Global Water Resources,market report,financial report

Global Water Resources, Inc., 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 (S$49.2 million), primarily due to non-regulated, infrastructure coordination and financing agreements (ICFA) revenue recognised 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 (S$3.3 million), or 7.3%, to $35.5 million (S$49.2 million) for the full year 2019.
  • Collected the final payment due of $1.0 million (S$1.39 million) from the Loop 303 contract.
  • Extended the availability of the company's $8.0 million (S$11.1 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 realised 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 annualised 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 (S$16.1 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 realise 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 (S$49.2 million), primarily due to ICFA revenue recognised in 2018 totalling $2.5 million (S$3.5 million) which did not reoccur in 2019. Excluding the ICFA revenue, total revenues increased $2.4 million (S$3.3 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 (S$3.2 million), or 8.6%, to $28.5 million (S$39.5 million) in 2019, compared to $26.2 million (S$36.3 million) in 2018. The increase was due to increases in depreciation and amortisation 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 Expenses
Total other expense decreased by $0.8 million (S$1.1 million), or 18.5%, to $3.6 million (S$5 million) in 2019, compared to $4.4 million (S$6.1 million) in 2018. The decrease was primarily attributed to the receipt of $1.0 million (S$1.4 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 (S$277,194). The Valencia earnout consists of $3,000 (S$4158) 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 totalled $2.2 million (S$3.05 million), or $0.10 per share, in 2019, compared to $3.1 million (S$4.3 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 (S$3.5 million) in ICFA revenue recognised in 2018 that did not reoccur in 2019. Excluding ICFA revenue, net income increased $1.0 million (S$1.4 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 (S$970,200), or 4.5%, to $16.3 million (S$22.6 million) in 2019, compared to $15.6 million (S$21.6 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.

Dividend Policy
The company declared a monthly cash dividend of $0.0241 per common share (or $0.2892 per share on an annualised 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 realise the benefits of consolidation, regionalisation, 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.