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CST: 19/03/2019 11:09:23   

Global Water Resources Reports Fourth Quarter and Full Year 2018 Results

12 Days ago

PHOENIX, March 06, 2019 (GLOBE NEWSWIRE) -- Global Water Resources, Inc. (NASDAQ: GWRS), (TSX: GWR), a pure-play water resource management company, reported results for the year ended December 31, 2018. All annual comparisons are to the previous year unless otherwise noted.

Full Year 2018 Financial Highlights

  • Revenues increased 13.8% to $35.5 million from $31.2 million, driven primarily by a $2.5 million recognition of revenue under infrastructure coordination and financing agreements (ICFAs) in connection with the substantial completion of capital improvements that increased the capacity of Palo Verde's wastewater reclamation facility. The increase in revenue was also due to growth in active connections of 12.0% and approved rate increases, partially offset by rate reductions due to tax reform.
  • Secured a two-year revolving line of credit of up to $8.0 million to support the company's growth strategy.
  • Raised net proceeds of $14.6 million from equity raise. The company used and anticipates further using the net proceeds from the offering to fund acquisitions and for working capital and other general corporate purposes.
  • Received an extension from the Internal Revenue Service (IRS) to defer the remaining gain realized from the disposition of the Valencia Water Company facility until the end of 2019.

Full Year 2018 Operational Highlights

  • Total active connections increased 12.0% to 43,687 at December 31, 2018 from 38,997 at December 31, 2017, with organic connections up 5.2%.
  • Acquired and successfully on-boarded Global Water - Turner Ranches Irrigation, LLC, a non-potable irrigation water utility in Mesa, Arizona. Turner added 963 connections and approximately seven square miles of service area at the time of the acquisition.
  • Acquired and successfully on-boarded Global Water - Red Rock Utilities, LLC, an operator of a water and a wastewater utility with service areas in Pima and Pinal counties of Arizona. Red Rock added more than 1,650 connections and approximately nine square miles of service area at the time of acquisition.
  • Named finalist in 2018 Environmental Excellence Awards by Arizona Forward for Global Water’s effective implementation of Total Water Management (TWM).

Management Commentary

“Our strong organic growth plus recent acquisitions drove continued topline growth for the quarter and the year,” said Global Water Resources' president and CEO, Ron Fleming. “We believe our focus on consolidating, improving, and automating water and wastewater utilities provides great benefits to our customers.

“We see organic and acquisitive growth opportunities ahead, as demand for innovative water and wastewater services continues to increase in the fast-growing Metropolitan Phoenix area. For the communities we serve, our customers continue to benefit from our focus on customer service, efficient operations, and the implementation of Total Water Management, or TWM, a holistic approach of achieving meaningful conservation. We believe our strategic growth initiatives, which includes broader adoption of TWM, will allow Global Water and its customers to realize the benefits of regional consolidated water, wastewater, and recycled water service in areas of water scarcity.”

2018 Financial Summary

Revenues

Revenues for the full year 2018 increased by $4.3 million, or 13.8%, to $35.5 million, compared to $31.2 million in the same period in 2017. The increase in revenues was primarily driven by a $2.5 million recognition of revenue under ICFAs in connection with the substantial completion of capital improvements that increased the capacity of Palo Verde's wastewater reclamation facility. The increase in revenue also reflects the 12.0% increase in active service connections, inclusive of organic growth of 5.2% and acquisition growth of 2.5% and 4.3%, due to the Turner and Red Rock acquisitions, respectively. The increase in revenue due to acquisitions was partially offset by rate reductions due to tax reform. Excluding ICFA revenue, revenues increased 5.9%.

Operating Expenses

Operating expenses increased by $2.4 million, or 10.0%, to $26.2 million in 2018, compared to $23.9 million in 2017. The increase was due primarily to increases in general and administrative expense, specifically in professional fees, deferred compensation, and personnel expense. The increase in operating expenses was also due to increases in operations and maintenance expense associated with the Turner and Red Rock acquisitions as well as normal expense increases due to growth, such as utilities, property taxes, and personnel expenses, coupled with an increase in depreciation.

Other Expense

Total other expense increased by $1.0 million, or 29%, to $4.4 million in 2018, compared to $3.4 million in 2017. The increase was primarily attributed to a decrease in the Valencia earn-out of $0.9 million.

Net Income

Net income totaled $3.1 million, or $0.15 per share, for the year ended December 31, 2018, compared to $4.6 million, or $0.23 per share, in 2017. The decrease was primarily attributed to a $2.3 million increase in income tax expense combined with a $1.0 million increase in other expense. The decrease was partially offset by a $1.9 million increase in operating income, which was primarily driven by the $2.5 million ICFA revenue recognized for the year ended December 31, 2018, coupled with organic growth and acquisition growth, partially offset by reductions due to tax reform.

Adjusted EBITDA

Adjusted EBITDA decreased $755,000, or 4.6%, to $15.6 million in 2018, compared to $16.4 million in 2017. The decrease was primarily driven by the decrease in the Valencia earn-out, combined with the reduction to revenue as a result of rate reductions due to tax reform. Partially offsetting the decrease was an increase in organic connection growth, the addition of Turner and Red Rock customers and higher rates. (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 $0.023861 per common share (or $0.286332 per share on an annualized basis), which will be payable on March 29, 2019 to holders of record at the close of business on March 15, 2019.

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, 2018, active service connections increased by 4,690, or 12.0%, to 43,687, compared to 38,997 at December 31, 2017. The increase in active service connections primarily related to the organic growth in the company's current service areas (2,022 connections, or 5.2%), coupled with the acquisitions of Turner (963 connections, or 2.5%) and Red Rock (1,705 connections, or 4.4%). As of December 31, 2018, the vacancy rate was at 1.4%, down from the peak of 11.9% in February 2009.

Arizona’s Growth Corridor: Positive Population Trends
The Metropolitan Phoenix area is steadily growing due to low-cost housing, excellent weather, large and growing universities, a diverse employment base, and low taxes. The area's population has increased throughout 2017 and 2018, and it continues to grow. The Employment and Population Statistics Department of the State of Arizona predicts that Phoenix Metro will have a population of 4.9 million by 2020, up 15% from 2016 census estimates, and reach 6.5 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 13% to 22,437 units in 2018. Permits are forecasted by the Greater Phoenix Blue Chip to increase to nearly 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 18% 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, March 7, 2019
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: 10006206

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 21, 2019.

Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 10006206

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 measures, are included in the schedules attached to this press release.

Cautionary Note Regarding Forward-Looking Statements

This press release includes certain forward-looking statements which reflect the company's expectations regarding future events. The forward-looking statements involve a number of assumptions, risks, uncertainties, and other factors that could cause actual results to differ materially from those contained in the forward-looking statements. These forward-looking statements include, but are not limited to, statements concerning future net income growth, our strategy, acquisition plans, our dividend policy, trends relating to population growth, active connections, regulated revenue, housing permit projections, expected effect due to tax reform, and other statements that are not historical facts as well as statements identified by words such as "expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates", or the negative of these terms, or other words of similar meaning. These statements are based on our current beliefs or expectations and are inherently subject to a number of risks, uncertainties, and assumptions, most of which are difficult to predict and many of which are beyond our control. Actual results may differ materially from these expectations due to changes in political, economic, business, market, regulatory, and other factors. Accordingly, investors are cautioned not to place undue reliance on any forward-looking statements, which reflect management’s views as of the date hereof. Factors that may affect future results are disclosed under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our filings with the Securities and Exchange Commission (the "SEC"), which are available at the SEC's website at www.sec.gov. This includes, but is not limited to, our Annual Report on Form 10-K for the year ended December 31, 2018 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, 2018   December 31, 2017
ASSETS      
PROPERTY, PLANT AND EQUIPMENT:      
Property, plant and equipment 312,148     289,051  
Less accumulated depreciation (85,093 )   (75,592 )
Net property, plant and equipment 227,055     213,459  
CURRENT ASSETS:      
Cash and cash equivalents 12,756     5,248  
Accounts receivable — net 1,488     1,528  
Due from affiliates 406     430  
Accrued revenue 1,998     1,759  
Prepaid expenses and other current assets 686     700  
Total current assets 17,334     9,665  
OTHER ASSETS:      
Goodwill 2,639      
Intangible assets — net 12,972     12,772  
Regulatory asset 1,793     1,871  
Deposits 128      
Bond service fund and other restricted cash 441     436  
Equity method investment 79     345  
Other noncurrent assets 20     20  
Total other assets 18,072     15,444  
TOTAL ASSETS 262,461     238,568  
LIABILITIES AND SHAREHOLDERS' EQUITY      
CURRENT LIABILITIES:      
Accounts payable 604     321  
Accrued expenses 7,465     7,252  
Customer and meter deposits 1,460     1,395  
Long-term debt and capital leases — current portion 47     8  
Total current liabilities 9,576     8,976  
NONCURRENT LIABILITIES:      
Long-term debt and capital leases 114,507     114,363  
Deferred revenue - ICFA 17,358     19,746  
Regulatory liability 8,851     8,463  
Advances in aid of construction 67,684     62,725  
Contributions in aid of construction — net 10,670     4,425  
Deferred income tax liabilities, net 4,350     3,114  
Acquisition liability 934     934  
Other noncurrent liabilities 660     962  
Total noncurrent liabilities 225,014     214,732  
Total liabilities 234,590     223,708  
Commitments and contingencies      
SHAREHOLDERS' EQUITY:      
Common stock, $0.01 par value, 60,000,000 shares authorized; 21,530,470 and
19,631,266 shares issued as of December 31, 2018 and December 31, 2017, respectively.
215     196  
Treasury stock, 59,174 and no shares at December 31, 2018 and December 31, 2017, respectively. (1 )    
Paid in capital 27,657     14,288  
Retained earnings     376  
Total shareholders' equity 27,871     14,860  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 262,461     238,568  
           

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

  Year Ended December 31,
  2018   2017   2016
REVENUES:          
Water services $ 15,344     $ 14,367     $ 13,978  
Wastewater and recycled water services 17,654     16,765     15,740  
Unregulated revenues 2,517     76     81  
Total revenues 35,515     31,208     29,799  
           
OPERATING EXPENSES:          
Operations and maintenance 6,630     6,087     6,188  
Operations and maintenance - related party 1,599     1,462     1,853  
General and administrative 10,548     9,407     9,667  
Depreciation 7,469     6,908     6,279  
Total operating expenses 26,246     23,864     23,987  
OPERATING INCOME 9,269     7,344     5,812  
           
OTHER INCOME (EXPENSE):          
Interest income 101     19     18  
Interest expense (5,255 )   (5,125 )   (11,866 )
Other 592     1,478     2,222  
Other - related party 178     234     15  
Total other expense (4,384 )   (3,394 )   (9,611 )
           
INCOME (LOSS) BEFORE INCOME TAXES 4,885     3,950     (3,799 )
INCOME TAX (EXPENSE) BENEFIT (1,782 )   601     1,287  
NET INCOME (LOSS) $ 3,103     $ 4,551     $ (2,512 )
           
Basic earnings (losses) per common share $ 0.15     $ 0.23     $ (0.13 )
Diluted earnings (losses) per common share $ 0.15     $ 0.23     $ (0.13 )
Dividends declared per common share $ 0.28     $ 0.28     $ 0.26  
           
Weighted average number of common shares used in the determination of:          
Basic 20,468,509     19,605,239     19,146,534  
Diluted 20,507,437     19,644,768     19,146,534  
                 

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

  Three Months Ended December 31,        
  2018   2017   Change   % Change
REVENUES:              
Water services $ 3,848     $ 3,520     $ 328     9.3 %
Wastewater and recycled water services 4,324     4,263     61     1.4 %
Unregulated revenues 81     17     64     nm
Total revenues 8,253     7,800     453     5.8 %
               
OPERATING EXPENSES:              
Operations and maintenance 1,692     1,588     104     6.5 %
Operations and maintenance - related party 453     371     82     22.1 %
General and administrative 2,389     2,376     13     0.5 %
Depreciation 1,974     1,744     230     13.2 %
Total operating expenses 6,508     6,079     429     7.1 %
OPERATING INCOME 1,745     1,721     24     1.4 %
               
OTHER INCOME (EXPENSE):              
Interest income 64     5     59     nm
Interest expense (1,362 )   (1,236 )   (126 )   nm
Other 33     351     (318 )   (90.6 )%
Other - related party 68     65     3     4.6 %
Total other expense (1,197 )   (815 )   (382 )   46.9 %
               
INCOME/(LOSS) BEFORE INCOME TAXES 548     906     (358 )   (39.5 )%
INCOME TAX EXPENSE (654 )   876     (1,530 )   nm
NET INCOME/(LOSS) $ (106 )   $ 1,782     $ (1,888 )   (105.9 )%
               
Basic earnings/(losses) per common share $     $ 0.09          
Diluted earnings/(losses) per common share $     $ 0.09          
Dividends declared per common share $ 0.07     $ 0.07          
               
Weighted average number of common shares used in the determination of:              
Basic 21,471,296     19,631,266          
Diluted 21,499,567     19,680,507          

nm - not meaningful

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

  Year Ended December 31,
  2018   2017   2016
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net income $ 3,103     $ 4,551     $ (2,512 )
Adjustments to reconcile net income to net cash provided by operating activities:        
Deferred compensation 1,714     1,550     2,234  
Depreciation 7,469     6,908     6,279  
Write-off of debt issuance costs         2,165  
Amortization of deferred debt issuance costs and discounts 101     44     428  
Loss on sale of Willow Valley         54  
Loss on equity investment 265     136     340  
Other gains (27 )       (978 )
Provision for doubtful accounts receivable 93     128     70  
Deferred income tax expense 1,236     529     (1,408 )
Changes in assets and liabilities          
Accounts receivable 178     (179 )   (409 )
Other current assets (110 )   (116 )   (415 )
Accounts payable and other current liabilities (688 )   (1,247 )   (4,087 )
Other noncurrent assets 73     (1,763 )   117  
Other noncurrent liabilities (2,100 )   615     17  
     Net cash provided by operating activities 11,307     11,156     1,895  
CASH FLOWS FROM INVESTING ACTIVITIES:          
Capital expenditures (4,787 )   (20,885 )   (8,588 )
Cash paid for acquisitions, net of cash acquired (8,475 )        
Proceeds from the sale of Willow Valley         2,254  
Deposits of restricted cash, net 1
    (208 )   154  
Other cash flows from investing activities (64 )   95     13  
     Net cash used in investing activities (13,325 )   (20,998 )   (6,167 )
CASH FLOWS FROM FINANCING ACTIVITIES:          
Dividends paid (5,791 )   (5,399 )   (5,036 )
Advances in aid of construction 817     574     346  
Proceeds from stock option exercise 790     375      
Principal payments under capital lease (27 )   (79 )   (378 )
Refunds of advances for construction (896 )   (854 )   (794 )
Loan borrowings 140         115,000  
Loan repayments (9 )   (5 )    
Repayments of bond debt         (106,695 )
Proceeds withdrawn from bond service fund         8,825  
Proceeds from sale of stock 15,910         8,372  
Payment of Sonoran acquisition liability         (2,800 )
Debt issuance costs paid (134 )   (20 )   (760 )
Payments of offering costs for sale of stock (1,274 )       (2,823 )
     Net cash provided by (used in) financing activities 9,526     (5,408 )   13,257  
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,508     (15,250 )   8,985  
CASH AND CASH EQUIVALENTS — Beginning of period 5,248     20,498     11,513  
CASH AND CASH EQUIVALENTS – End of period 12,756     5,248     20,498  
                 

A reconciliation of net income to EBITDA and Adjusted EBITDA for the years ended December 31, 2018 and 2017 is as follows (in thousands):

    Three Months Ended December 31,   Year Ended December 31,
    2018   2017   2018   2017
Net Income   $ (106 )   $ 1,782     $ 3,103     $ 4,551  
Income tax expense   654     (876 )   1,782     (601 )
Interest income   (64 )   (5 )   (101 )   (19 )
Interest expense   1,362     1,236     5,255     5,125  
Depreciation   1,974     1,744     7,469     6,908  
EBITDA   3,820     3,881     17,508     15,964  
ICFA Revenue Recognition   (68 )       (2,456 )    
Board option expense       43     68     174  
Management option expense   67     78     255     122  
Equity investment loss   45     31     265     135  
EBITDA Adjustments   44     152     (1,868 )   431  
Adjusted EBITDA   $ 3,864     $ 4,033     $ 15,640     $ 16,395  
                                 

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