Consolidated Water Co. Ltd.

Good morning. Thank you for joining us today to discuss Consolidated Water Company's second quarter 2021 results. Hosting the call today is the Chief Executive Officer of Consolidated Water Company, Mr. Rick McTaggart, and the company's Chief Financial Officer, Mr. David Sasnett. Following the remarks, we'll open the call to your questions. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star, then zero. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star then 2. Before we conclude today's call, I'll provide some important cautions regarding the forward-looking statements made by management during the call. I'd like to remind everyone that today's call is being recorded and will be made available for telecom replay via instructions and yesterday's press release, which is available in the investor relations of the company's website. Now, I'd like to turn the call over to Consolidated Water Co. CEO, Rick McTaggart. Sir, please go ahead.

Thank you, Vaishnavi. Good morning, everyone. Thanks for joining us on the call today. I hope everyone is well. Our second quarter 2021 results reflect the continuing adverse impacts of the pandemic on certain segments of our business. as well as an adjustment to the carrying value of our manufacturing segment necessitated by new order projections for AirX's historically largest manufacturing customer. Improved performance of our bulk water segment as well as growth of our services segment have partially offset these impacts. Our services segment revenue increased 8% to $3.8 million which accounted for 23% of our consolidated revenues. This was up from 18% in the second quarter of last year. Our PERC Water subsidiary was responsible for this growth in our services segment. Based in Southern California, PERC operates and maintains water treatment and reuse facilities under contracted engagements, which have renewable terms that range from one to five years. with the majority having renewal dates beyond this year. During the second quarter, PERC generated about 90% of its revenue from such contracts with various entities in California and Arizona. Revenue from our bulk water segment increased 14% to 6.7 million in the second quarter due to higher volume sales and electricity pass-through charges. Bulk Water gross profit increased 21% to $2.3 million compared to the second quarter of last year. However, our retail water segment continued to be adversely affected by the pandemic due to a moratorium on tourism and border restrictions that the Cayman Islands government enacted in March of last year to safeguard their population from COVID-19. According to the most recent statistics, only 651 reported infections and two coronavirus-related deaths have occurred in the Cayman Islands since the pandemic began. The Cayman Islands government's strategy to protect its citizens from the pandemic has been similar to that of other Commonwealth countries like Canada, New Zealand, and Australia, which have enacted strict lockdowns and many more. Recently, government officials announced a five-phase border reopening plan through November of this year, which is available on the official Cayman Islands government website. The final phases of the plan, which include the reopening of the islands to a limited number of vaccinated tourists, are contingent on achieving at least an 80% vaccination rate of the local population. The vaccination rate is currently at 68% and has not moved much in the past several weeks. Consequently, we would not expect to see any change in the performance of our retail water segment due to the resumption of tourism in Grand Cayman until the first half of next year, at least. Our manufacturing segment revenue declined due to the loss of orders from AREX's largest customer, as we have also discussed last quarter. However, while this customer informed us in July 2021 that they expect to recommence their orders in 2022 and subsequent years, we expect that these new orders will be at much lower volumes than in the past and less than what we anticipated previously. It was this change in projected future revenue, along with the continuing weakness in the economy arising from COVID-19, that required us to record an impairment loss in the second quarter for our manufacturing segment. Meanwhile, we continue to focus on other sectors and we are building a good manufacturing revenue backlog from new projects and new customers, which we expect to offset some of the revenue lost We expect to book revenue from these new projects in the latter half of this year and extending into 2022 as we begin production on these orders. At the end of the quarter, our cash levels totaled $41.2 million and working capital was $69 million, with only about $200,000 in debt. We believe our strong balance sheet and liquidity position us to ride out the current adverse economic impacts of the pandemic while enabling us to fund our growth initiatives. Bidding activity for new projects in our services and manufacturing segments has increased significantly over the last few months, and so we're looking forward to future months and years with great anticipations. Before I talk further about this, I would like to turn the call over to our CFO, David Sasnett, who will take us through the financial details for the quarter.

David? Thanks, Rick, and good morning, everyone. As Rick mentioned, the pandemic has continued to create some significant challenges for us, as it has for many companies. But despite these challenges, we have maintained a strong financial foundation as we pursue new opportunities to grow organically and acquisitively, and we have continued to pay dividends. Revenue totaled $16.7 million in the second quarter which decreased 13% from the same quarter of the prior year. This decline included decreases of $292,000 in our retail segment revenue and $3.2 million in manufacturing segment revenue. The decreases in these two segments were partially offset by revenue increases of $846,000 in our bulk segment and $287,000 in our service segment. Retail revenue declined due to a 2% decrease in the volume of water sold by Cayman Water. The sales volumes for both 2021 and 2020 have been significantly below the historical volumes for the retail segment prior to 2020 due to the continued moratorium on tourism in Grand Cayman. The increase in bulk segment revenue was due to an increase in CW Bahamas revenue of $844,000. due to higher energy costs, which correspondingly increased the energy pass-through component of CW Bahamas rates. The increase in bulk segment revenue is also due to a 9% increase in the volume of water sold by CW Bahamas. The decrease in manufacturing revenue in the second quarter of 2021 was due to the decrease in orders from Eric's former largest customer, as discussed previously by Rick, and This customer informed AirX in 2020 that it was suspending its purchases of a specialized product until 2022. In late July 2021, this customer again communicated to AirX that it expected to recommence its purchases of the specialized product from AirX in 2022 and subsequent years, but it also said such purchases would be at substantially reduced annual amounts in terms of both the amounts it had purchased from AirX in 2020 and prior years, and from the amounts we previously believed they would purchase from us. We continue to expect, although cannot guarantee, that the orders from this customer will resume as they have indicated. However, as Rick will cover later, they are also discussing with us other products that Eric's could potentially manufacture for them. Gross profit for the second quarter of 2021 was $6.1 million or 36% of revenues as compared to $7.3 million or 38% of revenues in the second quarter of last year. This decline was largely due to lower revenue generated by our retail water operations and manufacturing segments. Even though total revenue decreased, our bulk segment gross profit increased 21% to 2.3 million. For the second quarter of 2021, the net loss attributable to consolidated water shareholders, which includes the results of discontinued operations, was $1.7 million, or a loss of 11 cents per basic and fully diluted share. But if you exclude the manufacturing segment of pyramid loss of $2.9 million, net income attributable to consolidated water was $1.2 million, or 8 cents per basic and fully diluted share. Turning to our balance sheet, our accounts receivable balances related to our Bahamas business amounted to $21.3 million at the end of the second quarter, which was up from $16.8 million We believe the increase in accounts receivable resulted from the adverse impact of the pandemic on the revenue sources for the Bahamas and its government. Such delinquent accounts receivables we have experienced in the past were eventually paid in full. Also, given our recent contact with the government of the Bahamas Ministry of Finance, we believe that reducing this balance is a priority for them. So based upon their payment history, our majority owns subsidiary CW Bahamas has never been required to provide an allowance for doubtful accounts for any of its accounts receivables, despite the periodic accumulation of significant delinquent balances. And as of June 30th, 2021, we had not provided an allowance for doubtful accounts for CW Bahamas accounts receivables. It is important to note that so far in 2021, we have received $14.4 million on our Bahamian accounts receivable, including two payments in the last two weeks totaling $5.7 million. We believe their recent payment history is a clear indication that the Bahamas government is moving towards reducing the balance of these delinquent accounts receivables. As of June 30th, 2021, our cash and cash equivalents totaled $41.2 million and our working capital totaled $69 million. We believe this position affords us more than sufficient financial resources to maintain our normal operations while still pursuing our strategic initiatives. And this completes my financial report. I'd like to turn the call back over to Rick.