Consolidated Water Co. Ltd.

Good morning, and thank you for joining us today to discuss Consolidated Water Co.'s third quarter 2022 results. Hosting the call today is the Chief Executive Officer of Consolidated Water Co., Rick McTaggart, and the company's Chief Financial Officer, David Sasnett. Following their remarks, we'll open the call to your questions. At any time during the call, you may join the Q&A queue by pressing the star key followed by the 1 on your telephone keypad. To withdraw a question, please press star, then 2. Should you need any assistance today, you may signal a conference specialist by pressing the star key followed by 0. 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 it will be made available for telecom replay per the instructions in yesterday's press release, which is available in the Investor Relations section 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, Joe. Good morning, everyone. Thanks for joining us today. As you saw in our earnings release issued yesterday, we reported a 53% increase in our revenues for the third quarter of 2022, reflecting revenue increases in all four of our business segments. However, certain G&A expenses increased last quarter, which impacted our net income. We believe that last quarter's higher G&A expenses and flat net income performance are not indicative of what investors should expect in upcoming quarters. David will provide an explanation of these G&A expenses later in the call. Our retail water revenues benefited from a 14% increase in the volume of water sold in Grand Cayman due to the continued return of tourist activity to the Cayman Islands. Our services segment revenue increased by $5.5 million, with most of the increase resulting from progress on Perk Water's previously announced contract for the construction of an $82 million advanced water treatment plant in Goodyear, Arizona. This Arizona project is now well underway and progressing as expected. and we anticipate recognizing significant additional revenue from this project in the fourth quarter and in 2023. Also in Q3, we completed the design and preliminary permitting activities for the new desalination plant we are constructing on Grand Cayman pursuant to the 10-year design-build-operate contract that we signed with the Water Authority of the Cayman Islands. The revenue we recognized on this contract was minimal in Q3 during the design and permitting phase of the project, but construction activity is now underway, so we will recognize significant additional revenue on this contract beginning in Q4. Before getting into our progress with these major projects and our outlook for the rest of the year and into 2023, I would like to turn the call over to our CFO, David Sasnett, who will take us through the financial details for the quarter. Mr. Sasnett.

Thanks, Rick, and good morning, everyone. Yesterday, we issued our earnings release for the third quarter of 2022, and you can find it in the investor section of our website. As Rick mentioned, we reported revenue of $25.1 million in the third quarter, which is an increase of 53% from the third quarter of last year. This growth reflects increases of $1 million in our retail segment revenue, 1.8 million in our bulk segment revenue, 5.5 million in our services segment revenue, and $291,000 in additional manufacturing segment revenue. The increase in our retail revenue was due to the improvement in tourist activity in the Cayman Islands. We're up 14% in the volume of water we sold for the third quarter of this year as compared to last year. And our retail revenue also increased as a result of higher energy costs that increased the energy pass-through component of our water rate. as well as a more favorable rate mix. As much of the increase in sales volume for Cayman Water was generated by tourist related properties and these such properties pay a higher per gallon rate than our residential customers. Our bulk segment revenue increased and this increase was attributable to an increase in the energy cost for CW Bahamas. These energy costs increased the pass-through component of CW Bahamas rates. The increase in our services segment revenue was due to increases in both plant design and construction revenue and operating and maintenance revenue. Most of our services revenue increase in the quarter resulted from PERC's new contract, Liberty Utilities Design and Construction Advanced Water Treatment Plant in Goodyear, Arizona. But I would like to point out that even though we started work on this contract this quarter, The amount of revenue that we recognized on the Liberty Utilities Contract was really small relative to what we expect to recognize in future quarters. The increase in manufacturing segment revenue was due to slightly higher project activity. Our gross profit for the third quarter of 2022 increased 20% to $6.8 million from the same period last year, while gross margin decreased 7.4 percentage points to 27.3% due to a change in the relative segment revenue mix. Net income from continuing operations attributable to consolidated water stockholders for the third quarter of 2022 totaled $824,000, or $0.05 per share. This compares to net income of $1.4 million, or $0.09 per basic in the limited share for the third quarter of last year. This decrease in our net income from continuing operations this quarter as compared to the same quarter last year was attributable to three primary factors. Number one, higher repairs and maintenance expenses for our Bahamas operations. These were up about $361,000. We incurred these types of expenses intermittently, so they can have a significant impact on any one quarter's results as they have in this quarter. We also recognized a $247,000 loss on the revaluation of the put call options that we issued or acquired in connection with the acquisition of PERT years ago. It's important to note that we exercised our call option to purchase the other 39% of PERT shares in October of this year. And the third factor that created a decrease in our net income were increased G&A expenses in various categories. Most notably, increased bonus accruals arising from the improved financial performance year to date for the company as compared to last year, higher employee salaries due to the need to give pay raises, and bank charges related to the transfer of some of our profits from our Bahamas subsidiary to the Cayman Islands. I want to point out that our bonus accruals for our management are based upon fiscal year financial performance metrics for the company. For the first six months of this year, we accrued bonuses at lower amounts based upon our initial expectations of year-end results. Once we obtained the Liberty Utilities and Red Gate contracts, our projected financial results for 2022 increased substantially. Thus, we were required to record a cumulative catch-up bonus accrual. And I want to point out that we also incurred higher business development expenses and professional fees this quarter relating to our pursuit of new business and, in general, Inflation has increased most of our G&A expenses. Our net income attributable to stockholders that includes discontinued operations was $318,000, or $0.02 per basic and fully diluted share. This compares to net income of $286,000, or $0.02 per basic and fully diluted share for the third quarter of 2021. Now turning to our financial condition and our balance sheet, Our cash equivalents totaled $51.1 million as of September 30, 2022. This reflects an increase of $2 million from the $49.1 million as of June 30 of this year and a $10.4 million increase in cash and crash equivalents year-to-date. This increase was due to cash generated from operating activities, which were almost $16 million for the first nine months of this year. As of September 30, our working capital totaled $71.1 million. We still only have debt of $200,000. Our stockholders' equity totaled $158.8 million. As of September 30, our projected liquidity requirements for the balance of the year include capital expenditures for existing operations and plant construction of approximately $6 million. This construction amount includes the $800,000 for the replacement of our West Bay seawater desalination plant on Grand Cayman and approximately $2.4 million for the construction of the Water Authority's new desalination plant under our recently awarded contract. As I mentioned earlier, in October we exercised our option to purchase the remaining 39% minority interest in PERC, so our liquidity requirements will also include the funds necessary to complete this purchase. The purchase price for PERC The minority interest will be based upon a third-party valuation which is presently underway. We paid approximately $1.4 million in dividends in October of this year. Our future liquidity requirements will also include any future dividends declared by our board. And during the quarter, we obtained a $10 million revolving credit line with Scotiabank and the Cayman Islands. This line was obtained to assist us with some of our short-term financing and working capital needs. To date, we have not utilized any of the borrowings under this law. So this completes our financial summary for the quarter. And with that, I'd like to turn things back over to Rick.