Consolidated Water Co. Ltd.

Morning. Thank you for joining us today to discuss Consolidated Water Company's first quarter 2025 operating and financial results. Hosting the call today is the Chief Executive Officer of Consolidated Water, Rick McTaggart, and the company's Chief Financial Officer, David Tadnet. 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 star 1 on your keypad. 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. Please see the instructions in yesterday's press release that have been posted to the investor relations section of the company's website. Now, I'd like to turn the call over to Consolidated Waters CEO, Rick McTaggart. Sir, please go ahead.

Thank you, Mike, and good morning, everyone. Our services segment revenue and operating income declined in the first quarter of 2025 compared to the year earlier due to completion of two major design-build projects in the second quarter of last year. However, we did see improved performance in all three other business segments particularly retail and manufacturing. Retail water sales in our exclusive utility service area on Grand Cayman reflected much higher sales volumes compared to a year earlier due to population growth and increased business activity within our service area. Manufacturing revenues and operating income increased by about 10% and 44% respectively compared to a year earlier due to higher production activity and a higher margin product mix. Revenue and gross profit generated in our Caribbean-based bulk water segment remain consistent year over year, reflecting the long-term, stable, income-generating nature of these businesses. Revenue from our services segment declined significantly compared to a year earlier due to completion of the Liberty Utilities and Red Gate II design-build projects in the second quarter of last year. The decline was partially offset by a 9% or $626,000 increase in recurring revenue from our operations and maintenance contracts in the western U.S. This growth in O&M revenue in dollar terms was about evenly generated by PERC in California and Arizona and REC in Colorado. On April 28, the Honolulu Board of Water Supply, our client on our multi-year seawater desalination project in Hawaii, approved our pilot test reports and recommendations and concluded that the desalinated water we produce during the piloting phase is a reasonable match to the existing water supply. And further concluded that the desalinated water from the new plant would not cause any detrimental impact to their distribution pipes or customer assets. This is a key significant milestone in the project and paved the way to begin construction once all permits have been obtained. This $204 million project to design, construct, operate, and maintain a 1.7 million gallon per day seawater desalination plant for the Honolulu Board of Water Supply commenced in 2023 in June. We expect to begin the construction of this project early next year once we and the client have obtained the permits that are required and the client issues a notice to proceed with the construction. On a cautionary note, some of these permits are outside of our control and delays in obtaining them could also delay the construction date. The construction phase is expected to generate the largest portion of revenue from this project and be a major growth driver for our services segment. in 2026 and 2027. We expect to submit our 90% design for the project on schedule early next month for the client engineer to review. The Hawaii project is a major growth driver for our services segment. It involves a two-year development phase, which concludes next month, followed by two years of construction. Once completed and commissioned, we have been contracted to operate the plant under a 20-year O&M agreement plus two five-year extensions at the option of the client. It's important to note that, particularly in this environment now, economic environment, that 80%, approximately 80% of the construction costs for this project will be adjusted for inflation at the start of the construction. This mechanism is expected to protect our gross margin and overall profitability. Now, before getting more into recent developments and our outlook for the year, I would like to turn the call over to our CFO, David Sassnett, who will take us through the financial details for the quarter.

Thank you, Rick. Good morning, everyone. Our revenue was down 15% from the first quarter of 2024 to $33.7 million. And this decrease was due to a decrease of $7.3 million in the services segment, specifically the construction revenue. That related to completion of the two projects Rick mentioned previously. The service segment revenue decrease was partially offset by revenue increases of $786,000 in our retail segment, $70,000 in our bulk segment, and $509,000 in the manufacturing segment. Our retail revenue was up $786,000 due to a 13% increase in the volume of water sold. Our bulk sediment revenue increased slightly to $8.4 million due to the revenue generated by the commencement in May 2024 of the operations and maintenance contract for the new Red Gate II desalination plan on green payment, which we constructed, and the amendment of our company's North Sound contract with the Water Authority payment, which also became effective in May of 2024. As I mentioned earlier, the decrease in services segment revenue was due to plant construction revenue decreasing from $9.2 million in the first quarter of 24 to $2.2 million in the first quarter of this year. And once again, this is the result of two construction projects that were completed in the second quarter of 2024. Our recurring revenue generated under our O&M contracts totaled $7.7 million in the first quarter of 2025, an increase of 9% over the previous year. Both PERC and RAC our Colorado subsidiary, increased our O&M revenue this first quarter from last year. Our manufacturing segment revenue increased by $509,000 to $5.8 million for the first quarter of 2025. Gross profit for the first quarter of 2025 was $12.3 million, about 37% of total revenue, as compared to $13.9 million, or around 35% of total revenue in the first quarter of 2024. This decrease was due, as I mentioned earlier, to a decrease in service service gross profit of $2.7 million as a result of a decrease in construction revenue. This decrease was partially offset by an increase in gross profit for our retail bulk and manufacturing segments. Net income from continuing operations attributable to consolidated water shareholders for the first quarter of 2025 was $4.9 million, or $0.31 per diluted share. This compares to net income of $6.9 million or $0.43 per diluted share in the first quarter of 24. Including discontinued operations, net income attributable to consolidated water stockholders for the first quarter of 2025 was $4.8 million or $0.30 per diluted share as compared to net income of $6.5 million or $0.40 per diluted share in the same period last year. Turning to our balance sheet, cash and cash equivalents grew. to $107.9 million as of March 31st, 2025, and a working capital increase of $136.2 million, and our stockholders' equity now totals $213.3 million. Our projected liquidity requirements for 2025 include capital expenditures of approximately Excuse me, our projected liquidity requirements for 2005 include capital expenditures for existing operations of approximately $9.1 million. This includes $800,000 to be incurred in 2025 for new desalination plants in the Bahamas on Cat Island, and $1.2 million for the expansion of Eric's manufacturing facility. We paid out approximately $1.8 million in dividends in April. Our liquidity requirements may also include future quarterly dividends, especially dividends that are declared by our board. Our executive management and board are currently evaluating how to best utilize our large cash balance to increase shareholder value. Such evaluation includes potentially increasing our quarterly dividends. This completes our financial summary for the year. Now I'd like to turn the call back over to Rick.