Consolidated Water Co. Ltd.

Good morning. Thank you for joining us today to discuss Consolidated Water Company's second quarter 2025 operating and financial results. Hosting the call today is the Chief Executive Officer of Consolidated Water, Rick McTigheR, and the company's Chief Financial Officer, Davis Kuffman. Following their remarks, we will open the call to your questions. At any time during the call, you may join the Q&A queue by pressing star, then 1 on your keypad. Before we continue today's call, I will provide some important questions regarding the forward-looking statements made by the management during the call. I would like to remind everyone that today's call is being recorded and it will be made available for telecom replay. Please see the inspections and yesterday's press release that has been posted to the investment relations section of the company's website. Now, I would like to turn the call over to Consolidated Water's CEO, Rick McTigheR. Sir, please go ahead.

Thank you, Steve. Good morning, everyone. Thank you for joining us today to discuss our financial and operating results for our second quarter of 2025. As mentioned in our press release issue yesterday, our diversified water business model encompassing regulated utility, O&M services, and manufacturing performed well this past quarter with low revenues increasing by 3% and fully diluted earnings per share from continuing operations increasing by 23% compared to the same quarter of last year. The retail and manufacturing segments in particular reported quarter over quarter revenue increases of 6% and 33% respectively. Retail water sales in our exclusive utility service area on Grand Cayman were higher than the previous year primarily due to reduced rainfall during this past quarter. Manufacturing revenue and operating income rose due to increased production and higher margin products. Recent tariffs enacted by the United States government have not materially impacted our manufacturing business. Our Caribbean-based bulk water segment revenue declined slightly this past quarter due to lower fuel pasture charges. However, bulk profitability rose both in dollar terms and gross profits per strategy as a result of improved plant efficiency and reduced operating costs. Our service and segment revenue decreased in the second quarter of 2025 compared with the previous year largely due to the completion of the pilot plant testing phase of the Hawaii project which resulted in a decrease in project expenditures pending commencement of the construction phase of the project. This reduction was partially offset by higher revenue from recurring operations and maintenance contracts in both California and Colorado. In April, the Honolulu Board of Water Supply or BWS, 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 produced during the piloting phase is a reasonable match to their existing water supply. And further that desalinated water from the new plant would not cause any detrimental impact to their distribution pipes or customer assets. So this significant milestone in the project paved the way to begin construction once final design approval and the requisite permits have been obtained. In June, we submitted our 90% design for the project to BWS and very shortly afterwards received comments from their engineer and various consultants. We are currently addressing these comments and plan to submit our responses shortly in keeping with the project schedule so that should advance the design process. We presently expect to begin construction of this project early next year once BWS issues a notice to proceed with construction. And on a cautionary note, some of the permits required before construction can start must be obtained by our client and are therefore outside of our control. And delays in obtaining any of these permits could also delay the construction start date. The construction phase of the Hawaii project is expected to generate the largest portion of revenue from this project and once commenced will be a major growth driver for our services segment in 2026 and 2027. 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 Faffnet, who will take us through the financial details for the quarter.

Thank you, Rick. Good morning, everyone. Thank you for joining us today. I'll go through some of the numbers we mentioned earlier in more detail here. Our revenue totaled $33.6 million for this quarter, which is up 3% from the second quarter last year. And this is the revenue increases for both our retail and manufacturing segments. Our retail revenue was up $456,000 due to the 7% increase in the volume of water sold. And we attribute that volume increase to lower rainfall. And now it's on Grand Caymans for the second quarter of this year as compared to last year. Our bulk segment revenue actually decreased rightly to $8.3 million. But this is due to a decline in energy costs for C of the Bahamas that reduced the energy pass-through components of the waterways that we charge. Our services segment revenues decreased by $474,000 due to plant construction revenue that decreased from $4 million in the second quarter of last year to $2.8 million in the second quarter of this year. This decrease in construction revenue was a result of a $1 million increase in the revenue we recognized for the right project. This was due to the completion of the pilot grant testing phase of the project, which resulted in a decrease in project expenditures pending commencement of the construction phase of the project. Recurring services segment revenue generated under our OEM contracts totaled $8.3 million in the second quarter of this year, which represents an increase of 70% over the previous year. Those per ANRAC, our Colorado subsidiary, increased our OEM revenue this second quarter compared to the second quarter of 2024. Our manufacturing segment revenue increased by $1.3 million, or 33%, to $5.2 million in the second quarter of last year as a result of increased production activity. Our gross profit for the second quarter of 2025 was $12.8 million, or 38% of total revenue as compared to $11.6 million, or 36% of total revenue in the second quarter of 2024. The increase in gross profit both in dollars and in terms of gross profit percentage was due to increases in the retail and manufacturing segment, as well as decreased relative to operating costs for our bulk sector. Debt income for continuing operations attributable to consolidated order stockholders for the second quarter of 2025 was $5.2 million, or 32 cents per million each year, as compared to debt income of $4.2 million, or 26 cents per million each year in the second quarter of 2024. This decrease in debt income in EPS from 2024 to 2005 was due to our discontinued operations, including our discontinued operations. Debt income attributable to consolidated order stockholders for the second quarter of 2025 was $5.1 million, or 32 cents per million each year, as compared to debt income of $15.9 million, or 99 cents per million each year in the second quarter of 2024. This decrease in debt income in EPS from 2024 to 2005 was due to our discontinued operations, as we recognized again on the sale of the land and project documentation for our discontinued project in Mexico that totaled $12.1 million in the second quarter of last year. Prior to our balance sheet, our cash and cash credits continued to grow to total approximately $112.2 million as of June 30th, and our working capital was $137.4 million as of that date, and our stockholder's equity grew to $216.6 million. Our projected equity requirements for the balance of this year include capital expenditures for our existing operations of approximately $85 million. This includes $1.5 million to be incurred in 2025 for new used domination plants, to be built for the World Trade Corporation of the Bahamas on Cat Island, and $700,000 for the expansion of Ericsson's Manufacturing Facility, which is almost complete. We increased our quarterly cash dividend and declared a dividend of $0.14 per share for the third quarter this year. This third quarter dividend of $0.14 per share represents an increase of 27% from the previous dividend of this year, and we paid out approximately $2.3 million in dividends from July. Our future liquidity requirements also include quarterly dividends, such as dividends declared by the Board, and we continue to evaluate how to best utilize our large cash balance and ample liquidity to increase shareholder value. And this completes our funding for details for the quarter, and I'll turn the call back over to Rick.

Thanks,

Dave.

So earlier this year, we completed an expansion of our West Bay Seawater Desalination Plant to meet growing demands for water in our Grand Cayman utility service area. This expansion added an additional 1 million gallons per day of desalinated water production capacity to the already existing 1 million gallons of daily production capacity that was commissioned only two years ago. To keep pace with growing demand, over the next two to three years, we plan to construct additional water storage at our West Bay site, as well as build new water production and storage on land. We are in the process of purchasing located at the southern end of our service area in Grand Cayman to keep pace with demand growth. Enabled by an exceptionally strong balance sheet, we will continue to invest in these new assets and long-term projects, including the new desalination plants on Pat Island in the Bahamas, which we expect to complete later this year. These investments, which are needed to meet the growing water needs of our customers in the Cayman Islands and the Bahamas, are expected to ultimately support future revenue growth in both the retail and bulk segments. Our manufacturing business has stabilized as promised, and we believe that we have successfully mitigated revenue and profit variability in this business segment going forward by broadening our product and client base. A meaningful part of our manufacturing revenue is generated by water purification and other equipment that we fabricate for the nuclear power industry. We have been ASME NQA1 certified by two large nuclear industry players for many years, and have been cleared by a third potential client to go through the requisite audit process needed to obtain a third ASME NQA1 certification. Given the recent strong interest in nuclear power solutions to meet growing demand for 24-7 electrical power in the U.S., we are hopeful that our unique manufacturing qualifications will provide opportunities to further grow our manufacturing business through this important sector. During the quarter, we substantially completed construction of an additional 17,500 square feet of manufacturing space at our Fort Pierce Florida facility, and expect to occupy the new space later this month subject to final inspections and permitting. The additional space will allow us to take on more simultaneous and larger projects, thereby increasing our throughput capacity. REC, our Colorado subsidiary, continues to perform well, with quarterly revenue up more than 17%. Earlier this year, we entered the Colorado Design Builds market by winning our first construction contract in Lock Buoy, Colorado. This $4.5 million drinking water plant expansion, while relatively small in comparison to some of our recent design build projects, did a great start and helped us to pursue larger design build opportunities in Colorado. In addition to Colorado, the Arizona market continues to present significant opportunities for future design build projects. Our team is currently engaged in multiple preliminary discussions with potential clients, and recently submitted four customized design reports, or CDRs, as we refer to them, to residential developers and industrial clients in our Phoenix. Similar to the Liberty Utilities project in Arizona, we believe that some or all of these CDRs will ultimately lead to design build contracts for these important wastewater treatment facilities in Arizona. We're confident that our award-winning design, cost-efficient delivery models, and extensive industry experience will help us win upcoming projects. Our decision to diversify beyond the Caribbean seawater defalination market many years ago has been successful and positions us for continued growth. We now have a diverse portfolio across four business segments, delivering consistent value to shareholders through strategic acquisitions over the last decade. As we finish 2025 and look ahead, we expect these positive factors to sustain steady long-term growth, enhance profitability, and increase shareholder value. Now with that, I'd

like to open the call up for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time a question has been addressed and you would like to withdraw your question, please press star, then 2. At this time,

we will call momentarily to assemble our answer. The first question comes from Jerry Sweeney, Wicked Mouth's

captain. Please go ahead.

Good morning, David

and Rick. Thanks for taking my call.

Hey, Jerry.

That's on a nice quarter. I don't have too many questions, but other than maybe some higher level understanding of maybe the market opportunities and to segment them into, let's say, Caribbean and then sort of U.S. On the U.S. front, PERC and REC, how is that pipeline developing? Obviously, a lot of talk in the West and Southwest about water, water scarcity, etc. And I think the market was hotter than maybe some VTONs got extended, but I'm just curious what the pipeline is looking like and what are your thoughts on just the market tenor in general? Well, on the wastewater side, certainly we're seeing continued interest in, as I mentioned, in these projects generated by developments in small industrial projects that we've been pursuing through these customized design reports. So, I mean, these projects could range anywhere from sort of $10 to $30 million in size. It would be design, build, jobs for wastewater treatment plants. The Phoenix area continues to grow there, and they continue to need wastewater treatment solutions. On the California side, I mean, it's been mostly O&M contract renewals and opportunities there. Not much happening on the design, build side in California. And Colorado, what's that market look like? Obviously, you had that small design one, that $4.5 million one, but does a win in the state create a little bit more opportunity for you guys? Oh, absolutely, yeah. I mean, it gives us a good base. We knew the client at Rock Bowie through many years operating their wastewater plant there. So, there's other opportunities. There's a lot of small towns and areas north of Denver that require upgrade expansions to their wastewater and water treatment facilities just because of the natural growth around that area. So, we see a number of similar opportunities to Rock Bowie. Got it. Switching gears to the Caribbean. Obviously, the Caymans get a nice consistent growth there. There's amazing evidence by the expansion of your West Bay plants. Maybe two questions. Bahamas, they seem to be, I think in previous conversations, the way I described it was a little bit water-contrained and at some point, they'll have to do something. So, maybe the opportunity in the Bahamas and then any other opportunities throughout the region.

Yeah, I mean, I think you covered it. We're very

focused just on the Cayman Islands market and the Bahamas at this point in the Caribbean. The Bahamas, we're building these two plants on Cat Island, which is our first contract outside of New Providence, Napa, for water supply. We're very excited about that. So, we want to get those wrapped up and see what comes next because there's certainly needs throughout the Bahamas for additional water supply. We hope that they talk to us about that. Got it. One last question. Manufacturing highlighted the expansion to their X-facility in Port Pierce. I'm just curious, does this expansion open up, it sounded like, maybe I'll take a hat off to somebody. It sounded as though maybe it was space-constrained and maybe this limited the number of jobs and the size of jobs you could go after. Does this expansion open up a larger market and maybe a different light or a different opportunity to grow? Yeah, absolutely, Jerry. I mean, when you're building these big pieces of equipment, you've got to ask them where to put them, right? Yeah. What this is going to do is free up our shop floor for higher throughput on the actual fabrication side. We'll be able to put some of these larger pieces of equipment over in the warehouse and do complex assembly work and that sort of thing. We'll be taking up some of the underwater treatment skids in the warehouse area and we'll be taking up the welder's space and all that sort of stuff in the shop. We definitely think it's a big plus for the facility and it'll ultimately allow us to generate more revenue from that business because of the additional space. It

absolutely increased our capacity, Jerry, and that's something we need to take part in the business in the coming years.

The biggest growth driver in the manufacturing of Eriks is nuclear. It's definitely gotten a lot of attention lately. But what is maybe some of the drivers behind Eriks? Well, as I mentioned, we have a very diversified business there now. I mean, the nuclear work obviously plays a big part of it. There's a lot of, Eriks is very well known in Florida, and there's a lot of new municipal work for water treatment plants, membrane treatment plants going on in the Florida area. So we've been busy getting some jobs, some nice-sized jobs here. And then we always have the pipe fabrication business, which can run, again, with high-pressure piping for membrane plants to just stainless steel piping, large stainless steel piping for wastewater plants. And that continues to be a good base for our revenues in the Eriks business. So it's really the nuclear, the municipal, and the pipe that is keeping us quite busy right now.

Got it. Okay, I'll come back to you, thanks. Yep.

Thank you. To ask a question, you may press start then 1 on your touch-tone phone. The next question comes from John Bass

with Ascent Wealth Advisor. Please go ahead. Good morning. Thank you guys for taking the question here. I wanted to circle back on the nuclear, and is this a business that you're addressing primarily domestic, and do you have any international opportunities with supplying products or materials to other plants?

The customers are all domestic. Some of the final products are going overseas. But, you know, just one product that we actually make is, well, two products are going overseas. But all of our customers are domestic customers.

So is there an opportunity, or do you see an opportunity to expand this for international, because internationally you're looking at increasing nuclear capability as well. So, just kind of curious how that trend is playing out.

Yeah, so, I mean, just John, so you understand, we're not selling directly to the clients. I mean, we're qualified by companies that, they're nuclear solution companies, so we're doing fabrication work for them. So we're not selling directly to the, into the facilities or the end users. So, I

mean,

they, you know, these clients do work overseas, and, you know, if they need us to do some fabrication work for them, you know, we're certainly qualified to do that. But I can't really say that we're pursuing international work because of the arrangements that we have with our customers. We don't serve the end users on this, in this market.

Okay, okay, fair enough. And then, is a lot of this addressing, like, requisite or upgrade as opposed to actual new, new builds?

I'm not aware of any new builds. This is water treatment equipment for existing facilities. Okay.

And can any of this apply towards the smaller, the SMR market that seems to be gaining some interest? It certainly could, yeah. Okay. All right. And then, I wanted to ask another, another area. Are you seeing more interest or bidding opportunities for, based on reshoring of being, after, you know, across the geographic US, not just necessarily in the West Coast or, or elsewhere, is, is, do you see opportunities there? We have not been

involved in anything like that yet. I can't say that, that that's been an area that we see opportunities in at the moment.

Okay. And then, another question on future capex needs for existing installations, you know, upgrades or replacement. Where, what do you, what do you see in, in that regard?

Yeah. Let me just jump back one second here about the reshoring, manufacturing work. One of the things I want to explain to investors is, so we don't have, like, a product line that we can, you know, market to engineering companies and, and those sorts of groups that design these large plants. I mean, we're more of a custom shop, particularly with, with AirX. We are looking at potentially developing some standardized products, which will fit better with the industrial market. You know, you can take your specs and your brochures and things over and, you know, talk to one of the big consulting engineers and they can spec it into a new chip plant or a new, you know, auto plant or whatever they're working on. So that is something that we are looking at. Now your second question about the capex. I mean, I think most of our assets, new assets and capex expenditures are going to be in the key man utility. Just because of growth in that business, we need to build some new water storage tanks and eventually build a new RO plant on the southern end of the system there. You know, outside of that, it would be projects like, like Cat Island that are, you know, using capital right now for long-term investments.

Okay. And one last question. I didn't see anything in the press release and I haven't had a chance to look into the queue, but I know in the past, your friends in the Bahamas tend to be a little bit slow in paying their bills. What have you seen there? How's that been working out?

We've obviously been very focused on getting that resolved. We've had a number of discussions and meetings over the last several months and we are seeing an increase in payments coming through now. So, you know, there have been, on the Bahamas side, there's been an undertaking to, for some time to bring that account to current and we are seeing some progress now on that.

It didn't show up in the queue John, but hopefully we'll report the next quarter's results. Okay. Okay. That's

great. Thanks a lot. Appreciate you taking my questions. Thank you. Thank you. Ladies and gentlemen, if you wish to ask a question, you may press star L1. The next

question comes from

Matt with Russian Sharder. Please go ahead.

Hey guys, thanks for the, for allowing me to ask a couple of questions here. My first is, the real standout for me was the gross margin on the manufacturing side of the business. Can you talk about that a little bit? Whether, you know, what was really driving that?

I mean, it's pretty simple. I think we got some jobs that were higher margin. We, you know, we were able to price them better and, you know, we're utilizing our resources there at the facility pretty much at peak right now for the size of the facility that we have. So we were very busy. You know, there wasn't any downtime during the quarter and we were able to get better pricing on some of these projects that went through the shop.

But Matt, we've also focused, the Spinistratech initiative hours were focused on the higher margin projects to begin with. And I think our people involved in sales and our manufacturing segment have really focused on that and been more aggressive on that for some of the higher margin jobs. But quite like I said, the facility itself is very efficient. It's operating pretty close to capacity and, you know, that takes every day to spread out over a much larger amount of revenue and margins feel like. So it's both sales and productivity. But

keep in mind, I mean, when we get this new building online this month, that's going to change the game. I think that will, you know, significantly increase the capacity

of that facility. Okay, great.

Is there a time period that you're hoping to fill the incremental capacity?

We're bidding on some larger jobs right now. So I mean, depending on whether we're successful or not, I mean, it'll certainly be put to use as soon as we hear about some of these new jobs. I mean, these are bigger municipal jobs, but they take a little bit more time to go through the process. But they would certainly impact 2026 revenues if we were successful. Yeah,

they would use the bulk of the capacity, Matt, more or less. So we've got the case right here to fully utilize everything we're building very quickly. That's great.

All right. Secondly is on the O&M revs. There was a pretty nice sequential increase there. So I don't know if you, if I missed this and you're prepared to march, but can you talk about if there was one or multiple incremental wins there and any color on the business for the rest of the year?

I

mean, one of the projects that we had, that we have, we negotiated a change in terms of the contract for 24-7 operation. I think that favorably impacted the revenues for that project. And then just incremental cost increases in some of the other projects. There weren't any big projects or number of small projects that we put online. I think it's just a matter of revenue growth

in a number of projects. Okay. The number of existing contracts, I should say, not projects.

New contracts. Yeah. Okay. Two more quick ones. One is Hawaii. I think in the past you talked about waiting on some permits. Are we still waiting on the same permits or what is remaining before we've got the green light?

Well, so there's two big things, two big permitting issues at this point. I'll give you a little bit more detail. So there's the archaeological permit that we need for the site. And we always expected that that was going to take a long time to get. We had to do studies to ensure that we weren't going to damage any historical artifacts or areas on the site. There weren't any ancient graves or anything like that on the site. So those studies have been done and we're just working our way through the regulator and the approval process. So we always knew that was going to take a while. And that's kind of what we've always talked about, being the critical path on the permit. The second thing I think that's very important is now that the design is essentially finished, we have to submit that to the health department there to get final approval for the water supply. And that could take some time. It may go quickly. I couldn't really start it, Matt. But we haven't been to the point that we could do that until we finish the design, which is going to happen I think in

the next month or two. Okay. All right.

Great. Lastly is the good old Bahama receivable? I think it seems to be kind of holding the line, but is there any additional color from the government there?

Yeah, I mentioned earlier when John asked the question that although it's not reflected in the queue, we've had some progress since the end of the quarter. We have an understanding with the government that they're going to make some scheduled payments there. And we're positive about the outlook for reducing that over the next month.

Yeah, this is a good condition. We've done this for as long as we've been growing the money. I mean, they're very good. Yeah, they're very good. They're positioned very good. I don't have a problem with this invoice or anything. I mean,

this is our watch.

That's

great. Sorry, I missed that comment earlier. The last, I'll squeeze one more quick one in. So, if you've got this watch that's the cash, you are bowed down for a period where your cash generation may be the strongest in your company's history. Right? You've also got cash coming in to go up from Bahamas. So, I mean, your cash generation is going to be pretty darn strong for the next several years. I know you've been looking at some M&A, but it seems to me like you could probably balance multiple capital allocation moves on a go-forward basis. Any thoughts on that?

Well, I'd say right now we are actively looking at a couple of interesting M&A targets. And, you know, I can't really say how that's going to work out, but I mean, they'd be great positions for the company. So, we're not just sort of generally looking at them. We do have some specific targets in mind, and we've had some discussions. Beyond that, I mean, there is an appetite, or beginning to be an appetite in the U.S. for these 3P type projects to address some of the water shortages in the southwest, in Texas. And we are exploring those types of opportunities as well. And, you know, with that cash in the bank, I mean, in my view, that gives us a leg up on some other competitors that may not be in that position. Because these are longer-term capital investments in public-private partnership type projects. So, we are well aware that we need to put that to work. And, you know, every day evaluating ways to do that and, you know, looking at potential M&A type deals. So, you know, we raised a dividend last quarter, which hopefully everybody appreciates. And if we continue to generate high levels of cash from operations, then we're always reevaluating, you know, what we

can do to return that to the shareholders. All right. Well, congrats. I look forward to the next couple of years. Thank you. You're welcome. Thank you.

Thank

you.

All right. At this time, this concludes our question and answer session. I would like to turn the call back over to Mr. McTaggart. Sir, please go ahead.

Thanks, J. Thank everybody again for joining us today to discuss our results. And we certainly look forward to speaking with you again to go over our third quarter results in November.

Thanks, everybody. Thank you. Before we conclude

today's call, I would like to provide complete safe harbor statement that includes caution regarding the forward-looking statements made during this, during today's call. The information that we have provided in this conference call concludes forward-looking statements within the meaning of the private security litigation reform act of 1995, including but not limited to statements regarding the company's future revenues, future plans, objectives, expectations, and events, assumptions, and estimates. Forward-looking statements can be identified by the use of words or phrase, usually containing the words believe, estimate, project, intent, expect, should, will, or similar expressions. Statements that are not historical facts are based on the company's current expectations, beliefs, assumptions, estimates, forecasts, and projections for its business and the industries and market related to its business. Any forward-looking statements made during this conference call are not guarantees of future performance and involve certain risks, uncertainties, and assumptions, which are difficult to predict. Actual outcomes and results may differ materially from what is expressed in such forward-looking statements. Factors that would cause or contribute to such differences include but are not limited to. Tourism and weather conditions in the areas we serve, the economic, political, and social condition of each country in which we conduct or plan to conduct business. Our relationship with the government entities and other customers we serve. Regulatory matters, including resolution of negotiations for the renewal of our retail license of Grand Cayman. Our ability to successfully enter new markets and various other risks. As detailed in the company's periodic reports filings with Security and Exchange Commission, SEC. For more information about risks and uncertainties associated with the company's business, please refer to the Management, Discussion, and Analysis of Financial Conditions or Result of Operation and Risk Factor section of the company's SEC filings including but not limited to. Its annual report on the form 10-K and quarterly report for form 10-Q. Any forward-looking statements made during the conference call speaks as of today's date. The company expressly disclaims any obligation or undertaking to update or revise any forward-looking statements made during the conference call to reflect any changes in its expectation with regard there to or any changes in this event. Conditions or circumstances of which any forward-looking statements is raised or expected are required by the law. I would like to remind everyone this call is available for replay starting later this evening. Please refer to yesterday's earnings release for the IELTS replay instruction available via the company website at cwco.com. Thank you for attending today's presentation. This concludes the conference call. You may now disconnect. Thank you.