Frederick McTaggart - President and Chief Executive Officer David Sasnett - Chief Financial Officer.

Michael Gaugler - Janney Montgomery Scott LLC John Bair - Ascend Wealth Advisors Gerry Sweeney - ROTH Capital Partners Hasan Doza - Water Asset Management, LLC Steven Percoco - Lark Research.

Good day and welcome to the Consolidated Water Company’s First Quarter 2017 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.

The information that will be provided in this conference call includes forward-looking statements within the meaning of the Private Securities 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 the following word or phrases will, will likely results, are expected to, will continue, estimate, project, potential, belief, plan, anticipate, expect, intend, or similar expressions and variations of such words.

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 industry and markets 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 we are difficult to predict. Actual outcomes and results may differ materially from what is expressed in such forward-looking statements.

Important factors which may affect the actual outcomes and results include without limitation, tourism and weather conditions in the areas the Company serves, the economies of the U.S.

and other countries in which the Company conducts businesses, the Company’s relationships with the government it serves, regulatory matters including resolution of the negotiations for the renewal of the Company’s retail license on Grand Cayman.

The Company’s ability to successfully enter new markets including Mexico, Asia and the United States, and other factors including those Risk Factors set forth under Part 1 item 1a Risk Factors in the Company’s Annual Report on Form 10-K. Any forward-looking statements made during this conference call will speak of today’s date.

The Company expressly disclaims any obligation or undertaking to update or revise any forward-looking statements made during this conference call to reflect any change in its expectations with regard there to or any change in events, conditions or circumstances on which any forward looking statement is based except as it may be required by law.

I would now like to turn the conference over to Rick McTaggart, CEO and President. Please go ahead..

Thank you, Keith. Good morning, ladies and gentlemen. Our CFO, David Sasnett is also on the call with me in this morning. The Company’s consolidated net income is past quarters increased by approximately 600,000 or 28% compared with the first quarter of 2016 due to higher gross profits generated by all four of our reporting segments.

Earnings per fully diluted share increased $0.18 per share this past quarter compared to $0.14 in the first quarter of 2016. Beginning with this quarter we are reporting the separate results for our recently acquired subsidiary Aerex Industries and a new reporting segment which we tiled manufacturing.

Retail revenues increased by approximately 500,000 or 8% this past quarter due to an 8% increase in water volume sales compared to the first quarter of last year. We believe that this water volume increase is due to severe drought conditions on Grand Cayman which prevail during 2016 and if continued to into 2017.

Rainfall data gather within our utility service area indicates that rainfall in the first quarter of this year was only 37% of rainfall reported in the first quarter of 2016 and was only 26% of the January through March 30-year average. Gross profit generated by a Retail segment increase by about 450,000 on higher revenues.

The Dart Group, which developed recently open Kimptom Seafire resort as well as the 500,000 acre Cayman Bay development in Grand Cayman, continues to move forward with plans to build the second luxury hotel and residential property within our utility service area in Grand Cayman.

In February, the Dart Group submitted a postal works permit application for the proposed beachfront property could ultimately be comprised of a five-star 225 room hotel, 80 residences, and 10 villas and is slated to open in 2020. In October 2015, the Cayman Islands Government commenced the $66 million project to expand the Airport in Grand Cayman.

When completed next year, the Airport will be capable of handling 2.5 million passengers per year compared to its current capacity of 1 million passengers per year thus ensuring that air transport capacity is available to build these new and planned hotel properties.

Earlier this year, the Government of the Cayman Islands passed new legislation which transferred responsibility for water utility regulation from the Water Authority-Cayman to a new independent, multi-sector regulatory office called OFREG.

We view this new regulatory framework as a positive development and believe that this major change will facilitate the resolution of our water utility license negotiations which have been underway since mid-2008.

Bulk segment revenues increased by approximately $400,000 this past quarter compared to the first quarter of 2016 resulting primarily from higher energy pass-through charges to our customer in the Bahamas.

Gross profit for the Bulk segment remained flat in spite of higher sales since these incremental sales representing the energy pass-through charges were offset by approximately equal energy expenses.

We announced earlier this year that the Water and Sewerage Corporation of the Bahamas extended the term of the water supply agreement for our Windsor plant in Nassau by 15 years under the terms of the extended agreement were required to rehabilitate this plant which was constructed in 1997.

These rehabilitation works are now underway and are expected to be completed mid next-year at a cost of approximately $9 million. Our investment for this rehabilitation work will be recovered through the water tariff over the term of the extended agreement.

We were pleased to announce that the Water Authority-Cayman recently extended the terms of two operating agreements for plants that we operate for them in Grand Cayman. Both agreements have been extended for an additional one-year period.

In the case of the North Sound plant agreement until the April of 2018 and in the case of the Red Gate agreement until July 2018. Service segment revenues this past quarter remained consistent with the first quarter 2016. Gross profit generated by our services segment increased due to reduced employee expenses.

Now looking at our new reporting segment Manufacturing.

The increase in the revenues and expenses for our Manufacturing segment from 2016 to 2017 is attributable to the fact that we owned Aerex for full three months this year as compared to only one and a half months in 2016, while our Manufacturing segment incurred an operating loss of approximately $401,000 this quarter.

It’s important to note that this loss reflects non-cash amortization expenses of approximately $343,000 for the intangible assets recorded in connection with the Aerex acquisition.

We also incurred this past quarter approximately $165,000 in non-recurring development expenses in our Manufacturing segment and we are confident will lead to the generation of significant revenues over the remainder of this year. Now looking at our Mexico project.

In February we submitted proposals to our customer in Baja California, Mexico requesting an increase to the water tariff to compensate for significant changes in foreign exchange rates, lending rates and certain changes in law which have impacted our 100 million gallon per day desalination plant project in Rosarito, Mexico.

Discussions regarding these proposals continue and we remain optimistic that a solution will be found that will allow the project to move forward.

We are also making good progress towards achieving the various conditions precedent in the APP agreement in order to meet our goal of commencing construction of the project in the third quarter of this year.

This progress includes, but does not limited to, the acquisition of rights of way for the conveyance pipeline, engineering and administrative activities in support of our ocean discharge permit and the state’s application for its ocean water concession for the Mexican federal authorities and negotiations with the state to finalize payment guarantees for project.

Okay. I’d like to open the call for questions now..

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Michael Gaugler of Janney Montgomery Scott. Please go ahead..

Good morning everyone.

I was wondering where you stand on financing for the Rosarito project?.

Well, as we talked about in our filings, we have an agreement with North American Development Bank, essentially to put together the banking consortium to finance the bulk of the project. We're also less proceeding obviously they’re intimately involve with the discussions on a payment guarantees with the State of California.

We're also talking to other investors in Mexico to raise some equity for the project. I can see that both of those negotiations are proceeding well so far..

Do you have a timeline as to when you expect all that to be wrapped up with that before construction starts or after?.

Essentially what we’re saying is by the third quarter, we expect to commence construction. So we're in a position to start of construction really after the financing closes, so we hopefully be in the third quarter..

Got it. All right guys, Thanks. That’s all I had..

Sure, Mike..

Thanks Mike..

The next question comes from John Bair of Ascend Advisors. Please go ahead..

Good morning. Looking at the Aerex revenues, you had about half a quarter last year included and it looks as if for the full quarter, the revenues are about twice that which would make sense if you're flat on the sales revenue.

So I was wondering if you could shed some light on whether or not that's an adequate evaluation there that your sales run rates about the same? And then I have another question related to that..

Well, I don't think you can extrapolate the rest of the year for the first quarter. I think that's true with certain areas of our business you can because with our bulk contracts and retail license, those are very predictable.

I don't think you should infer that you can annualize your revenues for the first quarter and come up with the amount for the year.

When we first acquired Aerex, they were doing sales volumes much higher than what they generated since we bought them, and we’re hopeful that Aerex can return to higher sales volumes, what we opposed to since we first acquire the company back in February. So I caution you on extrapolating the year from the first quarter..

Okay. What I was trying to get out was whether or not your run rate in the first quarter was comparable to – for 2017.

It was comparable to the run rate in 2016 and realizing that hopefully, as the year progresses that will pick up and this was wondering along those lines whether or not, you can tell us – are you seeing a more positive trend or interest in and product bidding whatever that would give you confidence or optimism that [indiscernible] contribute further as the year goes on..

We expected 2017 to be better for Aerex than 2016..

Okay..

We're very cautious we don't extrapolate our results and we don't project for the street. But we do expect [2015] to be better than 2016..

Okay. I just get that that’s what I was trying to get at as a feel for what your outlook in general is and then along the same lines would you expect the margin on those sales to improve because the comparison there was a little bit less and I don't know whether some of that is a function of the acquisition or not. So could you speak to that..

Well, are you still not to project margins going forward that will depend on the product mix and nature various contracts going forward. I'm hesitant I think we should wait and see how the rest 2017 plays out before make any comments on margins..

Okay. Fair enough on that.

Two other quick ones could you give us any update is there been any further conversation from Otay Water District in California with regards to the submission that I believe in previous call you said that they had to submit to the State Department about being able to import any water coming out of Rosarito facility I know you said that that’s sort of out of your hands, but I was just wondering if you have any update on that or any idea where they're add with that?.

Yes, I mean we speak with them regularly, I think monthly calls with them. The information that we're getting from their side is that things are favorable for them getting their permanent, I have been advised that they receive yet. This is just on the U.S. side I mean obviously any final deal with them is will be control by the Mexican.

I'm not aware of any new discussion between Mexico and the U.S. This has always been a willingness to delivery water into the U.S. I think you probably can appreciate that some of the bigger picture events over the last six months of impacted the discussions I think between the two nations.

But generally I think there is still good chance that water will eventually go into the United States it's really a matter of getting the two parties to the table again. Otay [indiscernible] do in the U.S.

side we continue on the Mexican side gather water data and do things that they would need to have information on to get their final permits to import the waters. So we are working together with no tie with the expectation that eventually a deal will be struck between Mexico and the United States..

Okay. Do you think breaking ground on the facility in Rosarito would perhaps push that process along any..

Well, it certainly wouldn't hurt it and the Mexicans understand that if we do the second phases facility, the price of the water goes down. So they understand that Otay is a good potential customer to allow into expand the plant earlier than later.

So there’s all the factors are there that would encourage a deal to be struck and hopefully once the project is underway there will be more series negotiations about the second phase..

Okay. Great. I have another question but I’ll jump back in a queue and let somebody else coming for the time being. Thank you..

Sure..

The next question comes from Gerry Sweeney of ROTH Capital. Please go ahead..

Hey, good morning, guys.

How are you?.

Good morning, Gerry..

A couple more questions on Aerex I mean in your prepared remarks talk about making sides. I believe some manufacturing improvement enhancements or something along those lines that could drive – potential drive some significant more revenue.

Just curious as to what those enhancements were, what's changed what you're working on?.

Well Aerex, there is some quality implement, some quality-control improvements, so they can get specialized form of manufacturing going forward. And the potential customer came in and took a look at what they did.

And we believe that Aerex performed very favorably in the eyes of this customer, and we hope that this customer will in turn, give very substantial orders going forward. Beyond that, we really can't describe any more fully, Gerry..

That's fair. I mean it's helpful.

Also at some point, would you be able to provide potentially some backlog information for the business? I'm not sure if it's multiple quarters of revenue visibility when it starts to develop, so we can track it or is that ever our potential?.

Yes. I think there's a possibility, Gerry, we’ll take a look at that..

Okay. I appreciate it. And then on the water Cayman, the plants for Water Authority-Cayman extended for a year each.

Is that little bit shorter than you anticipated would have maybe expected a longer term type contract? Obviously, it’s so much an interim contract maybe working on some other – ideas or thoughts any comments on that front?.

Actually, the one North Sound plant has been extended for a year already, I think twice. So it was consistent with previous extensions that they have agreed. I mean I don’t know what their long-term plans are for those plants. I think one-year was actually pretty good for us given the situation there..

Got it. Understood. And then finally, it sounds like some more development coming back to Grand Cayman. The Dart development aside, what’s the general tone in terms of I guess tourism increases, other development I know some of the hotels maybe in a service area they've been enlarged at times.

Just curious as to if we're seeing a – and maybe a little bit more of a cycle of infrastructure investment on Grand Cayman to drive even more additional either population or increased tourism you know airport aside as well?.

Yes. I think it's really important to see that the government and the private sector are working together. I mean the airport is always been the bottleneck to get more tourists on the Island. This project of expanding the airport obviously has encouraged people to make new investments in large properties.

There's another hotel there as they just been – really been basically empty for quite a few years and it was just reopened under the market [indiscernible] banner. The condominium outlook there is a great demand for beachfront property there in the Island. They really can’t keep up with the demand right now for these luxury properties.

And I think the airport expansion will facilitate continued growth there in the hotel and the condo sector, so we're pretty excited about that. I congratulate the government there for finally dealing with the airport issue..

Great. That's very helpful. Thanks a lot guys. I appreciate all. I’ll jump back in line..

The next question comes from Hasan Doza of Water Asset Management. Please go ahead..

Hi. Good morning. Couple of question. The first one is on accounts receivable. Now looking at your 10-Q, the balance sheet your receivables stood at $22 million which is up like 60% year-over-year and up by almost 30% versus December of 2016.

Can you help me understand what has caused this uptick in receivables?.

Hasan, the increase from the end of the year is attributable to two companies, Bahamas Subsidiary and Aerex. With respect to Aerex, they received a significant amount as receivables at the end of the quarter, so that balance has come down. In with respect to the Bahamas, which really comprises most of the increase.

This is a pattern that we’ve experience with Bimini government. Since I’ve been with the Company, which is 10 years. They periodically allow these receivable balance is to grow substantially then after the budgeting process is complete, they give us substantial payments to reduce it down to much lower levels.

We’ve been in contact with the Bahamian government, and they're getting ready to send the significant payments. If there were any issues with these receivables, we would promote a reserve for them, but I mean we never have any non-payment from Bahamian government on receivables, so we don’t expect any problem going forward..

Okay. My second question is coming back to Aerex, and I was just reviewing your 10-Q on Page 10, I noticed that Aerex is operating at a loss post their respective SG&A.

So I'm trying to kind of model out Aerex’s profitability for the year? I mean should we continue to assume loss making at the EBITDA level post SG&A for Aerex for 2017?.

Well, Hasan, we don’t project, we had this discussion before. I mean obviously the amortization expenses will continue going forward. If you look in the [indiscernible] financial statements, you can see the amortization periods related to intangible assets. I think most of them are being amortized over a period of three to five years.

Look we expect Aerex to do better this year. We've made a clear in number of vocations, I mean I think sales volume last year is not necessarily indicative of what we will do this year. I don’t want to sit here and project what we’ll do for the year and just say as we think we will do better than last year..

Okay.

My next question is on Cayman, coming back to the one year extensions of the two facilities, can you help me understand as to the economics of the one year extensions meaning specifically on the tariff level or the tariff level is higher, similar, or lower for these one year extensions versus your preexisting or pretty expiration carrots for the facilities..

Yes, we did offer them a lower tariff. It was key to obviously doing a deal and getting both extensions. So we haven't discussed the reduction, but there was a reduction in the tariff..

I know for in BVI, the reduction to make the deal was about 20% to 30%.

I know it's a different jurisdiction obviously, but in order of magnitude, is your discount similar 20%, 30%, 10%, 20%, what should we think about is the order of magnitude of the discount to get this one year extension?.

I mean I don't think as we comment on that right now. I mean with the meaningful discount and coupled with the fact that the capital fees are now paid off for those plants.

I think it was satisfactory to them and allow us to get the extension, but there are other parts of the tariff that dropped away or will dropped away that relate to the loans receivable from the Water Authority. So when looking at the whole package, they were satisfactory to the authority and we’re able to get the extensions.

And Hasan, you’ll get a good feel for that going forward in the second quarter results. The impact of this renewals are overall bulk revenues..

Okay, and what is your annual run rate revenue for these two facilities roughly, roughly rough order of magnitude, if you look at the pre-expiration tariffs full-year 2016 for these two plants..

Hasan, we just close those amounts in the 10-K. I don't have the 10-K in front of me. But if you want to call me back later on….

Yes, in the risk factors section, we talk about revenues from Water Authority because it’s one of the top few customers and three classes that we operate for them would be in those figures..

I think specifically disclose the [indiscernible] that we’re associated with these contracts that maybe renewed in our 10-K, so I would [indiscernible] so you find in 10-K what you saw..

Thank you, and my last question.

Last question is a Page 31 of your 10-Q and I'm referring to the SG&A run rate for your Mexico project, I noticed that the spent was about 700,000 for Q1, which makes it about close to $3 million SG&A run rate for the Mexico Rosarito project, is that right way to think about the SG&A spend for that project for 2017?.

Well, Hasan, hopefully we are closing this deal in the third quarter and those expenses will now become part of ADRs expenses and we won’t be incurring that either in the consolidated level from that on we’ll have an equity investment in project. So I don’t – as we close we are not going to incur for the announcement of the SG&A for Mexico this year.

We are incurring about $700,000 a quarter, once we close the deal that stops. We make our equity investment in the project and thereon the project is fully funded and it covers all the cost of the development..

Obviously, we are in a home stretch here, Hasan, and there is a lot of cost really to paying the banks advisors for due diligence and equity advisor, due diligence and that’s sort of thing, so those are probably higher costs then we’ve incurred in the past because we’re basically working our way toward closing. There is a lot of moving parts here..

Okay. Thank you very much. Appreciate it..

The next question comes from [indiscernible]. Please go ahead..

Good morning, gentlemen. Congratulations on your results across the board..

Thank you..

You’re welcome. Question regarding the Rosarito project.

I haven't seen anywhere, I know you partnered and I haven't seen anywhere your percentage of the participation, is it something you can divulge?.

Well, under the terms of the date that we submitted last year and under the terms of the law in Mexico we were at 25% equity interest and we expected to be around at the end of the day..

Very good. Thank you..

The next question comes from Steve Percoco of Lark Research. Please go ahead..

Thanks.

I know this in the Q that you're billings in excess of cost and earnings was up, I think close to $1 million this quarter, and I am wondering what business that belongs to and what were the reasons for the increase?.

We entered into a contract with one customer and that we’re going to be purchasing a significant amount of steel for their contracts. They agreed they would prepay Aerex for some of that steel. So simply, just advance payment, yes, essentially what it is.

We were allowed – Aerex was allowed to build them and advance are actually go to the contract to get reinvestment for the steel. So that’s a billing in excess what we’ve actually run on the contract today..

Okay.

And then I presume that the gain that you recorded on the put/call option reflects a lower implied value for Aerex, is that correct?.

Yes, it does..

And what's the thinking behind that?.

What happens is, we do the calculation market to market every quarter and it's based upon projections for Aerex going forward which have a change when we posted our agreement charge last year, but also reflects changes in market conditions interest rates, risk premiums and things like that.

So you have a fluctuation in Aerex every quarter based upon where we stand – where the markets stands, the risk premium side of that investment.

So I don’t think in it of itself you should say it means long-term decline by Aerex is just a snapshot picture of that values or worth of that day and we’ll marking it to the market going forward for the rest of the year and next quarter to be loss..

Right.

It does seem at odds with your assertion that you expect Aerex will do better this year?.

Well, you have to remember that the – without getting into detail discussion of valuation here that should not be – that is not direct correlation with what we think Aerex will do next year..

Okay. Thank you..

[Operator Instructions] The next question comes from John Bair of Ascend Advisors. Please go ahead..

Thank you. Just to follow-up on that I guess I mean with regards that provision. What's the term on that? I don't recall that.

I think you initially put that in your release when you brought them, is it three years?.

Yes, three years.

It’s exercisable three years from the date of the acquisition, so it’s exercisable three years from February 2016 and it gives us the right the buy the remaining 49% of Aerex, it also gives the Aerex's former sole shareholder the right to see the remaining 49% to us, anytime three years after the acquisition date, and it’s selling our purchase price based upon the valuation of the companies at one-time..

Okay. So if Aerex were to get a significant increase in order activity or whatever then the seller may want to exercise their option to sell the remainder of the company to you at whatever you value that price.

I mean it’s kind of sounds to me like it’s very much structured like an oil and gas company so on hedging their production and conceptually the same way that you don’t know what’ going to happen in three months, six months, 12 months is that fair?.

Well we can’t predict exactly what the value of Aerex will be three years from now or two year from now, I agree with that. That was a deal that we thought works for both parties. The company does very well, we want to buy the rest of it and perhaps the former shareholder want to sell it. It’s not a requirement that either of us exercise our option.

After three years we can continue to status quo, I mean we have – I mean we are very comfortable saying we have an excellent relationship with the former sole shareholder of Aerex. And making this acquisition, we really want to make sure that if there are fit into our corporate culture.

So I mean this is situation where you can’t guarantee that the option will be exercise the either part of the three years now to give both of us chance, we want to do that. We said that up to deal going forward..

Would you then – let's assume for a minute that neither side exercises that would you then – would you likely renegotiate a similar put call agreement with that individual over that entity?.

Well, it doesn't expire, stays out there. It’s just on exercisable three years. So it's not even to renegotiated some in time I mean it….

Obviously if we thought the business was suddenly increased rapidly in value, we might exercise our option to buy it, before everything takes on. So I mean there's a lot of decisions that respect at this point sooner or we will be two years now..

Okay, fair enough. My other question, and it maybe in the Q, but there was no mention in a press release, I don’t believe about any further developments regarding Bali and just wondering if you might be able to touch on that a little bit..

Well, I think we’ve been pretty blunt in our displeasure with respect to Bali. We've had and continue to have discussions with people who might be partners or investors for the entire situation of Bali for the year, we're not very confident at this point in time regarding this investors. I mean you had discussions as we disclose for a while.

So there is a very real possibility that one of them sitting in that business. Our Board will have taken a decision on it later this year at some point in time. And we going to continue to fund this company and lose money. In the hopes that we could find a partner certainly turn things around. I mean we've been there for a while now.

The investment is not gone as we thought it will. So at this point I don't think – I think the things will go from Bali at all. We have them about $8 million investment there. The board decides to shut things though will probably runoff good portion out of that.

It won’t be gash charge, being impairment charge, we're actually screening only about $300 unit in cash actually you could open. But I mean the situation in Bali is the same as we entered the market. They don't have a solution for their water problems.

But trying to do business in that environment is proven to be far more difficult than we ever imagine. And they just don't seem to have a plan to deal with their problems and address the shortage is that I mean how long do we continue to maintain an investment and they interact together.

And just at this point in time, I don’t think [indiscernible] we had to go first in that market..

Yes, that’s fair. And I think from my perspective, until the population at large squats enough about the poor quality of there where, the government probably isn't going to do anything about it. Probably talk to people in Flint, Michigan about that. But anyway all right, thanks very much guys. Good luck..

Sure. Thank you, John. End of Q&A.

There are no additional questions at this time. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. McTaggart for closing remarks..

Just thanks everybody, great questions today. Look forward to speaking with your guys again in August to discuss our second quarter 2017 results. Thanks..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..