Good day and welcome to the Consolidated Water Company's Second Quarter 2018 Earnings Conference Call. All participants will be in 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 using the use of the word or phrases will, will likely result, are expected to, will continue, estimate, project, potential, believe, 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 the 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, which 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 these 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 business; the Company’s relationships with the governments 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 speak 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 change in its expectations with regard thereto or any change in events, conditions or circumstances on which any forward-looking statements is based except as it maybe required by law.

I would now like to turn the conference over to Rick McTaggart, Chief Executive Officer and President. Sir, please go ahead..

Thank you, Nicole. Good morning, ladies and gentlemen. Thank you for joining us today for a review of our second quarter 2018 operating and financial results and to receive an update on our business developments. I am calling in today from our offices is the Cayman Islands, and David Sasnett, our CFO is joining the call from our Florida offices.

I'd like to briefly explain why we rescheduled the call from last Thursday to this morning. You'll note in our Form 10-Q that our Bahamas account receivable has increased substantially since the end of last year, and last Wednesday just before we had plan to file our Form 10-Q, we received several pieces of correspondence from our Bahamas customer.

We decided to hold off on the filing in order to carefully review this correspondence. Nothing in the correspondence disputes the accounts receivable and we subsequently filed on time the next day. However, because we were not able to file the 10-Q before the originally scheduled conference call, we decided to reschedule the call to this morning.

So I hope that this did not inconvenience any of you too much. Our second quarter core desalination business continued to perform well and provided steady results.

Revenues generated from our manufacturing operations almost doubled last quarter on an unconsolidated basis and we reached significant milestones on our transformational Rosarito project during the last quarter. Our core desalination operations results in the second quarter were driven by increased volumes in both the Retail and Bulk segments.

Revenues also benefited from higher energy costs pass-throughs. Our previously announced refurbishment of the Windsor plant in the Bahamas is underway with an anticipated completion later this year.

Negotiations to renew our Cayman Islands retail license continued during the quarter with additional progress being made towards bringing these discussions to a conclusion. As noted in previous calls, we see the potential for continued volume increases in our Cayman Islands market, driven by positive tourism industry trends.

Tourism activity in the Cayman Islands has continued to benefit from new construction and the shift in tourism to destinations like the Cayman Islands that were not affected by last year's hurricanes in the Caribbean.

The number of visitors to the Cayman Islands increased by 11% in the second quarter of 2018 compared to the second quarter of last year and visitor numbers are up by 16% year-over-year. Meanwhile, rainfall totals in our retail service area were normal or at the 30-year average for this time a year.

Our retail water sales have historically been impacted by weather conditions and tourist arrivals, so these numbers if they hold going forward would generally indicate enhanced 2018 retail water sales.

The luxury hotel chain Hyatt has announced that it will operate a new 351 room, 5 Star resort in Seven Mile Beach, Grand Cayman that will be constructed within our exclusive retail license area. And this resort was granted full town planning permission earlier this year is expected to open in late 2020.

Works on the $55 million airport expansion in Grand Cayman continued to progress and when completed later this year will more than double the capacity of the Grand Cayman airport to support these surging tourist numbers. While reported manufacturing revenues showed a slight decline year-over-year, revenues on an unconsolidated basis nearly doubled.

The portion of our manufacturing segments production equivalent to $1.1 million in the second quarter and $1.8 million year-to-date was allocated for two of our subsidiaries, specifically for CW-Bahamas refurbishment of its Windsor plant in the Bahamas and the expansion of Cayman Water’s Governor's Harbour plant in Grand Cayman.

This intercompany production was not recognized as revenue. These internal projects have obscured the year-on-year improvement in our manufacturing segment. And looking forward, we anticipate consolidated manufacturing sales to grow in 2018 based on orders in hand for the remainder of the year.

We also made substantial progress with respect to the Rosarito project in the second quarter, by achieving several important milestones.

Specifically, we signed an amended Public-Private Partnership agreement, which addressed foreign currency exchange and interest rate adjustment concerns related to the project and we've obtained additional rights of way for the projects aqueduct and now have approximately 85% of such rights of way required for the project.

And finally, we signed the turn-key engineering, procurement and construction contract for the desalination plant in the aqueduct with Suez, a world leader in the construction of seawater desalination plants.

These accomplishments have moved us forward in a manner consistent with our expectations for completion of the preconditions for commencing construction of the project. Present we are focused on the following Rosarito activities, which must be completed before we break ground.

The negotiation and execution of the debt financing agreements necessary to provide the funding for the first phase of the project and we are making very good progress on this condition, and have been working with a consortium of five banks led by the North American Development Bank.

Secondly, we are obtaining all remaining permits from the various government agencies. Third, obtaining all remaining rights of way for the aqueduct, which amount to about 15% of the total.

And finally, we are working closely with the Baha government to assist them to establish and register various payment trusts, guarantees and bank credit lines for specific use of this project. So at this point, I'd like to ask David to discuss more details of our 2018 second quarter financial performance..

Thank you, Rick. Our total revenues for 2018 increased to $15.9 million from $15.3 million we reported second quarter last year. This was due to higher revenues from our Retail and Bulk segments, with retail revenues benefiting from higher volumes and our bulk revenues reflecting the increased energy cost.

Our Manufacturing segment revenues were $992,000, down slightly from the $1.1 million we reported last year. As Rick mentioned earlier, we had $1.1 million in intercompany revenues this quarter, as we allocated a portion of our production to the work we are doing on our plants in the Bahamas at Grand Cayman.

As Rick mentioned earlier, we expect manufacturing revenues to increase this year based upon the orders we already have in hand for the remainder of the year. Our consolidated gross profit for the second quarter 2018 remained relatively consistent at $6.6 million as compared to $6.5 million for the second quarter last year.

Our consolidated general and administrative expenses decreased to $4.6 million from the $5 million we reported for the second quarter 2017, primarily due to lower employee cost and professional fees.

You should note that our G&A expenses included approximately $664,000 and organizational, legal, accounting, engineering and consulting and other costs related to the Rosarito plant development activities.

As Rick mentioned earlier, we made substantial progress this quarter towards starting this project, and once due started, [reaching financial] close most of these costs we've incurred for all the way.

Second quarter net income attributable to our shareholders totaled $2.2 million or $0.14 per share as compared to $600,000 or $0.04 per share last year. As a reminder, last year we’ve recorded an impairment charge for our Bali operations of $1 billion and Bali did not have a significant impact on our second quarter operations this year.

We continue to invest in our facilities to enhance growth and improve efficiencies. We spent approximately $40.4 million in CapEx this quarter for the first six months, that’s for the refurbishment of our plants in Bahamas, the Windsor plant and also the expansion of our Governor's Harbour plant in Grand Cayman.

Our balance sheet remains healthy and we paid $2.8 million in dividends over the first six months of 2018 to our shareholders. I'd like to take this moment to discuss briefly the receivable balance as we have in Bahamas.

If you followed our Company, you will know that this is a pattern that's been repeated, I guess probably over the last 10 years at least as long as I've been the CFO of the Company.

Typically, the Bahamian government and [indiscernible] receivable balances over the course of the summer, and they established a payment plan with us whereby those receivables are paid off. And usually by the end of the year, we are back to more normal balances. We have no reason to believe that's not going to be the case again this year.

However, as of right now, we really haven't been able to establish a payment plan with the Bahamian government or with the WSC. Given the correspondence, we received just before we felt that we are planning to file a 10-Q, we thought it was appropriate to highlight this matter and had a risk factor in our 10-Q for this quarter.

We still believe these receivables are fully collectible, but given their magnitude, we felt it is important to point out the situation to shareholders. And with that, I’ll turn the things back over to Rick..

Thanks David. Nicole, we can open the call up for questions now..

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

Good morning, everyone..

Good morning..

Good morning, Mike..

Just quick question on – perhaps how you think this is going to play out.

I was going through the Q and I noticed right below the commentary on WSC, also someone on Belize liquidity and [taking over] some significant balances there, perhaps how you guys think that plays out in terms of repatriating cash out of there on a go forward basis?.

Well, we're working with the – our customer in Belize try to improve our repatriation balances there. I mean their hands are tied to a certain extent because of the status of the economy in Belize. But our customer realizes today for us to be able to repatriate our funds, so they are working with the central bank.

I can't say how successful they will be, but if you'll notice Mike, we improved the collections little bit over the last year already. And they've given us indications they're going to work hard with us to try to get more of that money at on a more timely basis..

Okay. And then one other on the Cayman license update, perhaps what you guys are thinking in terms of maybe bringing that to a close.

I mean is that a – are you thinking it's a 2018 event or is it more likely to push into 2019?.

I mean Mike, I think we're getting close here. I really can't give you a specific timetable because ultimately still has to go through the official channels to be approved. But on the government side, I think we've been making good progress. I'm hoping that we can get this done in the third quarter. That's my objective..

Okay. That's all I had gentlemen. Thank you..

Thank you, Mike..

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

Good morning.

Can you hear me all right?.

Yes..

Yes. Good morning..

Good morning. Thanks for taking this call. Question from me. First a comment and then a question.

I would suggest for those that haven't followed the Company for quite a while that when you released your earnings and when the earnings calls are going to be that you also include when you anticipate releasing the earnings because sometimes it's the night before and sometimes it's in the morning, so that's just a comment on my end.

My question is given your progress on Rosarito, do you have any better feel for when you hope you might be able to break ground on the project?.

Yes, so we just want to sort of emphasize that the last condition precedent that that I mentioned there about getting the government trusts and all that registered. I mean that's really a big one and that's in the government's court right now from a timing perspective.

So I think we can wrap up what we need to do on the Company side, certainly before the end of the year. But the government still has some things to do and we can't say how long that's going to take. I mean I know they're working on it, but sometimes these things have a timetable of their own.

So I'm sorry, I can't give you any more specific information, but we're really relying on them at this point to finish up a pretty important part of the contractual deal..

Okay. That’s fair enough. And earlier there was – you had I think it was a Memorandum of Understanding by the Otay Water District about being able to take, I think it was 40 million gallons a day. And I know that that as I recall, the deal there was they had to apply to one of the state government – U.S.

government agencies about that since it was going across the border.

And I was wondering if you had any further update on that status, if there's anything ongoing with that aspect of it?.

Yes. So at the present time that's not part of the project anymore, when the government passed the modified Decreto, I guess it was in December. They specifically added provisions that prohibit the transfer of water across the border.

So that's not to say that somebody decides to change that in the future, but it's not part of Phase I anymore of the project..

Okay, very good.

So feel that the full capacity at 100 million a day when that Phase II gets completed as well could all be absorbed within the compounds to Mexico then?.

Well it certainly could. Again, I can't predict the future, so there will be an election for various state officials next year, which is just in the hopefully Phase I construction and then obviously that's something that they could change down the road if they decided it was in the benefit of Mexico.

But right now there is no plans to bring water across the border from Mexico in their mind..

Okay. Very good. Thank you very much..

You’re welcome..

[Operator Instructions] And our next question comes from Hasan Doza of WAM. Please go ahead..

Hi. Good morning.

In terms of your Windsor plant in Bahamas, what is the CapEx commitment for the upgrade that you’re doing?.

Do you want to take this Rick?.

Yes. We're spending approximately $12 million on that upgrade. So we've gone to – we're in the process of final stages of commissioning right now. So most of that money has been spent already..

And sorry if I’m not mistaken, is this plant still running under a month-to-month contract with the authority?.

No, Hasan. We got a 15-year extension back at the end of 2016. So the 15 years kicks in when we commissioning the plant..

Okay..

Yes. We [indiscernible] to the refurbishment with some of the [indiscernible] contract..

All right. Thank you. End of Q&A.

This concludes our question-and-answer session. I would like to turn the conference back over to Rick McTaggart for any closing remarks..

Just like to thank everybody for joining us today and I hope to speak with you again in November when we do our third quarter results. Take care..

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