Jeff Risenmay - Controller Ron Fleming - President and Chief Executive Officer Mike Liebman - Chief Financial Officer.

Gerry Sweeney - Roth Capital Nick Corcoran - Acumen.

Hello, ladies and gentlemen and thank you for standing by. Welcome to the Global Water Resources, Inc 2017 First Quarter Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct the question-and-answer session.

Instructions will be provided at that time for you to queue up for questions [Operator Instructions]. I would like to remind everyone that this call is being recorded on May 10, 2017 at 1 PM Eastern time. I would now like to turn the conference over to Jeff Risenmay, Controller. Please go ahead..

Good morning everyone, and thank you for joining us on today's call. Today, we issued our 2017 first quarter financial results by press release, a copy of which is available on our Web site at www.gwresources.com. Speaking today is Ron Fleming, President and Chief Executive Officer and Mike Liebman, Chief Financial Officer. Mr.

Fleming will summarize the key events of the first quarter and the subsequent highlights post quarter four. Next Mr. Liebman will review the financial results for the three months ended March 31, 2017. Mr. Fleming and Mr. Liebman will be available for questions at the end of the call.

Before we begin, I'd like to remind you that certain information presented today may include forward looking statements. Such statements reflect the Company's current expectations, estimates, projections and assumptions regarding future events.

These forward looking statements involve a number of assumptions, risks, uncertainty, estimate and other factors that could cause actual results to differ materially from those contained in the forward looking statements.

Accordingly, investors are cautioned not to place undue reliance on any forward-looking statements, which reflect management's view as of to-date hereof and are not guarantees of future performance.

For additional information regarding factors that may affect future results, please read the Section Risk Factor and Management's Discussion and Analysis of financial conditions and results of operation included within our last Form 10-K filed with the SEC. Such filings are available on our Web site or at www.sec.gov.

Certain non-GAAP measures maybe included within today's call. For a reconciliation of these measures to the comparable GAAP financial measure, please see the tables included in today's earnings release, which is available on the Web site. Unless otherwise stated, all amounts discussed are in U.S. dollars. I’ll now turn the call over to Mr. Ron Fleming..

Thank you, Jeff. Good morning everyone and thank you for joining us today. We are very pleased to report the results of our first quarter of 2017. Highlights include excluding Global Value Water Company, which was sold in 2016, we achieved a 12 month active connection growth rate of 3.4%.

Adjusted revenue was up 3.1% and adjusted EBITDA was up 5% from the same quarter a year ago. We invested $6.5 million of cash flow into the capital improvement program in the first quarter of 2017 and retained a cash and cash equivalent balance of 14.8 million at the end of the quarter. We also increased our monthly standard dividend by 2.5%.

I would like to remind everyone that our approved rate order from our operating utilities allow us for rate increases to be phasing every year on January 1st of each year through the year 2021. In addition to the annual phasing of new rates, our utilities have seen steady consistent organic growth since January of 2009.

Adjusting for the sale of Willow Valley, active service connections increased 1,222 connections or 3.4% compared in addition to 36,465 as of March 31, 2016. Metro Phoenix Single Family permit data remains very strong after coming in at 18,015 for 2016.

The Blue Chip economic forecast experts project 21,863 permits for 2017 and 24,690 permits for 2018, representing an additional 21% and 13% of permit growth respectively over the next two years. The Q1 data for the City of Maricopa sub market it continues to be even stronger. As a reminder, 2016 saw 56% year-over-year increase.

For Q1, we realized an 84% increase over Q1 of 2016. Additionally, initial activity was up substantially in our utilities over the last 12 months as more and more home builders are acquiring the inventory form developers and investors and putting new parcels into home construction.

All of this confirms our belief that if Metro Phoenix returns to normalized permit volume and quickly consumes finished lot inventory in the major suburbs, we will continue to see more of the market share of this activity based on our substantial available lot inventory and low cost housing.

Beyond the City of Maricopa, there is significant momentum and opportunities developing in Pinal County, which will also stand the benefit from over the next three to five years. Before turning the call over to Mike to review our Q1 2017 financial performance, I want to again layout our primary objective.

Moving forward, Global Water will take a disciplined approach to growth in value creation through the following means; we will work to grow recurring EBITDA by driving top line revenue growth, while creating operational efficiencies and aggressively managing controllable expenses so that revenue growth drops to the bottom line.

We intend to use cash on hand to make targeted capital improvements that increase revenue, reduce expenses, and build rate base while having the added benefit of deferring the Valencia condemnation tax liability by approximately 38% for each offsetting investments.

We will further look to defer the Valencia condemnation tax liability by replacing assets through accretive acquisitions with consolidation benefits. And finally, we will routinely analyze our dividend policy with the commitment to grow our recurring dividend as we execute the plan.

This commitment was demonstrated again this quarter by the 2.5% dividend increase that was just announced. I will now turn the call over to Mike. .

Thank you, Ron. Hello everyone. Our discussion today refers to the consolidated financial information of the U.S. Company, Global Water Resources, Inc. and all amounts discussed are in U.S. dollars. Total revenue for Q1 2017 was $6.8 million which was relatively flat compared to Q1 of 2016.

However, adjusted revenue, which adjust for the Willow Valley deposition, increased by 200,000 or 3.1%. This increase is due to a 3.4% organic connection growth and increased rate pursuant to the 2014 rate order offset by lower consumption compared to Q1 2016. Operating expenses in Q1 2017 were $5.9 million compared to $5.8 million in Q1 of 2016.

This $157,000 increase is primarily due to the $278,000 increase in board compensation, which relates to the non-cash board option expense, but was also related to incurring U.S. public company cost in Q1 2017 that we didn’t experienced in Q1 2016.

These increases were partially offset by reduced operating cost of $126,000 related to the Willow Valley disposition and the $76,000 reduction in contract fees in the first quarter of 2017 compared to 2016. Turning to net income, Global Water had net income in Q1 2017of $50,000 compared to net loss of $314,000 in Q1 2016.

This increase is primarily due to the $510,000 reduction in interest expense as low as the $310,000 improvement in equity investment, and $102,000 increase in the Valencia earn out payment. These improvements were offset by the $270,000 increase in board compensation expense related to board option.

Lastly, adjusted EBITDA, which adjust for non-recurring events, board option expense and our equity investment in Fathom, was $3.2 million in Q1 2017, which is up $146,000 of 5% compared to Q1 2016.

This increase was primarily due to the organic connection growth, higher rates, reduced contract costs and increased Valencia earn out payments, offset by reduced consumption in increased U.S. public company expense. This concludes our update and 2017 results. I’ll now pass the call back to Ron..

Thank you, Mike. In conclusion, our competitive advantages remain the same; large and growing service areas, strong earnings growth rate, the ability to leverage existing capacity, and strong cash flow. Combined with strategic capital investment opportunities, we believe we will continue to provide meaningful returns to our shareholders.

That concludes our prepared remarks. Thank you. Mike and I are now available to answer your questions..

Thank you. We’ll now begin the question-and-answer session [Operator Instructions]. The first question is from Gerry Sweeney of Roth Capital. Please go ahead..

A question on the acquisition front; obviously, there is the benefit there from the tax side.

But wondering if you could maybe provide a little bit of color as to some of the opportunities that are out there are you getting closer? Or are there opportunities, would they be adjacent to Maricopa? Or would it be a different leg to grow out the platform?.

Yes, I'll take that, this is Ron. So Gerry, as I think as I mentioned before, ultimately, there are 270 private water systems in the State of Arizona. There is only a small amount of those that are Class A utilities, roughly 10, of which we own two of them.

We’ve been pretty clear that we’re not targeting those Class As, as of today, we’re taking a more of funnel approach. And so if you look below the Class As, there is dozen Class Bs and a few dozen Class Cs. And then ultimately, what makes up the rest of them, which is still a couple of hundred is Class Bs and Es.

And ultimately, we’re going to look at all opportunities, because there maybe reasons why some of the smaller ones make sense. But we’ll be looking more toward the Class Bs and Cs, and so there is several dozen of those opportunities.

But to remind everybody, we have longer under that section of the 1033 code to defer the tax liability via acquisition. That’s a basically three years plus one year extensions and in the past we’ve gotten to one year extensions of pretty evenly. So we do plan for at least having upwards of five years post 2015.

So the more urgent opportunity in deferring a large portion of the tax liability is the accelerated CapEx program. And I know you weren’t asking about that, but because that has a shorter timeframe with which we can achieve that which is two years; to be fair, a lot of our focus has been on that.

And as you can imagine, quite a bit an effort to accelerate $25 million of capital spend on the type of projects that we’re performing and to make sure we get those all done on time, which is we think the best use of the cash on hand it has to provide benefits to the existing utilities and defers the tax liability.

So we’re kind of in a place where that’s getting closer to seeing the finish line on that capital deployment and we’re now shifting more of our focus to acquisitions. So I would say we’ll start making more progress on that towards the back half of this year..

And actually the CapEx program was my second question. Obviously, there’s opportunity to pull forward and there is the tax benefit and can actually make sense. I think you spent about $6.6 million in the quarter.

Curious as to the potential impact that has on revenue to sometimes I think meters tend to fail as you replace and we can actually loose less lost water.

But also what it could do to the expense levels and the O&M ratio? Is there an opportunity to continue to improve that ratio?.

No doubt. I mean that’s one of the -- if you have that issue, that’s one of the best places to invest capital because it has both of those effects. If you do it correctly, you can both increase revenue and if not decrease and at least reassign some of those costs that are really inefficient to other beneficial activities.

So that is one of the major projects, which we talked about before. As a reminder for everybody, because of the booms that happened in the years 2003 to 2007, the majority of our meters went into ground at that time.

We talked a lot about how new our assets are, which remains true for 80% and 90% of the balance sheet and we’re talking about concrete and pipes and valves and things like that. But metering and electronic components and things like that obviously have a much shorter life.

And so as a rule of thumb, typically, meters are changed out years 10 to 15, because as you mentioned they start to lose accuracy, water loss starts to go up and you start to not get all the revenue associated with that. So we're going to start otherwise a five year replacements program.

But because of the opportunity on the tax deferral on that, we just decided to replace them all now, while anyone that’s older than 10 year old. So that project was actually almost completed in the quarter. We’re getting fairly close at this point for it to being fully completed.

And so we should start to see the benefits of that in Q2 and moving forward..

[Operator Instructions] The next question is from Nick Corcoran of Acumen. Please go ahead..

So I have two questions, the first one is water consumption is down quarter-on-quarter.

Can you just speak to the factors behind that and what seasonality looks like, going forward?.

Nick this is Mike. So we typically, as we look to evaluate consumption, we take a look first at weather, precipitation and temperature patterns, and there wasn’t a big variance from quarter-to-quarter. So it was down. Consumption was down a little over 20 million gallons, which is about 5.8%.

But in our speculation, the driving factor there is now that there has been couple of years of pretty significant increases in rates to folks. We think the behavior pattern is now changing, where they’re just more focused on conserving and consumption and that kind of falls in line with our strategy of water conservation.

But I think having a couple of years of truly increases in rates as result of the rate order are just more cognizant of their water bill and water consumption. Now, that’s our speculation at this point..

But I would add to that. Nick, I would add to that, even though the volume seems fairly significant at 20 million gallon and it being about 5.8% of total production, the impact on revenue was fairly minor. Now you can see it in the numbers because of what we’ve all been projecting for revenue growth.

We would say we’re about 1% off of where we’re projecting. But because of our rate design, which is always important to talk about in the same time that type of conservation doesn’t have a similar an impact on actual revenue.

And that’s because on the water side about 50% of our revenue comes from base rates and then we have seven tiers whose standard seem maybe three in the industry, the inverted tier structure we have seven. And so ultimately -- and then the other piece on the wastewater side that’s 100% fixed cost on our customer.

So we put it all together about 75% of our revenue is fixed and the rest of it doesn’t vary as much. So we have a pretty strong rate design in planning for this, because as mike mentioned, it is; we are a water resource management company; we are trying to help our customers conserve and we do a lot of things on those fronts.

So it's a combination, conservation and rate impacts. There are conserving but it's not unexpected and won’t have as material impact as you would typically see..

And then I just want to get a little bit more color on what you expect for your CapEx spend through the remainder of the year. You said most of your CapEx spend on the meters has been done in Q1, and I think you expect flow through to.

Do you expect any other big capital projects through the remainder of the year?.

I think we’re planning for another $8 million to $10 million or so through the rest of the year in CapEx projects. And that will get us to -- so as we think about this from the tax liability perspective we’re roughly investing $25 million in total to reduce the tax liability of $20 million down to $10 million.

So half of that tax liability will be deferred as a result of the capital improvements program into our existing utilities, the other half will have to be through the acquisition of additional utilities..

And then how should we think what the impact of that investment just on revenue, going forward? Or that question is actually what would the return on that investment be that you’d expect?.

I don’t have the numbers right in front of me, Nick.

But I think our expectation is just the tax deferral alone in itself is going to defer $10 million of actual cost on the tax liability that in itself is justified in addition to the revenue improvements as well as the expected reductions that we are anticipating in the future, would more than offset that..

Ultimately, you don’t get a return on assets and investment until you profit another rate case. But you’ve always got depreciation as a factor and so you’re basically replacing depreciation and it keeps your rate base from prior rate cases at a similar to what the current rates were put in place to cover.

In addition to that, you have all the benefits that Mike was talking about. So we think it's very good use of cash on hand..

Ladies and gentlemen, this concludes the question- and-answer session. I'll now turn the call back over to Mr. Fleming for closing remarks..

All right. Thank you, Operator. I would like to thank all those for participating in the call and for your continued interest in Global Water. Thanks and we look forward to speaking with you again..

This concludes today's conference call. Thank you for participating, and have a pleasant day..