Greetings, ladies and gentlemen. Thank you for standing by. Welcome to the Global Water Resources Incorporated 2020 First Quarter Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session.

[Operator Instructions] I would like to remind everyone that this call is being recorded on May 7, 2020 at 1:00 p.m. Eastern Time. I would now like to turn the conference over to Heather Krupa, Vice President and Controller. Please go ahead..

Welcome everyone, and thank you for joining us on today's call. Yesterday, we issued our 2020 first quarter financial results by press release, a copy of which is available on our website 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 quarter, following which Mr. Liebman will review the financial results for the quarter. Mr. Fleming and Mr. Liebman will be available for questions at the end of the call. Before we begin, I would 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, uncertainties, estimates 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 views as of the date hereof and are not guarantees of future performance.

For additional information regarding factors that may affect future results, please read the sections risk factors and management's discussion and analysis of financial condition and results of operations included within our latest Form 10-K filed with the SEC and latest Form 10-Q filed with the SEC. Such filings are available at www.sec.gov.

Certain non-GAAP measures may be included within today's call. For a reconciliation of these measures to the comparable GAAP financial measures, please see the tables included in yesterday's earnings release, which is available on our website. Unless otherwise stated, all amounts discussed are in U.S. dollars. I will now turn the call over to Mr.

Ron Fleming..

Thank you, Heather. Good morning everyone and thank you for joining us today. We are very pleased to report the results for first quarter 2020. First and foremost, I always begin by discussing our top priority, which is the health and safety of our employees and our customers.

Considering the COVID-19 pandemic, we are currently navigating, it is appropriate to start here once again.

In short, as an essential utility whose services are vital during a health pandemic, our company moved quickly and early to implement all national local and industry-specific guidance to maximize social distancing and other measures to protect the health and safety of our employees and customers and safeguard our operations.

These proactive measures have gone well and we have not incurred any significant disruptions in the first quarter resulting from the pandemic either operationally or financially. However at this point, we cannot predict the impact it could have on our operations and financial results going forward.

It is worth noting that since our customer base is over 90% residential connections, we may see an increase in water usage due to more people working or staying at home.

We do expect some customers to eventually have difficulty paying their utility bills due to COVID-19 related unemployment, but we're ready to work with them to set up payment plans and offer other options. For example, we recently rolled out an expanded customer assistance program.

In the meantime, we voluntarily have suspended disconnections for nonpayment and eliminated late fees. Currently, our state public utility commission is discussing options with the industry to determine how best to track and recover costs related to the pandemic at a future date.

Moving back to our typical operational highlights, I am very pleased to announce that we continue to expand our employee safety and regulatory compliance non-recordable incident streaks as of last weekend our staff at the 1,000 consecutive day mark without a recordable safety accident.

Also, it has been nearly 1,500 days since our last significant compliance violation.

We also continue to realize benefits from bringing customer service and billing in-house last December, including better control of long-term service costs and benefits derived from a deeper focus on customer experience and enhanced scalability of operations as we continue to grow.

On the growth front, total active connections increased 4.7% to 46,227 as of the end of the quarter over the 12 months prior. Q1 annualized active connection growth rate slowed a bit to 3.5%. Turning to financial highlights. Revenues increased 6.6% to $8.2 million and adjusted EBITDA increased $0.6 million or 18.4% to $4.1 million.

Following our effort to raise net proceeds of approximately $11.5 million from an equity offering to provide working capital for acquisitions and other general corporate purposes, cash and cash equivalents totaled $17.1 million at the end of the quarter.

Further, subsequent to the end of the quarter, the company secured a new two-year revolving $10 million credit line to support its growth strategy, replacing the previous line at better terms.

These remarkable achievements show the dedication and care of our employees as we continue to deliver exceptional performance both financially and operationally and position ourselves for long-term success. Next, I typically highlight single-family dwelling permit growth in Maricopa and Pinal counties, generally the Metro-Phoenix area.

As a reminder, in 2019, we realized a 14% increase as permits grew to 25,127. It was projected that 2020 would see an increase to 26,000 permits. Clearly this growth will be impacted by the pandemic, so all projections will need to be reassessed.

Regardless, looking ahead, we believe Arizona and especially the communities we serve in Maricopa and Pinal counties, we'll continue to see strong growth over time despite the current and largely viewed as temporary economic and social challenges.

Given the many economic and practical benefits Arizona offers businesses of all size, we expect our region to benefit from the ongoing business and population net in-migration that has put our state at or near the top of the list nationally for many years.

In addition to the current call to return important manufacturing and supply chains back to the U.S., we are prepared to support the growth of our region with our total water management solution that helps create sustainable communities. I will now turn the call over to Mike..

Thank you, Ron. Hello, everyone. Total revenue for the quarter was $8.2 million, which was up $507,000 or 6.6% and compared to Q1 of 2019. This increase is primarily driven by the 4.7% organic connection growth, increased consumption and our approved rate increase. Operating expenses in Q1 of 2020 were $6.4 million compared to $6.5 million in 2019.

This is a decrease of $91,000 or 1.4%.

Notable changes in operating expenses included the following, an increased operating and maintenance expense by $94,000, decreased G&A expense by $287,000 which can primarily be attributed to the reduced deferred compensation and board compensation tied to the reduction in stock price offset by increased personnel expense.

Lastly, increased depreciation and amortization expense by $102,000 primarily due to the increases in our fixed assets associated with our capital expenditures plan. Now to discuss other expense or net income. Other expense for Q1 of 2020 was $1.2 million compared to $200,000 in 2019.

This $1 million increase was, primarily due to the $1 million of proceeds of other income received in Q1 of 2019 from the Loop 303 contract. Turning to net income. Global Water had net income of $354,000 or $0.02 per share in Q1 of 2020.

Adjusted EBITDA, which adjusts for non-recurring events such as Loop 303 proceeds and also adjusts for non-cash items like option expense was $4.1 million in Q1 of 2020, which is up $635,000 or 18.4% compared to Q1 of 2019.

Adjusted EBITDA was up primarily due to the increases in revenue as well as the reduction in operating expenses tied to their [Audio Gap]. Before turning the call back to Ron, I'd like to hit a few of the highlights from our most recent financing.

On April 30, 2020 we entered into an agreement with the Northern Trust Company for a two-year revolving line of credit with a maturity date of April 30 2022. This new $10 million credit facility replaces our old $8 million credit facility we had with Midfirst Bank.

The rate of the loan is LIBOR plus 200, which is a 25 basis point savings from our prior revolver and we also eliminated the unused line fees. All in all a pretty good outcome. This concludes our update on Q1 2020 results. I'll now pass the call back to Ron..

Thank you, Mike. It is clear we will remain well positioned to weather these uncertain and turbulent times with a strong balance sheet and a disciplined strategy.

In fact, from an operational and financial perspective, we have never been stronger and we have more than ample liquidity and capital resources to pursue expansion through organic growth, acquisitions and new projects both big and small.

As we handle this growth, we intend to remain at the forefront of the water management industry and advance our mission of achieving efficiency and consolidation.

We truly believe that expanding our platform and applying our expertise throughout our regional service areas and to new utilities will be beneficial to all stakeholders involved, likely now more than ever.

We appreciate your investment in us and support of us, as we grow Global Water to address important utility, water resource and economic development issues in Arizona and potentially beyond. That highlight concludes our prepared remarks. Thank you, and Mike and I are now available to answer your questions..

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Gerry Sweeney with Roth Capital Partners. Please go ahead..

Good morning, guys. Thanks for taking the call..

Good morning, Gerry..

I wanted to – just talking about the organic growth housing et cetera.

I mean, we're still early in the sort of COVID probably impacting everything but have you seen any or heard or – incremental information on just how the growth in the regions is being slowing down people pulling back et cetera?.

Yeah. As you can imagine, just with everything these days Gerry, there's information kind of all over the Board, but I think to kind of hone in on what I think is important is for Q1 permits remained flat, primarily for us year-over-year and we're actually still up quite a bit for Metro-Phoenix.

We know the COVID-19 pandemic and the economic outfall related to it didn't start until halfway through March. So that's not hard to believe. March did see a dip in actual sales from a market perspective, but in April interestingly and this article just came out this morning in the Phoenix Business Journal if you have access to it.

April new home sales on all price points actually increased over March. So I'm a little bit surprised to see that. It was a very positive article at the moment. I will say, it's still probably prudent in the way we did -- it's the way we're looking at our business to assume, there's going to be a slowdown in organic growth throughout the year.

Obviously, we only saw 3.5% in Q1 of this year, which is below the last few years where we've been averaging north of 4%. So if you are starting to see it and we certainly project that for us, we'd probably be lower than our last two or three years for the remainder of this year at least, but we don't know.

We just think that's a prudent way to look at the business..

Got it.

And then, potentially maybe modestly offset by higher volume uses stay-at-home and shelter-in-place orders are in place? Is that also a fair way of potentially looking at it, but I guess it's probably a little early to tell as well?.

Yeah. That's right Gerry. I mean, it is early. As Ron mentioned, on COVID we didn't really start to see the impact to the back half of March. So it's kind of early to say, but I think with over 90% of our customers being residential, you'd clearly think that's a possibility for sure..

One more, I think important point I would add to that whole discussion Gerry and this again is, a little bit of a longer-term view of what's happened in the next quarter.

Development activity, right, you can either look at actual home cells, you can look at actually permits, which are the two data points I hit on and then you can look at development activity. So for us development activity today is actually stronger and busier than we have seen in years.

And I think that's still is important to highlight, because it was the strong home growth that Metro-Phoenix had been seeing for years was resulting in reduced lot inventory across Metro-Phoenix and that's kind of the point we've been making for years now as you know you've been following us is ultimately there's been less horizontal construction than you historically would have seen in Metro-Phoenix.

And so a lot capacity, and a lot inventory was starting to become an issue. So even though I think it's again fair to project. We're not going to see 5% this year.

I know 3.5% aren’t too shabby, but homebuilders, I think are -- and developers are indicating where they think still the market is going to be and what they're going to need from an inventory perspective coming out of this later this year and projects continue to move forward. Our governor never slowed down construction here.

It's considered an essential service and part of the economy and construction crews are cranking in our areas and our inspections teams have never been busier for what that's worth..

Also, I mean just on that front while we're talking about it, I mean, that probably dovetails with some of the infrastructural projects Maricopa put in place. I think in that southern half below the rail line, they put in a flyover for the bridge. And is that some areas that would be an area that would be more open for development.

Is that a fair way of looking at it as well?.

Yes. Yes. That area and there's just new property that's immediately adjacent or almost kind of still fill-in property of some of our service area where we have active connections, and they're just prime locations.

So even though it's -- again, home and sales may slow for a little while, getting those projects ready for finished lots and for homebuilding when it gets to them it just makes so much sense. And so those projects have not slowed down at all if anything they've sped up..

Got it. And then I get this is a little bit longer-term right as well. But on the acquisition front always kicking tires and things like that, but with increased potential stress on companies maybe unpaid bills and things like that I know you're well positioned to handle that.

Could that potentially speed up some acquisitions or help people move along in that direction?.

Yes. Absolutely. I mean, that's the right way to think about it. We -- look we took the 60-day pause, because it's appropriate. I mean, we're focused internally on our employees and on our customers. And so we didn't kick tires in the last 60 days per sequential, because it's appropriate delivery to deal with the situation.

However, coming out of this the list remains the same. And if anything potentially, there's a little higher probability that we can have success for those that are on the list due to the circumstances and as you mentioned the pressures that are on some of them.

So I think that's the right way to look at it, and that's certainly the way we're looking at it..

Got it. And then finally on the customer billing that you brought in-house I think somebody will back the math up, as there were some costs bringing those assets and I think there were some costs even maintaining those assets.

As we look out longer-term, is there any operating leverage opportunity from that, or is it just better control like the ACH and a little bit of working capital? Anything we should think about on that front?.

Yes. Gerry, this is Mike. And I would say, yes, the latter is probably right. It's the more better controls, but those costs are probably going to continue at the run rate that we're seeing.

So, I mean, there are some things that happened in Q1 kind of COVID-19 specific that we got to ramp up for, but outside of that bringing set of them in-house the run rates that we're at right now is kind of what we think. And as we grow over the long-term, I think, you'll start to see those benefits in future years from a leverage perspective. Yes.

Yes..

All right. Thanks guys. That's it for me. Stay well, talk to you soon..

Great. You as well. Thanks, Gerry..

Thanks, Gerry..

This concludes the question-and-answer session. I would now like to turn the conference back over to Mr. Ron Fleming for any closing remarks..

Thank you operator. Just would like to thank everybody for participating on our call today and for your continued interest in Global Water Resources. Thanks and we look forward to speaking with you soon..

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day..