Global Water Resources, Inc.
Q4 2020 Earnings Call Transcript

Published: 4 Mar 2021

[Operator:]

Greetings, ladies and gentlemen. Thank you for standing by. Welcome to the Global Water Resources 2020 Year-End Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. I would like to remind everyone that this call is being recorded on March 4, 2021, at 1

[Heather Krupa:]

Welcome, everyone, and thank you for joining us on today's call. Yesterday, we issued our 2020 year-end financial results by press release. A copy of which is available on our website at www.gwresources.com.

[Ron Fleming:]

Thank you, Heather. Good morning, everyone, and thank you for joining us today. We are very pleased to report the results for the fourth quarter and year-end 2020. 2020 was both a challenging and exciting year for Global Water. And I'm very proud of the company and our employees for delivering strong company performance during a global pandemic. We will talk about growth throughout our commentary today. But I will start where I always do by discussing our top priority, which is the health and safety of our employees and our customers, including how we continue to navigate COVID-19. As an essential utility, whose services are vital during a 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.

[Mike Liebman:]

Thanks, Ron. Hello, everyone. Total revenue for the year was $38.6 million, which was up $3.2 million or 8.9% compared to 2019. This increase is primarily driven by the organic connection growth, increased consumption and our approved rate increase. Operating expenses for 2020 were $31.3 million compared to $28.5 million in 2019. This is an increase of $2.8 million or 9.8%. Notable changes in operating expenses include

[Christopher Krygier:]

Thanks, Mike. Hello, everyone. I will highlight 3 items for you before passing the call back to Ron. As you will recall, in the past, we discussed 4 different elements to our revenue growth story

[Ron Fleming:]

Thank you, Chris. So it is clear, we remain well positioned with a strong balance sheet and discipline 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 be a great utility partner for the communities where we have the privilege to serve and to pursue expansion through organic growth, acquisitions and new projects, both big and small. As we handle this high 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. We appreciate your investment in and support of us as we grow Global Water to address important utility, water resource and economic development issues in Arizona and potentially beyond. This concludes our prepared remarks. Thank you. We're now available to answer your questions.

[Operator:]

Thank you. We will now begin the question-and-answer session. Our first question is from Gerry Sweeney with ROTH Capital. Please go ahead.

[Gerard Sweeney:]

Good morning, Ron, Mike and Chris. Thanks for taking my call.

[Ron Fleming:]

Hi, Gerry.

[Gerard Sweeney:]

Just a question on growth, obviously, lots of organic growth there. Arizona, great state, and are taxes, et cetera. You've always discussed about being in line with growth of Phoenix, et cetera. Is that coming to fruition? Where, I'm always hearing, more and more companies moving to Chandler Gilbert area, is growth really pushing into your operating area? And all available lots and opportunities sort of backfilled in the Phoenix region as you get closer to the city?

[Ron Fleming:]

Yeah, thanks, Gerry. So, look, I think how we've described it in the past is definitely what continues to become more and more real, which is, ultimately Phoenix grows in concentric rings, and that growth pushes down growth corridors which are, basically, are aligned with transportation, infrastructure, so highways and freeways. And really no different than anywhere else, it's just there is only so much places that growth can go. And so, when you combine that with the fact that from a land development perspective, there just hasn't been, coming out of the Great Recession, the same amount of proactive investment in dirt to bring it from dirt through the 3-year entitlement process to get it ready for lots, which is obviously what you need to build a home. What's happening right now is growth in Phoenix is going crazy basically, lots of net in-migration, we call it, so literally population. This isn't investment. This isn't people speculating. This is people moving here, both job growth and population growth. And so, there is only so many of those developments and lots that exist. And we have a lot of them in our service area. So more and more growth is coming our way and we think that's really just only going to continue to increase as metro Phoenix expands through these emerging areas that we serve. And I will make another point, that's not obviously on the housing side, but on the kind of job side. We're also getting to where these emerging areas are getting more and more of the opportunities on both commercial growth due to population growth, but also industrial growth and really job centers. You're right. The major metro communities around Phoenix, like Chandler and Gilbert, and on the other side, Buckeye, they've been getting a lot of announcements for a long time on these large facilities that have been coming into Arizona. But that's now moving further out as well. Obviously, that underpins the Nikola deal we're working on, underpins the Pinal land holdings' industrial community that we're working on. And those types of opportunities continue to increase as well.

[Gerard Sweeney:]

Got it. Switching gears a little bit, I think even in the release, you mentioned, FATHOM, it's been a full year, since it's come in house. And maybe discuss, is that working out appropriately or even outperforming benefits may be anticipated?

[Mike Liebman:]

Yeah, Gerry, this is Mike. Good question. So, it's been great, actually. I'd say specifically we've been able to, after bringing FATHOM in house to continue to expand and improve our customer service area and have a reduction in complaints from customer service. So that's been a great add having the direct oversight of it. Additionally, we continue to see a reduction in cost on a go-forward basis, as the cost that we incur are much less than what we were being charged by FATHOM. And so, we are getting those benefits. And we'll continue to get those benefits going forward. And lastly, the timing of it with the FATHOM transition, at the end of last month, we made the decision to hire an IT Director with a career in IT Security. And in light of the pandemic, it's been a great add for the team to kind of help us stay out in front of it, and with people working from home and from a security perspective. So it's really been a great add. And lastly, Gerry, you've seen our facilities were highly automated and technologically advanced. And so, we do believe this gives us a pretty good competitive advantage from an M&A perspective as well as dealing with, as you're hearing in the news, things about cybersecurity issues. So it's been a great add for us. And we're pretty happy with it.

[Gerard Sweeney:]

Yeah, that I was reading the stuff about Florida and cybersecurity, so that's very pertinent. Thank you. Just one other quick question and this is for Chris, I'm not sure if you can really be in a position to discuss it. But obviously, I think you mentioned you're looking at some M&A activity outside the states. Can you highlight where you're looking? But also, how much of an opportunity is it bringing the Global Water and water reuse and some of the technology you have there in house to other states? And how much of an opportunity that that sort of affords you when you're looking at potential purchases?

[Christopher Krygier:]

Yeah, great question. Thanks, Gerry. So big picture, I can't give you too many specifics, just obviously from a competitive perspective with our peers . I'll say, let me start with this high level. In terms of what's in front of us in Arizona, we really love that opportunity set a lot. And you've seen in a pretty short period of time, we've been able to bring some things together very quickly. And so, from our perspective, looking out of state, we're going to keep our eyes open to what opportunities are there and discuss those, but we can afford to be selective and really thoughtful about pursuing those. And so, obviously, you always look at them from a financial perspective. But you also want to look at them in terms of what's the market there, in terms of is there a lot of opportunity? Can you scale quickly? Can you apply what we're really good at from a total water management perspective? And so, I would say, we'll absolutely be keeping our eyes open to a wide variety of places. Nothing's eminent. We're happy with what we're seeing so far in Arizona to kind of build the company out here. And so - but we're always open to the next opportunity, at least listening and learning.

[Gerard Sweeney:]

Got it. I appreciate it. I'll hand it over. Thank you.

[Operator:]

There are no further questions registered at this time. I would now like to turn the conference back over to Mr. Ron Fleming for any closing remarks. Please go ahead, sir.

[Ron Fleming:]

All right, great. Thank you, operator. I just like to thank everyone for participating in the call today and your ongoing interest in Global Water. Thank you and we look forward to speaking to you again. Bye.

[Operator:]

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