Global Water Resources, Inc. — Q1 2022 Form 10-Q
Business context and reporting period. The company owns and operates water, wastewater and recycled-water utilities, principally in metropolitan Phoenix, Arizona. This unaudited filing covers the three months ended March 31, 2022; results are seasonal and management cautions they are not necessarily indicative of full-year performance.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $10.03 million | $9.26 million; up 8.3% |
| Operating expenses | $8.67 million | $8.22 million; up 5.5% |
| Operating income and margin | $1.36 million; 13.6% | $1.04 million; 11.3% |
| Net income (loss) | $0.89 million; $0.04 per diluted share | $(0.22) million; $(0.01) per diluted share |
| Operating cash flow | $5.37 million | $4.80 million |
| Capital expenditures | $6.17 million | $3.27 million |
| Cash and cash equivalents | $11.14 million at March 31 | $12.64 million at December 31, 2021 |
| Debt and capital leases | $112.89 million carrying value | $112.91 million at December 31, 2021 |
Revenue growth reflected organic connection growth and the 2021 Las Quintas acquisition. Active connections rose 9.7% year over year to 55,012. Water-service revenue increased 9.1%; wastewater and recycled-water revenue increased 8.4%. Q1 operating cash flow less capital expenditures was approximately negative $0.80 million, before acquisition and financing cash flows. Cash, cash equivalents and restricted cash together totaled $11.94 million at quarter-end.
Current assets were $17.85 million and current liabilities $17.13 million. The company had no borrowings on its $10 million revolving credit facility, extended to April 2024, and reported compliance with debt covenants. It reported quarterly dividends of $0.07 per share and $1.67 million of dividends paid.
Material changes versus the prior comparable period
- Net results improved from a loss to income, reflecting higher operating income and a substantial reduction in total other expense.
- Total other expense was $0.13 million, versus $1.31 million in Q1 2021. The main driver was $1.07 million of other income, principally a Buckeye growth premium; the company received approximately $1.1 million from that arrangement in the quarter, versus less than $0.1 million a year earlier.
- General and administrative expense rose 8.3% to $3.78 million, including higher professional fees related primarily to acquisitions and the rate case. Depreciation and amortization increased 5.3% to $2.34 million.
- Investing cash outflow increased to $6.25 million from $3.27 million, primarily due to higher capital expenditures. Cash and cash equivalents declined $1.50 million during the quarter.
Outlook, commentary and risks
- Regulatory rate case: Twelve utilities sought a collective revenue requirement increase of $4.6 million; company testimony later updated the requested increase to approximately $3.0 million. A decision was expected in Q2 2022. Approval, amount, timing, any rate consolidation and requested phase-in are uncertain; regulatory lag may delay recovery of costs and investment.
- Capital and liquidity: Management said it expected available cash, operating cash flow and the undrawn revolver to support operations and its capital plan. Scheduled Series B principal payments included $1.9 million in June 2022 and $1.9 million in December 2022.
- Growth and acquisitions: Rincon Water and Twin Hawks acquisitions closed in January 2022, adding 73 and 18 connections, respectively, at acquisition. A definitive agreement to acquire Farmers Water Company, potentially adding about 3,300 active connections, remained subject to customary conditions and ACC approval.
- Business risks: The company highlighted dependence on Arizona growth and development, seasonal weather and water demand, groundwater availability and drought, environmental and water-quality rules, commodity and power costs, cybersecurity, and regulatory recovery delays. COVID-19 had no material effect on Q1 results, but future effects remained uncertain.
- Legal and controls: Management reported no known legal proceeding expected to materially affect the company, no material change in risk factors, and effective disclosure controls as of March 31, 2022.
- No quantitative full-year guidance is provided in the supplied filing text.
Important facts for investors to verify
- Whether the ACC approved the requested rate increases and rate consolidation, and when any approved changes took effect.
- How much of Q1’s improvement depended on Buckeye growth-premium income and whether comparable receipts can be expected.
- Actual capital spending, acquisition funding and cash generation relative to management’s liquidity expectations and upcoming debt payments.
- Debt-covenant headroom and the effect of covenant limits on dividends; dividends remain subject to board discretion and covenant requirements.
- The timing and approval status of the Farmers Water acquisition and its final purchase terms.
- The filing reports $1.78 million of accrued interest at quarter-end, up from $0.49 million at year-end, while supplemental cash flow information reports only $2,000 of cash interest paid in Q1; investors may wish to verify the timing and classification.