Global Water Resources, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. The financial statements are unaudited. The company owns and operates regulated water, wastewater, and recycled-water utilities, primarily in metropolitan Phoenix, Arizona.
Financial results
Amounts below are in millions of dollars except per-share data and percentages.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $11.404 | $10.757 | $31.606 | $28.876 |
| Operating income | $2.293 | $2.892 | $5.675 | $6.416 |
| Net income | $1.498 | $1.131 | $3.263 | $1.363 |
| Diluted EPS | $0.07 | $0.05 | $0.14 | $0.06 |
| Operating margin | 20.1% | 26.9% | 18.0% | 22.2% |
- Q3 revenue rose 6.0%; nine-month revenue rose 9.5%. Nine-month water services revenue was $14.303 million, wastewater and recycled-water revenue $16.564 million, and unregulated revenue $0.739 million.
- Nine-month operating cash flow was $15.235 million, versus $11.697 million. Capital expenditures were $11.794 million, versus $7.490 million; operating cash flow less capital expenditures was therefore $3.441 million, compared with $4.207 million.
- At September 30, cash and cash equivalents were $21.241 million and restricted cash was $0.843 million. Current assets were $27.453 million and current liabilities $15.995 million.
- Debt and capital leases totaled $114.856 million on the balance sheet, including $3.985 million current and $110.871 million noncurrent. The $10 million revolving credit facility was undrawn; its maturity was extended to April 2024. The company reported compliance with debt covenants. Series B principal payments of about $1.9 million were due in December 2021 and June 2022.
- Quarterly dividends declared were $0.07 per share; dividends paid during the nine-month period totaled $4.950 million.
Changes and drivers
- Despite higher revenue, operating income declined 20.7% in Q3 and 11.5% for the nine-month period. General and administrative expense increased 37.4% in Q3 and 30.0% year to date, reflecting compensation and stock awards, personnel costs, and acquisition-related legal fees.
- Q3 water-services revenue fell 7.8%, principally because higher precipitation reduced residential and irrigation usage; water consumption declined 24.6%. Growth in connections and rates partly offset the decline. Wastewater and recycled-water revenue increased 7.8% in the quarter.
- Net income improved despite lower operating income, mainly because other expense improved. Nine-month results included a $1.5 million gain from sale of a wireless communications tower and higher Valencia growth-premium income. Q3 included $0.8 million of Valencia growth premiums, including a $0.4 million catch-up payment identified in a City of Buckeye audit. These items are not necessarily recurring.
- Active connections increased 9.2% year over year to 51,958. Total connections, including vacant-home connections, increased 9.1% to 52,254.
Outlook, risks, and other items
- No quantitative earnings or revenue guidance was provided. Management said it expected available cash, operating cash flows, and access to the revolver to fund operations and the capital plan for at least 12 months, while noting potential COVID-19 effects.
- A rate case covering 12 of 17 regulated utilities sought a collective revenue-requirement increase initially proposed at $4.6 million and updated in August 2021 to approximately $3.0 million. A decision was expected in Q1 2022. Requested rate consolidation and increases are subject to ACC approval; neither timing nor outcome is assured.
- Management cited continued customer growth and Phoenix-area development as opportunities. Risks include weather and seasonality, drought and water availability, regulation and rate-case delays, cost increases, and dependence on development activity. COVID-19 had not materially affected results through the period, but its future effects were uncertain.
- On November 3, 2021, after quarter-end, the company completed its acquisition of Las Quintas Serenas Water Company, adding over 1,100 connections and approximately 2.5 square miles of service area.
- The company reported no material change in risk factors, no material expected legal proceedings, and effective disclosure controls. It had no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the ACC approves the requested rate increase and rate consolidation, and the amount and effective date of any approved changes.
- How much reported earnings and cash generation depend on the tower-sale gain, Valencia growth premiums, and ICFA revenue rather than recurring utility operations.
- Whether higher G&A and capital spending persist, and how they affect operating margins and cash available after investment and dividends.
- Progress on the scheduled Series B principal payments, covenant headroom, and the continued availability of the undrawn revolver.
- Effects of precipitation, drought, water-supply constraints, and customer usage on consumption-based revenue and operating costs.