Global Water Resources, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. The company owns and operates water, wastewater, and recycled-water utilities, principally in Arizona. Financial amounts below are in millions unless stated otherwise.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $13.13 | $10.03 | +30.9% |
| Operating income | $3.78 | $1.36 | +177% |
| Operating margin | 28.8% | 13.6% | +15.2 percentage points |
| Net income | $2.47 | $0.89 | +177% |
| Net margin | 18.8% | 8.9% | +9.9 percentage points |
| Basic and diluted EPS | $0.10 | $0.04 | +$0.06 |
| Operating cash flow | $6.48 | $5.37 | +$1.11 |
| Capital expenditures | $6.54 | $6.17 | +$0.37 |
Revenue comprised $4.84 million from water services, $6.02 million from wastewater and recycled water, and $2.27 million of unregulated ICFA revenue. The filing reports no ICFA revenue in the prior-year quarter. Net cash used in investing was $12.79 million, including $6.25 million paid for the Farmers acquisition. Cash, cash equivalents, and restricted cash ended the quarter at $3.05 million, down from $7.56 million at year-end 2022.
At March 31, total debt was approximately $108.8 million, plus $3.5 million drawn on the revolving line of credit; lease liabilities were approximately $2.0 million. Cash and cash equivalents were $1.91 million, and current assets were $8.78 million versus current liabilities of $17.35 million. The company reported compliance with debt covenants. Its $15 million revolving facility had approximately $11.5 million of undrawn capacity. The quarterly dividend declared was $0.07 per share.
Material changes and drivers
- Revenue increased $3.10 million. The largest contributor was $2.27 million of ICFA revenue; rate increases, Farmers, and organic connection growth also contributed.
- Regulated revenue rose from $10.03 million to $10.86 million. Active service connections increased 8.7% year over year to 59,809, including approximately 3,300 connections added through Farmers and organic growth.
- Operating expenses increased 7.9% to $9.35 million. Depreciation and amortization rose 13.3% to $2.66 million, primarily reflecting a larger asset base.
- The company acquired Farmers Water Co. on February 1 for $7.6 million of total consideration: $6.2 million cash and an estimated $1.4 million growth-premium liability. The acquisition added approximately 3,300 connections.
- Cash flow from financing included $3.5 million of net revolver borrowings. Dividends paid were $1.78 million.
Outlook, risks, and unusual items
- The Arizona Corporation Commission approved a phased annual revenue-requirement increase of approximately $2.23 million in total, with the final phase effective January 1, 2024. Actual benefit may vary with service connections and customer usage. The filing gives no specific earnings or revenue guidance.
- Management said it expects available cash, revolver capacity, and operating cash flow to fund operations and planned capital expenditures for the next 12 months and beyond. It also noted $1.9 million Series B principal payments due in each of June and December 2023.
- Management cited continued population and connection growth, but noted housing-market slowdown, inflation, and higher interest rates. Results are seasonal, with water demand generally higher in the second and third quarters; Q1 results may not indicate full-year performance.
- Key risks include Arizona water availability and groundwater restrictions, drought and weather, regulatory lag in recovering costs, rising labor, power, and chemical costs, and cybersecurity threats. Management believes current water supplies are adequate for foreseeable demand but cautions that future conditions and regulation may affect supply.
- The ACC requires a request to the IRS for a private letter ruling concerning deferred taxes on condemned assets. Subsequent ACC action is uncertain and could adversely affect financial condition, results, or cash flows.
- The $18.8 million ICFA deferred-revenue balance is expected to be recognized when specified capacity obligations are met; the company says timing cannot be estimated. Q1 ICFA revenue recognition was an important, nonrecurring comparison factor versus Q1 2022.
- Management reported no material litigation, no material changes to the risk factors disclosed in the 2022 Form 10-K, and effective disclosure controls as of March 31, 2023.
Important facts for investors to verify
- How much of the revenue and profit increase reflects recurring regulated rates and connections versus ICFA revenue and acquisition effects.
- Farmers’ post-acquisition performance, final purchase accounting, and the future amount and timing of growth-premium payments.
- Liquidity and refinancing needs, including the July 2024 revolver maturity, debt-service covenant headroom, and scheduled principal payments.
- Progress on the IRS private letter ruling and any resulting ACC action.
- Water-supply adequacy, regulatory recovery of infrastructure and operating costs, and the timing of recognition of deferred ICFA revenue.
- The filing text contains an apparent signature-date inconsistency: its signature page states November 9, 2022, despite covering Q1 2023. Verify the filed document and date.