Global Water Resources, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; unaudited. Amounts below are in millions of dollars unless otherwise noted. The company owns and operates regulated water, wastewater and recycled-water utilities, principally in metropolitan Phoenix, Arizona.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $10.944 | $9.889 | $20.202 | $18.119 |
| Operating income | $2.339 | $1.727 | $3.382 | $3.524 |
| Net income (loss) | $1.982 | $(0.122) | $1.765 | $0.232 |
| Diluted EPS | $0.09 | $(0.01) | $0.08 | $0.01 |
| Operating margin | 21.4% | 17.5% | 16.7% | 19.4% |
- Q2 revenue rose 10.7%; first-half revenue rose 11.5%. Growth reflected more connections, higher consumption and rate increases under the prior ACC rate decision. Active connections increased 10.2% year over year to 51,314.
- First-half operating expenses rose 15.2% to $16.820 million, including a 26.2% increase in general and administrative expense to $7.207 million. Management attributed much of the G&A increase to higher deferred and stock-based compensation.
- First-half operating income declined 4.0% despite revenue growth. Net income increased, mainly because other expense improved by about $2.0 million, including a gain on sale of a communications tower and a prior-year asset-disposal loss.
- Cash provided by operations was $7.364 million for the first half, versus $5.101 million. Capital expenditures were $6.408 million, versus $5.399 million; cash used in investing activities was $6.413 million.
- Cash, cash equivalents and restricted cash totaled $20.665 million at June 30, 2021, including $19.349 million unrestricted cash. Current assets were $25.320 million and current liabilities $14.218 million.
- Debt and capital lease liabilities totaled $114.887 million, including $3.994 million current and $110.893 million noncurrent. The $115 million senior notes bear fixed rates of 4.38% and 4.58%. The company reported compliance with debt covenants and no borrowings on its $10 million revolving credit facility, whose maturity was extended to April 2024.
- Dividends declared were $0.07 per share in Q2 and $0.15 per share for the first half. The company’s stated monthly dividend rate was $0.02434 per share.
Material changes, outlook and risks
- The April 2021 sale of a wireless communications tower generated a $1.5 million gain recorded in other income. This is a significant, non-recurring contributor to reported earnings.
- On August 2, 2021, the company updated its pending ACC rate-case request: the proposed collective revenue increase for 12 of 16 regulated utilities was revised from $4.6 million to approximately $3.0 million. Certain utilities requested a phased implementation beginning January 1, 2022. Approval, amount and timing are uncertain; the ACC could approve a smaller increase, deny it, or reduce rates.
- Management said it expected sufficient cash, operating cash flow and revolver availability to fund operations and planned capital expenditures and meet obligations for at least 12 months. It identified upcoming Series B principal payments of approximately $1.9 million in December 2021 and $1.9 million in June 2022.
- Management reported no material COVID-19 effect on the period’s results, but warned that pandemic developments could affect collections, revenue, earnings and cash flow. Customer disconnections resumed in February 2021 after being suspended in 2020.
- Risks include Arizona regulatory lag and rate-case outcomes; local weather and seasonality; drought, groundwater availability and water-quality requirements; development and population trends; and volatility in power and chemical costs. Interim results are not necessarily indicative of full-year performance.
- The company reported no material change in risk factors from its 2020 Form 10-K, no known legal proceeding expected to have a material effect, and effective disclosure controls as of June 30, 2021.
Important facts for investors to verify
- Track the ACC rate-case decision, approved revenue requirement, rate consolidation requests and effective dates against the revised $3.0 million proposal.
- Assess earnings and cash generation excluding the $1.5 million tower-sale gain, and monitor the drivers and persistence of higher compensation-related G&A.
- Review capital spending, operating cash conversion, debt-service coverage and scheduled Series B principal payments, including the effect of dividends on covenant headroom.
- Monitor customer growth, consumption, weather and seasonal variability, as well as collection trends following resumed disconnections.
- Evaluate water-supply, drought and regulatory risks in the company’s concentrated Arizona service territory.