Consolidated Water Co. Ltd. — FY2023 Form 10-K
Reporting period: Year ended December 31, 2023; filed March 27, 2024. This is an annual report, not a standalone fourth-quarter filing. The company supplies potable water, builds and operates water and wastewater infrastructure, and manufactures water-treatment equipment across the Caribbean and United States.
Financial results and position
| Metric | 2023 | 2022 |
|---|---|---|
| Revenue | $180.2 million | $94.1 million |
| Gross profit / margin | $61.9 million / 34% | $30.4 million / 32% |
| Operating income | $37.2 million | $9.3 million |
| Net income attributable to CWCO shareholders | $29.6 million; diluted EPS $1.86 | $5.9 million; diluted EPS $0.38 |
| Net income from continuing operations attributable to shareholders | $30.7 million; diluted EPS $1.93 | $8.2 million; diluted EPS $0.54 |
| Operating cash flow | $8.0 million | $21.3 million |
| Cash and cash equivalents | $42.6 million | $50.7 million |
| Working capital | $88.8 million | Not stated here |
Revenue rose about 92%, largely on higher services and manufacturing activity. Gross margin improved to 34%. Cash generation from operations fell despite higher earnings, chiefly as receivables and contract assets increased. Investing cash outflow was $10.9 million, including the REC acquisition and purchase of the remaining PERC interest; financing cash outflow was $5.5 million, mostly dividends.
At year-end, total liabilities were $26.6 million, including $0.4 million of long-term debt and $2.3 million of operating lease liabilities. Cayman Water also had an undrawn revolving facility of up to $10 million, secured by its assets and guaranteed by the parent. The filing reports no material borrowing under that facility.
Performance changes and business developments
- Services: Revenue increased to $98.0 million from $28.8 million; operating income rose to $26.9 million from $2.4 million. The Liberty Utilities Arizona construction project contributed about $64 million of 2023 revenue and was certified substantially complete in January 2024; remaining work was expected to finish by June 2024.
- Bulk water: Revenue grew to $34.6 million from $33.0 million, supported by higher volume and energy-cost pass-throughs. Operating income was $8.7 million.
- Retail water: Revenue increased to $30.2 million from $26.0 million, principally on higher water sales as tourism recovered. The segment still recorded an operating loss of $0.7 million.
- Manufacturing: Revenue rose to $17.5 million from $6.3 million as supply-chain conditions improved; the segment returned to operating income of $2.2 million from a $0.4 million loss.
- The company acquired 100% of Colorado-based REC in October 2023 for approximately $4.1 million and acquired the remaining 39% of PERC in January 2023. It also signed a $150 million design-build-operate-maintain agreement for a 1.7-million-gallon-per-day desalination plant in Hawaii.
- The 2023 services results included a favorable $2.36 million adjustment to estimated costs on two construction contracts, increasing consolidated net income by $1.75 million and EPS by $0.11.
Outlook, risks and contingencies
- No formal earnings guidance is provided. Management estimated approximately $9.5 million of 2024 capital expenditures, including $2.8 million for the West Bay plant. The filing cites approximately $162.2 million of transaction price for unsatisfied or partially unsatisfied long-term contract obligations; about $22.2 million was expected to be recognized in 2024 and $140 million thereafter.
- Grand Cayman retail license: The most recent express extension expired January 31, 2018. The company continues operating under the license terms while negotiations remain ongoing. Management says the government seeks changes that could significantly reduce or eliminate historical retail operating income and cash flow, potentially requiring asset impairments. Retail represented 17% of 2023 revenue and 26% of gross profit.
- Bahamas receivables and liquidity: Receivables from the government-owned WSC were $26.9 million at year-end, with approximately 80% delinquent. CW-Bahamas has faced liquidity constraints and has not paid dividends since August 2022. The company says prior overdue balances were ultimately collected and records no material expected credit-loss allowance; the WSC stated in March 2024 that the government intended to substantially reduce the balance during 2024. Collection timing remains a key risk.
- Customer and project concentration: WSC accounted for 17% of consolidated revenue. One services customer accounted for 36% of revenue, principally reflecting the Liberty Utilities project. Certain government and municipal contracts may be terminated for convenience.
- Mexico discontinued project: The government terminated the Rosarito desalination project contract in 2020. The company is pursuing international arbitration seeking more than US$51 million plus MXN$137 million, fees and interest; recovery and timing are uncertain. Discontinued operations recorded a $1.1 million loss in 2023. Related EWG litigation and precautionary-measure proceedings remain unresolved; the company cannot determine their financial impact.
- Other disclosed exposures include construction-cost estimation and fixed-price contract risk, performance guarantees, tourism and weather sensitivity, hurricanes and other natural disasters, regulation, environmental compliance, cybersecurity, and potential inflation and energy-cost pressures. Auditors identified estimated costs to complete construction and manufacturing contracts as a critical audit matter.
- Cash dividends declared were $0.36 per share in 2023, up from $0.34 in 2022. Future dividends are at the board’s discretion. Management reported effective disclosure controls and internal control over financial reporting; the independent auditor issued an unqualified opinion on the financial statements.
Investor verification priorities
- Track progress and final terms of the Grand Cayman retail license negotiations, including possible rate, royalty, exclusivity or asset-value effects.
- Monitor WSC collections against the $26.9 million year-end receivable, subsequent receipts, CW-Bahamas liquidity, and any change in credit-loss estimates or revenue recognition.
- Verify remaining Liberty Utilities and Red Gate project costs, completion milestones, cash billings and collections, and whether 2023 cost-estimate benefits recur.
- Assess concentration and execution risk in the $150 million Hawaii project and the services customer that represented 36% of annual revenue.
- Follow the Mexico arbitration and EWG litigation, including any ruling, settlement, reimbursement, asset restrictions or additional legal costs.
- Reconcile reported earnings growth with operating cash flow, which declined to $8.0 million, and the increase in accounts receivable and contract assets.