Consolidated Water Co. Ltd. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed March 30, 2023. Although the request metadata says “2022 Q4,” this is an annual filing and the supplied text does not provide standalone fourth-quarter financial results.
Business context
The company produces and sells potable water, designs and operates water and wastewater infrastructure, and manufactures water-treatment equipment. Its four reporting segments are retail water in Grand Cayman, bulk water in the Cayman Islands and The Bahamas, services primarily in the United States and Caribbean, and manufacturing in the United States. A British Virgin Islands water operation is accounted for as an affiliate.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $94.1 million | $66.9 million |
| Gross profit / margin | $30.4 million / 32% | $23.5 million / 35% |
| Income from operations | $9.3 million | $2.0 million |
| Continuing net income attributable to shareholders | $8.2 million ($0.54 diluted EPS) | $3.4 million ($0.23 diluted EPS) |
| Total net income attributable to shareholders, including discontinued operations | $5.9 million ($0.38 diluted EPS) | $0.9 million ($0.06 diluted EPS) |
| Net cash provided by operating activities | $21.3 million | $7.0 million |
| Cash and cash equivalents at year-end | $50.7 million | $40.4 million |
- Revenue increased about 41%. Gross margin declined to 32% from 35%, reflecting a larger share of lower-margin services revenue and higher bulk-segment maintenance and chemical costs.
- Year-end working capital was $69.9 million. Total reported debt was approximately $331,000; operating lease liabilities were approximately $2.1 million and are separate from debt.
- Investing activities used $5.0 million, including $7.5 million of additions to property, plant and equipment and construction in progress. Financing activities used $6.3 million, mostly for dividends. Cash from operations less reported capital additions was approximately $13.8 million.
- Dividends declared were $0.34 per share in both 2022 and 2021. The board also declared a $0.085-per-share dividend payable in April 2023.
Material changes versus FY2021
- All four segments grew revenue. Services revenue more than doubled to $28.8 million, primarily from PERC’s Arizona construction project; approximately $9.5 million of 2022 revenue came from the Liberty Utilities project.
- Retail revenue rose to $26.0 million as water volumes increased 12.5% following the Cayman Islands’ August 2022 lifting of pandemic-related travel restrictions. Retail operations nevertheless recorded a $1.2 million operating loss.
- Bulk revenue rose to $33.0 million, largely because higher energy costs flowed through to rates; gross margin fell to 30% from 34% amid higher repairs, maintenance and chemical costs.
- Manufacturing revenue increased to $6.3 million and its operating loss narrowed to $0.4 million. The prior-year result included a $2.9 million goodwill impairment; 2022 had no comparable impairment.
- Continuing operating cash flow improved substantially, supported in part by an $8.3 million increase in contract liabilities, chiefly project billings. Inventory and prepaid expenses also increased.
Outlook, risks and unusual items
- Cayman retail license: The express extension of the exclusive license expired January 31, 2018; negotiations for a replacement remained ongoing. The government has indicated it seeks revised terms that could materially reduce retail operating income and cash flow. Retail generated about 27% of 2022 revenue and 44% of consolidated gross profit.
- Bahamas receivables: $16.3 million was due from the government-owned Water and Sewerage Corporation at year-end, with about 65% delinquent. The company recorded no allowance, citing past collections and government discussions; collection delays have constrained the subsidiary’s liquidity. The WSC represented 32% of consolidated revenue.
- Mexico project: The terminated Rosarito project remained in discontinued operations, producing a $2.4 million net loss in 2022. The company’s arbitration claim seeks more than US$51 million plus MXN$137 million, costs and interest; recovery is uncertain, and related legal and arbitration costs are expected to be material. Discussions with the State began in July 2022, but arbitration efforts continued.
- Investment and spending plans: Management estimated approximately $14.1 million of 2023 capital expenditures, including $7.5 million for the WAC Red Gate plant and $2.8 million for replacement of the West Bay plant. The company also reported approximately $41.7 million of purchase obligations through December 31, 2023 and $97.9 million of transaction price on unsatisfied or partially unsatisfied contracts longer than one year; it expected to recognize about $75.3 million of that contract amount in 2023.
- PERC ownership: On January 4, 2023, the company acquired the remaining 39% of PERC for approximately $2.4 million cash and 368,383 common shares, bringing ownership to 100%.
- Other risks: Management cited supply-chain delays and cost inflation, tourism and rainfall sensitivity, contract cost-estimation and termination risks, customer concentration, potential impairment at Aerex, and exposure to natural disasters and regulatory changes. No formal earnings guidance was provided in the supplied filing text.
- The independent auditor issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting as of year-end.
Key facts for investors to verify
- Progress and economic terms of the Cayman retail-license negotiations, including potential effects on rates, profitability and asset values.
- Subsequent collections of the WSC’s delinquent balance, payment schedule, and any change to the company’s no-allowance judgment.
- Execution, margins and cash conversion for the Liberty Utilities project and other services contracts, including the reported contract backlog and 2023 revenue expectations.
- Updated project spending, timing and funding needs for Red Gate and the West Bay plant replacement, alongside purchase obligations and dividends.
- Status and costs of Mexico arbitration and discussions, and any recoveries or further write-downs related to the discontinued project.
- Aerex’s customer diversification and performance against impairment assumptions; the filing reports manufacturing goodwill of about $2.0 million and remaining intangible assets of about $0.8 million.