Global Water Resources Reports Third Quarter 2019 Results; Revenue up 10.5% to $9.9 million, Driving Net Income to $1.0 million or $0.05 per Share

PHOENIX, Nov. 06, 2019 (GLOBE NEWSWIRE) -- Global Water Resources, Inc. (NASDAQ: GWRS), (TSX: GWR), a pure-play water resource management company, reported results for the third quarter ended September 30, 2019. Quarter and nine months comparisons are to the same year-ago period unless otherwise noted.

Q3 2019 Financial Highlights

• Regulated revenues increased 10.5% to $9.9 million.
  
  
• Net income increased $0.4 million, or 65.4%, to $1.0 million, or $0.05 per share.
  
  
• Adjusted EBITDA increased 15.8% to $4.8 million.
  
  
• Cash and cash equivalents totaled $11.1 million.
  
  
• Declared three monthly cash dividends of $0.023861 per common share (or $0.286332 per share on an annualized basis).

Q3 2019 Operational Highlights

• Total active connections increased 9.1% to 45,315 at September 30, 2019 from 41,546 at September 30, 2018, with organic connections up 4.8%.
  
  
• Partnered with City of Coolidge and Saint Holdings to bring integrated utility solution to Southern Coolidge and Inland Port Arizona.

Subsequent Event
The company increased its dividend 1% to $0.2892 on an annualized basis from $0.0286332. This equates to a monthly dividend of $0.0241. The first dividend at the new monthly rate will be paid on December 30, 2019 to holders of record on December 16, 2019.

Management Commentary

“In Q3, top-line and bottom-line growth was primarily driven by organic connection growth, the addition of Red Rock customers, the phase-in of previously approved rate increases, and ongoing operating efficiencies,” said Global Water Resources president and CEO, Ron Fleming. “During the quarter, we signed agreements to bring our integrated utility solutions to Southern Coolidge and Inland Port Arizona. We look forward to providing updates as this major project advances.”

“As we round out 2019 and plan for next year, we continue to prepare ourselves for future development activity in existing and new areas as well as pursuing acquisitions,” said Fleming. “Meanwhile, developers are continuing to build-out residential and commercial properties within our service areas, driving organic connection growth. In these areas of population growth, we see continued adoption of our Total Water Management solution that supports sustainable communities through managing valuable water resources for the benefit of all.”

2019 Financial Summary

Revenues

Regulated revenues in the third quarter of 2019 increased $0.9 million, or 10.5%, to $9.9 million compared to $9.0 million for the third quarter of 2018. The increase was primarily driven by connection growth, inclusive of connection growth due to the Red Rock acquisition, combined with an increase in rates.

Total revenues in the third quarter of 2019 increased $0.9 million, or 10.5%, to $9.9 million compared to $9.0 million in the third quarter of 2018. The increase was primarily due to the increase in regulated revenue described above.

Regulated revenues for the nine months ended September 30, 2019 increased $1.9 million, or 7.7%, to $26.7 million compared to $24.8 million in the same period in 2018. This increase was primarily driven by connection growth, including due to the Red Rock acquisition, combined with an increase in rates.

Total revenues for the nine months ended September 30, 2019 decreased $0.5 million, or 1.7%, to $26.8 million, compared to $27.3 million in the same period in 2018. The decrease in revenues was primarily driven by the $2.4 million of infrastructure coordination and financing agreements ("ICFA") revenue recognized during the nine months ended September 30, 2018 that did not reoccur in the nine months ended September 30, 2019. Excluding the ICFA revenue, total revenues increased $1.9 million, or 7.7%, for the nine months ended September 30, 2019. The increase in total revenues was driven by growth in connections inclusive of the 4.2% increase due to the Red Rock acquisition combined with an increase in rates.

Operating Expenses

Operating expenses increased $0.4 million, or 6.3%, to $7.4 million in the third quarter of 2019. The increase was due primarily to increased operations and maintenance expense associated with the Red Rock acquisition, coupled with increased depreciation and amortization expense. The increase in operating expenses was also due to increased general and administrative expenses driven by increased personnel and related expenses, partially offset by a decrease in deferred compensation.

Operating expenses increased $1.0 million, or 5.3%, to $20.8 million for the nine months ended September 30, 2019, compared to $19.7 million for the same period in 2018. The increase was due primarily to increased operations and maintenance expense associated with the Turner and Red Rock acquisitions, contract services and repairs and maintenance, coupled with increased depreciation and amortization expense. The increase in operating expenses was partially offset by a decrease in general and administrative expense. The decrease in general and administrative expense was driven by decreased professional fees, that was partially offset by increases in personnel and related expenses.

Other Expense

Total other expense decreased $75,000, or 6.2% to, $1.1 million in the third quarter of 2019.

Total other expense decreased by $0.7 million, or 23.3%, to $2.4 million for the nine months ended September 30, 2019, compared to $3.2 million for the same period in 2018. The decrease was primarily attributed to the receipt of $1.0 million in March 2019 in connection with the 2013 sale of water management agreements relating to the 7,000-acre territory within a portion of the western planning area of the City of Glendale, Arizona, known as the "Loop 303 Corridor." The decrease was partially offset by a decrease in the Valencia earnout of $0.3 million. The Valencia earnout consists of $3,000 for each new water meter installed within Valencia Water Company’s prior service areas. The decrease in the Valencia earnout was driven by slowed growth in the company's former service territory.

Net Income

Net income increased $0.4 million, or 65.4%, to $1.0 million, or $0.05 per share, in the third quarter of 2019, compared to $0.6 million, or $0.03 per share, in the same period in 2018. The increase was primarily attributed to the increase in operating income, which was primarily driven by the increases in water and wastewater and recycled water services revenue, partially offset by increases in operations and maintenance expenses combined with increases in general and administrative expenses.

Net income decreased $0.7 million, or 22.9%, to $2.5 million, or $0.11 per diluted share, for the nine months ended September 30, 2019, compared to $3.2 million, or $0.16 per basic and diluted share, for the same period in 2018. The decrease was primarily attributed to the decrease in operating income, which was primarily driven by the $2.4 million in ICFA recognized for the nine months ended September 30, 2018 that did not reoccur in the same period of 2019. Excluding ICFA revenue, net income increased $1.7 million. The increase was driven by increases in water, wastewater and recycled water services revenue partially due to the Turner and Red Rock acquisitions, as well as decreased general and administrative expenses.

Adjusted EBITDA

Adjusted EBITDA increased $0.7 million, or 15.8%, to $4.8 million in the third quarter of 2019, compared to $4.1 million for the same period in 2018. The increase was driven by an increase in organic connection growth, the addition of Red Rock customers and higher rates. The improvement was partially offset by a decrease in the Valencia earn out. (See definition of Adjusted EBITDA, a non-GAAP term, and its reconciliation to GAAP, below).

Adjusted EBITDA increased $0.9 million, or 8.0%, to $12.7 million for the nine months ended September 30, 2019, compared to $11.8 million for the same period in 2018. The increase was driven by an increase in organic connection growth, the addition of Turner and Red Rock customers coupled with higher rates. The increase was partially offset by a decrease in the Valencia earn out. (See definition of Adjusted EBITDA, a non-GAAP term, and its reconciliation to GAAP, below).

Dividend Policy
The company declared a monthly cash dividend of $0.023861 per common share (or $0.286332 per share on an annualized basis), which will be payable on November 26, 2019 to holders of record at the close of business on November 12, 2019. The board has also approved to increase the monthly cash dividend to $0.0241 per common share (or $0.2892 per share on an annualized basis), which will be payable on December 30, 2019 to holders of record on December 16, 2019.

Business Outlook
Global Water's near-term growth strategy for its regulated water, wastewater, and recycled water business is driven by increased service connections, continued operating efficiencies, and utility rate increases approved by the Arizona Corporation Commission. The company will also focus more on its original mission of aggregating water and wastewater utilities, allowing the company and its customers to realize the benefits of consolidation, regionalization, and environmental stewardship.

Connection Rates
As of September 30, 2019, active service connections increased by 3,769, or 9.1%, to 45,315, compared to 41,546 at September 30, 2018. The increase in active service connections was primarily due to organic growth in the company's current service areas (2,008 connections, or 4.8%), coupled with the acquisition of Red Rock (1,761 connections, or 4.2%). As of September 30, 2019, the vacancy rate was at 1.0%, down from the peak of 11.9% in February 2009.

Arizona’s Growth Corridor: Positive Population Trends
The Metropolitan Phoenix area is steadily growing due to low-cost housing, excellent weather, large and growing universities, a diverse employment base, and low taxes. The area's population has increased throughout 2017 and 2018, and it continues to grow. The Employment and Population Statistics Department of the State of Arizona predicts that the Phoenix metropolitan area will have a population of 4.9 million by 2020, up 15% from 2016 census estimates, and reach 6.5 million by 2040.

According to the W.P. Carey School of Business Greater Phoenix Blue Chip Real Estate Consensus Panel ("Greater Phoenix Blue Chip"), most sectors of real estate are expected to experience improved occupancy and growth. For Maricopa County and Pinal County combined, the Homebuilders Association of Central Arizona, reported that single family housing permits grew 13% to 22,437 units in 2018. Permits are forecasted by the Greater Phoenix Blue Chip to increase to nearly 24,000 and 25,000 permits in 2019 and 2020, respectively.

The company believes this growth outlook, combined with two additional years of rate increase phase-ins, creates an opportunity to significantly increase active connections and grow revenues.

Conference Call
Global Water Resources will hold a conference call to discuss its third quarter 2019 results tomorrow, followed by a question and answer period.

Date: Thursday, November 7, 2019
Time: 1:00 p.m. Eastern time (10:00 a.m. Pacific time)
Toll-free dial-in number: 1-855-327-6837
International dial-in number: 1-631-891-4304
Conference ID: 10007920

The conference call will be webcast live and available for replay here as well as via a link in the Investors section of the company’s website at www.gwresources.com.

Please call the conference telephone number five minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact CMA at 1-949-432-7566.

A replay of the call will be available after 4:00 p.m. Eastern time on the same day through November 21, 2019.

Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 10007920

About Global Water Resources

Global Water Resources, Inc. is a leading water resource management company that owns and operates 12 utilities which provide water, wastewater, and recycled water services. The company’s service areas are located primarily in growth corridors around metropolitan Phoenix. Global Water recycles nearly 1 billion gallons of water annually.

The company has been recognized for its highly-effective implementation of Total Water Management (TWM), an integrated approach to managing the entire water cycle by owning and operating water, wastewater and recycled water utilities within the same geographic area to maximize the beneficial use of recycled water. TWM conserves water by using the right water for the right use and helps protect water supplies in water-scarce areas experiencing population growth. To learn more, visit www.gwresources.com.

Cautionary Statement Regarding Non-GAAP Measures

This press release contains references to "EBITDA" and Adjusted EBITDA. EBITDA is defined for the purposes of this press release as net income or loss before interest, income taxes, depreciation, and amortization. Adjusted EBITDA is defined as EBITDA excluding the gain or loss related to (i) nonrecurring events; (ii) option expense related to awards made to the board of directors and management; and (iii) equity method investment. Management believes that EBITDA and Adjusted EBITDA are useful supplemental measures of our operating performance and provide our investors meaningful measures of overall corporate performance exclusive of our capital structure and the method and timing of expenditures associated with building and placing our systems. EBITDA is also presented because management believes that it is frequently used by investment analysts, investors, and other interested parties as a measure of financial performance. Adjusted EBITDA is also presented because management believes that it provides our investors measures of our recurring core business. However, EBITDA and Adjusted EBITDA are not recognized measures under accounting principles generally accepted in the United States of America (“GAAP”) and do not have a standardized meaning prescribed by GAAP. Therefore, EBITDA and Adjusted EBITDA may not be comparable to similar measures presented by other issuers. Investors are cautioned that non-GAAP measures, such as EBITDA and Adjusted EBITDA should not be construed as an alternative to net income or loss or other income statement data (which are determined in accordance with GAAP) as an indicator of our performance or as a measure of liquidity and cash flows. Management's method of calculating EBITDA and Adjusted EBITDA may differ materially from the method used by other companies and accordingly, may not be comparable to similarly titled measures used by other companies. A reconciliation of EBITDA and Adjusted EBITDA to net income, the most comparable GAAP measure, is included in the schedules attached to this press release.

Cautionary Note Regarding Forward-Looking Statements

This press release includes certain forward-looking statements which reflect the company's expectations regarding future events. The forward-looking statements involve a number of assumptions, risks, uncertainties, and other factors that could cause actual results to differ materially from those contained in the forward-looking statements. These forward-looking statements include, but are not limited to, statements concerning future net income growth, our strategy, acquisition plans, our dividend policy, trends relating to population growth, active connections, regulated revenue, housing permit projections, and other statements that are not historical facts as well as statements identified by words such as "expects", "anticipates", "intends", "plans", "believes", "seeks", "estimates", or the negative of these terms, or other words of similar meaning. These statements are based on our current beliefs or expectations and are inherently subject to a number of risks, uncertainties, and assumptions, most of which are difficult to predict and many of which are beyond our control. Actual results may differ materially from these expectations due to changes in political, economic, business, market, regulatory, and other factors. Accordingly, investors are cautioned not to place undue reliance on any forward-looking statements, which reflect management’s views as of the date hereof. Factors that may affect future results are disclosed under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our filings with the Securities and Exchange Commission (the "SEC"), which are available at the SEC's website at www.sec.gov. This includes, but is not limited to, our Annual Report on Form 10-K for the year ended December 31, 2018 and subsequent filings with the SEC. We undertake no obligation to publicly update any forward-looking statement, except as required by law, whether as a result of new information, future developments or otherwise.

Company Contact:
Michael J. Liebman
SVP and CFO
Tel (480) 999-5104
mike.liebman@gwresources.com

Investor Relations:
Ron Both, CMA
Tel (949) 432-7566
GWRS@cma.team

GLOBAL WATER RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share and per share amounts)

GLOBAL WATER RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except share and per share amounts)

 GLOBAL WATER RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
(Unaudited, in thousands)

Supplemental disclosure of cash flow information:

A reconciliation of net income to EBITDA and Adjusted EBITDA for the three and nine months ended September 30, 2019 and 2018 is as follows (in thousands):