Consolidated Water(US:CWCO)2023-05-14 16:00markdown PART I - FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for the three months ended March 31, 2023, compared to the same period in 2022. It includes the balance sheets, statements of income, stockholders' equity, and cash flows, along with comprehensive notes detailing accounting policies, segment performance, discontinued operations, and key contingencies Q1 2023 vs Q1 2022 Consolidated Income Statement Highlights | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Revenue | $32,868,990 | $19,557,905 | | Gross Profit | $10,559,082 | $7,145,764 | | Income from Operations | $4,528,336 | $2,292,105 | | Net Income (to Stockholders) | $3,813,626 | $1,716,815 | | Diluted EPS | $0.24 | $0.11 | Consolidated Balance Sheet Highlights | Metric | March 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $51,104,268 | $50,711,751 | | Total Assets | $201,612,348 | $193,006,849 | | Total Liabilities | $33,189,561 | $25,242,660 | | Total Equity | $168,422,787 | $167,764,189 | - Net cash provided by operating activities increased to **$5.3 million** in Q1 2023 from **$4.6 million** in Q1 2022. Net cash used in investing activities was **$3.8 million**, primarily due to the purchase of the remaining non-controlling interest in PERC for **$2.4 million**[17](index=17&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide detailed explanations of the company's accounting policies and financial data. Key disclosures include the full acquisition of PERC Water Corporation, segment revenue breakdown, the status of the discontinued Mexico project, and significant contingencies related to the Cayman Islands retail license and accounts receivable in The Bahamas - On January 4, 2023, the company purchased the remaining **39%** ownership interest in PERC Water Corporation for **$2.4 million** in cash and approximately **$5.36 million** in company stock, making PERC a wholly-owned subsidiary[21](index=21&type=chunk) Revenue by Source (Three Months Ended March 31) | Revenue Source | 2023 | 2022 | | :--- | :--- | :--- | | Retail revenue | $7,771,095 | $6,313,200 | | Bulk revenue | $9,004,373 | $7,350,644 | | Services revenue | $12,721,701 | $4,743,820 | | Manufacturing revenue | $3,371,821 | $1,150,241 | | **Total revenue** | **$32,868,990** | **$19,557,905** | - The company's discontinued operations in Mexico, related to the terminated Rosarito desalination plant project, resulted in a net loss of **$259,163** for Q1 2023. The company is pursuing arbitration against Mexico for damages[68](index=68&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk) - A significant contingency exists regarding the Cayman Water retail license, which has not been formally extended since January 2018. Ongoing negotiations with the regulator (OfReg) could result in terms that materially reduce operating income[86](index=86&type=chunk)[87](index=87&type=chunk)[88](index=88&type=chunk) - As of March 31, 2023, CW-Bahamas had accounts receivable from the Water and Sewerage Corporation (WSC) of **$16.6 million**, with approximately **65%** being delinquent, posing a liquidity risk[90](index=90&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management provides an analysis of the company's financial performance for Q1 2023, highlighting a **68%** increase in consolidated revenue driven by strong growth across all four business segments. The discussion covers segment-level performance, changes in financial condition, liquidity, capital resources, and material commitments, including the ongoing Cayman retail license negotiations and collection delays in The Bahamas - Consolidated revenue for Q1 2023 increased **68%** to **$32.9 million** from **$19.6 million** in Q1 2022, with growth across all four segments[141](index=141&type=chunk) - Gross profit for Q1 2023 was **$10.6 million** (**32%** margin), up from **$7.1 million** (**37%** margin) in Q1 2022. The margin decrease is attributed to a change in revenue mix[141](index=141&type=chunk) - General and administrative (G&A) expenses rose to **$6.0 million** from **$4.9 million** year-over-year, primarily due to a **$945,571** increase in employee costs from pay raises, new hires, and higher bonus accruals[142](index=142&type=chunk) - As of March 31, 2023, the company had cash and cash equivalents of **$51.1 million** and working capital of **$70.6 million**[166](index=166&type=chunk) [Results by Segment](index=32&type=section&id=Results%20by%20Segment) All four segments reported significant revenue growth in Q1 2023. The Services segment saw the largest increase, driven by a major construction project in Arizona. The Retail segment benefited from increased tourism, while the Bulk segment's revenue grew due to higher energy pass-through costs and volume. The Manufacturing segment recovered strongly as supply chain issues eased - **Retail:** Revenue increased **23%** to **$7.8 million** due to a **20%** rise in water sales volume, reflecting increased tourist activity on Grand Cayman[145](index=145&type=chunk) - **Bulk:** Revenue grew **22%** to **$9.0 million**, driven by higher energy pass-through components in rates and a **9%** increase in water volume sold[148](index=148&type=chunk) - **Services:** Revenue surged **168%** to **$12.7 million**, primarily from PERC's progress on a water treatment plant construction contract with Liberty Utilities in Arizona, which contributed **$6.4 million** in revenue[152](index=152&type=chunk) - **Manufacturing:** Revenue jumped **193%** to **$3.4 million**, reflecting increased production as supply chain conditions and customer demand improved compared to the prior year[156](index=156&type=chunk) [Financial Condition, Liquidity and Capital Resources](index=33&type=section&id=Financial%20Condition%2C%20Liquidity%20and%20Capital%20Resources) The company's financial condition strengthened, with working capital at **$70.6 million**. Key balance sheet changes include increases in accounts receivable, inventory, and contract assets due to heightened project activity. The company projects **$12.0 million** in capital expenditures for the remainder of 2023. A significant liquidity risk remains with CW-Bahamas due to **$16.6 million** in accounts receivable from the WSC, of which **65%** is delinquent - Projected capital expenditures for the rest of 2023 are approximately **$12.0 million**, including funds for replacing the West Bay desalination plant and constructing the new Red Gate plant for WAC[164](index=164&type=chunk) - A revolving credit facility of up to **$10.0 million** with Scotiabank & Trust (Cayman) Ltd. remains available but has not yet been utilized[175](index=175&type=chunk)[180](index=180&type=chunk) - The company paid dividends of **$0.085** per share in January and April 2023[189](index=189&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company states that there have been no material changes in its exposure to market risk between December 31, 2022, and March 31, 2023 - There were no material changes in the company's market risk exposure from the end of the previous fiscal year[192](index=192&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2023. No material changes to internal control over financial reporting were identified during the quarter - Based on an evaluation as of the end of the period, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[193](index=193&type=chunk) - No changes in internal control over financial reporting occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, these controls[194](index=194&type=chunk) PART II - OTHER INFORMATION [Item 1A. Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) This section outlines key business risks, emphasizing the uncertainty surrounding the renewal of the exclusive retail water license in the Cayman Islands, which could significantly reduce future income. Other major risks include substantial delays in collecting receivables in The Bahamas, potential impairment of goodwill in the manufacturing segment (Aerex), and adverse impacts from supply chain disruptions and inflation - The company's exclusive retail license in the Cayman Islands has not been expressly extended since January 2018. Ongoing negotiations with the regulator could lead to a material reduction in operating income and cash flows from these operations[198](index=198&type=chunk)[200](index=200&type=chunk)[201](index=201&type=chunk) - The Bahamas subsidiary (CW-Bahamas) faces significant liquidity risk due to delayed collection of accounts receivable from the WSC, with **$16.6 million** outstanding and **65%** delinquent as of March 31, 2023[202](index=202&type=chunk)[205](index=205&type=chunk) - The services segment's revenue is largely dependent on short-term O&M contracts. For Q1 2023, approximately **8%** of PERC's revenue was from contracts expiring by the end of 2023, posing a risk if not renewed or replaced[206](index=206&type=chunk) - The manufacturing segment's goodwill and intangible assets, valued at **$1.99 million** and **$0.73 million** respectively, are at risk of impairment if the financial performance of Aerex does not meet projections[212](index=212&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=42&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reports that there were no unregistered sales of its equity securities during the first quarter of 2023 - There were no unregistered sales of equity securities during the three months ended March 31, 2023[215](index=215&type=chunk) [Item 6. Exhibits](index=42&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, which primarily consist of the required CEO and CFO certifications under Sarbanes-Oxley and the interactive data files (XBRL) - The exhibits filed with this report include certifications from the Chief Executive Officer and Chief Financial Officer as required by Rule 13a-14(a)/15d-14(a) and Section 1350, along with XBRL data files[216](index=216&type=chunk)