Consolidated Water(US:CWCO)2023-11-08 16:00PART I - FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's analysis of its financial condition and results of operations Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, income statements, and cash flows, with detailed notes on accounting policies and segment performance Condensed Consolidated Balance Sheets Total assets increased to $211.6 million by September 30, 2023, driven by higher accounts receivable and contract assets, with corresponding increases in liabilities and equity Condensed Consolidated Balance Sheet Highlights (in millions) | Balance Sheet Item | Sep 30, 2023 | Dec 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Total Current Assets | $109.6 | $92.6 | +$17.0 | | Accounts Receivable, net | $38.1 | $27.0 | +$11.1 | | Contract Assets | $9.0 | $2.9 | +$6.1 | | Total Assets | $211.6 | $193.0 | +$18.6 | | Total Current Liabilities | $26.5 | $22.7 | +$3.8 | | Total Liabilities | $28.7 | $25.2 | +$3.5 | | Total Equity | $182.9 | $167.8 | +$15.1 | Condensed Consolidated Statements of Income Q3 2023 revenue nearly doubled to $49.9 million, significantly increasing gross profit and net income attributable to stockholders to $8.6 million or $0.54 per diluted share Q3 2023 vs Q3 2022 Performance | Metric | Q3 2023 (USD) | Q3 2022 (USD) | Change | | :--- | :--- | :--- | :--- | | Revenue | $49,854,075 | $25,051,705 | +99.0% | | Gross Profit | $16,614,428 | $6,843,773 | +142.8% | | Income from Operations | $10,741,938 | $1,236,622 | +768.6% | | Net Income Attributable to Stockholders | $8,605,129 | $317,694 | +2609.2% | | Diluted EPS | $0.54 | $0.02 | +$0.52 | Nine Months 2023 vs 2022 Performance | Metric | Nine Months 2023 (USD) | Nine Months 2022 (USD) | Change | | :--- | :--- | :--- | :--- | | Revenue | $126,960,328 | $65,676,737 | +93.3% | | Gross Profit | $42,637,059 | $21,465,034 | +98.6% | | Income from Operations | $24,749,908 | $6,082,813 | +306.9% | | Net Income Attributable to Stockholders | $19,742,526 | $4,324,395 | +356.5% | | Diluted EPS | $1.24 | $0.28 | +$0.96 | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities decreased to $8.4 million for the nine months ended September 30, 2023, while investing and financing activities used $6.5 million and $4.0 million respectively Cash Flow Summary (Nine Months Ended Sep 30) | Cash Flow Activity | 2023 (USD) | 2022 (USD) | | :--- | :--- | :--- | | Net cash provided by operating activities | $8,395,625 | $15,803,236 | | Net cash used in investing activities | ($6,542,387) | ($416,756) | | Net cash used in financing activities | ($3,972,022) | ($4,977,296) | | Net (decrease) increase in cash | ($2,118,784) | $10,409,184 | Notes to Condensed Consolidated Financial Statements Detailed notes cover principal activities, accounting policies, segment performance, discontinued operations, lease obligations, contingencies, and a subsequent acquisition of Ramey Environmental Compliance, Inc - On January 4, 2023, the company acquired the remaining 39% interest in PERC Water Corporation for $2.4 million cash and approximately $5.36 million in stock, making PERC a wholly-owned subsidiary23 - Unsatisfied performance obligations for long-term contracts totaled approximately $189.3 million as of September 30, 2023, with $28.8 million expected in 2023 and $160.5 million thereafter54 - Subsequent to quarter end, on November 2, 2023, PERC acquired Ramey Environmental Compliance, Inc. (REC) for approximately $4.2 million113 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant increase in revenue and profitability for Q3 and nine months 2023, driven by the services segment, detailing performance across all four business segments, financial condition, liquidity, and key contingencies Results of Operations Q3 2023 revenue increased 99% to $49.9 million, and nine-month revenue grew 93% to $127.0 million, primarily driven by the services segment's construction projects and improved gross profit margin Q3 2023 Revenue by Segment (in millions) | Segment | Q3 2023 Revenue | Q3 2022 Revenue | Change | | :--- | :--- | :--- | :--- | | Retail | $7.2 | $6.3 | +15.0% | | Bulk | $8.5 | $8.7 | -2.1% | | Services | $29.4 | $8.7 | +237.1% | | Manufacturing | $4.7 | $1.4 | +242.6% | | Total | $49.9 | $25.1 | +98.8% | - The services segment's revenue growth was primarily due to a water treatment plant construction contract with Liberty Utilities in Arizona, contributing approximately $20.0 million in Q3 2023 revenue167 - Favorable cost efficiencies from changes in accounting estimates for construction contracts increased the services segment's revenue, gross profit, and income from operations by $1,787,275 for Q3 202316852 Financial Condition The company's financial condition strengthened by September 30, 2023, with accounts receivable increasing by $11.1 million and contract assets growing by $6.1 million, resulting in $83.1 million in working capital - Accounts receivable increased by $11.1 million, primarily due to a $6.9 million rise in CW-Bahamas' receivables and $3.3 million from the Kalaeloa Desalination facility construction in Hawaii197 - Contract assets increased by $6.1 million, mainly from construction progress on the Red Gate plant for the Water Authority-Cayman (WAC)198 Liquidity and Capital Resources The company maintains strong liquidity with $48.8 million in cash and $83.1 million in working capital, though delinquent receivables from WSC in The Bahamas totaling $23.2 million remain a key concern - CW-Bahamas' accounts receivable from the WSC increased to $23.2 million as of September 30, 2023, with approximately 76% of the balance delinquent205103 - No allowance for doubtful accounts has been provided for WSC receivables, based on historical full payment and recent discussions with The Bahamas' Ministry of Finance206207 - The company has an undrawn $10.0 million revolving credit facility available for general working capital purposes214219 Item 3. Quantitative and Qualitative Disclosures about Market Risk No material changes in the company's exposure to market risk were reported from December 31, 2022, through September 30, 2023 - No material changes in market risk exposure were reported for the period233 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting identified - The company's disclosure controls and procedures were deemed effective as of the end of the quarter234 - No material changes in internal control over financial reporting were identified during the quarter235 PART II - OTHER INFORMATION This part provides information on legal proceedings, risk factors, unregistered sales of equity securities, and exhibits Item 1. Legal Proceedings Ongoing litigation related to the discontinued Mexico project involves EWG Water LLC's motion to secure NSC assets, against which NSC obtained a definitive injunction pending a guarantee - EWG Water LLC filed a motion in July 2023 seeking precautionary measures to secure NSC's real estate assets related to the discontinued Rosarito project dispute240 - NSC filed an amparo suit and obtained a definitive injunction to stay precautionary measures, subject to posting a guarantee244245 Item 1A. Risk Factors Significant risks include uncertainty regarding the Cayman Islands retail water license, substantial delays in collecting Bahamas receivables, potential impairment of manufacturing segment assets, and adverse economic impacts on supply chain and contract profitability - The company's exclusive retail license in the Cayman Islands has not been extended since January 2018, and ongoing negotiations could materially reduce operating income and cash flows247249 - CW-Bahamas faces significant delays in collecting $23.2 million in accounts receivable, with 76% delinquent, potentially impacting liquidity and results251 - Future impairment charges are possible for the manufacturing segment's goodwill ($1,985,211) and intangible assets ($684,444) if Aerex's future cash flows fall short of expectations258 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In July 2023, the company issued 5,057 preferred shares to 28 employees for $55,795, exempt from registration under Regulation S and Section 4(a)(2) of the Securities Act - The company issued 5,057 shares of preferred stock to 28 employees in July 2023 for total consideration of $55,795262 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files