GWR Global Water Resources Corp. Reports Second Quarter 2013 Results

PHOENIX, AZ, Aug. 13, 2013 /CNW/ - GWR Global Water Resources Corp. (the "Company") (TSX: GWR) today reported its financial results for the Second quarter ended June 30, 2013.

The Company was established to acquire an equity interest in Global Water Resources, Inc. ("Global Water" or "GWRI"). Global Water is a U.S., pure-play, water resource management company based in Phoenix, Arizona, that owns and operates water, wastewater and recycled water utilities. The Company accounts for its investment in Global Water using the equity method of accounting; therefore the financial information of Global Water is not consolidated with that of the Company. All references in this press release to consolidated financial information refer to Global Water on a consolidated basis and, unless otherwise indicated, all amounts are in U.S. dollars.

Second Quarter 2013 Highlights:

• Grew active service connections through the second quarter to 42,292 compared with 41,008 at December 31, 2012, representing an annualized growth rate of 6.3% for 2013.
• Achieved year to date EBITDA targets in the Regulated Utilities totaling nearly $7.5M.
• Sold a majority interest in GWRI's unregulated business FATHOM™ Utility-to-Utility (U₂U™) Solutions technology platform.
• Received a conclusive court order in the Sierra Negra Ranch litigation matter setting a definitive payment date of not later than March 21, 2014, for receipt of payment default now in excess of $4.5M subsequent to the quarter close.
• Entered into a settlement agreement with the Arizona Corporation Commission ("ACC") and several interveners on the pending rate application for all GWRI regulated utilities; the settlement would result in a collective rate increase of $4.3M phased in over time, beginning in 2015, and also resulted in the restoration of greater than $60M of GWRI equity subsequent to the quarter close.

Summary of Financial Results

Total consolidated revenues for the three months ended June 30, 2013 totalled $9.1 million compared to $8.8 million for the same period last year. Consolidated revenues for the six months ended June 30, 2013 totalled $16.7 million compared to $16.1 million for the same period in 2012, reflecting the positive impact of increased active service connections for our regulated utilities.

Consolidated revenues also include revenues not subject to regulation of the ACC. Such unregulated revenues primarily relate to the Company's FATHOM™ business which was comprised of recurring operations and nonrecurring activities associated with FATHOM™ implementations. Revenues of the unregulated business totaled $0.6 million for both the three months ended June 30, 2013 and 2012, respectively; and totaled $1.3 million and $1.1 million in the six months ended June 30, 2013 and 2012 respectively. Prior to the sale of GWM on June 5, 2013, the FATHOM™ business represented the majority of unregulated business.

The Company's consolidated net loss was $3.5 million and $6.8 million for the three and six months ended June 30, 2013, respectively, compared to $34.1 million and $36.1 million for the same periods last year. This difference was due to several factors, but primarily relates to the $32.7 million valuation allowance recorded in during the six months ended June 30, 2012.

EBITDA for the three and six months ended June 30, 2013 totalled $1.3 million and $2.9 million compared to $3.4 million and $5.2 million for the same period last year. The decrease was primarily attributed to the loss recorded on the sale of FATHOM™.  For additional discussion on the loss recorded on the sale of FATHOM™ and the previously reported valuation allowance from 2012, refer to Management's Discussion & Analysis.

"The decision to sell FATHOM and focus on our original core business was necessary and appropriate. Our utilities continue to see strong and stable growth, and based on development activity in our services areas we believe this will continue," said Trevor Hill, CEO of Global Water. "Furthermore, we have reached a constructive settlement on our rate proceeding, one that will restore significant equity for our Company and an opportunity to earn a fair return in the coming years."

Business Outlook

Global Water's growth strategy for the regulated business is driven by increased service connections, continued operating efficiencies as well as utility rate increases approved by the economic regulator, the Arizona Corporation Commission (ACC). As previously discussed, population and community growth in the metropolitan Phoenix area served by Global Water's utilities have a direct impact on the Company's earnings.

The second quarter of 2013 continued the trend of positive growth in new connections as well as re-establishing service on existing homes.  As of June 30, 2013, GWRI's total service connections increased to 44,355.  Total active service connections increased 4.4% from 40,503 as of June 30, 2012 to 42,292 as of June 30, 2013.

During the economic downturn beginning in 2008, GWRI's utilities experienced an increase in the number of vacant homes, reaching 4,647 vacant connections as of February 28, 2009, its peak high of 11.2%.  By comparison, the Company's current level of vacant connections is at 2,063, or 4.7% of total service connections; our lowest vacancy rate since the market collapse.  Of the 1,284 active connections added this year, 732 were new connections and 552 were move-ins to previously foreclosed properties.

Based on economic metrics and published analyses of industry experts, the metropolitan Phoenix area is expected to experience strong population and employment growth for the foreseeable future, which will ultimately result in real estate development and further decreasing vacancy rates in Global Water's utility service areas.

With respect to the ongoing rate case proceedings, on August 13, 2013, the Company entered into a settlement agreement with ACC Staff, the Residential Utility Consumers Office, and other interveners. The settlement requires approval by the ACC's Commissioners before it will take effect. The terms of the agreement include, but are not limited to, the following:

• For all Global Utilities, a collective revenue requirement increase of $4.3 million based on 2011 test year connections, phased-in overtime, with the first increase in January 2015.
  
  
• Full reversal of the imputation of Contributions in Aid of Construction (or "CIAC") associated with funds previously received under Infrastructure Coordination and Financing Agreements (or "ICFA"), as required in the Company's last rate case.  The reversal restores approximately $60 million in rate base and future rate base which we expect will also have the immediate impact of restoring shareholder equity on the balance sheet.
  
  
• The Company has agreed to not enter into any new ICFA agreements.  Existing ICFAs will remain in place, but a portion of future payments made under the ICFAs will be considered as Hook-up Fees, which are accounted for as CIAC once expended on plant.
  
  
• A 9.5% return on common equity will be adopted.
  
  
• None of the Global Utilities will file another rate application before May 31, 2016.  If the City of Maricopa joins in the settlement agreement, GWRI's subsidiaries Santa Cruz Water Company and Palo Verde Utilities Company may not file a rate increase before May 31, 2017.
  

A hearing will be conducted by an ACC Administrative Law Judge ("ALJ") and will begin on September 5, 2013.  The ALJ may recommend approval of the settlement as written, approval with modifications, or disapproval.  Ultimately, the ALJ will issue a Recommended Opinion and Order for consideration by the ACC Commissioners. Then, the ACC Commissioners may approve the settlement as written, approve with modifications, or it may disapprove the settlement.  Regardless of reaching a settlement, the overall rate case schedule is not modified and thus it will likely be December 2013 or January 2014 before a final decision is issued.

The settlement agreement is a public document and will be posted on the Company's website and at the ACC's eDocket website http://edocket.azcc.gov/ under the docket number 12-0309.

Despite the significant market interest in FATHOM™, the adoption through contracting was often a lengthy process which is difficult to reliably predict.   Formal contracting of new clients for FATHOM™ had been below expectations and had required significant amounts of capital to fund investments, operations and business development efforts. Notwithstanding the Company's continued belief in the FATHOM™ business and its long term growth opportunities, the Company believed it to be in the best interests of GWRI's core regulated utilities business, as well as of the FATHOM™ business, that FATHOM™ be owned and operated under a separate corporate, financial and management structure.  Thus allowing FATHOM™ to be financed, managed and operated separately from GWRI.

Accordingly, during the three months ended June 30, 2013, GWRI made the decision to divest itself of a majority interest in Global Water Management ("GWM"), which owns the FATHOM™ business.  Effective June 5, 2013, GWRI sold a majority interest in the FATHOM™ business by entering into a Securities Purchase Agreement with a group of investors led by a private equity fund specializing in the water industry.   Pursuant to the Agreement, the Company transferred its ownership interests in GWM to the purchaser; but will retain a minority interest in the FATHOM™ business.  In addition to the cash it received at closing, the Company is also entitled to additional purchase price (earn-out) determined as a percent of the annually recurring revenue from the services provided by the FATHOM™  solution to a maximum of cumulative royalty payments of $15 million, or ten years.

The full financial statements and management's discussion and analysis for the Company and Global Water will be available August 14, 2013 on the Company's SEDAR profile at www.sedar.com or on the Company's website at www.gwresources.com.

Conference Call
Global Water will conduct a conference call on Tuesday, August 13, 2013 at 4:00 p.m. ET.  Interested persons may access the call by dialing [phone] or toll free at [phone].  Shortly after the conclusion of the call, a replay will be available by dialing [phone] or [phone].  The passcode is 22379201.  The replay will expire at midnight (ET) on Tuesday, August 27, 2013.  A copy of the transcript and an audio replay of the conference call, once available, will be archived within the investor section of the Company's web site at www.gwresources.com.

Cautionary Note Regarding Forward-Looking Statements
This press release includes certain forward-looking statements.  These forward looking statements include, but are not limited to our plans, objectives, expectations and intentions, and other statements contained in this release 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 significant uncertainties and changes in circumstances, many of which are beyond our control.  Actual results may differ materially from these expectations due to changes in global political, economic, business, competitive, market and regulatory factors and other factors discussed under the heading "Risk Factors" in the Company's most recent Annual Information Form. 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.

Cautionary Note Regarding Non-GAAP Measures
This press release contains references to "EBITDA".  EBITDA is defined for the purposes of this press release as income or loss from continuing operations before interest expense, income tax expense, depreciation and amortization. Management believes that EBITDA is useful supplemental measure of Global Water's operating performance.   However, EBITDA is not a recognized earnings measure under U.S. GAAP or Canadian GAAP and does not have a standardized meaning prescribed by U.S. GAAP or Canadian GAAP.  Therefore, EBITDA may not be comparable to similar measures presented by other issuers.  EBITDA should not be construed as an alternative to net income or loss.  See "Consolidated Statements of Operations for the eight quarters end June 30, 2013" in the attached schedules for a reconciliation of EBITDA to net income, the nearest comparable U.S, GAAP measure.

GWR GLOBAL WATER RESOURCES CORP.
BALANCE SHEETS
As of June 30, 2013 and December 31, 2012
(Unaudited)
			June 30, 2013			December 31, 2012
			(in thousands of US$, except share data)
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents		$	-		$	-
	Other current assets			20			1
	Total current assets			20			1
	Equity method investment			30,649			34,852
	TOTAL  ASSETS		$	30,669		$	34,853
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
	Accounts payable and accrued expenses		$	24		$	32
	Other noncurrent liabilities			48			41
	Total liabilities			72			73
SHAREHOLDERS' EQUITY:
	Common stock, unlimited shares authorized, 8,754,612 shares issued and  outstanding at June 30, 2013 and December 31, 2012			55,744			55,767
	Accumulated deficit			(25,147)			(20,987)
	Total shareholders' equity			30,597			34,780
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY			$	30,669		$	34,853

GWR GLOBAL WATER RESOURCES CORP.
STATEMENTS OF OPERATIONS
For the Three and Six Months Ended June 30, 2013 and 2012
(Unaudited)
				Three Months Ended June 30,						Six Months Ended June 30,
				2013			2012			2013			2012
				(in thousands of US$, except share and per share data)
LOSS FROM EQUITY INVESTMENT				$	(2,399)		$	(16,448)		$	(4,012)		$	(17,499)
OPERATING EXPENSES					17			156			148			280
OPERATING LOSS					(2,416)			(16,604)			(4,160)			(17,779)
LOSS BEFORE INCOME TAXES					(2,416)			(16,604)			(4,160)			(17,779)
INCOME TAX EXPENSE (BENEFIT)					-			-			-			-
NET LOSS				$	(2,416)		$	(16,604)		$	(4,160)		$	(17,779)
WEIGHTED AVERAGE SHARES:
	Basic				8,754,612			8,754,612			8,754,612			8,754,612
	Diluted				8,754,612			8,754,612			8,754,612			8,754,612
LOSS PER SHARE:
	Basic			$	(0.28)		$	(1.90)		$	(0.48)		$	(2.03)
	Diluted			$	(0.28)		$	(1.90)		$	(0.48)		$	(2.03)

GLOBAL WATER RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
As of June 30, 2013 and December 31, 2012
(Unaudited)
				June 30, 2013			December 31, 2012
				(in thousands of US$, except share data)
ASSETS
PROPERTY, PLANT AND EQUIPMENT:
	Property, plant and equipment		$	314,181		$	321,697
	Less accumulated depreciation			(62,981)			(61,461)
	Net property, plant and equipment			251,200			260,236
CURRENT ASSETS:
	Cash and cash equivalents			3,515			3,816
	Accounts receivable - net			2,041			1,926
	Other receivables			53			215
	Accrued revenue			2,067			1,599
	Prepaid expenses and other current assets			742			1,194
	Total current assets			8,418			8,750
OTHER ASSETS:
	Goodwill			13,082			13,082
	Intangible assets - net			1,545			1,545
	Regulatory assets			853			715
	Deposits			31			43
	Bond service fund and other restricted cash			11,383			11,383
	Debt issuance costs - net			3,643			3,643
	Convertible note			750			-
	Equity method investment			773			-
	Other noncurrent assets			5			-
	Total other assets			32,065			30,411
TOTAL			$	291,683		$	299,397
LIABILITIES AND EQUITY (DEFICIT)
CURRENT LIABILITIES:
	Accounts payable		$	3,274		$	3,676
	Accrued expenses			4,728			4,263
	Deferred revenue - current portion			351			1,000
	Due to related party			1,143			-
	Customer and meter deposits			2,638			2,565
	Long-term debt - current portion			3,107			3,203
	Total current liabilities			15,241			14,707
NONCURRENT LIABILITIES:
	Long-term debt			132,647			132,770
	Advances in aid of construction			100,456			100,192
	Contributions in aid of construction - net			70,987			71,879
	Deferred income tax liability			589			589
	Acquisition liability			4,688			4,688
	Other noncurrent liabilities			680			1,136
	Total noncurrent liabilities			310,047			311,254
	Total liabilities			325,288			325,961
Commitments and contingencies (see Note 10)
EQUITY (DEFICIT):
	Common stock, $0.01 par value, 1,000,000 shares authorized, 182,050 shares issued and  outstanding at June 30, 2013 and December 31, 2012			2			2
	Paid in capital			55,082			55,286
	Accumulated deficit			(88,689)			(81,852)
	Total equity (deficit)			(33,605)			(26,564)
TOTAL			$	291,683		$	299,397

GLOBAL WATER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended June 30, 2013 and 2012
(Unaudited)
				Three Months Ended June 30,						Six Months Ended June 30,
				2013			2012			2013			2012
				(in thousands of US$)
REVENUES:
	Water services			$	4,973		$	4,844		$	8,572		$	8,398
	Wastewater and recycled water services				3,482			3,353			6,795			6,585
	Unregulated revenues				634			572			1,311			1,111
	Total revenues				9,089			8,769			16,678			16,094
OPERATING EXPENSES:
	Operations and maintenance				3,338			2,919			6,492			5,856
	General and administrative				2,535			2,457			5,344			5,117
	Depreciation				2,664			2,706			5,361			5,371
	Total operating expenses				8,537			8,082			17,197			16,344
OPERATING INCOME (LOSS)					552			687			(519)			(250)
OTHER INCOME (EXPENSE):
	Interest income				6			-			7			-
	Interest expense				(2,136)			(3,005)			(4,375)			(5,235)
	Other				(1,964)			54			(1,947)			48
	Total other income (expense)				(4,094)			(2,951)			(6,315)			(5,187)
LOSS BEFORE INCOME TAXES					(3,542)			(2,264)			(6,834)			(5,437)
INCOME TAX EXPENSE					(1)			(31,885)			(3)			(30,661)
NET LOSS				$	(3,543)		$	(34,149)		$	(6,837)		$	(36,098)

Net Loss and EBITDA per Share Information for the Three Months Ended June 30, 2013 and 2012 (amounts in thousands of US dollars, except share data):

			Net Loss			EBITDA
Amount for the three months ended June 30, 2013		$	(3,543)		$	1,252
Weighted average number of GWRI shares outstanding during the three  months ended June 30, 2013			182,050			182,050
GWRI per share amount		$	(19.46)		$	6.88
GWRI per share, excluding loss on sale of GWM		$	(8.84)		$	17.50
			Net Loss			EBITDA
Amount for the three months ended June 30, 2012		$	(34,149)		$	3,447
Weighted average number of GWRI shares outstanding during the three  months ended June 30, 2012			182,050			182,050
GWRI per share amount		$	(187.58)		$	18.93
GWRI per share, excluding the valuation allowance		$	(7.66)		$	18.93

GLOBAL WATER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Eight Quarters Ended June 30, 2013
(Unaudited)
			2013							2012												2011
			Q2			Q1			Q4			Q3			Q2			Q1			Q4			Q3
REVENUES:
	Water services.		$	4,973		$	3,599		$	4,156		$	4,863		$	4,844		$	3,554		$	3,815		$	5,394
	Wastewater and recycled water services			3,482			3,313			3,331			3,328			3,353			3,232			2,903			2,872
	Unregulated revenues			634			677			937			829			572			539			1,016			1,885
	Total revenues			9,089			7,589			8,424			9,020			8,769			7,325			7,734			10,151
OPERATING EXPENSES:
	Operations and maintenance			3,338			3,154			2,862			3,276			2,919			2,937			2,767			3,164
	General and administrative			2,535			2,809			2,362			2,178			2,457			2,660			2,238			2,384
	Depreciation			2,664			2,697			2,866			2,662			2,706			2,665			2,738			2,557
	Total operating expenses			8,537			8,660			8,090			8,116			8,082			8,262			7,743			8,105
OPERATING INCOME (LOSS)				552			(1,071)			334			904			687			(937)			(9)			2,046
OTHER INCOME (EXPENSE):
	Interest income			6			1			5			1			-			-			-			-
	Interest expense			(2,136)			(2,239)			(2,085)			(2,245)			(3,005)			(2,230)			(2,194)			(2,196)
	Other			(1,964)			17			(14)			723			54			(6)			2			(8)
	Total other income (expense)			(4,094)			(2,221)			(2,094)			(1,521)			(2,951)			(2,236)			(2,192)			(2,204)
LOSS BEFORE INCOME TAXES				(3,542)			(3,292)			(1,760)			(617)			(2,264)			(3,173)			(2,201)			(158)
INCOME TAX (EXPENSE) BENEFIT				(1)			(2)			(6)			-			(31,885)			1,224			795			56
NET LOSS			$	(3,543)		$	(3,294)		$	(1,766)		$	(617)		$	(34,149)		$	(1,949)		$	(1,406)		$	(102)
NET LOSS, EXCLUDING LOSS ON THE  SALE OF GWM AND VALUATION  ALLOWANCE			$	(1,609)		$	(3,294)		$	(1,073)		$	(397)		$	(1,394)		$	(1,949)		$	(1,406)		$	(102)
Active service connections at period end				42,292			41,607			41,008			40,833			40,503			40,100			39,731			39,644

GLOBAL WATER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three and Six Months Ended June 30, 2013 and 2012
(Unaudited)
			Three Months Ended June 30,						Six Months Ended June 30,
			2013			2012			2013			2012
			(in thousands of US$)
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net loss		$	(3,543)		$	(34,149)		$	(6,837)		$	(36,098)
	Adjustments to reconcile net loss to net cash provided by (used in)  operating activities:
	Deferred compensation			(163)			146			(29)			265
	Depreciation			2,664			2,706			5,361			5,371
	Amortization of deferred debt issuance costs and discounts			86			173			166			230
	Write-off of debt issuance costs			-			602			-			602
	Loss on disposal of fixed and intangible assets			-			-			2			-
	Loss on disposal of GWM net assets			1,934			-			1,934			-
	Loss on equity investment			75			-			75			-
	Imputed interest expense on deferred payments for acquisitions -  net of cash paid			-			-			-			(463)
	Provision for doubtful accounts receivable			31			41			57			82
	Deferred income tax expense			1			31,885			3			30,661
	Changes in assets and liabilities - excluding effects of acquisitions:
	Accounts receivable			(787)			91			(827)			331
	Other current assets			(924)			(595)			(1,756)			(1,165)
	Accounts payable and other current liabilities			(106)			(1,526)			3,585			343
	Other noncurrent assets			(150)			(67)			(105)			(126)
	Other noncurrent liabilities			(37)			628			(64)			613
	Net cash provided by (used in) operating activities			(919)			(65)			1,565			646
CASH FLOWS FROM INVESTING ACTIVITIES:
	Capital expenditures			(1,269)			(1,429)			(3,649)			(2,285)
	Proceeds from sale of fixed assets			12			-			12			-
	Net cash received from the sale of GWM			1,771			-			1,771			-
Deposits of restricted cash				-			(2,507)			-			(2,653)
Deposits received				7			1			11			3
Net cash provided by (used in) investing activities				521			(3,935)			(1,855)			(4,935)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Proceeds from bonds			-			14,000			-			14,000
	Loan borrowings			-			11,000			-			18,000
	Loan repayments			(2)			(7,063)			(3)			(11,136)
	Principal payments under capital leases			(27)			-			(61)			-
	Deposit to escrow for debt service			-			(3,923)			-			(3,923)
	Related-party loan proceeds			-			-			-			8,910
	Related-party loan repayments			-			(8,910)			-			(8,910)
	Debt issuance costs paid			(195)			(1,323)			(195)			(1,465)
	Acquisition of utilities - deferred acquisition payments			-			-			-			(11,163)
	Advances in aid of construction			120			100			249			155
	Refunds of advances for construction			(1)			-			(1)			-
	Contributions in aid of construction under ICFA and other  agreements			-			418			-			448
	Net cash provided by (used in) financing activities			(105)			4,299			(11)			4,916
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS				(503)			299			(301)			627
CASH AND CASH EQUIVALENTS - Beginning of period				4,018			2,561			3,816			2,233
CASH AND CASH EQUIVALENTS - End of period			$	3,515		$	2,860		$	3,515		$	2,860

 

 

SOURCE: GWR Global Water Resources Corp.

Ross Marshall
Investor Relations
Tel:  [phone] ext. 238
Email:  [email protected]
www.gwresources.com
www.gwfathom.com