GWR Global Water Resources Corp. Reports Third Quarter 2013 Results

PHOENIX, AZ, Nov. 12, 2013 /CNW/ - GWR Global Water Resources Corp. (the "Company") (TSX: GWR) today reported its financial results for the third quarter ended September 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.

Third Quarter 2013 Highlights:

  • Grew active service connections through the third quarter to 42,482 compared with 41,008 at December 31, 2012, representing an annualized growth rate of 4.8% for 2013.
  • Achieved approximately $12.5 million in EBITDA year-to-date within the Regulated Utilities business.
  • Entered into a settlement agreement with the Arizona Corporation Commission ("ACC") Staff and other parties on the rate application filed for the regulated utilities.  Pending final approval in the first quarter of 2014, the Company expects the settlement to result in a collective rate increase of more than $4.3 million phased in over time and the re-establishment of nearly $60 million in rate base and future rate base investments.
  • Sold certain agreements for approximately $4.1 million, resulting in a $2.1 million gain recognized in the third quarter.
  • Obtained a definitive order from the Bankruptcy Court in a litigation matter, which ruled the "cure" amount owed to Global Water totals $5.3 million and is to be paid on or before March 21, 2014.

"Our regulated utilities continue to grow as economic activity and demographics drive development in the metropolitan Phoenix area. We expect further near-term growth due to the availability of lots and existing infrastructure within our service areas," said Trevor Hill, Chairman and CEO of Global Water. "With the sale of FATHOM™ this past June, our increasing active connections base as well as the settlement agreement with staff in the ongoing rate case, we are in a stronger position to realize greater profits and free cash flow for our shareholders."

Summary of Financial Results

Revenues for both the three months ended September 30, 2013 and September 30, 2012 totaled $9.0 million. Revenues for the nine months ended September 30, 2013 totaled $25.7 million compared to $25.1 million for the same period in 2012.

Excluding revenues of the Company's prior FATHOM™ business, which was sold on June 5, 2013, GWRI's revenues totaled $9.0 million and $8.2 million for the three months ended September 30, 2013 and 2012, respectively, and totaled $24.5 million and $23.2 million for the nine months ended September 30, 2013 and 2012, respectively.  The increase reflects the positive impact of growing active service connections for our regulated utilities.

Net income totaled $0.7 million for the three months ended September 30, 2013 compared to a net loss of $0.6 million for the same period in 2012.  For the nine months ended September 30, 2013, the Company's net loss totaled $6.2 million compared to the net loss of $36.7 million for the same period last year. This improvement is due to several factors, but primarily relates to the $32.7 million valuation allowance recorded in June of 2012. Additionally, the elimination of losses generated by the Company's prior FATHOM™ business has also contributed to the Company's performance and the benefits from divesting FATHOM™ will continue in the future.  FATHOM™ losses recorded by GWRI totaled $nil and $1.2 million for the three months ended September 30, 2013 and 2012, respectively. 

EBITDA for the three and nine months ended September 30, 2013 totaled $5.2 million and $8.1 million compared to $4.3 million and $9.5 million for the same period last year. The  increase for the three month period was primarily attributed to the $2.1 million gain on sale of certain contracts recorded in the three months ended September 30, 2013, as well as the elimination of losses generated by FATHOM™, which resulted in a positive impact of over $0.8 million.  Additionally, EBITDA for third quarter of 2012 included $719,000 of nonrecurring interest income received in connection with the NWP arbitration decision.  For additional discussion on the previously reported loss recorded on the sale of FATHOM™ and valuation allowance from 2012, refer to Management's Discussion & Analysis.

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 ACC, the economic regulator. 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 third quarter of 2013 continued the positive growth trend from a combination of new homes built and re-establishing service on previously vacant homes.  As of September 30, 2013, total service connections increased to 44,445.  Total active service connections increased 4.0% to 42,482 as of September 30, 2013 from 40,833 as of September 30, 2012.  Of the 1,474 active connections added this year, 822 were new homes built and 652 were previously vacant homes, representing an annualized growth rate of 4.8%.

During the economic downturn beginning in 2008, the Company experienced an increase in the number of vacant homes in its utility areas, reaching 4,647 vacant connections in February of 2009, a high of 11.2%.  By comparison, the current level of vacant connections is at 1,963, or 4.4% of total service connections; the lowest vacancy rate since April 2008.

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 management believes will result in real estate development and connection growth 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, the City of Maricopa, and others. 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 of the Company's utilities, a collective revenue requirement increase of $4.3 million based on 2011 test year connections, phased-in primarily over two years, 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 or future rate base which we expect will also have the immediate impact of restoring significant 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 to be received 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 Company's utilities will file another rate application before May 31, 2016.  Subsidiaries, Santa Cruz Water Company and Palo Verde Utilities Company, may not file for another rate increase before May 31, 2017. 

In September 2013, hearings were conducted by an ACC Administrative Law Judge ("ALJ"), and subsequently all parties to the proceeding have filed briefs and reply briefs.  The next step is for the ALJ to issue a Recommended Opinion and Order for consideration by the ACC Commissioners. The ALJ may recommend approval of the settlement as written, approval with modifications, or disapproval.  Then, the ACC Commissioners may approve the settlement as written, approve with modifications, or they may disapprove the settlement.  Regardless of reaching a settlement, the overall rate case schedule is not modified and thus it will likely be January 2014 before a final decision is issued.

In October 2013 as part of Sierra Negra Ranch's (SNR) bankruptcy plan of reorganization, the Company entered into a settlement agreement with the land developer who owed the Company certain amounts in connection with infrastructure and financing agreements.   Under the plan and settlement agreement that was approved by the Bankruptcy Court, the Company will receive monies due from SNR totaling $5,321,000, consisting of $2,802,000 of past due ICFA fees, $2,219,000 of interest and $300,000 of reimbursed litigation costs ($1,000,000 in interest payments are due to the Company on our before January 15, 2014, and the remainder is due on or before March 21, 2014).  The resolution of the SNR matter brings to completion all of the Company's litigation.

Now positioned as a pure play water utility and given the operational highlights discussed above, the Board of Directors expects to review its dividend policy during 2014 upon completion of the pending rate case. At that time the Board will consider the Company's cash flow, earnings, working capital requirements, financial position and other relevant factors prior to making a decision.

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

The full financial statements and management's discussion and analysis for the Company and Global Water will be available later today 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, November 12, 2013 at 12:00 p.m. ET.  Interested persons may access the call by dialing (647) 427-7450 or toll free at (888) 231-8191.  Shortly after the conclusion of the call, a replay will be available by dialing (416) 849-0833 or (855) 859-2056.  The passcode is 95008566.  The replay will expire at midnight (ET) on Tuesday, November 26, 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 September 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 September 30, 2013 and December 31, 2012
(Unaudited)
 
    September 30, 2013   December 31, 2012
    (in thousands of US$, except share data)
             
ASSETS            
             
CURRENT ASSETS:            
  Cash and cash equivalents     $ -   $ -
  Other current assets       10           1
    Total current assets      10           1
             
  Equity method investment      30,896     34,852
TOTAL ASSETS    $ 30,906   $ 34,853
             
             
LIABILITIES AND SHAREHOLDERS' EQUITY            
             
LIABILITIES:            
  Accounts payable and accrued expenses    $ 8   32
  Other noncurrent liabilities            58     41
    Total liabilities      66     73
             
             
             
SHAREDHOLDERS' EQUITY:            
  Common stock, unlimited shares authorized,
8,754,612 shares issued and outstanding at
September 30, 2013 and December 31, 2012 
    55,782     55,767
  Accumulated deficit      (24,942)     (20,987)
    Total shareholders' equity      30,840     34,780
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY     $ 30,906   34,853




GWR GLOBAL WATER RESOURCES CORP.
STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2013 and 2012
(Unaudited)
                         
    Three Months Ended September 30,   Nine Months Ended September 30,
    2013   2012   2013   2012
    (in thousands of US$, except share and per share data)
                         
INCOME (LOSS) FROM EQUITY INVESTMENT     $  318   $  (321)    $ (3,694)   $ (17,820)
OPERATING EXPENSES            113           53           261     333
OPERATING INCOME (LOSS)            205     (374)     (3,955)     (18,153)
INCOME (LOSS) BEFORE INCOME TAXES            205     (374)     (3,955)     (18,153)
INCOME TAX EXPENSE (BENEFIT)            -      -           -     -
NET INCOME (LOSS)    $ 205   $ (374)   $ (3,955)   $ (18,153)
                         
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
                         
EARNINGS (LOSS) PER SHARE:                        
  Basic    $ 0.02   $ (0.04)    $ (0.45)   $ (2.07)
  Diluted    $ 0.02   $ (0.04)   $ (0.45)   $ (2.07)




GLOBAL WATER RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
As of September 30, 2013 and December 31, 2012
(Unaudited)
             
    September 30, 2013   December 31, 2012
    (in thousands of US$, except share data)
ASSETS            
             
PROPERTY, PLANT AND EQUIPMENT:            
  Property, plant and equipment    $ 314,918   $ 321,697
    Less accumulated depreciation      (65,615)     (61,461)
      Net property, plant and equipment      249,303     260,236
             
CURRENT ASSETS:            
    Cash and cash equivalents      6,118           3,816
    Accounts receivable - net      1,750           1,926
    Other receivables       54           215
    Due from related party      1,161           -
    Accrued revenue      1,989           1,599
    Prepaid expenses and other current assets        639           1,194
      Total current assets      11,711           8,750
             
OTHER ASSETS:            
    Goodwill      13,082     13,082
    Intangible assets - net      1,545     1,545
    Regulatory assets      400     715
    Deposits      32     43
    Bond service fund and other restricted cash      11,383     11,383
    Debt issuance costs - net      3,538     3,643
    Convertible note      750     -
    Equity method investment      449     -
    Other noncurrent assets      24     -
      Total other assets      31,203      30,411
TOTAL    $ 292,217   $ 299,397
             
LIABILITIES AND EQUITY (DEFICIT)            
             
CURRENT LIABILITIES:            
    Accounts payable    $  2,629   $ 3,676
    Accrued expenses      7,107           4,263
    Deferred revenue - current portion      350           1,000
    Customer and meter deposits      2,542           2,565
    Long-term debt - current portion       3,112           3,203
      Total current liabilities      15,740           14,707
             
NONCURRENT LIABILITIES:            
    Long-term debt      132,659     132,770
    Advances in aid of construction      99,787     100,192
    Contributions in aid of construction - net      70,719     71,879
    Deferred income tax liability      589           589
    Acquisition liability      4,688      4,688
    Other noncurrent liabilities      1,031     1,136
      Total noncurrent liabilities      309,473     311,254
      Total liabilities      325,213     325,961
             
             
             
EQUITY (DEFICIT):            
    Common stock, $0.01 par value, 1,000,000 shares
authorized, 182,050 shares issued and outstanding
at September 30, 2013 and December 31, 2012 
          2           2
    Paid in capital       55,031     55,286
    Accumulated deficit      (88,029)     (81,852)
      Total deficit      (32,996)      (26,564)
TOTAL    $ 292,217   $ 299,397
             

         







GLOBAL WATER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2013 and 2012
(Unaudited)
                         
    Three Months Ended September 30,   Nine Months Ended September 30,
      2013   2012   2013   2012
  (in thousands of US$)
REVENUES:                        
  Water services      $ 5,405   $ 4,863    $ 13,977   $ 13,261
  Wastewater and recycled water services      3,536     3,328     10,331     9,913
  Unregulated revenues      49     829     1,360     1,940
    Total revenues      8,990     9,020     25,668      25,114
                         
OPERATING EXPENSES:                        
  Operations and maintenance      3,043     3,276     9,535       9,132
  General and administrative      2,608     2,178      7,952      7,295
  Depreciation      2,306     2,662     7,667      8,033
    Total operating expenses      7,957     8,116     25,154     24,460
OPERATING INCOME       1,033     904           514     654
                         
OTHER INCOME (EXPENSE):                        
  Interest income      20           1           27      1
  Interest expense      (2,209)     (2,245)     (6,584)      (7,480)
  Other      1,818     723      (129)     771
    Total other income (expense)       (371)     (1,521)     (6,686)     (6,708)
                         
INCOME (LOSS) BEFORE INCOME TAXES      662     (617)     (6,172)     (6,054)
INCOME TAX EXPENSE      (2)     -           (5)     (30,661)
NET INCOME (LOSS)    $ 660    $ (617)   $ (6,177)   $ (36,715)

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

                

      Net Income     EBITDA
             
Amount for the three months ended September 30, 2013     $ 660    $ 5,157
Weighted average number of GWRI shares outstanding
during the three months ended September 30, 2013 
          182,050           182,050
GWRI per share amount     $  3.63    $ 28.33
             
       
      Net Loss     EBITDA
             
Amount for the three months ended September 30, 2012    $ (617)   $ 4,289
Weighted average number of GWRI shares outstanding
during the three months ended September 30, 2012 
          182,050           182,050
GWRI per share amount     $ (3.39)   $ 23.56
             
             

GLOBAL WATER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Eight Quarters Ended September 30, 2013
(Unaudited)
                                       
    2013   2012   2011
      Q3   Q2   Q1     Q4   Q3   Q2   Q1     Q4
REVENUES:                                      
  Water services.     $  5,405 $ 4,973 $ 3,599   $ 4,156 $ 4,863 $ 4,844 $ 3,554   $ 3,815
  Wastewater and recycled water services            3,536         3,482         3,313           3,331         3,328         3,353         3,232           2,903
  Unregulated revenues            49         634         677           937         829         572         539           1,016
    Total revenues            8,990         9,089         7,589           8,424         9,020         8,769         7,325           7,734
                                       
OPERATING EXPENSES:                                      
  Operations and maintenance            3,043         3,338         3,154           2,862         3,276         2,919         2,937           2,767
  General and administrative            2,608         2,535         2,809           2,362         2,178         2,457         2,660           2,238
  Depreciation            2,306         2,664         2,697           2,866         2,662         2,706         2,665           2,738
    Total operating expenses            7,957         8,537         8,660           8,090         8,116         8,082         8,262           7,743
OPERATING INCOME (LOSS)            1,033         552         (1,071)           334         904         687         (937)           (9)
                                       
OTHER INCOME (EXPENSE):                                      
  Interest income            20         6         1           5         1         -         -           -
  Interest expense            (2,209)         (2,136)         (2,239)           (2,085)         (2,245)         (3,005)         (2,230)           (2,194)
  Other            1,818         (1,964)         17           (14)         723         54         (6)           2
    Total other income (expense)            (371)         (4,094)         (2,221)           (2,094)         (1,521)         (2,951)         (2,236)           (2,192)
INCOME (LOSS) BEFORE INCOME TAXES            662         (3,542)         (3,292)           (1,760)         (617)         (2,264)         (3,173)           (2,201)
INCOME TAX (EXPENSE) BENEFIT             (2)         (1)         (2)           (6)         -         (31,885)         1,224           795
NET INCOME (LOSS)    $ 660 $ (3,543) $ (3,294)   $ (1,766) $ (617) $ (34,149) $ (1,949)    $ (1,406)
                                       
LOSS, EXCLUDING GAIN ON SALE OF 303
CONTRACTS, LOSS ON THE SALE OF GWM AND
VALUATION ALLOWANCE 
  $ (1,475) $ (1,609) $ (3,294)   $ (1,073) $ (397) $ (1,394) $ (1,949)   (1,406)

 




GLOBAL WATER RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three and Nine Months Ended September 30, 2013 and 2012
(Unaudited)
                         
    Three Months Ended September 30,   Nine Months Ended September 30,
    2013   2012   2013   2012
    (in thousands of US$)
CASH FLOWS FROM OPERATING ACTIVITIES:                        
  Net income (loss)    $  660   $ (617)    $ (6,177)    $ (36,715)
  Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
                             
    Deferred compensation            425           97           396     362
    Depreciation       2,306     2,662           7,667     8,033
    Amortization of deferred debt issuance costs and discounts            90           81           256           311
    Write-off of debt issuance costs            -           16           -           618
    (Gain) on sale of 303 contracts      (2,135)           -     (2,135)           -
    Loss on disposal of fixed and intangible assets            -           -           2           -
    Loss on disposal of GWM net assets            -           -     1,934           -
    Loss on equity investment            324           -      399           -
    Imputed interest expense on deferred payments
for acquisitions - net of cash paid 
          -           -           -           (463)
    Provision for doubtful accounts receivable            76           41     133           123
    Deferred income tax expense            2           -           5     30,661
    Changes in assets and liabilities - excluding effects of acquisitions:                                               -
      Accounts receivable       216           (89)           (611)           242
      Other current assets      (1,070)      409     (2,826)     (756)
      Accounts payable and other current liabilities      737           1,948           4,322           2,291
      Other noncurrent assets            455           (105)           350           (231)
      Other noncurrent liabilities            (38)           5           (102)           618
        Net cash provided by operating activities       2,048     4,448           3,613           5,094
                         
CASH FLOWS FROM INVESTING ACTIVITIES:                                                
  Capital expenditures       (1,071)     (1,962)     (4,720)     (4,247)
  Proceeds from the disposal of fixed assets            -           -           12           -
  Net cash received from the sale of GWM            -           -     1,771           -
  Initial proceeds received from the sale of 303 contracts      2,000           -           2,000           -
  Withdrawals (deposits) of restricted cash                        8                  (2,645)
  Deposits received (paid)            (1)           -           10           3
        Net cash provided by (used in) investing activities      928     (1,954)           (927)     (6,889)
                                     
CASH FLOWS FROM FINANCING ACTIVITIES:                                                
  Proceeds from bonds            -           -           -     14,000
  Loan borrowings            -           -           -     18,000
  Loan repayments            (1)     (4,289)           (4)      (15,425)
  Principal payments under capital leases            (8)           (22)           (69)      (22)
  Deposit to escrow for debt service            -           -           -     (3,923)
  Redemption from escrow for debt service            -      3,923           -     3,923
  Related-party loan proceeds            -           -           -     8,910
  Related-party loan repayments            -           -           -     (8,910)
  Debt issuance costs paid            -           -      (195)     (1,465)
  Acquisition of utilities - deferred acquisition payments            -           -           -     (11,163)
  Advances in aid of construction            140     224     389     379
  Refunds of advances for construction      (504)     (509)     (505)      (509)
  Contributions in aid of construction under ICFA and other agreements            -     1,473           -           1,921
        Net cash provided by (used in) financing activities      (373)     800     (384)           5,716
INCREASE IN CASH AND CASH EQUIVALENTS      2,603     3,294     2,302           3,921
CASH AND CASH EQUIVALENTS - Beginning of period      3,515     2,860     3,816           2,233
CASH AND CASH EQUIVALENTS - End of period    $ 6,118   $ 6,154   $ 6,118   $ 6,154

  

SOURCE: GWR Global Water Resources Corp.

For further information:

Ross Marshall
Investor Relations
Tel:  416.815.0700 ext. 238
Email:  rmarshall@tmxequicom.com
www.gwresources.com

Organization Profile

GWR Global Water Resources Corp.

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