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Press release from CNW Group

GWR Global Water Resources Corp. Reports Second Quarter 2013 Results

Tuesday, August 13, 2013

GWR Global Water Resources Corp. Reports Second Quarter 2013 Results

15:30 EDT Tuesday, August 13, 2013

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 (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 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.

For further information:

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

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