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Operator: Good morning. Thank you for joining us today to discuss Consolidated Water Company’s Second Quarter of 2023 Results. Hosting the call today is the Chief Executive Officer of Consolidated Water Company, Rick McTaggart; and the company’s Chief Financial Officer, David Sasnett. Following their remarks, we will open the call to your questions. [Operator Instructions] Before we conclude today’s call, I’ll provide some important cautions regarding the forward-looking statements made by management during the call. I’d like to remind everyone that today’s call is being recorded, and it will be made available for telecom replay per the instructions in yesterday’s press release, which is available in the Investor Relations section of the company’s website. Now I’d like to turn the call over to Consolidated Water Company’s CEO, Rick McTaggart. Sir, please go ahead.

Frederick McTaggart: Thank you, Joe, and good morning, everyone. Thanks for joining us today to discuss our results for the second quarter of 2023. It’s extremely gratifying for me to mark the company’s 50th anniversary this month, by reporting record quarterly revenues and earnings. As you saw in our release issued yesterday, we reported a 110% increase in revenues to $44.2 million with revenue up across all four of our business segments. Our top line results reflect increased activity and output by all of our business segments. Our retail water segment benefited from a 14% increase in the volume of water sold in Grand Cayman. We attribute the sales increase to improved tourist activity on Grand Cayman. As tourism on the island last year was lower than historical levels due to the lingering impact of the pandemic.

Our services segment revenue increased by $19 million in the second quarter was $17.6 million in revenue from our progress on the construction of the $82 million advanced water treatment plant in Goodyear, Arizona that we announced in May of last year. Construction on that project is progressing as planned and we anticipate generating significant additional revenue until it’s construction, commissioning and start-up is completed in mid-2024. PERCs continued strong operating performance, revenue growth and synergies with other areas of our business have significantly improved our top and bottom line. Its strong operational presence in the Southwestern U.S., a region that urgently needs new freshwater sources due to unprecedented drought conditions has positioned us for further growth in this important segment of our business.

In June, we entered into the U.S. desalination market for the first time with a $204 million 20 year contract to design, build, operate and maintain a seawater desalination plant in Oahu, Hawaii. And always secured more than $350 million in major multiyear projects over the last 18 months, which we expect will have a positive impact on earnings over the coming quarters. Now before discussing more about these projects and our outlook for the rest of the year, I’d like to turn the call over to David, who will take us through the financial details for the quarter. David?

David Sasnett: Thanks, Rick, and good morning, everyone. As Rick mentioned, revenue for the second quarter of this year totaled $44.2 million, which is up 110% when compared to the same quarter of last year. This increase was driven by revenue increases of $1 million in our retail segment, $19 million in our services segment and $3 million in our manufacturing segment. Our retail water revenue increased primarily due to a 14% increase in the volume of water we sold during the quarter. Our retail revenue also increased as a result of higher energy cost that increased the energy pass-through component of our water rates. The increase in our services segment revenue was due to an increase in plant design and construction revenue.

As Rick mentioned, we recognized approximately $17.6 million in revenue in the second quarter of 2023 for the construction of the water treatment plant that we’ve discussed previously in Goodyear, Arizona. It’s important to note that our segment results benefited this quarter from a positive variance in actual construction costs for our design build projects. These construction projects are originally estimated that certain level of cost and what we’ve seen over the first year or so of the Liberty Utilities contract and other contracts is that our actual construction costs are coming in a little bit less than our estimates, which allowed us to increase our profit recognition, and we got a nice bump this quarter from the fact that we’re doing better than expected, and I think that’s a tribute to the quality of the people our company that both budget these projects, then actual — actually construct them, and they’ve done a great job at lowering costs from a level that’s a little bit lower than what we thought would incur for these projects.

The revenue generated under our operations and maintenance contracts totaled $3.9 million in the second quarter of this year. That’s up 11% from the $3.5 million we recognized on [indiscernible] contracts in the second quarter of 2022. We had an increase in our manufacturing segment revenue that was due to increased production activity, things have somewhat normalized in the supply chain there, and we’re able to increase the productivity of this segment. We’re not having as many issues obtaining raw materials. We still have some, and there’s still some product delivery delays, but overall I think conditions have improved for our manufacturing segment. Our gross profit for the second quarter of 2023 was $15.5 million, that’s 35% of total revenue.

That’s up 107% from the $7.5 million or 35.5% of total revenue that we recognized in the second quarter of last year. Net income from continuing operations attributable to stockholders for the second quarter 2023 was $7.5 million or $0.47 per diluted share and this compares to net income of $2.7 million or $0.18 per diluted share for the second quarter of 2022. Net income attributable to Consolidated Water stockholders for the second quarter of 2003 (ph), which includes the results of discontinued operations was $7.3 million or $0.46 per fully diluted share. This was up from net income of $2.3 million or $0.15 per fully diluted share for the same period of last year. With respect to our balance sheet and our liquidity, we’re still in excellent financial condition, very little debt.

We have more than ample cash and liquidity. As a matter of fact, cash and cash equivalents totaled $47.7 million as of the end of June of this year. Our working capital was $75.5 million. We had debt of only $300,000 and our stockholders’ equity totaled I think, it’s very impressive, $170.3 million. As of June 30, our projected liquidity requirements for 2003 (ph) include capital expenditures for existing operations of approximately $7.6 million. This includes $600,000 that we expect to incur to replace our West Bay desalination water plant and approximately $4.3 million for construction of the new Red Gate desalination plant on Grand Cayman. We paid approximately $2.6 million in dividends in this — for the first six months of 2023. And of course, our future liquidity requirements may also include any potential future dividends that are declared by our Board.

And with that, I’d like to turn the call back over to Rick.

Frederick McTaggart: Thanks, David. We believe that our second quarter results affirm our growth strategy, which is to focus on the most water stressed areas of the United States and the Caribbean. And provide not only desalination solutions but also advanced wastewater treatment and recycling solutions, such as those provided by PERC in the U.S. Looking at our Caribbean seawater business, the revenue we recognized from the design and construction of the 2.6 million gallon per day Red Gate desalination plant for the Water Authority of the Cayman Islands contributed to the year-over-year increase in services segment revenue. Construction of this project remains on track and is expected to be completed in early to 2024. Cayman Water’s new 1 million-gallon per day West Bay desalination plant, which replaces a 30-year old plant and supplements production capacity for our retail water business in Grand Cayman, is expected to go online next month in time to meet the higher retail water demand that we typically experience in Grand Cayman from mid-December through April of every year.

In July, PERC began providing services under two new contracts in Southern California. The first is with the Department of Defense to operate and maintain wastewater treatment plants at Edwards Air Force Base in Kern County, and this was won through competitive tender. The second is with the City of Avalon to operate and maintain the wastewater system on Catalina Island in California, which includes the wastewater treatment plant, the wastewater collection system and the saltwater flushing supply system in the city. The Edwards Air Force Base contract began on July 1 and continues for one year with four one-year extensions exercisable at the option of the client. We expect PERC’s revenue in the first year of this contract to total about $1.3 million from that contract.

The Catalina Island contract also started on July 1. Will continue for 18 months with extensions exercisable at the city’s option and we estimate PERC’s revenues for first 18 months from that contract will be about $2.1 million. We believe these wins highlight the world-class operational and asset management services that PERC provides and they support our plans to further grow our business in the Western U.S. The engagement at Edwards is our second contract to operate wastewater plants for a military installation and represents another potential growth area for our business. As the Department of Defense continues to focus on improving water security and efficiency. We believe the growth potential is very high for PERC. We are currently pursuing a number of design build and O&M contract opportunities in the Western U.S. as well as new markets.

Looking at our manufacturing business. During the quarter, we saw continued relief from supply chain constraints and challenging economic conditions, allowing us to advance more of our order backlog through the manufacturing and building process. Over the last couple of years, we have diversified our manufacturing customer base in terms of customer concentration and types of products. We believe that this diversification will continue to improve our results and provide greater consistency in future manufacturing segment results. This past quarter, we also saw more business return from our historically largest manufacturing customer business that had been suspended over the past several years. Looking ahead, we expect more consistent results for our manufacturing business, and we see continued growth opportunities with our now much more diversified customer base.

From our beginning, Consolidated Water has pursued a mission to provide state-of-the-art water services to areas of the world where water supply is scarce. Our dedicated team of engineers, builders and operators have long recognized that fresh water is the most precious resource in the world. Today, we produce more than 25 million gallons of potable water daily from our 11 seawater desalination plants, and we operate 27 wastewater treatment facilities. In the second quarter, we expanded our desalination footprint to the United States with the award of the $204 million contract to design, build and operate a seawater desalination plant in Oahu, Hawaii. The plant will be the 24th desalination plant that we have constructed worldwide. As our first desalination plant in the U.S., which is also under our longest term contract, this milestone win represents a significant affirmation of the world-class design, construction and operational services that Consolidated Water provides.

We believe winning this contract was due to our 50 years of experience designing, building and operating some of the world’s most energy-efficient seawater desalination plants. As well as the exceptional project track record that our team was able to demonstrate to our client, the Board of Water Supply in Honolulu. We also believe that this entrance into the U.S. desalination plant market positions us well for other opportunities we are pursuing in the Western U.S. We see opportunities similar to Hawaii to grow our desalination business in the United States, for example, the South Coast, Water District in Dana Point, California. Just last week invited interested parties to qualify to bid for a 15-year design, build, operate and maintain contract for a 5 million gallon per day seawater plant for the district in Dana Point.

On the strategic front, we are presently pursuing two opportunities. If completed, the first would expand PERC’s Water business — PERC Water’s business into a new and rapidly growing market in the Western U.S. Also, we recently formed a partnership for the development and manufacture of membrane process technologies for use in industrial and mining water treatment applications. And we’re currently pursuing opportunities in that sector. Our second quarter results demonstrate how we have effectively applied our financial and management expertise to grow PERC’s business exponentially. We believe that our success with PERC can be replicated with these two potential strategic transactions as well as with other future opportunities. We remain very optimistic about our growth in the future for numerous reasons.

This includes the recovery of tourism in Grand Cayman and our construction projects underway there. And in the U.S. as well as the increased project bidding activity we are seeing in the U.S. We also anticipate at the more than $350 million in major multiyear projects that we secured over the last 18 months. Will have an increasing positive impact on our earnings in future quarters. We believe that our recent activities and successes and the current market trends represent strong drivers for continued growth increasing profitability and further strengthening the shareholder value. Now I’d like to open up the call for questions, Joe.

Operator: We will now begin the question-and-answer session. [Operator Instructions] At this time, we will take our first question, which will come from Gerry Sweeney with ROTH Capital. Please go ahead.

Gerard Sweeney: Good morning, Rick and David. Thanks for taking my call. I got a well a few questions, but I’ll just — I’ll limit it to a couple initially. But on strategic — on the strategic side, you talked about pursuing potential acquisitions. It sounds like and one of them was to strengthen PERC. Is that more of an acquisition to broaden the customer base or is there other technology or other services that, that may bring to the table?

Frederick McTaggart: It’s similar services to PERC, just a broader market — new market in the Western U.S.

Gerard Sweeney: Got it. And staying with PERC, obviously, there’s been a lot of activity. It’s been a great acquisition for you. Could you maybe talk a little bit more what the pipeline looks like? Has it grown on a year-over-year basis and what’s the general activity and sort of RFP activity that’s taking place.

Frederick McTaggart: I mean, without getting into details, I mean, we’re seeing new projects going to bid just about every month now, Gerry, I mean, there’s design build projects for wastewater treatment plants that are out for bid now that we’re pursuing. There’s O&M contracts that are being let either already or major contracts that are coming up in the next few months. There’s the — obviously, the Dana Point project that they just came out with the RFQ, I mean that’s been expected for a number of years. That’s right in PERC’s backyard. So a lot of that work would be certainly the bidding work and that sort of thing would be conducted through PERC. So I — honestly, I think things sort of broke loose after COVID dissipated and there’s a lot of pent-up work in this business in the Western U.S.

Gerard Sweeney: Got you. Yeah, super helpful. And then maybe one or two more quick questions. On the Goodyear project, the $82 million project, it sounds as though you sort of hit a percentage of completion milestone. Can you give us a little bit more detail on how much of that contract still remains — of that $82 million still remains to be, I guess, get build or recognized? And what would be sort of the cadence that would be recognized over the next couple of quarters?

David Sasnett: I’ll take that, Rick. Gerry, we’ve recognize you can summarize exactly how much of the $82 million we’ve recognized. If you go back to last year’s filings, actually the 10-K and then look at what we disclosed the first two quarters of this year, I think we’re at about 40 — a little over 40% of the contract recognized in terms of revenue. The majority of the remaining revenue will be recognized in the third and fourth quarters of this year. It won’t be until mid-next year that we’re totally completed with the project. But most of the revenue — most of the work will be finished in quarters three and four this year. So you should see significant revenue recognition in those quarters, and then the revenue will start to decline in the first and second quarters of next year.

So that’s pretty — and so the — and I mentioned earlier, both with the Liberty Utilities contract and with another construction contract that we have underway, our costs to date have been a little bit less than our estimates. So that’s enabled us to quarter (ph) do a catch-up adjustment. They don’t do a percentage of completion anymore. It’s actually called the input method. But the way it works is if you adjust your estimates and based upon revised estimates you have a cumulative catch-up adjustment. And so we had a bit of adjustment in this quarter. But it’s a positive news because what we’ve seen to date is that we’ve done a really good job of controlling cost. And even in an inflationary environment, where labor is very tight, we’ve managed to hold the cost for these two construction projects at or below our estimates.

So we’re very encouraged by that.

Gerard Sweeney: Yeah. That actually leads to my follow-up question. What was the impact that, I’m assuming — I’m going to use the term, maybe it was a release of contingencies, what was the impact on the profitability — your gross margin third quarter (ph)? [Multiple Speakers]

David Sasnett: Yes, disclosed in our 10-Q, but I believe the number is a little over $1.7 million, about $1.75 million. Incremental gross profit and revenue. It had the impact of about $0.11 on our EPS for this quarter and for the [indiscernible], I believe. So — but even after you factor that out, you’ll see that we had a very solid quarter in our services segment, we performed very well. So that was just an additional benefit. And I want to thank the people constructing our plant and our operations people. They’re doing a very good job on both obtaining bids and controlling costs on those projects.

Gerard Sweeney: Got it. I appreciate it, and I’ll jump back in queue and thanks for giving me the details.

Operator: [Operator Instructions] At this time, this concludes our question-and-answer session. I’d like to now turn the call back over to Mr. McTaggart. Sir, please go ahead.

Frederick McTaggart: Thanks, Joe. So on a final note, I’d like to invite everyone to watch us ring the NASDAQ opening bell on this Monday, the 14th of August, and celebration of our 50th anniversary. As well as our 28th year trading on NASDAQ. We’ll be celebrating how we’ve grown from a small water utility in Grand Cayman to a multinational company with operations across the Continental U.S., Hawaii and the Caribbean. It will be an exciting event for our team who will be joined — who will be joining our Chairman, Will Pergande on the podium as he rings the opening bell. And we just direct you to the press release we issued earlier this week for the webcast information. Thanks, everybody, for dialing in, and I look forward to speaking with you again in November. Joe, please go ahead and wrap up the call.

Operator: Thank you. Ladies and gentlemen, before we conclude today’s call, I would like to provide the company’s safe harbor statement that includes cautions regarding forward-looking statements made during today’s call. The information that we provided in this conference call includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, but not limited to, statements regarding the company’s future revenue, future plans, objectives, expectations and events, assumptions and estimates. Forward-looking statements can be identified by the use of words or phrases usually containing the words believe, estimate, project, intend, expect, should, will or similar expressions.

Statements that are not historical facts are based on the company’s current expectations, beliefs, assumptions, estimates, forecasts and projections for its business and the industry and markets related to its business. Any forward-looking statements made during this conference call are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Actual outcomes and results may differ materially from what is expressed in such forward-looking statements. Factors that would cause or contribute to such differences include, but are not limited to, tourism and weather conditions in areas we serve, the economic, political and social conditions of each country in which we conduct or plan to conduct business.

Our relationships with the government entities and other customers we serve, regulatory matters, including resolution of the negotiations for the renewal of our retail license on Grand Cayman. Our ability to successfully enter new markets and various other risks as detailed in the company’s periodic report filings with the Securities and Exchange Commission. For more information about risks and uncertainties associated with the company’s business, please refer to the management’s discussion and analysis of financial conditions or results of operations and Risk Factors sections of the company’s SEC filings including, but not limited to, its annual report on Form 10-K and quarterly reports for Form 10-Q. Any forward-looking statements made during the conference call speaks as of today’s date.

The company expressly disclaims any obligations or undertaking to update or revise any forward-looking statements made during the conference call to reflect any changes in its expectations with regard thereto or any changes in its events, conditions or circumstances of which any forward-looking statement is based, except as required by law. Before we end today’s conference call, I would now like to remind everyone that this call will be available for replay starting later this evening. Please refer to yesterday’s earnings release for dial-in replay instructions available via the company’s website at www.cwco.com. Thank you for attending today’s presentation. This concludes the conference call. You may now disconnect your lines.