Hot Move to Watch: Global Water Resources Inc. (NASDAQ: GWRS)

PHOENIX, November 30, 2019 – Shares of Global Water Resources Inc. (NASDAQ: GWRS) declined -1.13% to $13.10. The stock grabbed the investor’s attention and traded 7.785K shares as compared to its average daily volume of 17.26K shares. The stock’s institutional ownership stands at 31.10%.

In the second quarter of 2019, Global Water Resources, Inc. (GWRS) reported increase in regulated revenues at the rate of $0.70M, or 8.0%, to $9.10M compared to $8.40M for the second quarter of 2018. The increase was primarily driven by growth in connections combined with the Red Rock acquisition.

Total revenues in the second quarter of 2019 decreased $1.70M, or 15.8%, to $9.10M compared to $10.30M in the second quarter of 2018. The decrease was primarily due to the $2.40M in infrastructure coordination and financing agreements (ICFA) revenue recognized in the second quarter of 2018 that did not reoccur in 2019. Excluding the ICFA revenue recognized and the 2018 TCJA full year true-up, total revenues increased $0.50M, or 5.6%, in the second quarter of 2019. The increase in total revenues was driven by growth in connections, partially offset by lower consumption.

Regulated revenues for the six months ended June 30, 2019 increased $1.00M, or 6.1%, to  $16.80M compared to $15.80M in the same period in 2018. This increase was primarily driven by growth in connections combined with the Red Rock acquisition.

Total revenues for the six months ended June 30, 2019 decreased $1.40M, or 7.8%, to $16.80M, compared to $18.30M in the same period in 2018. The decrease in revenues was primarily driven by the $2.40M of ICFA revenue recognized during the six months ended June 30, 2018 that did not reoccur in the six months ended June 30, 2019. Excluding the ICFA revenue, total revenues increased $1.00M, or 6.1%, for the six months ended June 30, 2019. The increase in total revenues was driven by growth in connections, partially offset by lower consumption.

Operating Expenses

Operating expenses increased $0.10M, or 2.1%, in the second quarter of 2019. The increase was due primarily to increased operations and maintenance expense associated with the Turner and Red Rock acquisitions coupled with increased contract expenses. The increase in operating expenses was also due to increased depreciation expense, partially offset by a decrease in deferred compensation.

Operating expenses increased $0.60M, or 4.7%, to $13.40M for the six months ended June 30, 2019, compared to $12.80M for the same period in 2018. The increase was due primarily to increased operations and maintenance expense associated with the Turner and Red Rock acquisitions, contract services and repairs and maintenance, coupled with increased depreciation expense. The increase in operating expenses was partially offset by a decrease in general and administrative expense. The decrease in general and administrative expense was driven by decreased professional fees and contract services, that was partially offset by increases in salary and wages, regulatory expenses and miscellaneous public company costs.

Other Income (Expense)

Total other expense decreased $29.0K, or 2.7% to, $1.10M in the second quarter of 2019.

Total other expense decreased by $0.70M, or 33.6%, to $1.30M for the six months ended June 30, 2019, compared to $2.00M for the same period in 2018. The decrease was primarily attributed to the receipt of $1.00M in March 2019 relating to the 2013 Loop 303 sale of water management agreements relating to the 7.0K-acre territory within a portion of the western planning area of the City of Glendale, Arizona, known as the “Loop 303 Corridor.” The decrease was partially offset by a decrease in the Valencia earnout of $0.30M. The Valencia earnout consists of $3.0K for each new water meter installed within Valencia Water Company’s prior service areas. The decrease in the Valencia earnout was driven by slowed growth in the company’s former service territory.

Net Income

Net income decreased $1.50M, or 65.5%, to $0.80M, or $0.04 per share, in the second quarter of 2019, compared to $2.30M, or $0.11 per share, in the same period in 2018. The decrease was primarily attributed to the decrease in operating income, which was primarily driven by the $2.40M in ICFA revenue recognized in the second quarter of 2018 that did not reoccur in the second quarter of 2019. Excluding ICFA revenue, net income increased $0.90M. This increase was driven by increases in water and wastewater and recycled water services revenue, as well as decreased general and administrative expenses.

Net income decreased $1.10M, or 44.6%, to $1.40M, or $0.07 per share, for the six months ended June 30, 2019, compared to $2.60M, or $0.13 per share, for the same period in 2018. The decrease was primarily attributed to the decrease in operating income, which was primarily driven by the $2.40M in ICFA recognized for the six months ended June 30, 2018 that did not reoccur in the same period of 2019. Excluding ICFA revenue, net income increased $1.20M. The increase was driven by increases in water and wastewater and recycled water services revenue, as well as decreased general and administrative expenses.

Adjusted EBITDA

Adjusted EBITDA increased $0.50M, or 13.7%, to $4.50M in the second quarter of 2019, compared to $4.00M for the same period in 2018. The increase was driven by an increase in organic connection growth, the addition of Red Rock customers and higher rates. The improvement was partially offset by a decrease in the Valencia earn out. (See definition of Adjusted EBITDA, a non-GAAP term, and its reconciliation to GAAP, below).

Adjusted EBITDA increased $0.30M, or 3.8%, to $7.90M for the six months ended June 30, 2019, compared to $7.70M for the same period in 2018. The increase was driven by an increase in organic connection growth, the addition of Red Rock customers and higher rates. The increase was partially offset by a decrease in the Valencia earn out.

GWRS has a market value of $284.14M while its EPS was booked as $0.11 in the last 12 months. The stock has 21.69M shares outstanding. In the profitability analysis, the company has gross profit margin of 95.00% while net profit margin was 6.80%. Beta value of the company was 0.05; beta is used to measure riskiness of the security.

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