GWR Global Water Resources Corp. Reports Third Quarter 2015 Results

- Completed Disposition of Valencia -

PHOENIX, AZ, Nov. 12, 2015 /CNW/ - GWR Global Water Resources Corp. (the "Company") (TSX: GWR) (OTCQX: GWGWF) today reported its financial results for the quarter ended September 30, 2015.  See information below regarding today's conference call information.

The Company was established to acquire an equity interest in Global Water Resources, Inc. ("Global Water").  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 and Year-To-Date Highlights

• Completed the disposition of Valencia Water Company, Inc. ("Valencia") to the City of Buckeye for $55 million on closing and an additional $108,000 as a result of a working capital adjustment;
• In conjunction with the disposition of Valencia, paid off MidFirst debt of $21.3 million;
• Issued a special cash dividend of CAD $1.55 per share paid to shareholders on August 12, 2015;
• Increased the monthly dividend to CAD $0.0283 per share (an annualized amount of CAD $0.3396 per Share), marking the third increase since the dividend was initiated in March 2014;
• Excluding impacts of Valencia operations, grew active service connections by 743 to 37,638 as of September 30, 2015, compared with 36,895 as of December 31, 2014. This represents an annualized increase of 2.7%;
• Excluding impacts of the Valencia operations, increased revenues by $618,000 (or 8.7%) to $7.8 million in Q3-2015 compared to $7.1 million Q3-2014. This increase is primarily driven by new rates, organic growth and lower precipitation in Q3-2015 compared to Q3-2014, and;
• Excluding impacts of the Valencia operations, increased Adjusted EBITDA by $700,000 (or 20%) going to $4.1 million in Q3-2015 compared to $3.4 million in Q3-2014.

"We achieved meaningful results in the third quarter of 2015, adding to what has already been a very strong year," said Ron Fleming, President and CEO of Global Water. "The disposition of Valencia and subsequent pay-down of debt, combined with strong top-line growth for the remaining utilities, has increased our margins and improved our cash flows."

"These achievements allowed us to issue a special dividend and an increased recurring monthly dividend," continued Mr. Fleming. "We are committed to our long-term strategy for growth and remain confident that we are well-positioned for positive future results."

Summary of Financial Results

Consolidated Revenues

Consolidated revenues for the three and nine months ended September 30, 2015, were $8.1 million and $24.8 million, respectively, compared to $8.8 million and $24.6 million for the three and nine months ended September 30, 2014.  

Excluding impacts of the Valencia operations, consolidated revenues for the three and nine months ended September 30, 2015, were $7.8 million and $21.6 million, respectively, compared to $7.1 million and $20.2 million for the three and nine months ended September 30, 2014.   

Primary drivers for the increase in revenue (excluding impacts of Valencia operations) are the rate increases, customer growth (2.7% annualized) and lower precipitation in Q3-2015 compared to Q3-2014.

Operating Expenses

Operating expenses for the three and nine months ended September 30, 2015 were $6.1 million and $19.7 million, respectively, compared to $6.8 million and $21.4 million for the three and nine months ended September 30, 2014.  Note that the nine months ended September 30, 2014 amount excludes the $50.7 million one-time gain associated with the regulatory order.  

The $700,000 and $1.7 million decreases in operating expenses for the three and nine month periods, respectively, are primarily attributed to lower Operations and Maintenance costs as a result of the Valencia disposition.

Net Income

Global Water realized a net income of $21.9 million and $21.4 million, respectively, for the three and nine months ended September 30, 2015, compared to a net loss of $26,000 and an income of $65.8 million for the three and nine months ended September 30, 2014.

The net income in the three months ended September 30, 2015 compared to a net loss in the same period last year is primarily attributed to the gain recorded in relation to the Valencia disposition.  The large variance in net income for the nine-month periods is primarily due to the gain on the regulatory order and tax benefit recorded in 2014 offset by the gain on the Valencia disposition in 2015.

EBITDA

EBITDA for the three and nine months ended September 30, 2015 was $47.4 million and $55.3 million, respectively, compared to $4.3 million and $62.6 million for the three and nine months ended September 30, 2014. The change in EBITDA for the three months ended September 30, 2015 was attributed to the $43.4 million gain recorded in relation to the Valencia disposition.

Adjusted EBITDA for the three and nine months ended September 30, 2015 was $4.4 million and $12.3 million, respectively, compared to $4.4 million and $10.4 million for the three and nine months ended September 30, 2014.

Removing impacts of the Valencia operations Adjusted EBITDA increased by $700,000 (or 20%) going to $4.1 million in Q3-2015 compared to $3.4 million in Q3-2014.  This increase is driven by strong top-line growth and effectively managing controllable operating expenses.

Business Outlook

Global Water's growth strategy for its regulated water, wastewater and recycled water business is driven by increased service connections, continued operating efficiencies and utility rate increases approved by the ACC.

Connection Rates

Excluding impacts of Valencia operations, the third quarter of 2015 continued to show positive growth in new connections and re-establishing service on previously vacant homes.  As of September 30, 2015, active service connections increased by 743 to 37,638 as of September 30, 2015, compared with 36,895 as of December 31, 2014. This represents an annualized increase of 2.7%.

The Company's vacancy rate is now at 2.5% after reaching a peak of 11.2% in February of 2009.

Arizona's Growth Corridor: Positive Population Trends

The Metropolitan Phoenix area is steadily growing due to low-cost housing, excellent weather, large and growing universities, a diverse employment base and low taxes. Its population has increased throughout 2014 and into 2015, and it continues to grow.

The Arizona Department of Administration – Office of Employment and Population Statistics ("ADOA-EPS") predicts that Maricopa County will have a population of 4.5 million by 2020. This rate of growth, combined with six more years of rate phase-ins, will create the opportunity for Global Water to meaningfully increase its active connections and regulated revenues for the foreseeable future.

Strategic Initiatives

The Board of Directors has directed management to take steps to advance a series of transactions aimed at, among other things, simplifying the Company's capital structure and improving liquidity. These transactions, subject to all required approvals and final Board approval, would result in a merger of the Company into Global Water, a listing on a US stock exchange, refinancing of outstanding debt and a potential issuance of equity. There can be no assurance that any or all of these transactions will be completed.

Conference Call

Global Water will conduct a conference call on Thursday, November 12, 2015, at 1:00 p.m. EST.  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 58432275. The replay will expire at midnight (EST) on November 26, 2015.  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.

About GWR Global Water Resources Corp.

The Company was incorporated in British Columbia to acquire shares of U.S. based Global Water and to actively participate in the management, business and operations of Global Water through its representation on the board of directors of Global Water and its shared management of Global Water.

About Global Water

Global Water is a pure-play, high-growth water resources company located in Phoenix, Arizona, that owns and operates regulated water, wastewater and recycled water utilities in the metropolitan Phoenix area.

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 a 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 do 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 ended December 31, 2014" 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, 2015 and December 31, 2014 (Unaudited)
			September 30, 2015		December 31, 2014
			(in thousands of US$, except share data)
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents		$                         683		$                         189
	Other current assets		36		18
Total current assets			719		207
Equity method investment			56,696		59,794
TOTAL ASSETS			$                    57,415		$                    60,001
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
	Dividends payable, accounts payable and accrued expenses		$                         293		$                         212
	Due to related party		516		—
	Other noncurrent liabilities		237		155
	Deferred tax liability		927		1,666
Total liabilities			1,973		2,033
COMMITMENTS AND CONTINGENCIES (see Note 9)
SHAREHOLDERS' EQUITY:
	Common stock, unlimited shares authorized, 8,753,948 and 8,754,612 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively		55,669		55,807
	Retained earnings		(227)		2,161
	Total shareholders' equity		55,442		57,968
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY			$                    57,415		$                    60,001

GWR GLOBAL WATER RESOURCES CORP. STATEMENTS OF OPERATIONS For the Three and Nine Months Ended September 30, 2015 and 2014 (Unaudited)
		Three Months Ended  September 30,				Nine Months Ended  September 30,
		2015		2014		2015		2014
		(in thousands of US$, except share and per share data)
GAIN (LOSS) FROM EQUITY INVESTMENT		$      10,520		$           (13)		$      10,274		$      31,628
OPERATING EXPENSES		829		131		1,325		539
OPERATING INCOME (LOSS)		9,691		(144)		8,949		31,089
INCOME (LOSS) BEFORE INCOME TAXES		9,691		(144)		8,949		31,089
INCOME TAX BENEFIT (EXPENSE)		707		(250)		739		(1,776)
NET INCOME (LOSS)		$      10,398		$         (394)		$        9,688		$      29,313
WEIGHTED AVERAGE SHARES:
Basic		8,755,458		8,754,612		8,751,936		8,754,612
Diluted		8,755,472		8,754,612		8,751,948		8,765,026
EARNINGS (LOSS) PER SHARE:
Basic		$          1.19		$        (0.04)		$          1.11		$          3.35
Diluted		$          1.19		$        (0.04)		$          1.11		$          3.34

GLOBAL WATER RESOURCES, INC. CONSOLIDATED BALANCE SHEETS As of September 30, 2015 and December 31, 2014 (Unaudited)
			September 30, 2015		December 31, 2014
ASSETS			(in thousands of US$, except share data)
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment			$                  256,013		$                  318,995
Less accumulated depreciation			(62,402)		(78,571)
Net property, plant and equipment			193,611		240,424
CURRENT ASSETS:
Cash and cash equivalents			16,767		6,577
Accounts receivable – net			1,299		1,365
Due from related party			265		457
Accrued revenue			1,871		1,762
Prepaid expenses and other current assets			1,398		541
Deferred tax assets - current			1,514		1,591
Assets held for sale			2,887		—
Total current assets			26,001		12,293
OTHER ASSETS:
Goodwill			—		13,082
Intangible assets – net			12,772		12,772
Regulatory assets			255		400
Deposits			13		25
Bond service fund and other restricted cash			9,042		9,927
Debt issuance costs - net			2,276		2,722
Equity method investment			938		1,150
Deferred tax assets			—		14,806
Total other assets			25,296		54,884
TOTAL			$                  244,908		$                  307,601
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable			$                      1,356		$                      1,531
Accrued expenses			8,044		6,832
Deferred revenue – current portion			9		13
Customer and meter deposits			1,691		2,601
Long-term debt – current portion			1,883		2,653
Liabilities held for sale			503		—
Total current liabilities			13,486		13,630
NONCURRENT LIABILITIES:
Long-term debt			106,558		127,491
Deferred regulatory gain			19,730		19,730
Regulatory liability			7,859		7,859
Advances in aid of construction			60,070		89,206
Contributions in aid of construction – net			4,473		17,096
Acquisition liability			4,688		4,688
	Deferred income tax liability		5,984		—
Other noncurrent liabilities			209		221
Total noncurrent liabilities			209,571		266,291
Total liabilities			223,057		279,921
Commitments and contingencies (see Note 12)
SHAREHOLDERS' EQUITY (DEFICIT):
	Common stock, $0.01 par value, 1,000,000 shares authorized, 181,449 and 182,050 shares issued and outstanding at September 30, 2015 and December 31, 2014		2		2
Paid in capital			23,417		50,639
Accumulated deficit			(1,568)		(22,961)
	Total shareholders' equity		21,851		27,680
TOTAL			$                  244,908		$                  307,601

GLOBAL WATER RESOURCES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the Three and Nine Months Ended September 30, 2015 and 2014 (Unaudited)
			Three Months Ended  September 30,				Nine Months Ended  September 30,
			2015		2014		2015		2014
			(in thousands of US$)
REVENUES:
	Water services		$          4,131		$          5,087		$        13,138		$        13,831
	Wastewater and recycled water services		3,848		3,584		11,243		10,561
	Unregulated revenues		164		124		466		254
		Total revenues	8,143		8,795		24,847		24,646
OPERATING EXPENSES:
	Operations and maintenance		2,173		2,677		7,319		7,855
	General and administrative		2,020		1,841		5,891		6,610
	Gain on regulatory order		—		—		—		(50,664)
	Depreciation		1,894		2,255		6,526		6,926
		Total operating expenses	6,087		6,773		19,736		(29,273)
OPERATING INCOME			2,056		2,022		5,111		53,919
OTHER INCOME (EXPENSE):
	Interest income		4		23		8		64
	Interest expense		(2,367)		(2,111)		(6,496)		(6,487)
	Other		43,445		23		43,667		1,797
		Total other income (expense)	41,082		(2,065)		37,179		(4,626)
INCOME (LOSS) BEFORE INCOME TAXES			43,138		(43)		42,290		49,293
INCOME TAX BENEFIT (EXPENSE)			(21,233)		17		(20,897)		16,477
NET INCOME (LOSS)			$        21,905		$             (26)		$        21,393		$        65,770

GLOBAL WATER RESOURCES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the Eight Quarters Ended September 30, 2015 (Unaudited)
				2015				2014					2013
REVENUES:				Q3	Q2	Q1		Q4	Q3	Q2	Q1		Q4
	Water services			$    4,131	$    5,114	$    3,893		$    4,245	$    5,087	$    5,127	$    3,617		$    4,223
	Wastewater and recycled water services			3,848	3,793	3,602		3,551	3,584	3,612	3,365		3,498
	Unregulated revenues			164	175	127		117	124	116	14		45
		Total revenues		8,143	9,082	7,622		7,913	8,795	8,855	6,996		7,766
OPERATING EXPENSES:
	Operations and maintenance			2,173	2,675	2,471		2,563	2,677	2,695	2,483		2,460
	General and administrative			2,020	1,807	2,064		2,199	1,841	2,280	2,489		1,671
	Gain on regulatory order			—	—	—		—	—	—	(50,664)		—
	Depreciation			1,894	2,320	2,312		2,279	2,255	2,427	2,244		2,134
		Total operating expenses		6,087	6,802	6,847		7,041	6,773	7,402	(43,448)		6,265
OPERATING INCOME (LOSS)				2,056	2,280	775		872	2,022	1,453	50,444		1,501
OTHER INCOME (EXPENSE):
	Interest income			4	2	2		15	23	22	19		20
	Interest expense			(2,367)	(2,050)	(2,079)		(3,025)	(2,111)	(2,152)	(2,224)		(2,351)
	Other			43,445	363	(141)		781	23	(147)	1,921		978
		Total other income (expense)		41,082	(1,685)	(2,218)		(2,229)	(2,065)	(2,277)	(284)		(1,353)
INCOME (LOSS) BEFORE INCOME TAXES				43,138	595	(1,443)		(1,357)	(43)	(824)	50,160		148
INCOME TAX  BENEFIT (EXPENSE)				(21,233)	(192)	528		518	17	335	16,125		(11)
NET INCOME (LOSS)				$  21,905	$       403	$      (915)		$      (839)	$        (26)	$      (489)	$  66,285		$       137
Adjusted EBITDA ^(1)				4,433	4,723	3,166		3,314	4,367	3,966	2,098		3,767
^(1)Adjustments exclude the gain on Sale of Valencia, loss on assets held for sale, gain on sale of Loop 303 Contracts, loss on equity investment, gain on regulatory order, gain on SNR litigation proceeds and loss on sale of GWM.

   

GLOBAL WATER RESOURCES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three and Nine Months Ended September 30, 2015 and 2014 (Unaudited)
						Three Months Ended  September 30,				Nine Months Ended  September 30,
						2015		2014		2015		2014
						(in thousands of US$)
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income (loss)					$      21,905		$           (26)		$      21,393		$      65,770
		Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Deferred compensation				55		228		498		1,092
		Depreciation				1,893		2,255		6,525		6,926
		Amortization of deferred debt issuance costs and discounts				46		90		158		266
		Write-off of debt issuance costs				282		—		282		—
		Loss on disposal of fixed assets				—		3		—		6
		Gain on sale of Valencia				(43,074)		—		(43,074)		—
		Gain on sale of 303 contracts				—		—		(296)		—
		Loss on equity method investment				112		67		212		473
		Gain on regulatory order				—		—		—		(50,664)
		Other gains and losses				—		—		176		—
		Provision for doubtful accounts receivable				27		12		55		55
		Deferred income tax expense (benefit)				21,201		(17)		20,865		(16,477)
		Changes in assets and liabilities:
			Accounts receivable			262		170		(28)		(85)
			Other current assets			(523)		147		(1,480)		(154)
			Accounts payable and other current liabilities			2,258		2,450		(165)		2,190
			Other noncurrent assets			33		(3)		118		28
			Other noncurrent liabilities			—		(1)		—		2,852
				Net cash provided by operating activities		4,477		5,375		5,239		12,278
CASH FLOWS FROM INVESTING ACTIVITIES:
	Capital expenditures					(1,168)		(388)		(2,177)		(1,054)
	Proceeds from the sale of Valencia					55,198		—		55,198		—
	(Deposits) withdrawals of restricted cash					3		—		(77)		197
	Cash received from the sale of Loop 303 Contracts					—		—		296		—
	Cash advance to related party					(11,638)		—		(12,745)		—
	Repayment of related party cash advance					11,394		—		12,227		—
	Deposits received (refunded)					—		(2)		7		—
				Net cash used in investing activities		53,789		(390)		52,729		(857)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Proceeds withdrawn from bond service fund					1,001		—		1,001		—
	Loan repayments					(21,326)		(5)		(21,719)		(1,007)
	Principal payments under capital leases					(24)		(20)		(72)		(85)
	Debt issuance costs paid					—		(46)		—		(46)
	Advances in aid of construction					138		107		282		301
	Dividends paid					(24,228)		(1,164)		(26,521)		(2,314)
	Share repurchase					(231)		—		(327)		—
	Refunds of advances for construction					(393)		(736)		(422)		(736)
				Net cash used in financing activities		(45,063)		(1,864)		(47,778)		(3,887)
INCREASE IN CASH AND CASH EQUIVALENTS						13,203		3,121		10,190		7,534
CASH AND CASH EQUIVALENTS – Beginning of period						3,564		6,373		6,577		1,960
CASH AND CASH EQUIVALENTS – End of period						$      16,767		$        9,494		$      16,767		$        9,494

SOURCE GWR Global Water Resources Corp.

Laura Scutaru, Investor Relations | NATIONAL Equicom, Tel: [phone], Email: [email protected], www.gwresources.com