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Consolidated Water Co. (CWCO) Misses Q3 EPS by 4c, Revenues Beat

November 12, 2019 8:35 AM

Consolidated Water Co. (NASDAQ: CWCO) reported Q3 EPS of $0.11, $0.04 worse than the analyst estimate of $0.15. Revenue for the quarter came in at $15.9 million versus the consensus estimate of $17.95 million.

Financial Highlights

Management Commentary

"In the third quarter of 2019, we advanced our business in a number of areas; however, our lower financial performance reflects an unusual confluence of factors across our operating segments," commented Consolidated Water CEO, Rick McTaggart. "Our revenue from bulk water is lower due to new rates that came into effect earlier this year in Grand Cayman under new long-term operating and maintenance contracts that we won through competitive bidding processes. While our manufacturing and services revenues were lower, our related pipeline has been expanding. So, we don't see Q3 as indicative of a trend, and we remain on course for a year of strong revenue growth and profitability as demonstrated by our nine-month results.

"Q3 also underscores the importance of further diversifying revenue by adding complementary service and product offerings, as well as expanding our geographic presence and customer base. This effort began with the acquisition of Aerex in 2016. We have since strengthened our executive team and Aerex's capabilities with the addition of a new VP of manufacturing earlier this year who is overseeing the expansion our Aerex operations.

"More recently, we acquired PERC Water, based in Costa Mesa, California, which designs, builds and operates water and wastewater infrastructure projects nationwide with a strong focus on the water-challenged southwestern U.S. PERC Water has won numerous industry awards for innovative design and its efficient project delivery model.

"We view PERC Water as highly-complementary and synergistic to our existing business. PERC Water will expand our product and service offerings to include advanced water and wastewater recycling plants, while providing a platform to expand our core business of designing, constructing and operating desalination plants into water-short regions of the U.S.

"The Southwest's water management challenges in particular have created a growing demand and opportunity for water treatment and reuse projects, with the Pacific coastline providing access to extensive desalination opportunities. Our specialized capabilities, greater access to capital and other important resources will better position PERC Water to take advantage of this fast-growing market.

"Given our specialized manufacturing capabilities and experience related to markets with relatively high barriers to entry, such as those that require unique quality controls and certification, we see the prospects for our manufacturing segment continuing to be favorable. We also fabricate water treatment equipment for a diverse number of industries involved in wastewater treatment infrastructure. So, with the numerous municipal utilities in need of improvements in this area we expect continued growth of this business segment.

"Regarding our Rosarito, Mexico desalination project, we had positive developments earlier this year including congressional authorization, approval of a significant portion of the debt financing for the project, and obtaining additional rights of way. Certain steps remain to be completed by the State of Baja California government before we can begin construction, most notably obtaining the revolving line of credit required for the State's payment trusts for the project.

"The State's project activities have been delayed as of late, in part due to the installation of a new, recently elected administration. However, we expect the State to recommence its project development efforts by the first quarter of 2020, and we are encouraged by the new governor's recent public comments communicating his support for the project. Designed to produce 100 million gallons per day of potable water, the plant is expected to be the largest of its kind in the Western Hemisphere and will provide a much-needed source of drinking water for the coastal region of Baja California for at least 37 years.

"Many other water-scarce areas of the world exist in addition to Mexico. In fact, such areas continue to increase due to the growth in populations and urban expansion. Therefore, we are continuing to explore potential projects where we can support the growth and quality of life in local communities by providing essential fresh water supplies.

"We continue to have ample liquidity on our balance sheet to expand into new markets and diversify our revenue streams. PERC Water exemplifies the high-quality opportunities we will continue to pursue to drive growth and enhance shareholder value over the coming year."

For earnings history and earnings-related data on Consolidated Water Co. (CWCO) click here.

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