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FINAL TRANSCRIPT March 26, 2014 – 9:00 a.m. E.T. GWR Global Water Resources Corp. Fourth Quarter Results CORPORATE PARTICIPANTS Mike Liebman Global Water Resources, Inc. – Senior Vice President of Finance Trevor Hill GWR Global Water Resources Corp – Chairman Ron Fleming GWR Global Water Resources Corp – President and Chief Operating Officer Cindy Bowers GWR Global Water Resources Corp – Chief Financial Officer "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
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FINAL TRANSCRIPT March 26, 2014 – 9:00 a.m. E.T. GWR Global Water Resources Corp. Fourth Quarter Results PRESENTATION Operator Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the GWR Global Water Resources Corp. 2013 Fourth Quarter conference call. At this time, all participants are in a listen‐
only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press star, zero, for Operator assistance at any time. I’d like to remind everyone that this call is being recorded on Wednesday, March 26, 2014, at 9:00 a.m. Eastern Time. I would now like to turn the conference over to Mike Liebman, Senior Vice President of Finance for Global Water Resources, Inc. Please go ahead. Mike Liebman – Senior Vice President of Finance, Global Water Resources Corp. Thanks. Good morning everyone, and thank you for joining us on today’s call. Yesterday, we issued our 2013 fourth quarter and year‐end financial results by press release and a copy of those results is available on our website at www.gwresources.com. Speaking today are Trevor Hill, Chairman; Ron Fleming, President and Chief Operating Officer; and Cindy Bowers, Chief Financial Officer. Mr. Hill and Mr. Fleming will summarize the key events of the fourth quarter and provide their insight for 2014, followed by Ms. Bowers, who will review our financial results for the fourth quarter and full year of 2013. Then Mr. Hill, Mr. Fleming and Ms. Bowers will be available for questions. Before we begin, I’d like to remind you that certain information presented today may include forward‐looking statements. Such statements reflect the Company’s current expectations, estimates, "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
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FINAL TRANSCRIPT March 26, 2014 – 9:00 a.m. E.T. GWR Global Water Resources Corp. Fourth Quarter Results projections and assumptions. These forward‐looking statements are not guarantees of future performance and they are subject to certain risks which could cause actual performance and financial results to vary materially from those contemplated in the forward‐looking statements. For additional information on these risks, please read the March 25th, 2014, GRW Annual Information Form under the heading ‘Risk Factors.’ Unless otherwise stated, all amounts discussed are in US dollars. GWR Global Water Resources Corp., was formed in 2010 as a Canadian company to hold an equity investment interest in the US‐based company Global Water Resources, Inc. We’ll refer to the US company today as Global Water or the Company. I’ll now turn the call over to Mr. Trevor Hill. Trevor Hill – Chairman, GWR Global Water Resources Corp. Thank you, Mike. Good morning, everyone and thank you for joining us today. First, as a brief introduction, Mike Liebman joined Global Water in October as Senior Vice President of Finance and we’re thrilled to have him as part of the management team. He comes to us with over a decade of finance, restructuring and senior management experience, which complements our executive team and our strategic plan nicely. As many of you know, Ron Fleming, our President and COO, has been with us for over nine years and is also with me today. We were extremely pleased with the progress Global Water made throughout 2013 and to date, in 2014. Today, I would like to briefly reflect on our history and those successes that we believe will continue to restore and generate greater shareholder value. After my remarks, I will turn it over to Ron Fleming. "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
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FINAL TRANSCRIPT March 26, 2014 – 9:00 a.m. E.T. GWR Global Water Resources Corp. Fourth Quarter Results The last five years for Global Water have been challenging and despite the fact that we grew both Global Water and Fathom Enterprises, the stock did not perform as we had hoped. Eighteen months ago I recommended to the Board that we divest of Fathom and put Global on a path to surface near‐term value for our shareholders. This recommendation was primarily driven by the fact that our publicly‐traded water utility peers in the sector all pay healthy dividends and because water utilities are regulated and generate highly predictable and sustainable cash flows, they enjoy high multiples and excellent capitalization rates from the dividends that they pay. In fact, the sector pays an average capitalization rate of less than 3 percent. We believe that by simplifying and focusing the story and making Global more like our peers in the sector, that the value hidden within Global could be readily surfaced. With instituting a strong, reliable dividend as our primary objective, we set about to accomplish many complex strategic objectives. These included the divestiture of Fathom, the sale of other non‐core assets, the settlement and collection of significant funds due through the litigation and, ultimately, the completion of our recent rate case. I’m very pleased to report that every element of our 18‐month strategic initiative is now complete. This rate case not only guarantees that revenue will consistently rise for the next seven years, but because growth has returned to Arizona, our revenue growth will be attractive for many years to come. The rate case also restored over $60 million in rate base and shareholder equity on the balance sheet, which is the engine for rate growth in the future. The combined effect of strong organic growth, coupled with new rates and our stable and predictable costs, give rise to strong and growing cash flows for years to come and because we can grow our utilities within the capacities already constructed, our "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
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FINAL TRANSCRIPT March 26, 2014 – 9:00 a.m. E.T. GWR Global Water Resources Corp. Fourth Quarter Results capital requirements for the foreseeable future will remain very low. It is these factors that provided the opportunity for the implementation of an immediate dividend in the amount of $0.264 per share annually or $0.022 per share per month. The Company now has significant tailwinds and we believe the stock will continue to improve until such time as the inherent value of Global is realized and appropriately reflected in the market. We appreciate the patience and support of our investors over these past many years and look forward to enjoying the benefits of our strategic plan with you in the years to come. I will now turn it over to Ron Fleming. Ron Fleming – President and Chief Operating Officer, GWR Global Water Resources Corp. Thank you, Trevor. Good morning, everyone. We remain pleased with the strong growth in our utilities that have resulted in our highest new connection growth rate and lowest vacancy rate since the market collapsed in 2008. In 2012, we saw a marked increase in building permit activity and our service areas nearly doubling from 2011. This permitting volume increased another 23 percent in 2013. Remember, new home growth in the United States is a function of affordability. Arizona is near the top of the affordability index nationally and is—and this is the driver and is even greater in our largest utilities within the City of Maricopa and the City of Buckeye, where the absolute home values are among the most affordable in the nation. Combined with significant loss in infrastructure availability, there are numerous compelling factors that indicate strong growth will continue or escalate in our service areas. Our utilities have seen steady organic growth now for some time; in fact, continuous since January of 2009. As of December 31st, 2013, Global Water’s total service connections increased to "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
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FINAL TRANSCRIPT March 26, 2014 – 9:00 a.m. E.T. GWR Global Water Resources Corp. Fourth Quarter Results 44,608 and total active service connections increased to 42,726. This represented a 4.2 percent annual growth rate in 2013. Of the 1,718 net active connections added this year, 985 were new homes built and 733 were reconnections of historically vacant homes now reoccupied. This is an—this is notable as it indicates for the first time since 2008 that more connection growth is occurring through new home starts than conversion of previously vacant properties as G‐sressed (phon) home sales returned to historical lows, which would be less than 1 percent. In the Phoenix metro area, in 2012, single family dwelling unit building permit activity began to recover, returning to 11,615 starts from a low of less than 6,800 permits in 2011. We have estimated that 2013 ended with 13,483 permits for single family dwelling units but experts consensus agree that we will see over 19,000 in 2014 and nearly 24,000 in 2015. From there, growth in the region is expected to steadily return to its steady state rate of greater than 30,000 single family dwelling permits per year. Market data suggests that approximately 20 percent of the total available lots in the Phoenix metro area are located within Global’s service territory. This means that if growth continues as projected by the market expert consensus panel, that one in five homes built anywhere in metropolitan Phoenix will be in a Global area. As we communicated previously on August 13th, 2013, the Company entered into a settlement agreement with Arizona Corporation Commission staff, the Residential Utility Consumers Office, the City of Maricopa and others. In February 2014, the rate case proceedings were completed and the agency issued its rate decision effectively approving the settlement agreement in all respects. The rulings of the decision have been disclosed but we want to highlight the following: "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
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FINAL TRANSCRIPT March 26, 2014 – 9:00 a.m. E.T. GWR Global Water Resources Corp. Fourth Quarter Results For all Global utilities, a collective revenue requirement increase of $4.3 million based on 2011 test‐year connections phased in over time, with a first increase in 2015 and a full reversal of the imputation of contributions in aid of construction associated with the funds previously received under infrastructure coordination and financing agreements, as required in the Company’s last rate case. The reversal restores approximately $60 million in rate base and future rate base, which will have the immediate impact of restoring significant equity on our balance sheet. The settlement agreement and the rate decision are public documents and are posted on the Company’s website and at the ACC eDOCKET website. Trevor mentioned our strategy is focused on our core regulated business, the revenue growth of which is driven by increased service connections and new rates and because of our relatively low capital requirements, these factors allow for a strong and sustainable free cash flow from which a healthy, safe and reliable dividend can be paid, with growth potential. I now will ask Cindy to review our fourth quarter and full year 2013 results. Cindy Bowers – Chief Financial Officer, GWR Global Water Resources Corp. Great. Good morning, everyone. Our discussion today refers to the consolidated financial information of the US company, Global Water, since the financial information of the US company is not consolidated with the public Canadian company. As a reminder, unless otherwise stated, all amounts discussed are in US dollars. Consolidated revenues for the three months ended December 31, 2013, totaled $7.8 million compared with $8.4 million for the same quarter in 2012. Revenues for the year ended December 31, "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
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FINAL TRANSCRIPT March 26, 2014 – 9:00 a.m. E.T. GWR Global Water Resources Corp. Fourth Quarter Results 2013, totaled $33.4 million compared to $33.5 million for 2012. The decrease reflects the absence of revenue, post the sale of Fathom, partially offset by the positive impact of increased active service connections for our regulated utilities. EBITDA increased 45 percent to $4.6 million for the three months ended December 31, 2013, compared to the same quarter in 2012, while remaining fairly flat for the year at $12.7 million. Net income increased $1.9 million to $0.1 million for the three months ended December 31st, 2013, compared to a net loss of $1.8 million for the same period in 2012. For the year ended December 31, 2013, the Company’s net loss totaled $6 million compared to the net loss of $38.5 million for 2012. This improvement is due to several factors but primarily relate to the $32.7 million valuation allowance recorded in June of 2012. As Ron mentioned, a critical achievement of the rate case settlement was to restore rate base and equity to our balance sheet. You’ll remember the large regulatory write‐down we took in 2010 based on the last rate case. The Commission promised to revisit the use of funds previously recorded as revenue and adjust appropriately if we could demonstrate the funds were not used to build rate base. We’re pleased the Commission reached a definitive decision that will allow us to restore equity, rate base and future rate base of the Company by over $60 million. I’ll now pass the call back to Trevor. Trevor Hill – Chairman, GWR Global Water Resources Corp. "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
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FINAL TRANSCRIPT March 26, 2014 – 9:00 a.m. E.T. GWR Global Water Resources Corp. Fourth Quarter Results Thank you, Cindy. So as is clearly evident, the strategic plan we launched 18 months ago to surface near‐term shareholder value has been very successful. Today, Global Water is a rapidly growing water utility that generates predictable and sustainable cash flows. Driven by organic growth and new rates, the investment offers a growth trajectory well above industry average without the need for material capital expenditure typically associated with water utilities. These achievements open the door for a stable and growing dividend in the years to come. Once again, thank you all for your continued support and interest in Global Water. Well, that concludes our prepared remarks and we’d be happy to answer any questions you may have. I’ll now turn it back to the Operator. Q & A Operator At this time, if you’d like to ask a question, please press star, one, on your telephone keypad. We’ll pause for just a moment to compile the roster. Your first question comes from Michael Mills from Beacon Securities. Your line is open. Michael Mills – Analyst, Beacon Securities Good morning, guys. Cindy Bowers – Chief Financial Officer, GWR Global Water Resources Corp. "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
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FINAL TRANSCRIPT March 26, 2014 – 9:00 a.m. E.T. GWR Global Water Resources Corp. Fourth Quarter Results Hi, Mike. Michael Mills – Analyst, Beacon Securities Just, I guess, maybe starting with the dividend. In terms of, you know, how the Board looked at the dividend payout amount, what’s the positioning in terms of the long‐term growth opportunity, I guess, with the dividend? Is this kind of something that you hope to grow over the coming years as both connection and price comes in? Trevor Hill – Chairman, GWR Global Water Resources Corp. Good morning, Mike. It’s Trevor. You know, here’s the way the Board looked it and I think this is indicative of the enviable position we’re in. We’re generated a fair amount of cash right now and into the quarter with a fairly robust cash position on the balance sheet. Because our capital requirements are very low right now and we have clear visibility into revenue increases that generate even more cash in the future, I think the thinking of the Board was to we start at a robust number, which we announced this morning, but try to increase that dividend at every opportunity providing, of course, that it’s absolutely sustainable in the future. So, this is a starting point; I think it represents a healthy position. It’s completely sustainable at this rate and should growth accelerate even further than we anticipate or things heat up even further in Arizona, you can be sure that the Board’s view is to reflect that in the dividend that we’re paying. Michael Mills – Analyst, Beacon Securities "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
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FINAL TRANSCRIPT March 26, 2014 – 9:00 a.m. E.T. GWR Global Water Resources Corp. Fourth Quarter Results Okay, that’s helpful. Cindy, perhaps to you. In terms of, you know, the Company, I guess, is going to bear the risk of the currency in terms of the dividend. I’m wondering if you’re planning on hedging this small amount or what the plan is there. Cindy Bowers – Chief Financial Officer, GWR Global Water Resources Corp. Yes, great question. We definitely are going to bear the risk at the US company level, and we are looking at hedging, but I think quite a bit about the term and we’ll just continue to look at the exchange rate between the two, you know, countries to make that decision. Michael Mills – Analyst, Beacon Securities Okay and so, you’ve obviously modeled it out, you know, even if… Cindy Bowers – Chief Financial Officer, GWR Global Water Resources Corp. We definitely have. Michael Mills – Analyst, Beacon Securities Yes, even if the, I guess, Canadian dollar continues to weaken and the consequence there. I guess moving on; in terms of 2014, looking at the income statement, I wonder if there’s—beyond, I guess, the SNR settlement which will be reflected in Q1, if there’s going to be any other unusual items that might appear on the income statement in 2014? Ron Fleming – President and Chief Operating Officer, GWR Global Water Resources Corp. "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
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FINAL TRANSCRIPT March 26, 2014 – 9:00 a.m. E.T. GWR Global Water Resources Corp. Fourth Quarter Results Well, there’s no—there’s a couple of things that are outside the norm that could potentially be upside surprises, Mike. One is that it’s possible to receive new ICFA money. As you know, the rate ruling made both historic but also prospective ruling on how that money should be dealt with. So initially, we had treated all as revenue. Then during the pendency of this last rate case, we treated it all as a contribution. Going forward, 30 percent approximately of those fees comes in as a form of revenue and so it’s possible we could see some of those contracts materialize this year, and if so, you’ll see another income line item that is reflective of those contracts coming due. The other piece is that there are still some outstanding sums due from the 303 disposal and those are somewhat time‐based and somewhat based on performance of certain development activities, but I can say that that 303 area is a robust growing area. It’s called 303 because that’s the new highway corridor that’s being put in that’s proceeding. It’s not—it wasn’t stalled as a function of the economic downturn and so the rush to develop that area and the reason we did that deal with our colleagues at EPCOR was they already had the water service area there and they were working to supply services to that growth corridor; commercial growth corridor. So, we do expect that there’s potential to see some incremental revenue to complete that deal sometime this year. Michael Mills – Analyst, Beacon Securities Okay, and that’s helpful. Then just moving, I guess, maybe back to the debt side of things. I know on the last conference call, you—I guess you touched upon the possibility of refinancing, or looking at refinancing some of the debt. I’m just wondering if there’s, you know, significant restrictions or penalties around refinancing some of those bond series. You know, I look at that 7.5 percent coupon "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
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FINAL TRANSCRIPT March 26, 2014 – 9:00 a.m. E.T. GWR Global Water Resources Corp. Fourth Quarter Results on $23 million or $24 million as a kind of prime candidate for refinancing. Maybe just an update there, please. Ron Fleming – President and Chief Operating Officer, GWR Global Water Resources Corp. Sure. So, that particular element of our long‐term bond debt was put together – we actually closed that in October of 2008 – so as you can imagine, we were pretty delighted at that time to get that deal done. In retrospect, in looking back, it sure does look like a high rate to us as well. So, there’s been a constant focus from our perspective on seeing if we can rationalize and consolidate our debt. Obviously, that and making our structure easier to understand are the two strategic elements that remain for the team going forward into 2014. We have a renewed interest in looking at that from a variety of different perspectives. Whether we can restructure those bond notes or refinance them or consolidate our debt, take advantage of today’s low interest rates is top of our priority list post 1st of April of this year. As you can imagine, in the clarity that the rate case brings, that process becomes much easier and so we’ve made the decision to get the list of things that I rattled off this morning done. To this point—and that gives us a great platform now to give consideration to how we can improve not only the structure of that debt but the rate, as well. The beauty of Global is the assets are new and there’s lots of opportunity to have long‐term debt that’s more aligned with the life of the assets and so we agree with you and that will be top of our list starting next week. Michael Mills – Analyst, Beacon Securities Okay, that’s great. Maybe just one final one and it might be a bit silly, but in terms of when you’re, you know, connecting to a vacant house or a house that used to be connected, or reconnecting "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
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FINAL TRANSCRIPT March 26, 2014 – 9:00 a.m. E.T. GWR Global Water Resources Corp. Fourth Quarter Results to versus a new build, is there any difference in the cost to you or the, I guess, the margin back to you from that service connection? Is there any difference? Ron Fleming – President and Chief Operating Officer, GWR Global Water Resources Corp. There really is no difference for us. These historically vacant homes or foreclosed homes, they basically stopped paying and in the case of some homes in Arizona, the residents simply left. So, when that new connection becomes active, it’s generally the—either the realtor or the new resident applies for new service and that service, with a small fee, is just simply turned back on and we start billing them. Michael Mills – Analyst, Beacon Securities Right. Ron Fleming – President and Chief Operating Officer, GWR Global Water Resources Corp. In the case of new connections, in many cases, the developers will buy a meter from us, but the infrastructure’s all there and they’re—as we’ve tried to point out in our comments, that one of the underlying values of Global is that the capacity in our plants and the capacity in our lines and the underlying water rights and the infrastructure to support at least twice as many connections as we have today is already in place and built and fully operational, permitted in every respect. So, to add another house to that infrastructure is simply a matter of putting a meter on the stub to the house and turning that service on and both come as fully incremental revenue with really no incremental cost associated with them. Michael Mills – Analyst, Beacon Securities "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
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FINAL TRANSCRIPT March 26, 2014 – 9:00 a.m. E.T. GWR Global Water Resources Corp. Fourth Quarter Results Appreciate the explanation, thanks. Operator Your next question comes from Khurram Malik from Jacob Securities. Your line is open. Khurram Malik – Analyst, Jacob Securities Thank you. Good morning and again, congratulations on the dividend and a good quarter. Most of my questions have been answered. I guess the one that remains is, if you could just give us a little more flavour for, you know, some of the—let’s call—I would call it the quick growth prospects that are left in your active service areas. For example, what is the amount of homes that are either vacant right now in your service areas that either were previously occupied or have been built more recently but haven’t been occupied yet versus the potential where a developer has to build a house or some additional infrastructure, where you have to wait for something to happen before they can be switched on? Just trying to get an idea of, you know, how much of it—if people return to the area, you can quickly turn these connections on versus having to wait two or three additional steps such as building out additional roads and houses and other infrastructure before someone can return to a house. Trevor Hill – Chairman, GWR Global Water Resources Corp. While the team’s digging up the actual numbers for you, Khurram, I’ll give you a sense for it. In January of 2009, we hit a high watermark on foreclosed or vacant homes of about 11 percent on a base of about 40,000 service connections approximately. That number is down to about 4.2 percent or approximately 25 percent of what it was at the peak and represents something around 1,800 service "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
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FINAL TRANSCRIPT March 26, 2014 – 9:00 a.m. E.T. GWR Global Water Resources Corp. Fourth Quarter Results connections remaining or something less than a thousand homes. So, cut down by 75 percent, couple of thousand, little less than a few thousand service connections to—remain to be connected that are homes that are currently this (phon). Khurram Malik – Analyst, Jacob Securities Were any of those numbers, I guess, more targeted numbers—could you try to give us an idea about—you know, we’ve talked about in the past about maybe 2014 and 2015 will look like in terms of your areas of focus of growth organically, obviously around your—your areas around the Phoenix metropolitan area. What’s the long‐term plan now as you’ve sort of restructured and re‐jigged operations and refocused for the utilities if they stay standalone? You know, we’re talking 2016 onwards. Is it—is the goal to primarily remain Arizona‐specific or potentially look for things beyond the borders? Trevor Hill – Chairman, GWR Global Water Resources Corp. Well, I like to think of this way, Khurram, the—and it’s a great question and one we often get asked. Job one is to surface the value in the stock that reflects our current operations. We built a lot of capacity. We’ve worked hard over the last several years to bring that value back to the shareholders and that’s what we’re doing right now. The Company’s growing organically nicely and we have this rate case behind us; we still don’t think the stock price reflects the fair value of the Company. So, that’s our focus but once the—once we’re at the IPO price or higher, we have a currency again, obviously, we’ve been highly acquisitive in the past and there are still many utilities in the US that could potentially be acquired. "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
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FINAL TRANSCRIPT March 26, 2014 – 9:00 a.m. E.T. GWR Global Water Resources Corp. Fourth Quarter Results So, while we don’t have any current plans to get on the—on a buying spree again any time in the near term, certainly, with a platform like Global and the team that we’ve assembled and the experience we have in acquiring utilities and the accretiveness that we’ve been able to historically generate from acquiring utilities, it’s obviously in the backs of our minds. But job one is create a nice sustainable, hopefully growing dividend for our shareholders, get us a currency back and once we’re north of the IPO price, we have a lot of options to continue to grow the business. Khurram Malik – Analyst, Jacob Securities Okay. That’s useful. Thank you, and that’s pretty much all I had. Operator Your next question comes from Keith Farrant from Claret Asset Management. Your line is now open. Keith Farrant – Analyst, Claret Asset Management Good morning. Trevor Hill – Chairman, GWR Global Water Resources Corp. Hi, Keith. Keith Farrant – Analyst, Claret Asset Management Again, congratulations on actually doing what you said you’d do about the dividend. We’re happy with the progress here. My question, maybe a little follow through on just the previous one. You "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
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FINAL TRANSCRIPT March 26, 2014 – 9:00 a.m. E.T. GWR Global Water Resources Corp. Fourth Quarter Results were talking about your primary goal, which of course, is to—would be to surface the value. That makes perfect sense. I would just—I’ll tell you what my concern is, is I think I’ve mentioned it before; it’s the current structure of the firm and never mind if you wanted to perhaps grow and acquire and all that, but what about if we were, once the value was surfaced—I mean, these are great assets. What if—what about a takeover? How would we, on the corp side, be protected? Would we receive the same, let’s say, price as the US entity, because they could, in actual fact, just take out the US entity and leave us hanging? Trevor Hill – Chairman, GWR Global Water Resources Corp. Yes, okay. So a couple of questions there. First of all, the way the thing is structured right now, and you need to read the agreements just to see this, but I can tell you that you can’t—from a third party or a takeover perspective, a third party cannot buy the private side of this business without first offering that same bona fide bid to the public entity, GWRC, which is the publicly‐traded entity. So, the entity that you have a material holding in, Keith, is—has a first right of refusal on that. Keith Farrant – Analyst, Claret Asset Management Okay, perfect. Trevor Hill – Chairman, GWR Global Water Resources Corp. Okay? So, we structured it that way even though it’s a 48 percent interest because of that very issue, so... Keith Farrant – Analyst, Claret Asset Management "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
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FINAL TRANSCRIPT March 26, 2014 – 9:00 a.m. E.T. GWR Global Water Resources Corp. Fourth Quarter Results That’s nice to know, thank you. My last question actually is perhaps just an update on Fathom. We do have some interest there and I’m just curious to see how that side of the business is going? Trevor Hill – Chairman, GWR Global Water Resources Corp. Well, I think, you know, I think in time it’ll be demonstrated that the separation of Fathom will be both good for Global and good for Fathom. I think that having them together was confusing for the market and difficult to appreciate the sum of the parts valuation from an investor perspective. I think that that led to a little bit of negativity around the stock but I’m happy to report that because Fathom is independent now and appropriately financed by the right kinds of investors and we were able to put some cash on the balance sheet with investors who appreciate the fact that these companies burn a little bit of cash to generate the recurring revenues that they do, I think Fathom has had a good run since it separated and I think 2014 looks quite strong, as well. So, I think Global will be pleased with its staking in Fathom and we continue to be able to attract new investment to that business and grow it robustly now that it’s separated from Global. So, I think that’ll be a good news story, Keith. Keith Farrant – Analyst, Claret Asset Management Perfect. Yes, I believe so, as well. Okay, great. I appreciate your answers. Thank you. Operator At this time, if you do wish to ask a question, please press star, one, on your telephone keypad. Your next question comes from Jeremy Hellman from Avenue T Fund. Your line is now open. "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
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FINAL TRANSCRIPT March 26, 2014 – 9:00 a.m. E.T. GWR Global Water Resources Corp. Fourth Quarter Results Jeremy Hellman – Analyst, Avenue T Fund Hello, good morning, everybody. Cindy Bowers – Chief Financial Officer, GWR Global Water Resources Corp. Hi there. Jeremy Hellman – Analyst, Avenue T Fund Hey, Trevor, Cindy, thanks. I just want to say, you know, job well done. As you noted, Trevor, you guys laid out a lot of goals and you guys, I think, have ticked them off really well. Just looking forward as I try to think about what the risk points could be, I’ve just started thinking, you know, bigger picture in terms of regional water supply and just, can you give me some perspective on what requirements you might have in terms of adequate water supply, where you are relative to that, any risks within that kind of line of thought? Trevor Hill – Chairman, GWR Global Water Resources Corp. Yes, sure. Good morning, Jeremy. It’s Trevor. It’s a great question. The southwest has been in the news, as you know, on water supply and Arizona, as people may not appreciate, is in a very enviable position from a water perspective. We have a disproportionately good share of the Colorado River, as you know, and we’ve been recharging our aquifers for some years in Arizona. Now, as it relates to Global specifically, as we—the plan in Global in the early days was to work to acquire large surface territories and then underpin them through partnerships with cities and, ultimately, do the water underwriting that supports the homes that would ultimately be in these areas and do it on a per capita usage basis "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
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FINAL TRANSCRIPT March 26, 2014 – 9:00 a.m. E.T. GWR Global Water Resources Corp. Fourth Quarter Results through our total water management program that reduced that capacity and demand. Over the years, we’ve tied up very, very considerable water resources for Global, so underpinning our service territories lays something like 80,000‐acre feet of water rights that we proved up and will inure to the benefit of our service territories which, under our model, represents about 400,000 homes. So, that’s already in place for Global in a perpetual way and it doesn’t show up on the balance sheet anywhere, Jeremy. It’s hard to find it in our MD&A. It’s hard to attribute value to it, but that’s a significantly valuable asset that Global has and so you can imagine that, right now, we have, you know, 45,000‐odd service connections and 25,000 homes and we’ve got water for 400,000 homes. So, from a water rights and, you know, depletion of our inventories in Global, we’re something under 10 percent consumed on that basis. So, we’re in—Arizona’s in good shape; Global’s in great shape from a water rights perspective. No risk on the horizon for us. Jeremy Hellman – Analyst, Avenue T Fund Okay, that’s good to know. That’s—I think that really addresses the concern really well. Is that something that you would ever, could or would, I mean, I can’t imagine it’s anything near term, but is anything that you could or would basically monetize by selling? Let’s just—I mean, to maybe take an extreme example of Las Vegas, if the metro water authority in Las Vegas decided to build a big enough pipe down into your area, would you conceivably be able to sell water to them, just you know, fundamentally speaking? Trevor Hill – Chairman, GWR Global Water Resources Corp. "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
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FINAL TRANSCRIPT March 26, 2014 – 9:00 a.m. E.T. GWR Global Water Resources Corp. Fourth Quarter Results I love (phon) the idea, Jeremy, and I think there’s—the west is full of people who’ve been dreaming about interesting ideas to move water around for a hundred years. The truth is, is that while Global has a few rights that are transferrable out of our service areas, the primary nature of our rights are in what’s called ‘designations of a shared water supply’ and those designations are very powerful for the utilities that own them but they are service territory rights. So, they only inure to the territories that we have through the other regulatory proceedings, in CC&Ns; Certificates of Convenience and Necessity so, there’s good safeguards against pumping that water and transferring it out of state. I actually agree with those protocols. I don’t think it would be great policy for us to sell Arizona water to the guys in Vegas, as much as it could be quite lucrative. So, the good news is we’ve got tons of water. If there’s any bad news, is we really are allowed to sell it. Jeremy Hellman – Analyst, Avenue T Fund Okay. No, I think you’re probably right in thinking about it that way. I was just kind of curious about it. Okay, thanks a lot. Appreciate it. Operator We have no further questions in the queue. I’ll turn the call back over to the presenters. Trevor Hill – Chairman, GWR Global Water Resources Corp. Okay, great. Well, thank you, everyone. We appreciate that. Cindy and I and Mike and Ron are always available for questions. We welcome the questions. At times, there’s complexity with the "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
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FINAL TRANSCRIPT March 26, 2014 – 9:00 a.m. E.T. GWR Global Water Resources Corp. Fourth Quarter Results regulated utilities and we’d be happy to help you understand our balance sheet and income statement at any time. So, again, thank you very much and we look forward to continuing to make this story something of interest. Mike Liebman – Senior Vice President of Finance, Global Water Resources Corp. Thank you, everyone. Operator This concludes today’s call. You may now disconnect. "Though CNW Group has used commercially reasonable efforts to produce this transcript, it does not represent or warrant that this transcript is error-free. CNW Group will not be
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