Good morning. Thank you for joining us today to discuss Consolidated Water Company’s Second Quarter 2021 Results. Hosting the call today is the Chief Executive Officer of Consolidated Water Company, Mr. Rick McTaggart, and the company’s Chief Financial Officer, David Sasnett. Following their remarks, we’ll open the call to your questions. All participants will be in a listen-only mode. 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 we will -- will be made available for telecom replay via instructions in yesterday’s press release, which is available in the Investor Relations 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.

Thank you, Vashnavi. Good morning, everybody. Thanks for joining us on the call today. I hope everyone is well. Our second quarter 2021 results reflected continuing adverse impacts of the pandemic, uncertain segments of our business, as well as an adjustment to the carrying value of our manufacturing segment, necessitated by new order projections for Aerex’s historically largest manufacturing customer, improved performance of our bulk water segment, as well as growth of our services segment that partially offset these impacts. Our services segment revenue increased 8% to $3.8 million, which accounted for 23% of our consolidated revenues. This was up from 18% in the second quarter of last year. Our PERC Water subsidiary was responsible for this growth in our services segment. Based in Southern California PERC operates and maintains water treatment and reuse facilities under contracted engagements, which has renewable terms that range from one year to five years, with the majority having renewal dates beyond this year. During the second quarter, PERC generated about 90% of its revenue from such contracts, with various entities in California and Arizona. Revenue from our bulk water segment increased 14% to $6.7 million in the second quarter, due to higher volume sales and electricity pass-through charges. Bulk water gross profit increased 21% to $2.3 million compared to the second quarter of last year. However, our retail water segment continued to be adversely affected by the pandemic due to a moratorium on tourism and border restrictions that the Cayman Islands Government enacted in March of last year to safeguard their population from COVID-19. According to the most recent statistics, only 651 reported infections and two Coronavirus related deaths have occurred in the Cayman Islands since the pandemic began. The Cayman Islands Government’s strategy to protect its citizens from the pandemic has been similar…

Thanks, Rick, and good morning, everyone. As Rick mentioned, the pandemic has continued to create some significant challenges for us as it as for many companies. But despite these challenges, we have maintained a strong financial foundation as we pursue new opportunities to grow organically and inquisitively and we have continued to pay dividends. Revenue totaled $16.7 billion in the second quarter, which decreased 13% from the same quarter the prior year. This decline included decreases of $292,000 in our retail segment revenue and $3.2 million in manufacturing segment revenue. The decreases in these two segments were partially offset by revenue increases of $846,000 in our bulk segment, $287,000 in our services segment. Retail revenue declined due to a 2% decrease in the volume of water sold by Cayman Water. The sales volumes for both 2021 and 2020 have been significantly below the historical volumes for the retail segment prior to 2020 due to the continued moratorium on tourism in Grand Cayman. The increase in bulk segment revenue was due to an increase in CW-Bahamas revenue of $844,000, due to higher energy costs, which correspondingly increase the energy pass-through component of CW-Bahamas rates. The increase in bulk segment revenue is also due to a 9% increase in the volume of water sold by CW-Bahamas. The decrease in manufacturing revenue in the second quarter of 2021 was due to the decrease in orders from Aerex’s former largest customer, as discussed previously by Rick, which -- and discus and informed Aerex in 2020 that we suspending his purchases of a specialized product until 2022. And late July 2021, this customer again communicated to Aerex that it expected to recommit his purchases of the specialized product from Aerex in 2022 and subsequent years, but it also said such purchases would be at substantially…

Thanks, David. In our manufacturing segment, one of our key strategic initiatives has been to build a diversified book of business for Aerex. It is not concentrated on one specialized product or large customer. With this in mind, we have continued to develop our sales channels in order to create a more diversified customer base and product line. Since we acquired Aerex, its revenue has been predominantly from the sales of a specialized water treatment product to one customer. In the first quarter of 2020 last year, we increased resources on our sales team and began to focus on other sectors and customers to diversify our revenue base. As a result, in the first half of this year, we generated manufacturing revenue of $2.2 million from new customers and/or products, which was equal to all of the revenue generated last year from customers and -- other than Aerex’s major customer. We presently have contracted project backlog of approximately $9 million from new customers and/or products, which have begun to impact revenues in the second half of this year and will carry into 2022. In addition, we have recently bid for $4.8 million of additional work which we hope to receive news on in the near future. Our manufacturing sales team is doing a great job of diversifying Aerex’s revenue stream, but it will still take more time to hopefully replace the significantly reduced revenue stream from Aerex’s historically largest customer. It is important to note that Aerex maintains an excellent relationship with its largest customer and has recently sent us requests -- they have recently sent us requests for proposals and quotes for other products. Earlier this year, Aerex’s passed a highly technical and demanding quality assurance examination performed by another major customer for the purpose of qualifying Aerex for…

Our first question comes from Gerry Sweeney with ROTH Capital. Please go ahead.

Yeah. Good morning, Rick and David. Thanks for taking my call.

Hey, Gerry.

Hi.

I would have started on the service side. Rick, I believe you said, I think, that $3.8 million. Let me make sure I have the right number for services. Did you say the majority of that is from contract work sort of OEM type structures today and not from project work?

I didn’t break down…

Yeah.

I said that for services we had -- we have about $55 million in outstanding bids. It’s a mix of design build work and operating contracts.

So you were talking about the existing revenue right, Gerry?

Yes. Yes. Yes. Sorry.

Yeah. Yeah. About 90% of that is OEM work.

Okay.

Operations in maintenance contracts, PERC’s been very successful and growing that part of the business. We’re now seeing…

Yeah.

… an increase in bid activity for design build projects. So we hope to increase that…

Yeah.

… percentage of revenue generated by PERC, but.

Got you. And that $55 million that, Rick, you were just mentioning about, do you know when some of those award timeline are scheduled to be released or updated?

Yeah. I wish I did. I mean, a lot of this stuff is moving around because of budgeting things…

Around…

… on the client side. It’s difficult to project.

Got it. Okay. But then, I mean, in that $55 million, there’s a potential for upwards to $2 million more of additional OEM mark, is that…

And recurring work. Yeah.

Yeah. Got it. Okay. That’s great. On the manufacturer side, I appreciate the actual a little bit more detail on the backlog, it’s helpful. You discussed some of the technical aspects of what Aerex is being qualified. If we look at the backlog we see building today and the projects we’re going after, is there a material difference in margins of this work versus the work that they’re chose to do for the former customer?

Well, Gerry, the former customer is still going to buy from us and is still going to buy that product from us.

Former largest customer.

Former largest customer, yeah…

Former…

But the thing is…

Sorry.

… there are -- it’s always tough to get information from them. There’s very guarded on that. But that business was very high margin work. We think there are a couple of projects out there, but with this former customer and with other customers, that we’ll be able to utilize Aerex’s unique manufacturing capabilities and generate very healthy margins in excesses, let’s say, 30% on those manufacturing contracts. That’s really the focus of the business is to grow in areas where margin grew, Aerex’s differentiates itself and can utilize its capabilities, generally higher margin. But there’s a substantial amount of work out there, it’s more basic that Aerex is also pursuing.

Yeah.

And that does not generate the kind of margin that this former business did. So if you’re looking at historical margins, 2020 and 2019, it’s going to be hard to get back to that quickly. But we still think…

Okay.

…the business out there that Aerex is pursuing will be the healthy margins.

Got it. So maybe to summarize, targeting higher end margin work, however, that’s a little bit longer lead time and you’re going to backfill potentially with some lower margin work until…

Yeah. Bread and butter kind of stuff…

…going on, yeah.

…that Aerex really these, but we’re in it -- we’re bidding on a lot of stuff and it’s more of a commodity type products, so the margins are lower. We want to keep the…

Yeah.

… operation fully utilized to the extent we can. Part of the issue…

Yeah.

… were in the first quarter or the first six months for Aerex is that its margins are down because we kept all the manufacturing people on staff. We made a commitment to keep them even though the production activity was low for the first six months. So you’ll see margin approval in the second half of the year as production activity increases.

Got it.

It’s not easy to play, it’s not, yes, it’s not easy to build a workforce and we didn’t want to lay off a bunch of people, just because there was a delay in the work that we were getting to the second half.

No. I completely understand. I completely agree. I mean, if they’re talented, you got to keep them and manage it. So they wouldn’t have any issues with that. And you did say, we’re looking for a substantial increase second half versus first half. And I don’t know if you substantial, but I want to make we’re looking for an increase.

Significant.

Significant.

Significant. Okay. Got it. I want to make sure. Finally, maybe just…

We have…

Yeah.

We have a better second half than the first half, Gerry, especially on manufacturing.

Okay. Got it. And then just turning to the sell side, obviously, it looks like the Bahamas looks reasonably well and it looks like the retail side in the Caymans, we’re just looking at obviously there’s some bulk there, but retail operations in the Caymans, they’re going to be slow to rebound with this five phase opening and that 80% sort of vaccine rate. Back to the envelope looks like retails probably about $1 million of gross profit drag through this pandemic. Is that sort of a fair assessment?

Well, you can look at the results for the second -- two quarters of last year. And unless there’s a huge difference in rainfall patterns, I mean, you have a core group of people there they’re using the water the residents and you can expect the second half of this year to look a lot like the second half of last year.

Okay.

There’s no reason for it to look any different other than rainfall patterns. We’re not increasing rates. So you would think they’re using about the same volume of water they did last year.

I got it. I mean what I was really driving towards was your manufacturing rebounding, you have opportunities in PERC, bulk water seems to be doing fine. At some point we would expect the Caymans to open up and there’s $1 million plus of gross profit dollars that could eventually flow through. So there are several levers of profitability that can flow through over the next 12 months, 18 months?

Correct. Yeah. Now once more moist didn’t Caymans opening that as during, hopefully, that’ll be something.

Right. Yeah.

…sooner rather than later.

Got you. Got it. Okay. That’s it for me. I appreciate it. Thank you.

Thank you, Gerry.

Thanks, Gerry.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. McTaggart for any closing remarks.

Yeah. Thank you. I just like to thank everybody who joined this morning and stay safe and we’ll talk to you again in November. Bye-bye. Vashnavi?

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 have 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, continued acceptance of the company’s products and services in the marketplace, changes in its relationships with the governments of the jurisdictions in which it operates, the outcome of its negotiations with the Cayman Government regarding a new retail license agreement, the collection of its delinquent accounts receivable in the Bahamas, the possible adverse impact of COVID-19 virus on the company’s business, and various other risks as detailed in the company’s periodic report filings with the Securities and Exchange Commission, SEC 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 the Form 10-K and quarterly reports for Form 10-Q. Any forward-looking statements made during the conference call speak 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 where it may be required by law. Before we end today’s conference call, I would like to now 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.