Consolidated Water Co. Ltd. (CWCO) Q4 2025 Earnings Report, Transcript and Summary

Good morning. Thank you for joining us today to discuss Consolidated Water Company's 2025 Full Year Operating and Financial Results. Hosting this call today is the Chief Executive Officer of Consolidated Water, Rick McTaggart; and the company's Chief Financial Officer, David Sasnett. Following their remarks, we'll open the call to your questions. [Operator Instructions] 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 it will be made available for telecom replay. Please see the instructions in yesterday's press release that has been posted to the Investor Relations section of the company's website. Now I'd like to turn the call over to Consolidated Water's CEO, Rick McTaggart. Sir, please go ahead.

Thank you, Chloe, and good morning, everyone. Our retail, bulk and manufacturing revenues and operating incomes in 2025 were consistent with our expectations for the year. However, our services revenue did not perform as expected due completely to a permitting delay relating to our 1.7 million gallon per day seawater desalination project in Kalaeloa, Hawaii. We believe this type of delay is common for the complex multi-agency permitting process required for a project of this scale and has not been due to any failures on the part of consolidated water. In fact, over the past year, we have achieved all other major project milestones under this phase of the Hawaii project, which include successful pilot testing, receipt of confirmation from the Honolulu Board of Water Supply that we are able to produce water that is a reasonable match to the quality of their current water supply and that we are able to produce water that causes no detrimental impact to the Board of Water Supply system or their customers' assets. And then finally, we completed 100% of the design for this project. Achieving these other significant project milestones enables us to begin construction once all permits have been issued. We continue to work closely with the Honolulu Board of Water Supply and the regulatory authorities to advance the permitting process and mitigate schedule impacts. While our total revenue on a consolidated basis was slightly down compared to the previous year, our consolidated gross margin in terms of percentage and dollars improved and our consolidated net income from continuing operations noticeably increased compared to 2024. Gross profit generated by all 4 of our business segments increased in terms of percentage, which speaks very well for our attention to efficiency and cost control. Our retail water operations continued to grow in 2025, driven by the strength of the Cayman Islands economy and historically low rainfall in our exclusive utility service area on Grand Cayman. We saw ongoing growth in population and business activity on the island, coupled with very low precipitation, which resulted in a record volume of water sold to a record number of customers in 2025. Although our Caribbean-based bulk segment revenue declined slightly this past year, primarily due to lower fuel-related charges that we pass through to our customers, we achieved higher profitability in dollars and gross profit percentage in this segment. This improvement was driven by lower cost of revenue, reflecting our focus again on operational excellence in our Bahamas and Cayman Islands bulk businesses. Our Services segment revenue decreased in 2025, primarily due to the completion of 2 major design build projects in 2024 and the lull in Hawaii project activity while awaiting the issuance of a key project permit, and this was subsequent to completion of the pilot plant testing phase of the Hawaii project in early 2025. The Services segment revenue decrease is also due to a lesser extent to a decrease in nonrecurring consulting revenue, which actually has picked back up in the last quarter. The decrease in Services segment construction and consulting revenue was partially offset by a 9% increase in recurring revenue from O&M contracts. This increase in O&M revenue was attributable to incremental revenue generated by both our PERC Water subsidiary and REC in Colorado, and it includes revenue from a new municipal client in Southern California and from additional services provided to a large federal client for the second half of last year under a contract which expires at the end of this month. Our Manufacturing segment during the year continued to improve its revenue and gross margin, which reflects the production this past year of primarily higher-margin products for nuclear power and municipal water clients as well as our continued focus on maximizing efficiency and throughput of our facility. Completion of our new 17,500 square foot manufacturing facility in the third quarter of 2025 has further enhanced efficiency and throughput and is key to growing that business segment through continued customer and product diversification. And that diversification is occurring primarily in the municipal water client or municipal section of our business. Now before getting into recent developments and our outlook for the rest of the year and beyond, I'd like to turn the call over to our CFO, David Sasnett, who will take us through the financial details for 2025.

Thanks, Rick. Good morning, everyone. Our 2025 revenue totaled $132.1 million, which is a slight decrease of 1% from 2024. This decrease was primarily due to decreased revenue for our Services segment as well as a modest decrease in the bulk segment revenue. And these decreases were partially -- the decrease was partially offset by revenue increases in the Retail segment and in our Manufacturing segment. Retail revenue increased 6.6% to $33.6 million due to an 8.3% increase in the volume of water sold to a record 1.09 billion gallons, and this increase resulted from significantly lower rainfalls, in fact, historically low rainfall on Grand Cayman and an approximate 7% increase in the number of customer accounts in our license area. Our bulk segment revenue decreased less than 1%, and this decrease was due to a decline in energy prices, which decreased the energy pass-through component of our rates in the Bahamas operations. The decrease in Services segment revenue was primarily due to plant construction revenue decreasing from $18.6 million in 2024 to $13.5 million in 2025, and this decrease was a result of $8.2 million of additional revenue from PERC's contract with Liberty Utilities and $1.3 million in revenue from the Red Gate contract in Grand Cayman in 2024. These contracts were both substantially completed in mid-2024. Construction revenue recognized on the Hawaii project also declined by $2.9 million in 2025 due to completion of the pilot plant testing phase of the project. These decreases in construction revenue were partially offset by construction revenue generated under new contracts. Services segment revenue generated under our O&M contracts totaled $32.1 million in 2025, which represents an increase of 9% from 2024. The increase was due to incremental revenue generated by both PERC and by REC. Our Manufacturing segment revenue increased by $1.1 million or 6% to $18.7 million as compared to $17.6 million in 2024. Our gross profit for 2025 was $48.4 million, which represents 30% of total revenue as compared to $45.6 million or 34% of total revenue in '24. And this improvement is due to increases in both the Retail and Manufacturing segment revenue. Our net income from continuing operations in 2025 was $18.6 million or $1.16 per diluted share. This compares to net income of $17.9 million or $1.12 per diluted share in 2024. Including discontinued operations, our net income attributable to Consolidated Water shareholders in 2025 was $18.3 million or $1.14 per diluted share. This compares to net income of $28.2 million or $1.77 per diluted share in 2024. Turning to our balance sheet. During the year, CW-Bahamas accounts receivable balances decreased to $20.7 million as of December 31, 2025, as compared to $28.4 million as compared to -- as of December 31, 2024. This decrease was the result of receiving significant payments in addition to current billings on CW-Bahamas delinquent accounts receivable from the WSC. As of February 28, this receivable from the WSC amounted to $22.6 million. We continue to be in frequent contact with officials of the Bahamas government, who continue to express their intention to significantly reduce CW-Bahamas delinquent accounts receivable balances. However, we are presently unable to determine if or when such reduction will occur. Our cash and cash equivalents totaled $123.8 million as of December 31, 2025, and our working capital as of that date was $141.9 million, and our stockholders' equity was $221.7 million. The working capital and cash amounts as of December 31, 2025, represent a $24.4 million increase in cash and a $9.1 million increase in working capital from the prior year-end. And as we have consistently reported on our calls, our balance sheet currently has no significant outstanding debt. Our projected liquidity requirements for the balance of 2025 include capital expenditures for existing operations of approximately $11.1 million, and this includes approximately $1 million in the first half of 2026 for a project in Bahamas. We increased our quarterly cash dividend by 27.3% to $0.14 per share beginning in the third quarter of 2025, and we paid approximately $2.3 million in dividends in January of 2026. Our liquidity requirements may also include future quarterly dividends as such dividends are declared by our Board. And we continue to evaluate how to best utilize our ample cash balance and outstanding liquidity to increase shareholder value. So this completes our financial summary for the year, and I'll turn the call back over to Rick.

Thanks, David. Looking at our retail water business in Grand Cayman, we were pleased with the continued growth there, as David mentioned, in sales and sales volumes. And our Caribbean-based bulk water business continued to generate long-term stable recurring revenue. Demand for our water in the Cayman Islands is affected by variations in the level of tourism and rainfall primarily. And according to the figures published by the Department of Tourism Statistics and Cayman, tourist air arrivals in the Cayman Islands increased by 2.9% to approximately 450,000 in 2025 compared to the previous year, and this likely contributed to our retail sales growth. And it's interesting to note, so preliminary statistics show that January this year has also been a banner month for tourism arrivals in the Cayman Islands. So we look forward to seeing how that ultimately impacts our sales. However, also in the first couple of months of this year, the weather was much wetter with about a 280% increase in rainfall for the first 2 months of 2026. So we also expect that is impacting our sales in 2026 in the first quarter. Regarding our Cayman Water utility license, in February of last year, we received a new concession from the government that authorizes and maintains the terms of our 1990 license until a new license from OfReg is enacted. Negotiations between Cayman Water and OfReg for a new license have been more active than in previous quarters, but remain ongoing. So looking again at the Hawaii project, this past quarter, we completed -- or this past quarter, we completed 100% of the design of the seawater desalination plant for BWS, and we're focused on obtaining the remaining permits needed to allow our client to issue a notice to proceed with construction of the project. This includes actively responding -- our activities include actively responding to regulatory inquiries and coordinating with the BWS to mitigate schedule impacts. The deferral of construction activities essentially has shifted anticipated revenue recognition and associated cash flows related to the Hawaii project into future periods. We anticipate that construction of the project will recommence or will commence later this year and see the construction phase of this major project substantially adding to our revenue and earnings growth in later reporting periods. Our Construction Service segment revenue is anticipated to remain below the record we achieved in 2023 until the initiation of construction of the Hawaii project. Looking more at our Services segment. As announced this past quarter, we were awarded 2 water treatment plant construction projects, new projects including a $3.9 million drinking water plant expansion in Colorado and an $11.7 million wastewater recycling plant in Northern California. The revenue attributable to these projects is expected to be realized primarily this year, and the combined value of these projects totals obviously $15.6 million. The first project was secured by REC, our Colorado subsidiary, and this drinking water plant expansion will help us to build a resume to pursue additional design build opportunities in Colorado. As announced during the fourth quarter, our PERC Water subsidiary secured the other contract to construct a wastewater recycling plant for San Francisco Bay Area Golf Club. This innovative project, which will convert untreated wastewater into irrigation water is expected to save 36 million to 38 million gallons of potable water annually for the golf club. Because this facility will be constructed below ground, we decided to start construction of the project when the rainy season ends in Northern California to minimize construction delays. Therefore, we expect revenue from this project to be recognized primarily this year. In the meantime, we have been lining up subcontracts and ordering long lead equipment for the project. So it continues. PERC Water's customized design report or CDR program delivers comprehensive project-specific plans for water infrastructure, incorporating life cycle costs, schedule and performance metrics. These reports minimize risk and optimize plant performance for our clients by providing cost, schedule and water quality certainty and have been particularly attractive to large homebuilders and private utilities. In Arizona, PERC continues to use its CDR program to pursue several design build opportunities for developers in the Phoenix metropolitan area. As was the case with the Liberty Utilities project in Arizona a few years ago, we believe that some or all of these CDRs will ultimately lead to a design build contract for these important wastewater treatment facilities. But as I mentioned, these opportunities typically have a longer sales cycle. Regarding our manufacturing operations, in August 2025, we finished expanding our facility in Fort Pierce, Florida by adding 17,500 square feet of plant space, bringing the total manufacturing space to 47,500 square feet. This expansion allows us to handle more production volume and manage several projects at once. It's particularly well timed as there has been a significant increase in bidding activity for municipal water projects in Florida. Given the extended lead times associated with these municipal initiatives, we anticipate that they will contribute to growth in 2027. We believe that our extensive experience manufacturing large-scale nanofiltration and RO systems as well as our location in Fort Pierce, Florida, positions us well to continue growing that part of the business in the Florida market. And as reported previously, we hold an NQA-1 certification from 2 major nuclear industry companies, and we see renewed interest in U.S. nuclear power solutions. These specialized manufacturing qualifications also position us for continued growth. As we move through the year ahead, we believe our diversified business segments will continue to deliver improved results to shareholders. This includes continued growth in our retail business in Grand Cayman, our long-term stable recurring revenue from our Caribbean-based bulk water business and the growth potential of our U.S.-based manufacturing, design, build and O&M businesses. As the global demand for clean water continues to grow, our strong balance sheet enables us to move quickly on desalination and water infrastructure opportunities in the Caribbean and North America as well as any potential strategic acquisitions or partnerships. So with that, I'd like to open the call up for questions. Chloe?

[Operator Instructions] The first question today comes from Gerry Sweeney with ROTH Capital.

I wanted to ask a couple more questions on the Hawaii desal project. Just curious as to what that permit is and who's responsible for obtaining the permit.

Well, I guess that would be all right to say it's the state historical preservation department. I think we mentioned it in the call in November. I mean that permit is required before we can put in applications for all the building permits and ground clearance permits and that sort of thing. We're making progress on it. It's just a very slow process for everybody. It's not just us.

Got it. So is Consolidated responsible for that permit? Or is the city responsible for it?

The client is responsible for that. And they've been dealing with all the inquiries and that sort of thing from the department.

Got it. And once that is received, then you do have to put in some other building permits, et cetera. Is that -- did I understand that correctly?

That's correct. Yes. Some of this permit is a prerequisite for applying for a number of other permits. That's my understanding.

Got you. Best guess, I mean, once the historical permit is achieved, I mean, do you have any idea of how long the other permits take? Or is that sort of a little open-ended just because of the nature of permitting?

I mean, again, my understanding is that they're a bit more straightforward. We have finished the design and so it would be a matter of getting the regulators to sign off on the various parts of that design so that we could get moving on building permits. I mean I'm just -- I'm a little reluctant. I mean, you can see what's happening because you got delayed from last year in the fourth quarter. I mean, with the stock price and that sort of thing, it's very difficult to predict these sorts of things. So that's why we said in our notes that later this year, I mean, we would expect certainly for the construction to start sometime this year. But to say exactly what quarter it is, is somewhat difficult at this point.

No, that's understandable. I was just curious as to what are some of the other sort of milestones or steps post the historical permits. So that helps frame out when and how it all develops. So that's helpful. And then the other thing I want to talk about was just the O&M revenue that's ticked back up in the quarter. I think you mentioned a couple of project wins, but I think also another project was expiring. But that's around, I think, PERC and REC, I'm talking about, not the Caribbean. But how does that business look in pipeline and opportunity on a go-forward basis?

There's a lot going on there, Gerry. I mean there's a couple of really big opportunities that we're chasing right now. One of them, the -- it's very competitive. I mean these are bigger O&M opportunities. We think we have certain advantages. Obviously, they're both in Southern California, and we think our presence there and our record helps us. But it's a competitive market, and we're just working through trying to get some of these. It could be big winners for us if we get these projects.

Got it. All right. And then one last question. Obviously, the West Bay facility was completed that I think 1 million gallons a day of water. How do we -- I think it was finished in the fourth quarter last year, but how do we think about that? I mean, that adds incremental volume. I don't think it's going to be used up right out of the gate or that may be the case, but I'm just curious as to how much of that water or the 1 million gallons a day sort of spoken for are going to be used if you have a visibility on that.

Well, I mean, last year, we used it because we had pretty big quarters. I think we look at maybe like a 5-year horizon, 5- to 10-year horizon on our asset planning. So it kind of depends on what this higher rainfall is going to do this year because we base our production capacity on peak demand, which typically occurs in December, January, February, those sort of months and then it starts getting wetter in the summer. So demand tapers off. But I mean we use that capacity, and we had to -- we put in the original 1 million gallons, I guess, about 2.5 years ago, and then we immediately started expanding it because we needed the additional capacity. If you look at our volume growth over the last 5 years, it's quite -- since post-COVID, it's quite remarkable.

[Operator Instructions] The next question comes from John Bair with Ascend Wealth Advisors.

I probably ought to know this by now, but how quickly are the energy cost recovery increases reflected in your bulk services? Is that on a monthly, quarterly? How does that work?

It's monthly. We look at the average cost for fuel and electricity every month, and then we charge the client back for that.

Okay. All right. And then the next one, you mentioned a federal contract for services that's finishing up at the end of the month, I believe it was. Is that a renewable contract? And if it is, is it something that's open for bid? Or is it over and done with?

Yes. We bid for that back during COVID, and it's been renewed every year since. Our understanding is there were some other -- it has nothing to do with our performance or their willingness to renew with us in particular. The -- I guess the military had other things that they had to deal with on that base, and they gave it -- our understanding is that, that contract is being given to a municipal entity that's right next door to the base. So they didn't bid it out. They just -- they gave it to this public utility, municipal utility.

Okay. And then you did talk in general in your prepared remarks about project opportunities and so forth. And I was just kind of curious, so there's a lot of municipal projects that are out there. Just wondering how much is -- if you can speak to the balance between public-private opportunities versus purely the public projects. In other words, is there, for example, opportunities in data center water aspects that maybe is a bigger opportunity for you?

Yes. I mean we're not chasing the data center stuff, honestly, John. I mean the stuff I'm talking about is kind of rock solid municipal business. So particularly in Florida, I mean, there's been changes to regulations for shallow aquifer withdrawals and that sort of thing. So any new capacity, drinking water capacity that's being built, if the cities have already exceeded their shallow water withdrawal permits and they're having to go into the deeper aquifers, which are more saline. So it gives us a big opportunity on the low-pressure RO market. I mean there's -- I mean there's a number of projects. They're all municipal. So just name a city up the East Coast of Florida, and they're all looking at expanding their production capacity for drinking water. So Pompano Beach, Delray Beach, West Palm Beach, Stuart, Port St. Lucie, all up there. There's a number of projects that are going on that give us opportunities to build the equipment. So we've made a lot of progress over the last few years working with the consulting engineers in Florida, and they really love our products and our quality, and we're getting spec-ed in on a number of these projects.

That's good to hear. That kind of leads in a little bit to my last question here. And wondering if there's any new opportunities, any new market opportunities that are addressable by your Manufacturing segment, given that you've expanded it and so forth, you're looking at any new potential market opportunities to provide equipment?

Yes. I mean you kind of can view the municipal RO system market as sort of a renewed opportunity. I mean we hadn't gotten that much business out of that market for a number of years, and we're focused more on producing smaller equipment and assemblies and piping and that sort of thing. This larger space in Fort Pierce gives us the opportunity to participate in a much bigger way in the municipal water market and to make these large assemblies at production skids that are required for those types of plants. So that's really where we're focusing at the moment. And then there's other -- the nuclear market. I mean, there's -- we continue to make products for that market. It's a little bit more cyclical, I guess, than what we're seeing in the municipal market right now. There's just a very strong demand for that type of equipment. So that's where we're focusing our effort.

And that nuclear market, is that more domestic? Or is it global, I guess, broadly speaking? Is it pretty much...

Yes. The 2 clients that we have, I mean, they sell domestically and globally. I don't really have that sort of number off the top of my head, but I know there's projects in the U.S., in Canada and Japan, things like that, Korea that these products are used on.

All right. At this time, this concludes our question-and-answer session. I'd like to now turn the call back over to Mr. McTaggart. Sir, please go ahead.

Yes. I'd just like to thank everybody for joining us today, and happy St. Patrick's Day, by the way. And I look forward to speaking with everybody when we release our Q1 report in May. Take care. Thank you.

Thank you. 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, tourism and weather conditions in the areas we serve, the economic, political and social conditions of each country in which we conduct or plan to conduct business, our relationships with the government entities and other customers we serve, regulatory matters, including resolution of the negotiations for the renewal of our retail license on Grand Cayman, our ability to successfully enter new markets and various other risks as detailed in the company's periodic report filings with the Securities and Exchange Commission. 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 and 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 speaks 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 required by law. I would like to 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 cwco.com. Thank you for attending today's presentation. This concludes the conference call. You may now disconnect.