Good morning ladies and gentlemen. Thank you for standing by. Welcome to the Global Water Resources, Inc. 2019 First 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. [Operator Instructions] I would like to remind everyone that this call is being recorded on May 9th, 2019, at 1:00 P.M. Eastern Time. I would now like to turn the conference over to Heather Krupa, Controller. Please go ahead.

Good morning everyone and thank you for joining us on today's call. Yesterday, we issued our 2019 first quarter financial results by press release, a copy of which is available on our website at www.gwresources.com. Speaking today is Ron Fleming, President and Chief Executive Officer; and Mike Liebman, Chief Financial Officer. Mr. Fleming will summarize the key events of the quarter, following which Mr. Liebman will review the financial results for the quarter. Mr. Fleming and Mr. Liebman will be available for questions at the end of the call. 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, projections, and assumptions regarding future events. These forward-looking statements involve a number of assumptions, risks, uncertainties, estimates, and other factors that could cause actual results to differ materially from those contained in the forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on any forward-looking statements, which reflect management's views as of the date hereof and are not guarantees of future performance. For additional information regarding factors that may cause -- that may affect future results, please read the sections Risk Factors and Management's Discussion and Analysis of Financial Condition and Results of Operations included within our latest Form 10-K filed with the SEC. Such filings are available at www.sec.gov. Certain non-GAAP measures may be included within today's call. For a reconciliation of these measures to the comparable GAAP financial measures, please see the tables included in yesterday's earnings release, which is available on our website. Unless otherwise stated, all amounts discussed are in U.S. dollars. I will now turn the call over to Mr. Ron Fleming.

Thank you, Heather. Good morning everyone and thank you for joining us today. We are very pleased to report our first quarter 2019 results. First and foremost, in the quarter, we again extended our employee safety and regulatory compliance non-recordable incident streaks, having now achieved over 631 consecutive days without a recordable safety accident and nearly 1,128 days since our last compliance violation. These remarkable achievements show the dedication and care of our employees as we deliver exceptional performance, both financially and operationally. Further financial and operational highlights include; despite abnormally high precipitation levels, revenues increased 4% to $7.7 million; net income increased $0.3 million or 102.8% to $0.6 million or $0.03 per share; continued our monthly dividend payouts equating to an annualized $0.286 per share; we collected the final payment due of $1 million for the Loop 303 contract, which we sold in 2013, which is reflected in other income. And for the trailing 12 months, total active connections increased 11.7% to 44,152 as of March 31st, 2019, with organic connections up 4.8% in that period. In Q1, our annualized growth rate was 4.3%. Moving on, I want to highlight permitting activity, which is a precursor to organic growth. For 2018, single-family dwelling permits in Maricopa and Pinal counties were up to 22,437 units or 13% over 2017. The forecast remains strong with 2019 projected to see approximately 25,000 single-family dwelling permits. Importantly, the data for the City of Maricopa submarket continues to be strong. In 2018, permit growth was up another 18% over 2017 with 1,022 permits issued. This was the first time we have seen 1,000 -- greater than 1,000 permits in the City of Maricopa since before the great recession. This acceleration supports our long-stated position that as sustained growth continues we will get a larger…

Thank you, Ron. Hello, everyone. Total revenues for the quarter were $7.7 million, which was up $300,000 or 4% compared to Q1 of 2018. This increase is primarily driven by the organic connection growth in addition to acquisition connection growth from Turner Ranches and Red Rock. These benefits were offset by a reduction to revenue as a result of tax reform as well as higher precipitation in Q1 2019 versus Q1 of 2018. Specifically, we saw 4.2 inches of rain in Q1 of 2019 compared to 0.5 inch in Q1 of 2018. On tax reform, if you remove the reduction to revenue for the impact of tax reform, revenues would have increased by $526,000 or 7.1%. Operating expenses in Q1 of 2019 were $6.5 million compared to $6.1 million in Q1 of 2018. This is an increase of $463,000 or 7.6%. Notable changes in operating expenses include increased operating and maintenance costs of $273,000. This increase was primarily driven by the additional costs associated with the Turner Ranches and Red Rock acquisition of $177,000 as well as an increase in utilities, property tax and contract services, which all increased as revenue increases. Additionally, we had increased depreciation expense by $212,000 due to increase in fixed assets associated with the capital expenditure plan as well as the acquisitions of Red Rock and Turner Ranches. Now to discuss other expense. Other expense for Q1 of 2019 was $208,000, which was a decrease of $695,000 compared to 2018. The decrease was primarily due to the $1 million of other income received from the Loop 303 contract, offset by a decrease in the Valencia earn-out of $219,000. Turning to net income. Global Water had net income in Q1 of 2019 of $649,000 or $0.03 per share, compared to $320,000 or $0.02 per share in Q1 of 2018. Adjusted EBITDA, which adjusts for non-recurring events, such as Loop 303 proceeds and also adjusts for option expense and our equity investment in Fathom, was $3.4 million in Q1 2019, which is down $251,000 or 6.8% compared to Q1 of 2018. Adjusted EBITDA was down, primarily due to the impacts of tax reform of $231,000 and the lost income from the Valencia earn-out of $219,000. Additionally, the higher precipitation in Q1 of 2019 versus 2018 was another factor. These reductions were offset by increase in organic growth of 5.2% as well as the acquisition growth from Red Rock and Turner Ranches. One subsequent event that I'd like to point out is that we were able to extend our $8 million line of credit until April 30, 2022. Previously, it was set to expire on April 30 of 2020, so we extended the line an additional two years. This line is currently unused. This concludes our update on Q1 2019 results. I'll now pass the call back to Ron.

Thank you, Mike. It is clear, excluding the revenue reductions caused by abnormal precipitation, federal tax reform and corporate rate reductions and the slowdown of our Valencia earn-out, all items that are beyond our control, Global Water's top line and connection growth rates continue to be very strong. As we handle this high growth, we intend to remain at the forefront of the water management industry and advance our mission of achieving efficiency and consolidation. We truly believe that expanding our platform and applying our expertise throughout our regional service areas and to new utilities will be beneficial to all stakeholders involved. We appreciate your investment and support of us as we grow Global Water to address important utility, water resource and economic development issues in Arizona and potentially beyond. These highlights conclude our prepared remarks. Thank you. Mike and I are now available to answer your questions.

We will now begin the question-and-answer session. [Operator Instructions] The first question is from Gerry Sweeney with ROTH Capital. Please go ahead.

Hey, good morning, Ron and Mike. Thanks for taking my call.

Hey, Gerry.

Good morning, Gerry.

On the precipitation side, would you be able to sort of bracket out maybe how much it affected volumes within your main operations?

Yeah. So Gerry, on the residential side, in 2018, customers were using roughly 58,000 or 5,800 gallons on average each month and in 2019, that was 5,300. So it's about 540 gallon less usage on the residential side. And obviously, hard to pinpoint specifically how much it's behavior versus precipitation, but we believe it's precipitation related. And then if you try to extrapolate that out to dollars, it's coming somewhere in that $150,000 to $200,000 is a good estimate.

Okay. Yeah. I mean, I've seen precipitation from other water utilities in the past. I mean, it does play a role in it, so actually it makes sense. And then just two other quick ones. Obviously, Valencia, I mean, it had faster growth in the past and real estate ebbs and flows, but have you been watching the permitting activity over in the section of Suburban Phoenix? And have you seen anything or any thoughts on maybe if there maybe a shift at some point in the future?

Yeah. No. Permitting data in that specific area remains down. It is interesting, Gerry, because we're overall – due to stats we talked about earlier on the call, Metro-Phoenix as a whole and in certain pockets is still continuing to see the same type of permitting activity we've seen for the last few years, if not accelerating. But in that exact area where we sell the utility, it is down and it remains down. So we do think, based on its location and based on kind of growth patterns and the fact – what happened is, that's why the earn-out was so high for a few years is they ballooned through all available lots so fast that they basically have run out and growth has moved to a few of the surrounding communities, while land developers get the next communities ready. So we think it's only a matter of a year or two before they can get those, right? You can't build a home where there's not a lot and so – but they're getting those lots prepared and we'll start to see that growth pick back up. But at this point, we would say it's probably a few years away.

Yeah. It makes sense. I mean, juxtaposed to that, I mean, you're seeing – there's a lot of growth in Chandler and Gilbert and I think a bunch of companies are moving into this area as well which should benefit Maricopa, correct?

Absolutely. Yeah, there is no doubt. Chandler is – and Gilbert and Tempe, all those southeastern cities that are the next concentric territory, north of Maricopa that we benefit from, they're all doing amazing things. So we feel pretty good about the growth rate that we're seeing in Maricopa for the foreseeable future.

And just another one, quick one for Mike. The line of credit, what's the – can you give a little detail? I know, it's undrawn, but how much was it for and just the interest rate.

Yes. It's an $8 million line and it's at LIBOR plus 2.25%, is the rate.

Got it. Thanks guys. Really appreciate taking my call. Thank you.

Thank you, Gerry.

The next question is from Jon Jung with Trailhead Asset Management. Please go ahead.

Good morning, Mike and Ron. Good job on the quarter. I appreciate what you're doing for shareholders. Wonder if you could give us any estimate of what you think the FATHOM asset is worth? And it's not showing, I don't think, of any value on the books, is it? It's kind of a hidden asset, isn't it?

Yeah. That's correct, Jon. I mean, we have it on our books for less than $100,000, I think at this point in time. So it's not showing. But clearly, there is -- based on our understanding and what we've seen happen in the past, there's clearly value there depending on what's to come up with FATHOM. And if and when they do another capital raise, et cetera, it will give us a better perspective, but we do believe there's value there, yeah.

What would the value have been with the last capital raise that they did of the 7% that you own today?

Yeah. Ron, you can correct me if I'm wrong, but I think, the last time I remember, I think the valuation was about $80 million or so is when the last capital raise was then, somewhere around there.

Yeah. I think it was around $80 million.

Yeah.

So the 7% would be worth $5 million or $6 million?

That's the math, yeah.

That's good math. I don't think a lot of people recognize that that still doesn't show up on the books, but hopefully at some point in time that will provide some growth capital for the company.

Absolutely, Jon. And that's what we believe as well.

Good. Is there any color or updates you can give us on your acquisition activity? Or is there anything in the pipeline now? I haven't seen anything announced recently.

Yeah. So look, I mean, I think, we haven't talked about the pipeline for a while because we've been talking about several that we closed, just late last year. But those -- the way we described it in the past is still the way it exists today, which is we basically sorted through the criteria that we're looking for that all of the opportunities throughout the state, and we are ranked the top few dozen and started conversations with a dozen of them and we got four. So it's pretty good success rate there. Now we're circling back and going back through that list. And I would just say, in general, sure. There's a half dozen, dozen utilities that are worth continuing to talk to. Would be things that are kind of slow by nature, so I don't like to get too much out in front of it. But I think, if we can continue to get 5%, 10% connection growth rate on the acquisition side and 5% -- 4% or 5% on the organic growth side and be north of -- or low double-digits, that would be something that we're attempting to do.

Okay. All right. And at this point in time, you have not -- or is it correct that you haven't gone outside of the Arizona state for -- looking at acquisitions?

That's correct. We thought we'd see through our efforts here first before doing that.

Okay.

But Jon, that doesn't ...

All right. Go ahead.

Yeah. If the right opportunity presented itself, we'd always be open to it in determining if it's a good play to make it into a different state, but we're just going to focus first on within Arizona.

All right. Thank you.

Thanks, Jon.

This concludes the question-and-answer session. I would like to turn the conference back over to Ron Fleming, President and CEO, for any closing remarks.

Yes. Thank you, operator. I would like to thank everyone for participating on this call today and for your ongoing interest in Global Water. Thank you and we look forward to speaking with you again.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.