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Section 1: 8-K (FORM 8-K)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

August 12, 2019

(Date of earliest event reported)

 

CONSOLIDATED WATER CO. LTD.

(Exact Name of Registrant as Specified in Charter)

 

Cayman Islands, B.W.I. 0-25248 98-0619652
(State or Other Jurisdiction of (Commission File No.) (IRS Employer Identification No.)
Incorporation)    

 

Regatta Office Park

Windward Three, 4th Floor

West Bay Road, P.O. Box 1114

Grand Cayman, KY1-1102

Cayman Islands

(Address of Principal Executive Offices)

 

(345) 945-4277

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Class A common stock, $0.60 par value   CWCO   The Nasdaq Global Select Market

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company  ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ¨

 

 

 

 

  

Item 2.02. Results of Operations and Financial Condition.

 

On August 12, 2019, Consolidated Water Co. Ltd. (the “Company”) issued a press release announcing its results of operations for the second quarter ended June 30, 2019. A copy of the press release is attached as Exhibit 99.1 to this report.

 

The information in this report, including the exhibit hereto, is being “furnished” in accordance with General Instruction B.2 of Form 8-K. As such, this information is not deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filings with the Securities and Exchange Commission unless it is explicitly so incorporated in such filings.

 

Item 9.01. Financial Statements and Exhibits.

 

(d) Exhibits.

  

Exhibit No.   Title
     
99.1   Press release issued by the Company on August 12, 2019.

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  CONSOLIDATED WATER CO. LTD.  
       
  By: /s/ David W. Sasnett  
  Name:   David W. Sasnett  
  Title: Executive Vice President & Chief Financial Officer
       
Date: August 12, 2019      

 

 

 

EXHIBIT INDEX

 

Exhibit   Description
     
99.1   Press release issued by the Company on August 12, 2019.

 

(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

 

Exhibit 99.1

 

(PRNewsfoto|Consolidated Water Co. Ltd.)

 

Consolidated Water Reports Q2 2019 Results; Revenues up 22% to $18.3 million, Net Income up 13% to $2.5 million or $0.16 per Share

GEORGE TOWN, Cayman Islands, August 12, 2019 -- Consolidated Water Co. Ltd. (Nasdaq Global Select Market: CWCO), a leading developer and operator of seawater desalination plants, reported results for the quarter ended June 30, 2019. Quarterly and first-half comparisons are to the same year-ago period unless otherwise noted.

 

Q2 2019 Financial Highlights

 

·Total revenues increased 22% to $18.3 million.

 

·Manufacturing revenue increased 332% to $4.3 million.

 

·Gross profit up 22% to $7.6 million.

 

·Net income attributable to stockholders increased 13% to $2.5 million or $0.16 per diluted share.

 

·$1.3 million in dividends paid.

 

Q2 2019 Operational Highlights

 

·Appointed Jamie Bryan to the new position of Vice President of Manufacturing. Bryan brings to Consolidated Water more than 22 years of experience in engineering, manufacturing, plant integration and development, and product development and distribution.

 

·Continued to advance the development project in Rosarito, Baja California, Mexico involving the construction and operation of a major seawater desalination plant and distribution pipeline. Designed to produce 100 million gallons per day of potable water, the plant is expected to be the largest of its kind in the Western Hemisphere and a major, much-needed new source of drinking water for the coastal region of Baja California for at least 37 years.

 

·Completed the disposition of CW-Bali for total consideration of $390,000.

 

Management Commentary

 

“In Q2, we realized double-digit revenue and gross profit growth that was driven primarily by increased production activity in our manufacturing business,” commented Consolidated Water CEO, Rick McTaggart. “The growth in manufacturing was due to a renewed focus on industrial sales, strong execution by our sales team and increasing customer demand for our specialized products.

 

“Our retail revenue growth was in part attributed to the fact that it has been a very dry year so far, with rainfall in the second quarter down 76% compared to last year. For the first half of 2019, rainfall in our Cayman Islands service area was down 55% compared with rainfall in the first half of 2018 and was also 55% lower than the 30-year average.

 

“The prospects for the manufacturing segment continue to look favorable, given that we have specialized manufacturing capabilities and experience relating to markets with relatively high barriers to entry. In these markets, we qualify for projects that require unique quality controls and certification. We also fabricate water treatment equipment for a diverse number of industries involved in wastewater treatment infrastructure, and we believe the numerous municipal utilities in need of improvements in this area can also drive growth in our business.

 

 

 

“In anticipation of further manufacturing growth, we are expanding our production facility, with this expected to be completed within the next year. This project is being led by our new VP of Manufacturing, whose knowledge and experience will play an important role as we grow this business.

 

“With respect to our Rosarito project, we had two major positive developments earlier this year regarding legislative approval and funding that has allowed us to proceed to the next several important steps before we begin the construction phase. These steps include securing the major portions of the project’s required debt financing and aqueduct rights of way.

 

“There remain many water-scarce countries in the Caribbean and other markets where we believe we can have a positive impact on their development by providing essential fresh water supplies. So, we are continuing to explore development opportunities where we can support the growth of regional economies and improve the quality of life in local communities.

 

“We plan to take advantage of the ample liquidity on our balance sheet to expand into new markets and complementary product lines, diversify revenue streams and widen our geographic footprint. Our strong performance in Q2 reflects the tremendous opportunities ahead.”

 

Second Quarter 2019 Financial Summary

 

Total revenues for the second quarter of 2019 were $18.3 million, up 22% compared to $15.1 million in the same year-ago quarter. The increase was primarily driven by an increase of $3.3 million in the manufacturing segment, as well as an increase of $0.7 million in the retail segment.

 

Manufacturing revenues increased due to an increase in the number of orders and expanded project production activity. The increase in manufacturing and retail revenues was partially offset by a decrease in bulk and services revenues. The decrease in bulk revenues was due to the lower rates that came into effect in February for water supplied by the company’s Red Gate and North Sound plants.

 

Gross profit for the second quarter of 2019 was $7.6 million or 41.3% of revenues, up 22% from $6.2 million or 40.1% of revenues in the same year-ago quarter.

 

Net income attributable to Consolidated Water stockholders for the second quarter of 2019 was $2.5 million or $0.16 per fully diluted share, up 13% from $2.2 million or $0.14 per fully diluted share the year-ago quarter.

 

The rise in net income for the second quarter of 2019 as compared to the same year-ago quarter reflects an improvement in income from operations of $1.2 million.

 

Cash and cash equivalents totaled $41.9 million as of June 30, 2019, as compared to $31.3 million as of December 31, 2018. The increase resulted primarily from net income generated from continuing operations.

 

First Half 2019 Financial Summary

 

Total revenues for the first half of 2019 were $35.3 million, up 19% compared to $29.6 million in the same year-ago period. The increase was primarily driven by an increase of $5.8 million in the manufacturing segment, as well as an increase of $1.0 million in the retail segment.

 

Manufacturing revenues increased due to an increase in the number of orders and expanded project production activity. Retail revenues increased due to the volume of water sold by Cayman Water, which increased by nearly 3%, as well as due to increased energy prices that increased the energy pass-through component of the company’s Cayman Water retail revenues by $356,000.

 

 

 

The increase in manufacturing and retail revenues was partially offset by a decrease in bulk and slight decrease in services revenues. The decrease in bulk revenues was due to the lower rates that came into effect in February of this year under the new contract for water supplied by the Red Gate and North Sound plants.

 

Gross profit for the first half of 2019 was $14.5 million or 41.1% of revenues, up 17% from $12.4 million or 41.7% of revenues in the same year-ago period.

 

Net income attributable to Consolidated Water stockholders for the half of 2019 was $8.7 million or $0.57 per fully diluted share, up 102% from $4.3 million or $0.28 per fully diluted share in the same year-ago period.

 

Second Quarter Segment Results

 

   Three Months Ended June 30, 2019 
   Retail   Bulk   Services   Manufacturing   Total 
Revenues  $6,983,515   $6,941,051   $90,792   $4,289,902   $18,305,260 
Cost of revenues   2,982,758    4,768,122    45,094    2,956,537    10,752,511 
Gross profit   4,000,757    2,172,929    45,698    1,333,365    7,552,749 
General and administrative expenses   3,405,421    344,971    779,882    464,718    4,994,992 
Gain on asset dispositions and impairments, net   397,301    -    -    -    397,301 
Income (loss) from operations  $992,637   $1,827,958   $(734,184)  $868,647    2,955,058 
Other income, net                       50,333 
Income before income taxes                       3,005,391 
Provision for income taxes                       64,233 
Net income from continuing operations                       2,941,158 
Income from continuing operations attributable to non-controlling interests             464,896 
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders        2,476,262 
Total income from discontinued operations                       - 
Net income attributable to Consolidated Water Co. Ltd. stockholders           $2,476,262 

 

Depreciation and amortization expenses for the three months ended June 30, 2019 for the retail, bulk, services and manufacturing segments were $615,363, $976,437, $1,137 and $215,713, respectively.

 

   Three Months Ended June 30, 2018 
   Retail   Bulk   Services   Manufacturing   Total 
Revenues  $6,268,023   $7,680,701   $122,912   $992,430   $15,064,066 
Cost of revenues   2,722,650    5,397,449    104,069    655,679    8,879,847 
Gross profit   3,545,373    2,283,252    18,843    336,751    6,184,219 
General and administrative expenses   2,874,517    297,863    665,738    608,851    4,446,969 
(Loss) on asset dispositions and impairments, net   (650)   -    -    -    (650)
Income (loss) from operations  $670,206   $1,985,389   $(646,895)  $(272,100)   1,736,600 
Other income, net                       312,032 
Income before income taxes                       2,048,632 
Benefit from income taxes                       (48,878)
Net income from continuing operations                       2,097,510 
Income from continuing operations attributable to non-controlling interests             208,692 
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders     1,888,818 
Total income from discontinued operations                       299,375 
Net income attributable to Consolidated Water Co. Ltd. stockholders             $2,188,193 

 

 

 

Depreciation and amortization expenses for the three months ended June 30, 2018 for the retail, bulk, services and manufacturing segments were $504,616, $763,490, $7,639 and $399,426, respectively.

 

First Half Segment Results

 

    Six Months Ended June 30, 2019  
    Retail     Bulk     Services     Manufacturing     Total  
Revenues   $ 13,670,175     $ 14,052,364     $ 191,369     $ 7,379,876     $ 35,293,784  
Cost of revenues     5,808,362       9,722,713       167,013       5,080,644       20,778,732  
Gross profit     7,861,813       4,329,651       24,356       2,299,232       14,515,052  
General and administrative expenses     6,522,699       606,383       1,265,767       978,177       9,373,026  
Gain on asset dispositions and impairments, net     394,570       46,500       -       -       441,070  
Income (loss) from operations   $ 1,733,684     $ 3,769,768     $ (1,241,411 )   $ 1,321,055       5,583,096  
Other income, net                                     310,423  
Income before income taxes                                     5,893,519  
Provision for income taxes                                     113,192  
Net income from continuing operations                                     5,780,327  
Income from continuing operations attributable to non-controlling interests                           738,804  
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders                 5,041,523  
Net income from discontinued operations                                     3,621,170  
Net income attributable to Consolidated Water Co. Ltd. stockholders                         $ 8,662,693  

 

Depreciation and amortization expenses for the six months ended June 30, 2019 for the retail, bulk, services and manufacturing segments were $1,133,377, $1,924,126, $2,273 and $492,766, respectively.

 

    Six Months Ended June 30, 2018  
    Retail     Bulk     Services     Manufacturing     Total  
Revenues   $ 12,699,371     $ 15,127,484     $ 246,676     $ 1,545,198     $ 29,618,729  
Cost of revenues     5,484,204       10,447,785       238,940       1,094,540       17,265,469  
Gross profit     7,215,167       4,679,699       7,736       450,658       12,353,260  
General and administrative expenses     5,959,363       594,734       1,316,374       1,238,209       9,108,680  
(Loss) on asset dispositions and impairments, net     (1,990 )     -       -       -       (1,990 )
Income (loss) from operations   $ 1,253,814     $ 4,084,965     $ (1,308,638 )   $ (787,551 )     3,242,590  
Other income, net                                     459,629  
Income before income taxes                                     3,702,219  
Benefit from income taxes                                     (126,266 )
Net income from continuing operations                                     3,828,485  
Income from continuing operations attributable to non-controlling interests                       174,199  
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders               3,654,286  
Net income from discontinued operations                                     626,432  
Net income attributable to Consolidated Water Co. Ltd. stockholders                             $ 4,280,718  

 

Depreciation and amortization expenses for the six months ended June 30, 2018 for the retail, bulk, services and manufacturing segments were $1,007,629, $1,527,037, $15,277 and $798,720, respectively.

 

 

 

Outlook

Based on committed purchase orders, Consolidated Water continues to expect that the performance of its manufacturing segment for the 2019 fiscal year to exceed its performance for 2018.

 

The company traditionally sells more water on Grand Cayman during the first half of the calendar year when the number of visitors is typically greater and local rainfall is less as compared to the back half of the year.

 

Conference Call

Consolidated Water management plans to host a conference call to discuss these results, followed by a question and answer period.

 

Date: Monday, August 12, 2019

Time: 11:00 a.m. Eastern time (8:00 a.m. Pacific time)

Toll-free dial-in number: 1-844-875-6913

International dial-in number: 1-412-317-6709

Conference ID: 10133824

 

Please call the conference telephone number five minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact CMA at 1-949-432-7566.

 

A replay of the call will be available after 1:00 p.m. Eastern time on the same day through August 19, 2019, as well as available for replay via the Investors section of the Consolidated Water website at www.cwco.com.

 

Toll-free replay number: 1-877-344-7529

International replay number: 1-412-317-0088

Replay ID: 10133824

 

About Consolidated Water Co. Ltd.

Consolidated Water Co. Ltd. develops and operates seawater desalination plants and water distribution systems in areas of the world where there are scarce amounts of naturally occurring potable water. The company operates water production facilities in the Cayman Islands, The Bahamas and the British Virgin Islands. The company’s operations in the United States manufacture and service a wide range of products and provide design, engineering, management, operating and other services applicable to commercial and municipal water production, supply and treatment, and industrial water and wastewater treatment. For more information, visit www.cwco.com.

 

Company Contact:

David W. Sasnett

Executive Vice President and CFO

Tel (954) 509-8200

dsasne[email protected]

 

Investor Relations Contact
Ron Both, CMA
Tel (949) 432-7566
[email protected]

 

Cautionary Note Regarding Forward-Looking Statements

This press release includes statements that may constitute "forward-looking" statements, usually containing the words "believe", "estimate", "project", "intend", "expect", "should", "will" or similar expressions. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from the 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, its ability to successfully secure contracts for new water projects, its ability to complete the project under development in Baja California, Mexico, the future financial performance of its subsidiary that manufactures water treatment-related systems and products and provides design, engineering, management, operating and other services applicable to commercial, municipal and industrial water production, its ability to develop its projects and operate its water production facilities profitably, its ability to collect its delinquent accounts receivable in the Bahamas, and its ability to manage growth and other risks 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 Condition and Results of Operations” and “Risk Factors” sections of the company’s SEC filings, including, but not limited to, its annual report on Form 10-K and quarterly reports on Form 10-Q, copies of which may be obtained by contacting the company’s Secretary at the company’s executive offices or at the “Investors – SEC Filings” page of the company’s website at http://ir.cwco.com/Docs/. Except as otherwise required by law, the company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

 

 

 

CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   June 30,   December 31, 
   2019   2018 
   (Unaudited)     
ASSETS          
Current assets          
Cash and cash equivalents  $41,878,723   $31,337,477 
Restricted cash   1,505,679    - 
Accounts receivable, net   20,190,787    24,228,095 
Inventory   3,764,169    2,232,721 
Prepaid expenses and other current assets   675,931    1,035,796 
Current portion of loans receivable   -    734,980 
Costs and estimated earnings in excess of billings   3,451,517    835,669 
Current assets of discontinued operations   -    1,959,494 
Total current assets   71,466,806    62,364,232 
Property, plant and equipment, net   62,951,715    58,880,818 
Construction in progress   661,062    6,015,043 
Inventory, non-current   4,417,302    4,545,198 
Investment in OC-BVI   2,127,099    2,584,987 
Goodwill   8,004,597    8,004,597 
Land and rights of way held for development   24,161,024    24,161,024 
Intangible assets, net   1,499,444    1,891,667 
Operating lease right-of-use assets   4,590,492    - 
Other assets   2,079,668    2,123,999 
Long-term assets of discontinued operations   -    1,944,033 
Total assets  $181,959,209   $172,515,598 
           
LIABILITIES AND EQUITY          
Current liabilities          
Accounts payable, accrued expenses and other current liabilities  $2,779,028   $4,570,641 
Accrued compensation   853,782    1,286,468 
Dividends payable   1,290,174    1,286,493 
Current maturities of operating leases   647,782    - 
Billings in excess of costs and estimated earnings   -    109,940 
Current liabilities of discontinued operations   -    646,452 
Total current liabilities   5,570,766    7,899,994 
Deferred tax liability   540,966    659,874 
Noncurrent operating leases   4,036,684    - 
Other liabilities   75,000    199,827 
Total liabilities   10,223,416    8,759,695 
Commitments and contingencies          
Equity          
Consolidated Water Co. Ltd. stockholders' equity          
Redeemable preferred stock, $0.60 par value. Authorized 200,000 shares; issued and outstanding 40,120 and 34,796 shares, respectively   24,072    20,878 
Class A common stock, $0.60 par value. Authorized 24,655,000 shares; issued and outstanding 15,020,344 and 14,982,906 shares, respectively   9,012,206    8,989,744 
Class B common stock, $0.60 par value. Authorized 145,000 shares; none issued   -    - 
Additional paid-in capital   87,534,435    87,211,953 
Retained earnings   65,400,272    59,298,161 
Cumulative translation adjustment   -    (549,555)
Total Consolidated Water Co. Ltd. stockholders' equity   161,970,985    154,971,181 
Non-controlling interests   9,764,808    8,784,722 
Total equity   171,735,793    163,755,903 
Total liabilities and equity  $181,959,209   $172,515,598 

 

 

 

CONSOLIDATED WATER CO. LTD.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

    Three Months Ended June 30,     Six Months Ended June 30,  
    2019     2018     2019     2018  
Total revenues   $ 18,305,260     $ 15,064,066      $ 35,293,784     29,618,729  
Total cost of revenues     10,752,511       8,879,847       20,778,732       17,265,469  
Gross profit     7,552,749       6,184,219       14,515,052       12,353,260  
General and administrative expenses     4,994,992       4,446,969       9,373,026       9,108,680  
Gain (loss) on asset dispositions and impairments, net     397,301       (650 )     441,070       (1,990 )
Income from operations     2,955,058       1,736,600       5,583,096       3,242,590  
                                 
Other income (expense):                                
Interest income     140,467       170,102       290,652       331,223  
Interest expense     (1,482 )     (2,876 )     (1,482 )     (4,630 )
Profit-sharing income from OC-BVI     2,025       56,700       8,100       85,050  
Equity in the earnings (losses) of OC-BVI     (24,949 )     157,483       (11,488 )     238,076  
Net unrealized gain (loss) on put/call options     -       84,000       (24,000 )     (122,000 )
Other     (65,728 )     (153,377 )     48,641       (68,090 )
Other income, net     50,333       312,032       310,423       459,629  
Income before income taxes     3,005,391       2,048,632       5,893,519       3,702,219  
Provision for (benefit from) income taxes     64,233       (48,878 )     113,192       (126,266 )
Net income from continuing operations     2,941,158       2,097,510       5,780,327       3,828,485  
Income from continuing operations attributable to non-controlling interests     464,896       208,692       738,804       174,199  
Net income from continuing operations attributable to Consolidated Water Co. Ltd. stockholders     2,476,262       1,888,818       5,041,523       3,654,286  
Gain on sale of discontinued operations     -       -       3,621,170       -  
Net income from discontinued operations     -       299,375       -       626,432  
Total income from discontinued operations     -       299,375       3,621,170       626,432  
Net income attributable to Consolidated Water Co. Ltd. stockholders   $ 2,476,262     $ 2,188,193     $ 8,662,693     $ 4,280,718  
                                 
Basic earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders                                
Continuing operations   $ 0.16     $ 0.13     $ 0.34     $ 0.25  
Discontinued operations     -       0.02       0.24       0.04  
Basic earnings per share   $ 0.16     $ 0.15     $ 0.58     $ 0.29  
                                 
Diluted earnings per common share attributable to Consolidated Water Co. Ltd. common stockholders                                
Continuing operations   $ 0.16     $ 0.12     $ 0.33     $ 0.24  
Discontinued operations     -       0.02       0.24       0.04  
Diluted earnings per share   $ 0.16     $ 0.14     $ 0.57     $ 0.28  
                                 
Dividends declared per common and redeemable preferred shares   $ 0.085     $ 0.085     $ 0.17     $ 0.17  
                                 
Weighted average number of common shares used in the determination of:                                
Basic earnings per share     15,020,344       14,959,309       15,020,344       14,959,284  
Diluted earnings per share     15,130,778       15,117,726       15,130,071       15,116,712  

 

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