Consolidated Water Co Inc 2026 Q2 Earnings Call

Good morning, everyone. I appreciate you joining us today. While our consolidated second quarter revenue reflected softness in manufacturing, we were pleased to see growth across our retail, bulk, and services segments, along with some important developments that support our outlook for the balance of this year and into 2027. Retail revenue increased modestly despite wetter weather, which reduced Grand Cayman water sales volume by 2%. The increase in retail revenue is driven by a base water rate increase for a major non-potable water customer, and this was following the May 2026 expiration of its concessionary water purchase agreement. Our bulk revenue increased 20% and bulk gross profit increased 27%, mainly due to higher energy pass-through charges by our Bahamas company. Results also benefited from two new Cat Island desalination plants, which are supplying potable water to the Water and Sewerage Corporation of The Bahamas.

Cost reductions lowered G&A expenses across our retail, bulk, and service segments. In our services segment, those savings were offset by higher cost of revenue due to a greater mix of construction revenue and a lower proportion of higher margin O&M design and consulting revenue in our services segment. Services O&M revenue declined after two contracts expired in Q1 of this year. This decline was partially offset by a new Southern California municipal O&M contract that is expected to generate approximately $4.5 million over three years. In our services segment, construction revenue increased, driven by two previously announced water treatment projects, one in Colorado, which is a $3.9 million drinking water plant expansion, and the second $11.7 million wastewater recycling plant in California. Both projects are scheduled for substantial completion this year.

In July, our Hawaii client issued a limited notice to proceed for our project to design, construct, operate, and maintain a 1.7 million gallon per day seawater desalination plant in Kalaeloa, Hawaii. This limited notice to proceed authorizes us to begin procuring certain long lead materials and equipment for the project with the value of approximately $6 million. Communications and information exchanges with important permitting agencies have recently increased in Hawaii, which supports our expectation that construction on this project will start later this year. Once construction starts, we believe the project will significantly contribute to revenue and earnings growth in future periods. Subsequent to the end of the second quarter, we announced the receipt of purchase orders totaling approximately $10.1 million for municipal water treatment equipment in Florida.

These purchase orders represent our largest municipal membrane equipment order in dollar terms and our largest horizontal cartridge filter order to date, demonstrating the strength and breadth of our manufacturing capabilities. Before getting into recent developments and our outlook for the rest of the year and beyond, I would like to note that our Chief Financial Officer, David Sasnett, who normally joins us on these calls, is unable to participate today as he's recovering from the flu. In his place, I will turn the call over to our Chief Accounting Officer, Doug Pizzini, who will take us through the financial details for the quarter.

Thanks, Rick. Good morning, everyone, and thank you for joining us today. Our revenue totaled $32.9 million for second quarter of 2026, representing a 2% decrease from the second quarter of 2025. The decrease was due to lower manufacturing revenue, which was partially offset by revenue increases in our retail, bulk, and services segments. Retail revenue was $8.7 million and remained relatively consistent versus the prior quarter, despite an approximate 2% decrease in the volume of water sold. The impact of the lower sales volume was mitigated by a higher rate charged to a major non-potable water customer and an increase in the volume of water sold to that customer. Bulk revenue was $9.9 million, increasing 20% versus the prior quarter, primarily due to higher energy pass-through charges by Consolidated Water (Bahamas) Ltd., driven by higher energy costs.

Bulk revenue also benefited, to a lesser extent, from revenue earned from Consolidated Water (Bahamas) Ltd.'s new plans on Cat Island in The Bahamas. Services revenue was $11.6 million, increasing 1% versus the prior quarter due to a higher construction revenue, partially offset by lower O&M revenue following the expiration of contracts with two customers in the first quarter of 2026. Construction revenue increased $2.5 million due to work on two water treatment plant projects. Manufacturing revenue was $2.7 million, decreasing 49% from the prior quarter due to a decrease in the total dollar amount of new purchase orders. Based on our current projections, we continue to believe that manufacturing revenue for the full 2026 year will be less than the manufacturing revenue generated in 2025. Gross profit was $11.0 million, or 33% of total revenue, compared to $12.8 million, or 38% of total revenue in the prior quarter.

The decrease was primarily due to lower manufacturing gross profit and a change in revenue mix in the services segment. Net income from continuing operations attributable to Consolidated Water stockholders was $4.0 million, or $0.25 per diluted share, compared to $5.2 million, or $0.32 per diluted share in the prior year quarter. Including discontinued operations, net income attributable to Consolidated Water stockholders was $3.9 million, or $0.24 per diluted share, compared to $5.1 million, or $0.32 per diluted share in the second quarter of 2025. Now turning to our balance sheet. Cash and cash equivalents totaled $132.6 million as of June 30, 2026, with working capital of $144.6 million and stockholders' equity attributable to Consolidated Water of $225.6 million. Our balance sheet continues to have no significant debt.

Consolidated Water (Bahamas) Ltd. accounts receivable, which represents the majority of our consolidated accounts receivable, decreased to $18.8 million as of June 30, 2026, from $20.7 million as of December 31, 2025. We continue to be in frequent contact with officials of the Bahamas government who continue to express their intention to significantly reduce Consolidated Water (Bahamas) Ltd. delinquent accounts receivable balances. However, we are unable to determine when such reduction will occur. Our projected liquidity requirements for the balance of 2026 include capital expenditures for our existing operations of approximately $4.8 million. We also paid approximately $2.3 million in dividends in July 2026, and our liquidity requirements may also include future quarterly dividends if such dividends are declared by our board. We continue to evaluate how to best utilize our strong cash position to increase shareholder value. This completes our financial summary for the quarter.

Now I'll turn the call back over to Rick.

Thank you, Doug. I'll just run through some updates here. During the quarter, we completed negotiations with the Cayman Islands water utility regulator, OfReg, for our retail water utility license in Grand Cayman. We received the new license from OfReg in mid-June, and it became effective on August 1. After so many years of negotiations, this new 25-year license provides certainty to this very important part of our business. The license preserves Cayman Water's exclusive right to produce and distribute potable water to customers in our licensed area and gives us long-term earnings visibility as we continue investing in reliable water infrastructure for residents, businesses, and visitors on Seven Mile Beach and West Bay, Grand Cayman. The new license sets out reduced water rates, base water rates, and an annual inflation-based rate adjustment mechanism that is similar to our previous license.

For customers, the new rates are expected to lower the average cost of water per gallon by about 6.5% compared with the prior license. For Consolidated Water, it provides long-term regulatory clarity for a business that has historically been a significant contributor to our revenue and gross profit. The new license comes as Grand Cayman continues to experience strong tourism momentum, a key demand driver for our retail water sales. As mentioned on previous calls, demand for our water in the Cayman Islands is affected by, number one, stayover tourism, and number two, rainfall. The Cayman Islands continued its strong tourism momentum in Q2. Stayover visitations increased year-over-year in April, May, and June.

In the first half of 2026, stayover arrivals totaled more than 288,000 visitors, which is up 11.3% from the first half of 2025 and 2.8% above the island's comparable 2019 pre-COVID level. A local newspaper has reported that if current trends continue, 2026 could set a new annual stayover tourism record. This growth has been supported by strong North American tourism demand, expanded airlift, including a new direct flight from Austin, Texas, and new hotel inventory in Cayman. Looking ahead, public tourism announcements point to a positive outlook for the balance of 2026. While the weather is always difficult to predict, the Cayman Islands National Weather Service has indicated a greater than 70% probability of below average rainfall during this current wet season. If this prediction is realized, those conditions could provide an additional driver for retail water demand this year.