Consolidated Water (NASDAQ:CWCO): A Diversified Water Solutions Provider Delivering Consistent Growth

Published on September 24, 2024 | Ticker: CWCO

Consolidated Water Co. Ltd. (NASDAQ:CWCO) is a leading provider of water solutions, serving customers across the Cayman Islands, The Bahamas, the United States, and the British Virgin Islands. The company's diversified business model, spanning retail, bulk, services, and manufacturing segments, has enabled it to deliver consistent financial performance, even in the face of challenging market conditions.

Financials

For the fiscal year ended December 31, 2023, Consolidated Water reported annual revenue of $180,211,233 and net income of $29,585,391. The company's strong financial position is further evidenced by its annual operating cash flow of $7,970,762 and free cash flow of $2,922,878.

In the first quarter of 2024, Consolidated Water continued its momentum, reporting a 21% increase in revenue to $39,689,390. This growth was driven by a 10% increase in the volume of retail water sold within the company's utility service area on Grand Cayman, as well as a 37% increase in services segment revenue, which reached $17,417,611.

Services Segment Growth

The services segment's growth was primarily attributable to a 93% increase in recurring operating and maintenance revenue, which included $1.8 million generated by the company's newest subsidiary, Ramey Environmental Compliance (REC). REC, which Consolidated Water acquired in October 2023, operates and maintains water and wastewater treatment plants and provides technical services to more than 100 clients in the Mountain and Eastern Plains regions of Colorado.

Segment Performance

Consolidated Water's retail segment, which generates approximately 22% of the company's consolidated revenue and 37% of its consolidated gross profit, benefited from both population growth and lower rainfall on Grand Cayman during the first quarter of 2024. The company's bulk segment, which supplies potable water to government utilities in the Cayman Islands and The Bahamas, saw a 7% decrease in revenue due to a 2% decline in the volume of water sold and lower energy costs that reduced the energy pass-through component of its bulk water rates in The Bahamas.

The company's manufacturing segment, which produces a wide range of specialized and custom water industry-related products, reported a 57% increase in revenue to $5,304,747 in the first quarter of 2024, reflecting increased production activity.

Profitability

Consolidated Water's gross profit for the first quarter of 2024 was $13,878,023, or 35% of total revenue, up from $10,559,082, or 32% of total revenue, in the first quarter of 2023. This improvement in gross margin was driven by the increased revenue and operational efficiencies across the company's business segments.

Net income attributable to Consolidated Water stockholders for the first quarter of 2024, including the results of discontinued operations, was $6,474,348, or $0.40 per diluted share, compared to $3,813,626, or $0.24 per diluted share, in the first quarter of 2023.

Liquidity

The company's balance sheet remains strong, with cash and cash equivalents of $46,177,641 as of March 31, 2024, and working capital of $95,000,000. Consolidated Water's total debt stood at just $333,000, reflecting its conservative financial management approach.

Outlook

Looking ahead, Consolidated Water remains optimistic about its future growth prospects. The company is currently pursuing several design-build projects in the Western United States, which it expects could begin in 2025 and subsequent years. These projects are being pursued through both competitive public bidding and the company's proprietary customized design report (CDR) sales tool.

Hawaii Project

In Hawaii, Consolidated Water's 1.7 million gallons per day seawater desalination plant project is progressing well, with the company completing the installation and commissioning of a pilot plant during the first quarter of 2024. The company anticipates recognizing significantly more revenue from this project in the second half of 2025, when it expects to break ground on the construction of the full-scale plant.

Strategic Acquisition

Consolidated Water's acquisition of REC in October 2023 has also strengthened the company's position in the water treatment plant operating and maintenance business in the Western United States. REC generated $1.8 million in operating and maintenance revenue in the first quarter of 2024, and the company believes that its historical success with PERC can be replicated with this strategic acquisition, as well as other similar future opportunities.

Conclusion

The company's focus on the most water-stressed regions of the U.S. and the Caribbean, combined with its state-of-the-art desalination solutions, efficient and aesthetically pleasing water treatment plant designs, world-class operating and maintenance capabilities, and innovative project delivery models, provide Consolidated Water with strong competitive advantages that position the company for continued growth and value creation.

Overall, Consolidated Water's diversified business model, strong financial performance, and strategic initiatives position the company well to capitalize on the growing demand for water solutions in its key markets. With a solid balance sheet, a robust project pipeline, and a proven track record of operational excellence, Consolidated Water appears poised to deliver consistent growth and enhanced shareholder value in the years ahead.

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